DAR File No. 43262

Tax Commission, Auditing

Section R865-19S-85

Sales and Use Tax Exemptions for Certain Purchases by a Manufacturing Facility Pursuant to Utah Code Ann. Section 59-12-104

Notice of Proposed Rule

(Amendment)

DAR File No.: 43262
Filed: 10/15/2018 10:52:05 AM

RULE ANALYSIS

Purpose of the rule or reason for the change:

This change is made to reflect statutory changes to the manufacturing sales and use tax exemption pursuant to S.B. 2001, passed during the 2018 Second Special Session.

Summary of the rule or change:

This proposed amendment adds "parts and materials" to the definition of "machinery and equipment" that qualifies for the manufacturing sales and use tax exemption.

Statutory or constitutional authorization for this rule:

• Section 59-12-104

Anticipated cost or savings to:

the state budget:

This proposed amendment is not expected to have any fiscal impact on state government revenues or expenditures because any fiscal impact would have been addressed in the fiscal note for S.B. 2001 (2018).

local governments:

This proposed amendment is not expected to have any fiscal impact on local governments' revenues or expenditures because any fiscal impact would have been addressed in the fiscal note for S.B. 2001 (2018).

small businesses:

This proposed amendment is not expected to have any fiscal impact on small businesses' revenues or expenditures because any fiscal impact would have been addressed in the fiscal note for S.B. 2001 (2018).

persons other than small businesses, businesses, or local governmental entities:

This proposed amendment is not expected to have a fiscal impact on the revenues or expenditures of other persons because any fiscal impact would have been addressed in the fiscal note for S.B. 2001 (2018).

Compliance costs for affected persons:

The proposed amendment adds �parts and materials� to definition of �machinery and equipment� that qualifies for the manufacturing sales and use tax exemption. This proposed amendment is not expected to impose any compliance costs on affected persons because any regulatory burdens would have been addressed in the fiscal note of 2018 SB 2001.

Comments by the department head on the fiscal impact the rule may have on businesses:

The fiscal impact this rule amendment may have on businesses would have been addressed in the fiscal note for S.B. 2001 (2018).

Rebecca Rockwell, Commissioner

The full text of this rule may be inspected, during regular business hours, at the Office of Administrative Rules, or at:

Tax Commission
Auditing
210 N 1950 W
SALT LAKE CITY, UT 84134

Direct questions regarding this rule to:

• Jennifer Franklin at the above address, by phone at 801-297-3901, by FAX at , or by Internet E-mail at [email protected]

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

12/03/2018

This rule may become effective on:

12/10/2018

Authorized by:

Rebecca Rockwell, Commissioner

Appendix 1: Regulatory Impact Summary Table*

Fiscal Costs	FY 2019	FY 2020	FY 2021
State Government	$0	$0	$0
Local Government	$0	$0	$0
Small Businesses	$0	$0	$0
Non-Small Businesses	$0	$0	$0
Other Person	$0	$0	$0
Total Fiscal Costs:	$0	$0	$0
Fiscal Benefits
State Government	$0	$0	$0
Local Government	$0	$0	$0
Small Businesses	$0	$0	$0
Non-Small Businesses	$0	$0	$0
Other Persons	$0	$0	$0
Total Fiscal Benefits:	$0	$0	$0
Net Fiscal Benefits:	$0	$0	$0

 

*This table only includes fiscal impacts that could be measured. If there are inestimable fiscal impacts, they will not be included in this table. Inestimable impacts for State Government, Local Government, Small Businesses and Other Persons are described above. Inestimable impacts for Non-Small Businesses are described below.

 

Appendix 2: Regulatory Impact to Non-Small Businesses

This rule change is not expected to have any fiscal impact on non-small business revenues or expenditures, because any fiscal impact would have been addressed in the fiscal note for S.B. 2001 (2018).

 

Commissioner of the Utah State Tax Commission, Rebecca L. Rockwell, has reviewed and approved this fiscal analysis.

 

 

R865. Tax Commission, Auditing.

R865-19S. Sales and Use Tax.

R865-19S-85. Sales and Use Tax Exemptions for Certain Purchases by a Manufacturing Facility Pursuant to Utah Code Ann. Section 59-12-104.

(1) Definitions:

(a) "Establishment" means an economic unit of operations, that is generally at a single physical location in Utah, where qualifying manufacturing processes are performed. If a business operates in more than one location (e.g., branch or satellite offices), each physical location is considered separately from any other locations operated by the same business.

(b) "Machinery,[ and] equipment, parts, and materials" means:

(i) electronic or mechanical devices incorporated into a manufacturing process from the initial stage where actual processing begins, through the completion of the finished end product, and including final processing, finishing, or packaging of articles sold as tangible personal property. This definition includes automated material handling and storage devices when those devices are part of the integrated continuous production cycle; and

(ii) any accessory that is essential to a continuous manufacturing process. Accessories essential to a continuous manufacturing process include:

(A) bits, jigs, molds, or devices that control the operation of machinery and equipment; and

(B) gas, water, electricity, or other similar supply lines installed for the operation of the manufacturing equipment, but only if the primary use of the supply line is for the operation of the manufacturing equipment.

(c) "Manufacturer" means a person who functions within a manufacturing facility.

(2) The sales and use tax exemption for the purchase or lease of machinery,[ and] equipment, parts, and materials by a manufacturing facility applies only to purchases or leases of tangible personal property used in the actual manufacturing process.

(a) The exemption[s do]does not apply to purchases of items of tangible personal property that become part of the real property in which the manufacturing operation is conducted.

(b) Purchases of qualifying machinery,[ and] equipment, parts, and materials are treated as purchases of tangible personal property under R865-19S-58, even if the item is affixed to real property upon installation.

(3) Machinery,[ and] equipment, parts, and materials used for a nonmanufacturing activity qualify for the exemption if the machinery,[ and] equipment, parts, and materials are primarily used in manufacturing activities. Examples of nonmanufacturing activities include:

(a) research and development;

(b) refrigerated or other storage of raw materials, component parts, or finished product; or

(c) shipment of the finished product.

(4) Where manufacturing activities and nonmanufacturing activities are performed at a single physical location, machinery,[ and] equipment, parts, and materials purchased for use in the manufacturing operation are eligible for the sales and use tax exemption if the manufacturing operation constitutes a separate and distinct manufacturing establishment.

(a) Each activity is treated as a separate and distinct establishment if:

(i) no single SIC code includes those activities combined; or

(ii) each activity comprises a separate legal entity.

(b) Machinery,[ and] equipment, parts, and materials used in both manufacturing activities and nonmanufacturing activities qualify for the exemption only if the machinery,[ and] equipment, parts, and materials are primarily used in manufacturing activities.

(5) The manufacturer shall retain records to support the claim that the machinery,[ and] equipment, parts, and materials are qualified for exemption from sales and use tax under the provisions of this rule and Section 59-12-104.

 

KEY: charities, tax exemptions, religious activities, sales tax

Date of Enactment or Last Substantive Amendment: [December 8, 2016]2018

Notice of Continuation: November 10, 2016

Authorizing, and Implemented or Interpreted Law: 9-2-1702; 9-2-1703; 10-1-303; 10-1-306; 10-1-307; 10-1-405; 19-6-808; 26-32a-101 through 26-32a-113; 59-1-210; 59-12; 59-12-102; 59-12-103; 59-12-104; 59-12-105; 59-12-106; 59-12-107; 59-12-108; 59-12-118; 59-12-301; 59-12-352; 59-12-353