Current through September 9, 2024
(a)
In General. Section
12-412(34)
of the general statutes exempts from the sales and use taxes the sale, and the
storage, use or other consumption, of machinery used directly in a
manufacturing production process. Subsection (b) of this regulation defines the
term "machinery." Subsection (c) of this regulation defines the term
"manufacturing." Subsection (d) of this regulation defines the term
"manufacturing production process." Subsection (e) of this regulation defines
the term "manufacturing plant." Subsection (f) of this regulation provides
examples of when machinery is "used directly" in a manufacturing production
process. Said section
12-412(34)
does not exempt the sale, and the storage, use or other consumption of, all
machinery, and subsection (g) of this regulation provides examples of "office
equipment or data processing equipment," the sale, and the storage, use or
other consumption, of which are not exempt under said section
12-412(34),
and also provides examples of "numerically controlled machinery used directly
in the manufacturing process," the sale, and the storage, use or other
consumption, of which are exempt under said section
12-412(34).
Subsection (h) prescribes the procedure to be followed in claiming the
exemption from sales and use taxes provided by said section
12-412(34).
The term "predominantly" when used in this regulation means more than fifty
percent. While this regulation pertains, for purposes of supplementary
interpretation, as the phrase is used in section
12-2
of the general statutes, to said section
12-412(34),
the promulgation of this regulation is authorized by section
12-426(1)
of the general statutes.
(b)
Machinery. As used in this regulation, the term "machinery" has
the meaning ascribed to it in section
12-412(34)
of the general statutes. It is a device composed of solid, fluid or electrical
parts assembled into a unit for the purpose of transmitting forces, motion and
energy. While said section
12-412(34)
exempts from the sales and use taxes the sale, and the storage, use or other
consumption, of machinery used directly in a manufacturing production process,
it exempts from the sales and use taxes the sale, and the storage, use or other
consumption, of component parts and contrivances of machinery used directly in
a manufacturing production process if and only if those component parts and
contrivances are sold in the same transaction with the basic machine. The term
"component parts and contrivances" has the meaning ascribed to it in said
section
12-412(34).
Such component parts and contrivances must be directly connected with, or be an
integral part of, machinery.
(c)
Manufacturing. As used in this regulation, the term
"manufacturing" means an operation or an integrated series of operations that
substantially transform, by physical, chemical or other means, the form,
composition or character of raw or finished materials into a product possessing
a new name, nature and use which is intended for sale, whether by the
manufacturer or by another on whose behalf the manufacturer has undertaken the
manufacture. The transformation cannot be a mere natural process, whether or
not expedited by the use of machinery. If the transformation is not
substantial, the process may only constitute fabrication. In such event the
sale, and the storage, use or other consumption, of machinery used directly in
such process will not be exempt from sales and use taxes. However, the sale,
and the storage, use or other consumption, of materials, tools or fuel used
directly in such fabrication in an industrial plant will be exempt from sales
and use taxes. In determining whether a process constitutes manufacturing, the
commissioner will examine the facts and circumstances of each case, using the
following principles as guidelines:
(1) The
process must occur at a manufacturing plant.
(2) If the process involves chemical change
to property rather than only physical change, it is more likely to be
manufacturing. For example, the mere sorting of recyclable materials is not
manufacturing, while using heat and chemicals to eliminate impurities, increase
density and change the composition of recyclable materials so that they will
meet certain metallurgical or chemical tolerances is manufacturing.
(3) The process must be commonly regarded as
manufacturing. For example, the operation of supermarkets and restaurants is
not commonly regarded as manufacturing, while the operation of a bakery, where
the baking of flour-and yeast-based foods is primarily for other than on-site
sale, is commonly regarded as manufacturing.
(4) If the process involves only physical
change to property, the greater the degree of physical change, the more likely
the process is to be manufacturing. For example, the process of cleaning,
cutting and flash-freezing vegetables does not involve a sufficient degree of
physical change to be considered manufacturing, while the process of quarrying
and cutting brownstone into blocks of a size usable by building contractors
does involve a sufficient degree of physical change to be
manufacturing.
