Sales-Use Tax Exemption: Property Consumed, Destroyed, or Losing Its Identity in Manufacturing

​NOTE: This Article Replaces the Article Dated December 7, 2010. See the prior article…

Effective August 1, 2009, the exemption for property consumed or destroyed or losing its identity in manufacturing was changed to require exclusive and direct use by a manufacturer. Therefore, the exemption no longer applies to purchases of:

  • Consumables by nonmanufacturers used in performing a service for a manufacturer.

    Example: A testing laboratory performs tests on work in process of a manufacturer for quality control purposes. Test tubes, chemical reactants, etc., that the testing lab uses to test the manufacturer's product prior to completion of the manufacturing process is no longer exempt from sales or use tax.

  • Chemicals and cleaning agents used by a manufacturer to clean walls, ceilings, floors, drains, windows, and doors, where manufacturing takes place to meet sanitation standards required by state and federal regulatory agencies.

  • Cardboard placed under manufacturing machines to collect waste raw materials and supplies used in manufacturing a product.

    Example: Cardboard placed under a manufacturing machine that is used to catch overspray of fiberglass in the manufacture of boats is no longer exempt from sales or use tax.

    Note: Publication 203: Sales and Use Tax Information for Manufacturers (May 2011), on page 15 and in Appendix D, Example 4., page 45, in error stated that the chemicals and cleaning agents described above and cardboard used under machines used to manufacture boats qualified for exemption. Due to the error, the tax does not apply to purchases of such chemicals, cleaning agents, and cardboard, as described above, prior to November 1, 2011.

October 27, 2011