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Oil and Grease Not Considered Exempt Machinery or Equipment Parts in Arizona


Manufacturing

Oil and grease did not qualify as components of machinery and equipment used directly in mining and metallurgical operations in Arizona. As a result, they did not qualify for an Arizona transaction privilege tax exemption. Hydraulic fluids and transmission fluids are considered exempt for Arizona sales and use tax purposes, but oil and grease are not because their primary function was deemed to be lubrication. The products are not parts of the machines.  The products do not touch the raw materials or work in progress, affect them, or add value to them. They play no direct part in the completion of the finished product. They are foreign substances used on the machines to prevent or minimize the destructive contact of machine parts.(Chevron USA, Inc. v. Arizona Department of Revenue, Arizona Tax Court, No. TX 2011-001038, June 5, 2014)

(08/19/2014)
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