17 NCAC 07D .0102          CLASSIFICATION OF MANUFACTURING ACTIVITIES FOR PRIVILEGE TAX

(a)  For the purposes of administering the privilege tax, the following classifications are based on the three principal activities of manufacturers and industrial processors and shall be followed by manufacturers purchasing tangible personal property which is used or consumed in different phases of the operation of an industrial plant:

(1)           Production as a phase of industrial or manufacturing operations shall mean all steps performed in processing and refining rooms, and in other quarters and departments of a plant, where conditioning, treating or other operations are done on ingredient materials as an actual routine on a processing or assembly line turning out a finished product of manufacture.  It shall also include the movement of raw materials or ingredients from an inventory or a stockpile located on the premises of the manufacturing facility to the assembly or processing line, the movement of goods in process along the processing line and the movement of manufactured products from the assembly or processing line into shipping or storage areas and yards located on the premises of the manufacturing facility.  Purchases by a manufacturing industry or plant of machinery, and parts and accessories therefore for use in production, as defined above, are classified as mill machinery and mill machinery parts and accessories.  The term production shall also mean the work of experimentation and research performed on the manufactured products.  Purchases by a manufacturing industry or plant of research and development equipment and supplies for quality control or the improvement of its manufactured products or for the development of products which it will manufacture are classified as mill machinery and mill machinery parts and accessories.  Items which are not classified as mill machinery and mill machinery parts and accessories when purchased by manufacturing industries and plants for use in their research and development areas include such items as desks, calculators, personal computers and chairs and are subject to the applicable statutory state and local sales or use tax.  Production does not include any activity connected with the movement of raw materials or ingredients into inventory nor does it include distribution as defined in Subparagraph (a)(2) of this Rule.  Sales to manufacturing industries and plants of machinery, parts and accessories to such machinery, or other items of tangible personal property which are used in the movement of raw materials or ingredients into inventory or in distribution activities as defined or which are used for other similar purposes are subject to the applicable statutory state and local sales or use tax.

(2)           Distribution with reference to industrial and manufacturing plants shall mean any activity connected with the movement of manufactured products within storage warehouses, shipping rooms and other such finished products storage areas and the removal of such products there from for sale or shipment.  Sales of distribution equipment to manufacturing industries and plants are subject to the applicable statutory state and local sales or use tax.

(3)           Administration with reference to industrial and manufacturing plants shall mean and include the administrative work of offices, promotion of sales and collection of accounts.  Sales of administrative equipment, such as office equipment of all kinds, stationery and related articles such as pens, pencils, rubber stamps, paper cutters, printed forms, books of accounts and records, file cabinets, small tools and implements such as scissors, staplers, desk trays, and other miscellaneous articles generally sold exclusively for office use and furniture and fixtures are subject to the applicable statutory state and local sales or use tax.

(b)  Any question regarding the application of the proper rate of tax, the classification of a purchaser for purposes of the sales and use tax or privilege tax, or the exempt status of certain transactions may be submitted to the department for determination.  Persons purchasing articles subject to the eighty dollars ($80.00) maximum tax shall not treat as one article two or more articles which, when joined together, make a functional unit or several components of machinery or equipment purchased from the same or different vendors which may be assembled by the purchaser into a single article.  The purchase of a quantity of repair parts necessary to recondition or upgrade mill machinery is not considered a single article.  If there is any question as to whether property involved in any transaction involves one or more articles, such question may be submitted to the department for decision.

 

History Note:        Authority G.S. 105‑164.4; 105‑164.6; 105-187.51; 105-187.52; 105‑262; 105‑264; Articles 39, 40, 42, 43, 44;

Eff. July 1, 2006.