Revenue Ruling 1-05-1

Sales and Use Tax - Manufacturing Machinery and Equipment. BEGINNING JANUARY 1, 2006, THE PURCHASE, LEASE, OR RENTAL BY A MANUFACTURER OF MACHINERY AND EQUIPMENT FOR USE IN MANUFACTURING IS EXEMPT FROM TAX.

Effective January 1, 2006, the purchase, lease, or rental of machinery and equipment for use in manufacturing is exempt from sales and use tax. The exemption only applies to purchases, leases, or rentals of qualifying machinery and equipment by a person engaged in the business of manufacturing.

Manufacturing means an action or series of actions performed upon tangible personal property, either by hand or machine, which results in the property being reduced or transformed into a different state, quality, form, property, or thing. The exemption includes machinery and equipment used by a manufacturer to:

produce, fabricate, assemble, process, finish, refine, or package tangible personal property;

transport, convey, handle, or store manufactured goods or the raw materials or components used in manufacturing such goods;

mold or shape the physical characteristics of the finished products or their packaging materials;

maintain the integrity of the products or maintain the unique environmental conditions required for either the products or the machinery and equipment itself;

guide, control, operate, or measure the manufacturing process, including computers, software, and related peripheral equipment used for this purpose;

measure the quality of the finished product; or

produce steam, electricity, or chemical catalysts and solutions essential to the manufacturing process.

If machinery and equipment has uses in addition to its manufacturing use, the manufacturing use must be greater than 50% of total use to qualify for the exemption.

Purchases of warranties, guarantees, and maintenance agreements covering manufacturing machinery and equipment, and charges for installing, repairing, or refurbishing machinery and equipment, are exempt from tax.

Manufacturing does not include retail operations; the generation or transmission of electricity; the production or transmission of information, programming, or data; the preparation of food for immediate consumption; or the purification or transportation of water.

Manufacturing machinery and equipment does not include motor vehicles, tools powered solely by human effort, office equipment, computers, software, and any other machinery and equipment not used in the manufacture of products. The purchase of chemical catalysts and solutions to be used in the manufacturing process remain subject to tax. In addition, purchases of raw materials or individual parts which will be used in the fabrication of manufacturing machinery and equipment where the fabricator is considered the final consumer of the machinery and equipment are taxable.

Purchasers of qualifying machinery and equipment must furnish the seller with a properly completed Nebraska Resale or Exempt Sale Certificate, Form 13, with Section B completed in order to purchase such items exempt from tax. Purchasers may also use the Streamlined Certificate of Exemption.

The exemption applies to all sales made on and after January 1, 2006. The date of the seller’s invoice will determine the date of the sale for purposes of the exemption. For machinery and equipment that is fabricated or assembled in stages, the exemption applies to progress billings made on and after January 1, 2006.

Provisions of various sales and use tax regulations are superseded to the extent they do not provide for the exemption for purchases of manufacturing machinery and equipment by a manufacturer.

APPROVED:
Mary J. Egr Edson
State Tax Commissioner

October 12, 2005