subchapter 07D - Manufacturing Fuel and Certain Machinery and Equipment Privilege Tax

 

SECTION .0100 ‑ GENERAL APPLICATION OF PRIVILEGE TAX TO MANUFACTURING AND INDUSTRIAL PROCESSING

 

17 NCAC 07D .0101          PRIVILEGE TAX ON MANUFACTURING AND PROCESSING MACHINERY

(a)  Streamlined Sales Tax Agreement Certificates of Exemption, Form E-595E, are available from the Taxpayer Assistance Division, North Carolina Department of Revenue, for use in connection with sales of manufacturing fuel and mill machinery, mill machinery parts and accessories as the vendor's authority to exempt such sales from sales and use tax.  Purchases of manufacturing fuel and mill machinery, mill machinery parts, and accessories are subject to a privilege tax.  The rate for manufacturing fuel is one percent.  The rate for mill machinery, mill machinery parts, and accessories is one percent with a maximum tax of eighty dollars ($80.00) per article.

(b)  Sales to contractors and subcontractors purchasing mill machinery or mill machinery parts and accessories for use by them in the performance of contracts with manufacturing industries and plants and sales to subcontractors purchasing mill machinery or mill machinery parts and accessories for use by them in the performance of contracts encompassed in such contracts with manufacturing industries and plants are exempt from sales and use tax where applicable.  Such mill machinery or mill machinery parts and accessories must be for use by a manufacturing industry or plant in the production process, as the term "production" is defined in 17 NCAC 07D .0102(a)(1), to qualify for the exemption from sales and use tax when purchased by such contractors or subcontractors.  Contractors and subcontractors may obtain Form E-595E, Streamlined Sales Tax Agreement Certificate of Exemption, from the Taxpayer Assistance Division, North Carolina Department of Revenue, to be executed by them and furnished to their vendors in connection with such purchases as the vendor's authority to exempt such sales from the sales and use tax.  Such purchases of mill machinery, mill machinery parts, and accessories are subject to a one percent privilege tax with a maximum tax of eighty dollars ($80.00) per article. The purchaser must file Form E-500J, Machinery, Equipment, and Fuel Tax Return, and pay the tax directly to the Department.

 

History Note:        Authority G.S. 105‑164.4; 105‑164.6; 105‑187.51; 105‑187.52; 105‑262; 105‑264;

Eff. July 1, 2006.

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.

 

17 NCAC 07D .0103          SALES BY MANUFACTURERS

(a)  Sales of tangible personal property by a manufacturer to a registered retailer or a wholesale merchant in this State for the purpose of resale are not subject to sales or use tax if the transactions are supported by properly executed Form E-595E, Streamlined Sales Tax Agreement Certificate of Exemption.

(b)  Sales of tangible personal property by a manufacturer to a nonresident retail or wholesale merchant for the purpose of resale in another state are not subject to sales or use tax even though the property is delivered to purchasers in this State if the nonresident retail or wholesale merchant is registered for sales and use tax purposes in a taxing jurisdiction outside this State and the transactions are supported by properly executed Form E-595E, Streamlined Sales Tax Agreement Certificate of Exemption.

(c)  Sales of tangible personal property by a manufacturer who delivers the property to purchasers outside this  State or who delivers the property to a common carrier or to the mails for delivery to purchasers at a point outside this State are not subject to sales or use tax.  These sales must be supported by the prescribed records.

(d)  Sales of tangible personal property by manufacturers to nonregistered merchants in this State and sales to nonregistered nonresident merchants who accept delivery of the property in this State are subject to the applicable statutory state and local sales or use tax unless specifically exempt from tax.

(e)  Manufacturers who make sales to registered merchants for resale or sales that are otherwise exempt from the sales and use tax are not required to report the sales to the Department; however, manufacturers making taxable retail sales or purchases subject to the applicable statutory state and local use tax must register with the Department and file sales and use tax reports reflecting the taxable sales or purchases and pay the applicable statutory sales and use tax due thereon.

(f)  A manufacturer becomes liable for the applicable state sales and use tax on its sales of tangible personal property when it sells directly to users and consumers, including employees.  These sales include all of the following:

(1)           sales of bottled drinks by a bottling plant to users and consumers, including employees.

(2)           sales to employees or other persons of food products, meals, and other prepared foods by an industrial plant or other business of any kind through a commissary, concession stand, cafeteria, lunch stand, or other similar place.

