Notice | Revenue Ruling 1-05-01 | Home
Q. When does the manufacturing machinery and equipment exemption become effective?
A. The exemption applies to all purchases, leases, or rentals made on and after January 1, 2006. The invoice date should be used to determine the date of purchase, lease, or rental. In addition, lease payments invoiced on and after January 1, 2006, for manufacturing machinery and equipment that is being leased pursuant to a lease agreement entered into prior to January 1, 2006, are exempt. For machinery and equipment that is manufactured or assembled in stages, the exemption applies to progress billings made on and after January 1, 2006.
Q. Does the manufacturing machinery and equipment exemption extend to machinery or equipment used both in manufacturing and for other purposes?
A. If the manufacturing use of machinery or equipment is more than 50% of its total use, the machinery or equipment qualifies for the exemption. In calculating the percentage of use, a taxpayer may divide the number of operating hours the machinery or equipment is used in manufacturing by its total operating hours. Other calculation methods may also be used provided they result in a reasonable estimate of the actual manufacturing use.
Q. Does machinery and equipment used by a manufacturer to generate electricity that is consumed for its manufacturing purposes qualify for the manufacturing machinery and equipment exemption?
A. Yes, provided the electricity is exclusively used by the manufacturer for its manufacturing purposes. Exclusively shall mean 90 percent or more of the electricity is used by the manufacturer for its own manufacturing purposes. If more than 10 percent of the electricity is sold by the manufacturer or used for purposes other than its own manufacturing, such machinery and equipment is not qualified manufacturing machinery and equipment and is not exempt from tax.
Q. Is the purchase of machinery and equipment used to produce bottled water exempt from tax?
A. No. The statutory definition of manufacturing specifically does not include the purification of water.
Q. Is the purchase of machinery and equipment used for research and development purposes exempt from tax?
A. No. Machinery and equipment used only for research and development purposes is not exempt from tax.
Q. Is a manufacturer’s purchase of individual parts to build a piece of its own manufacturing machinery or equipment exempt from tax?
A. No. A manufacturer’s purchase of individual parts to build a piece of manufacturing machinery or equipment such as a crane, computer, or other item does not constitute the purchase of manufacturing machinery or equipment.
Q. Are supplies that are consumed during the manufacturing process exempt from tax?
A. No. Supplies such as rags, cleaning compounds, cutting oils, solvents, sand and glass beads for sand blasting, beakers and test tubes, and other similar items that are consumed during the manufacturing process are not exempt from tax.
Q. Does the purchase of a cement mixer to be mounted on a truck qualify as manufacturing machinery and equipment?
A. No. The cement mixer becomes part of the truck and the exemption does not apply to licensable motor vehicles.
Q. Are bins, racks, shelving, or conveyors purchased by a manufacturer exempt?
A. Yes. The exemption applies to these items when purchased and used by a manufacturer to transport, convey, handle, or store either raw materials or components used in the manufacturing process, or the manufactured goods themselves.
Q. Are purchases of battery-powered, hand-held drill/drivers or portable tools by a manufacturer exempt?
A. Yes. Tools which are powered by electric, battery, or pneumatic sources, whether hand-held or bench-mounted, are exempt when purchased by a manfacturer and used more than fifty percent of the time in a manufacturing capacity. However, tools that are powered solely by human effort are not exempt.
Q. As a manufacturer, are purchases of drill bits, saw blades, sanding belts, and similar items to be used on manufacturing machinery and equipment exempt?
A. Yes. Certain items used in the operation of qualified manufacturing machinery and equipment are exempt. Such items must attach to the machinery or equipment and facilitate its operation or function, such as drill bits, saw blades, sanding belts or shields. Qualifying itmes do not include consumable supplies such as solvents or cutting oils.
Q. I am an Option 2 (or Option 3) contractor and have been hired to provide and install (annex) manufacturing machinery and equipment, such as a printing press. Does my purchase of the press qualify for the manufacturing machinery and equipment exemption?
A. No. The exemption is limited to purchases made by manufacturers. The Option 2 (or Option 3) contractor is not a manufacturer. Therefore, the Option 2 (or Option 3) contractor must pay sales or use tax on its cost of the press.
Q. Can a manufacturer give a Purchasing Agent Appointment and Delegation of Authority for Sales and Use Tax, Form 17, to an Option 2 or 3 contractor to authorize the contractor to purchase qualified machinery and equipment on its behalf?
A. No. Form 17 can only be used by exempt entities listed in Nebraska Sales and Use Tax Regulation 1-012.02C.
Q. I am an Option 1 contractor and have been hired to provide and install (annex) manufacturing machinery and equipment for a manufacturer. Does my purchase of the equipment qualify for the manufacturing machinery and equipment exemption?
A. The exemption is limited to purchases made by manufacturers. The Option 1 contractor may purchase the equipment tax-free (for resale) by issuing the vendor a resale certificate. When the Option 1 contractor subsequently invoices the manufacturer for the work performed, the manufacturer will purchase the equipment exempt from tax by issuing an exemption certificate to the Option 1 contractor.
Q. As a manufacturer, are my purchases of oil filters, oil, lubricants, grease, or coolants used in my manufacturing machinery and equipment exempt?
A. Yes. Items used to maintain the normal operation of qualified manufacturing machinery and equipment are exempt.
Q. I have been hired to install machinery and equipment that was purchased by the manufacturer and which qualifies for the manufacturing machinery and equipment exemption. What labor charges are subject to tax?
A. Charges for the installation of electrical lines, plumbing, pneumatic lines, etc. that remain tangible personal property after installation are exempt from tax when related to the installation of qualified manufacturing machinery and equipment. However, charges for the installation of electrical lines, plumbing, pneumatic lines, footings, other building modifications, etc. that ultimately become part of the building are taxable.
For example, the installation of a new conveyor requires an electrician to run wiring from the conveyor to a disconnect box where the power may be shut off, and then from the disconnect box to the main electrical panel of the manufacturing plant. Separately stated charges for installing the wire from the manufacturing equipment to the disconnect box are exempt. However, charges to install the disconnect box and any wiring from such box to the main electrical panel are taxable because these items are annexed to and become a part of the building itself.