(5) If the process
involves production in standardized sizes and qualities and in multiple
quantities, it is more likely to be manufacturing.
(6) The generation of steam or electricity is
not manufacturing.
(7) The
furnishing of gas, water, steam, electricity, telephone or community antenna
television service is not manufacturing.
(8) The development of software programs is
not manufacturing.
(9) The sale,
and the storage, use or other consumption, of equipment used directly in the
production and transmission of finished radio, television or cable television
programming may be exempt from sales and use taxes under section
12-412(44),
but not under section
12-412(34).
(d)
Manufacturing production
process. As used in this regulation, the term "manufacturing production
process" means the activities or series of activities of which manufacturing
consists, beginning with the movement of materials, after their receipt,
inspection and storage, to the first production machine and ending with the
packaging of the manufactured product for its sale to the ultimate consumer.
The process does not include activities, such as the weighing, inspection and
storage of materials, prior to the movement of materials to the first
production machine (the first production stage), and does not include
activities, such as the casing and loading of the manufactured product,
subsequent to packaging (the last production stage).
(e)
Manufacturing plant
(1) As used in this regulation, the term
"manufacturing plant" means an establishment that has manufacturing as its
predominant purpose and that is generally recognized as such. In determining
whether an establishment has manufacturing as its predominant purpose, the
commissioner will examine the facts and circumstances of each case, using the
following principles as guidelines:
(A) If the
floor space of the establishment is predominantly devoted to a manufacturing
production process, it is more likely to be a manufacturing plant. Floor space
of the establishment devoted to research and development preliminary to such
process will be considered to be floor space devoted to such process.
(B) If the number of employees working at the
establishment are predominantly working in a manufacturing production process,
it is more likely to be a manufacturing plant. The number of employees working
at the establishment at research and development preliminary to such process
will be considered to be employees working at such process.
(C) If the wages and salaries of employees
working at the establishment are predominantly wages and salaries of employees
working in a manufacturing production process, it is more likely to be a
manufacturing plant. The wages and salaries of employees working at the
establishment at research and development preliminary to such process will be
considered to be wages and salaries of employees working at such
process.
(D) If the costs of
operating the establishment are predominantly attributable to the costs of the
manufacturing production process, it is more likely to be a manufacturing
plant. The operating costs of the establishment attributable to research and
development preliminary to such process will be considered to be operating
costs of such process.
(E) If sales
made at the establishment are predominantly of products manufactured elsewhere,
it is more likely that the manufacturing aspect of the establishment is
incidental to its retail aspect, and it is less likely to be a manufacturing
plant.
(2) The term
"manufacturing plant" does not encompass cottage industries. The term "cottage
industries" means establishments at which manufacturing takes place in a
residential dwelling or in a building on the grounds of a residential dwelling.
If an establishment is not located in an area zoned as commercial or
industrial, or if residential use is among the uses being made of the
establishment, it is less likely to be a manufacturing plant.
(f)
Used directly. In
determining whether machinery is used directly in a manufacturing production
process, the commissioner will examine the facts and circumstances of each
case, using the following principles as guidelines:
(1) Machinery that directly transforms, or
has a direct effect upon, the form, composition or character of raw materials
being manufactured into a product possessing a new name, nature and use which
is intended for sale, whether by the manufacturer or by another on whose behalf
the manufacturer has undertaken the manufacture, is used directly in a
manufacturing production process.
(2) Machinery, other than machinery described
in subdivision (1) of this subsection, that is used predominantly on the
production line to perform an activity occurring during the manufacturing
production process is used directly in a manufacturing production process. For
example, machinery such as a forklift, crane or hoist used more than fifty
percent of the time to move the materials being manufactured between machinery
described in subdivision (1) of this subsection qualifies as machinery used
directly in a manufacturing production process. Also, electric or hydraulic
motors and air compressors used more than fifty percent of the time to power
machinery described in subdivision (1) of this subsection qualify as machinery
used directly in a manufacturing production process.