(3)           sales of fuel, hosiery, furniture, or any other kind of taxable tangible personal property to employees or any other users or consumers.

(g)  A manufacturer's casual or occasional sale of its worn out, obsolete, or surplus machinery, accessories, and similar items are not subject to the sales and use tax.  A manufacturer that purchases such worn out, obsolete, or surplus machinery, accessories, and similar items is not liable for paying the privilege tax on such purchases.

 

History Note:        Authority G.S. 105‑164.4; 105‑164.6; 105‑164.13; 105‑164.28; 105-187.51; 105-187.52; 105‑262; Articles 39, 40, 42, 43, 44;

Eff. July 1, 2006.

 

17 NCAC 07D .0104          PURCHASES BY MANUFACTURERS

Purchases of tangible personal property by a manufacturer for use in its business are subject to either the sales or use tax or privilege tax.  A manufacturer who owes use tax must report and pay the tax in accordance with the filing requirements for a wholesale merchant.

 

History Note:        Authority G.S. 105-164.3; 105‑164.6; 105-187.50; 105-187.51; 105-187.51A; 105-187.52; 105‑262; Articles 39, 40, 42, 43, 44;

Eff. July 1, 2006.

 

SECTION .0200 ‑ SPECIFIC TANGIBLE PERSONALTY CLASSIFIED FOR USE BY INDUSTRIAL USERS SUBJECT TO THE PRIVILEGE TAX OR SALES AND USE TAX

 

17 NCAC 07D .0201          MILL MACHINERY

The following items, when purchased by manufacturing industries and plants for use in their manufacturing process, are considered mill machinery, mill machinery parts and accessories within the meaning of the Article F (manufacturing fuel and certain machinery and equipment):

(1)           motors, pulleys, motor bases but not foundations, gears, belts, chains and textile rope drives, line shafting with hangers and pulleys, and other types and makes of drives connecting motors to the driven machinery for direct production processes;

(2)           controls for motors consisting of:

(a)           magnetic starters, push button stations, pressure and float switches, and other types of relays operating motor controllers;

(b)           compensators of auto transformer starters;

(c)           thermal relay types of motor starters;

(d)           drum controllers and resistors;

(e)           disconnecting switches when built as a part of magnetic starters;

(f)            oil switches;

(g)           synchronous motor controllers if a part of production machinery, but not otherwise;

(3)           repair and renewal parts for motors and motor controllers as production machinery;

(4)           steam engines, gasoline engines, diesel engines, motor generators;

(5)           pumps for industrial processes, air compressors, air hoses and nozzles, and pipe for carrying compressed air from compressor to hose for cleaning machinery and equipment; pumps used to remove waste of a manufacturing process;

(6)           moistening or humidifying equipment on or adjacent to machinery when the function of this equipment is the conditioning of materials for processing; This includes piping located on or immediately adjacent to mill machinery and which supports and supplies water to moistening or humidifying equipment, but does not include general piping in the mill supplying water to moistening or humidifying equipment.  General piping in the mill is subject to the applicable statutory state and local sales or use tax;

(7)           that portion of the purchase price of general air conditioning systems allocated to conditioning materials for processing;

(8)           boiler room machinery with flue cleaners, and brushes for boiler tubes, when the boilers are operated for power generation or supplementary thereto in connection with manufacturing processes; stokers, shovels, and other equipment used in boiler rooms for feeding fuels and water to power units, and smoke stacks which are attached to and are a part of the boilers. Equipment as used here does not include storage places for fuels and water, or reserve tanks, bins or other similar items located either inside or outside power rooms or buildings.  Storage tanks, bins or other facilities for water, fuel, raw materials or manufactured products are not considered as mill machinery or accessories to such machinery and are therefore subject to the applicable statutory state and local sales or use tax.  However, tanks, bins and other facilities in which mixing, blending or other processing action takes place are classified as mill machinery or accessories and are therefore subject to the one percent privilege tax with a maximum tax of eighty dollars ($80.00) per article when such items are used in the manufacturing operation;

