Rules & Regulations of the State of Tennessee
Title 1320 - Revenue
Subtitle 1320-05 - Sales and Use Tax Division
Chapter 1320-05-01 - State Sales and Use Tax Rules
Section 1320-05-01-.103 - FABRICATION OR PROCESSING OF TANGIBLE PERSONAL PROPERTY TO BE APPLIED TO OR INSTALLED ON REAL PROPERTY, OR TANGIBLE PERSONAL PROPERTY OTHERWISE USED

(1) Any manufacturer, producer, compounder or contractor who builds, makes, compounds or otherwise fabricates tangible personal property in a manner changing the form of the property used, and then uses the property shall be liable for use tax upon the fair market value of the fabricated property.

(2) Contractors and sub-contractors who are not in the business of selling tangible personal property which they fabricate to erect or apply as a component part of a building shall pay the Sales or Use Tax on the purchase price of the materials and supplies used in connection with their contract work.

(3) Any manufacturer, producer, compounder, or contractor who fabricates, in any manner, any tangible personal property, such as machinery, or other equipment for use, shall pay a Sales or Use Tax upon the fair market value of the fabricated property.

(4) In no case shall the total Sales or use Tax due, under the provisions of this rule, be less than the tax due on the cost of the materials plus direct labor and overhead involved in fabricating or severing the item of tangible personal property applied to real property, or otherwise used, except as indicated in (2) above.