(3) Machinery, other than machinery described
in subdivisions (1) and (2) of this subsection, (A) that is used exclusively to
control or monitor an activity occurring during the manufacturing production
process, or exclusively to design a product as well as to control or monitor an
activity occurring during the manufacturing production process (e.g., a
computer aided design/computer aided manufacturing machine), and (B) that is
directly linked with machinery described in subdivision (1) or (2) of this
subsection, is used directly in a manufacturing production process. For
example, a computer used exclusively to control or monitor, and directly linked
to, machinery described in subdivision (1) or (2) of this subsection qualifies
as machinery used directly in a manufacturing production process; however, a
computer used to control or monitor machinery described in subdivision (1) or
(2) of this subsection as well as for administrative purposes would not be used
exclusively to control or monitor an activity occurring during the
manufacturing production process, and, accordingly, would not be used directly
in a manufacturing production process.
(4) Machinery used exclusively during the
manufacturing production process to test (other than destructive testing) or
measure materials and products being manufactured qualifies as machinery used
directly in a manufacturing production process.
(5) Machinery that is used to perform an
activity occurring prior to the first production stage of the manufacturing
production process is not used directly in a manufacturing production process.
For example, machinery used to inspect materials prior to the movement of such
materials to the first manufacturing production machine would not be machinery
used directly in a manufacturing production process.
(6) Machinery that is used to control or
monitor an activity occurring subsequent to the last production stage of the
manufacturing production process is not used directly in a manufacturing
production process. For example, a computer used to control or monitor
machinery that cases and loads manufactured products would not be machinery
used directly in a manufacturing production process.
(7) Machinery that is used to repair or
maintain machinery described in subdivision (1) of this subsection is not used
directly in a manufacturing production process.
(8) Machinery that is used to manufacture
tools which are used in the manufacturing production process is not used
directly in a manufacturing production process.
(g)
Office equipment or data processing
equipment
(1) As used in this
regulation, the term "office equipment or data processing equipment" means
equipment that is not machinery used directly in a manufacturing production
process under the principles set out in subsection (f) of this regulation. For
example, a computer used, on the one hand, on a production line to control an
activity occurring during a manufacturing production process and, on the other
hand, to maintain inventory control and job costing financial records or for
production scheduling would be office equipment or data processing equipment;
however, if the computer were used exclusively on the production line to
control an activity occurring during the manufacturing production process, it
would not be office equipment or data processing equipment, but would be
machinery used directly in a manufacturing production process.
(2) As used in this regulation, the term
"numerically controlled machinery" means automated machinery that is controlled
by a punched tape, the holes in which represent coded instructions for the
machinery.
(3) As used in this
regulation, the term "numerically controlled machinery used directly in the
manufacturing process" means numerically controlled machinery that, under the
principles set out in subsection (f) of this regulation, is used directly in a
manufacturing production process.
(h)
Procedure
(1) The commissioner shall prescribe and
furnish an exemption certificate that shall be completed and issued by the
purchaser of machinery to the retailer thereof where the exemption from sales
and use taxes provided by section
12-412(34)
of the general statutes is claimed to be applicable.
(2) The exemption certificate referred to in
subdivision (1) of this subsection shall relieve the retailer from the burden
of proving that the sale, and the storage, use or other consumption, of the
machinery were not subject to sales and use taxes only if taken in good faith
from a person who is engaged in manufacturing. The good faith of the retailer
will be questioned if such retailer has knowledge of facts that give rise to a
reasonable inference that the purchaser is not engaged in manufacturing or that
the machinery will not be used directly in a manufacturing production
process.
(3) If the machinery is
not used directly in a manufacturing production process by a purchaser who
issues an exemption certificate in good faith, then the use shall be deemed a
retail sale by the purchaser as of the time that the machinery is first used by
the purchaser, and the cost of the machinery to the purchaser shall be deemed
the gross receipts from a retail sale by such purchaser.
