Manufacturing Machinery & Equipment

Frequently Asked Questions

Notice | Revenue Ruling 1-05-01 | Revenue Ruling 1-08-2 | Revenue Ruling 01-11-1

When does the manufacturing machinery and equipment exemption become effective?
Does the manufacturing machinery and equipment exemption extend to machinery or equipment used both in manufacturing and for other purposes?
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?
Is the purchase of machinery and equipment used to produce bottled water exempt from tax?
Is the purchase of machinery and equipment used for research and development purposes exempt from tax?
Are supplies that are consumed during the manufacturing process exempt from tax?
Does the purchase of a cement mixer to be mounted on a truck qualify as manufacturing machinery and equipment?
Are bins, racks, shelving, or conveyors purchased by a manufacturer exempt?
Are purchases of battery-powered, hand-held drill/drivers or portable tools by a manufacturer exempt?
As a manufacturer, are purchases of drill bits, saw blades, sanding belts, and similar items to be used on manufacturing machinery and equipment exempt?
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?
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?
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?
As a manufacturer, are my purchases of oil filters, oil, lubricants, grease, or coolants used in my manufacturing machinery and equipment exempt?
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?
The primary product we manufacture is ethanol. Is the production of our secondary product, distiller's grain, considered to be manufacturing?
Are tire chains used on a forklift eligible for the manufacturing machinery and equipment exemption?

Further Questions?
Contact Nebraska Taxpayer Assistance
at 800-742-7474 (NE & IA) or 402-471-5729

When does the manufacturing machinery and equipment exemption become effective?

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.

Does the manufacturing machinery and equipment exemption extend to machinery or equipment used both in manufacturing and for other purposes?

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.

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?

Yes, provided the electricity is exclusively used by the manufacturer for its manufacturing purposes. If 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.

Is the purchase of machinery and equipment used to produce bottled water exempt from tax?

No. The statutory definition of manufacturing specifically does not include the purification of water.

Is the purchase of machinery and equipment used for research and development purposes exempt from tax?

No. Machinery and equipment used only for research and development purposes is not exempt from tax.

Are supplies that are consumed during the manufacturing process exempt from tax?

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.

Does the purchase of a cement mixer to be mounted on a truck qualify as manufacturing machinery and equipment?

No. The cement mixer becomes part of the truck and the exemption does not apply to licensable motor vehicles.

Are bins, racks, shelving, or conveyors purchased by a manufacturer exempt?

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.

Are purchases of battery-powered, hand-held drill/drivers or portable tools by a manufacturer exempt?

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.

As a manufacturer, are purchases of drill bits, saw blades, sanding belts, and similar items to be used on manufacturing machinery and equipment exempt?

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.

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?

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.

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?

No. Form 17 can only be used by exempt entities listed in Nebraska Sales and Use Tax Regulation 1-012.02C.

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?

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.

As a manufacturer, are my purchases of oil filters, oil, lubricants, grease, or coolants used in my manufacturing machinery and equipment exempt?

Yes. Items used to maintain the normal operation of qualified manufacturing machinery and equipment are exempt.

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?

As of January 1, 2006, charges for the installation of qualified manufacturing machinery and equipment are exempt from tax.

The primary product we manufacture is ethanol. Is the production of our secondary product, distiller's grain, considered to be manufacturing?

Yes. The production of distiller's grain is considered to be manufacturing, and the purchase of any machinery and equipment used more than 50% of the time in the production of ethanol or distiller's grain can qualify for sales tax exemption.

Are tire chains used on a forklift eligible for the manufacturing machinery and equipment exemption?

Yes. Tire chains are exempt as accessories purchased for use with qualifying manufacturing machinery or equipment (the forklift).