(9)           conveyors, hoists and hoist cables, (but not track or other fixtures determined to be a part of and which lend support to the building or structure) roving trucks and other materials handling equipment, including lift trucks, used in individual mills for transporting materials or spindles or like articles from inventory to the manufacturing process, transporting materials during temporary interruptions in the manufacturing process in the mill or moving the finished product from the manufacturing or processing line into shipping and storage areas or yards at the individual mill or plant.  Included for the purpose of this Paragraph are work tables, with seats and other accessories thereto at which employees work on materials in process; racks, bins, canvas baskets and similar equipment for handling goods in process; and roving cans;

(10)         hand tools designed for use on a particular machine, such as special wrenches supplied by makers of textile machinery for special machines; hammers, screwdrivers, blow torches, soldering irons, rubber mallets and similar general‑use tools and machines used in repair shops to repair mill machinery or along the production line to perform work necessary as a part of the manufacturing processes and all files for general and specific use in a mill or manufacturing plant;

(11)         metal‑cutting and wood‑cutting lathes and their accessories in all kinds of manufacturing plants, factories and mills; band saws, circular saws, all hack saws and blades; shapers and accessories, jointers, planers; drill presses; welding machines; torches; and all other manufacturing machinery and accessories thereto; spinners' whisks, comber brushes and other brushes, in hosiery mills and cotton mills, designed for use on particular machines; polishing wheels, sanding machines and drums, portable or stationary; sandpaper, emery cloth, rubbing tow, paint brushes and filler brushes, steel wool, rubbing waste or cloths or other hand or machine devices for polishing or other finishing processes on a manufactured product; oils and lubricants for use in lubricating production machinery; and wiping cloths, cleaning compounds and paint for mill machinery, mill machinery parts and accessories; chemicals or other materials used to clean ingredient or component parts of manufactured products but which do not enter into or become an ingredient or component part of property being manufactured;

(12)         dyehouse thermometers, recording charts for mill machinery, hank scales and yarn scales, and tachometers and other testing devices used for checking performance or output of machinery;

(13)         air compressors, steam hose and air hose for cleaning mill machinery;

(14)         cloth pencils and mill crayons for marking cloth, lumber or other ingredients in process;

(15)         dynamite and other explosives used in mining and quarrying whether or not such mining or quarrying is carried on as a regular or continuous business within itself, or as a part of a manufacturing industry.  Sales of explosives used in excavation in connection with building or construction are subject to the applicable statutory state and local sales or use tax;

(16)         machinery and equipment used in packaging manufactured products as a part of the manufacturing process;

(17)         pollution abatement equipment used in the manufacturing process.

 

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

Eff. July 1, 2006.

 

17 NCAC 07D .0202          ITEMS NOT MILL MACHINERY

The following items are not considered mill machinery or mill machinery parts and accessories to manufacturing industries and plants and are therefore subject to the applicable statutory state and local sales or use tax:

(1)           tangible personal property attached to or in any way a part of any building or structure of any kind whatsoever; freight elevators; plumbing and sprinkler systems; electric wiring and electric fixtures; electric lamps and tubes; and fuses and fuse links.  Electrical equipment, including control panels, or wiring and related conduit affixed to mill machinery to furnish power to mill machinery and equipment, is classified as an accessory to such machinery and is therefore subject to the one percent privilege tax with a maximum tax of eighty dollars ($80.00) per article. However, electrical equipment or wiring and related conduit which is used for general distribution of power to or in a manufacturing industry or plant is subject to the applicable statutory state and local sales or use tax;

(2)           that part of the purchase price of a general air conditioning or humidifying system charged to general building heating or cooling or to moistening of air for the comfort and convenience of employees;

(3)           ventilating fans in walls or roofs of buildings and portable or stand type fans for plant ventilation; make‑up air systems used for the purpose of ventilating manufacturing industries and plants. However, exhaust fans or hoods that are a part of mill machinery and which remove fumes, vapors or dust arising from the manufacturing operation which would damage the product in process or the mill machinery unless removed from the area would be classified as mill machinery or mill machinery parts and accessories and subject to the one percent privilege tax;

(4)           all scales not used in the manufacturing process;

(5)           time clocks and cards, and all signal systems operated therewith; watch clocks and watch clock stations; and all parts and supplies therefore;

(6)           protective clothing, such as gloves, safety shoes and similar items, regardless of whether they are purchased and paid for by the employer or the employee;

(7)           machinery and equipment used in warehouses, shipping rooms or other locations separate and apart from the manufacturing process to prepare property for shipment.

 

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

Eff. July 1, 2006.