Arkansas Issues Legal Opinion Clarifying Manufacturing Machinery and Equipment Exemption

The Arkansas Department of Finance and Administration has issued a legal opinion to a taxpayer’s letter clarifying the state’s exemption for manufacturing machinery and equipment. For machinery or equipment to qualify for the state’s manufacturing exemption, it must be purchased and used to:

  • Create new manufacturing plants or facilities in Arkansas,
  • Expand a manufacturing plant or facility in Arkansas, or
  • Replace existing machinery and equipment.

If one of these requirements is met, it must then be determined if the machinery or equipment is used directly in the manufacturing process. Machinery and equipment used directly in actual production include machinery and equipment which cause a recognizable and measurable mechanical, chemical, electrical or electronic action to take place as a necessary and integral part of manufacturing, the absence of which would cause the manufacturing operation to cease. Machinery and equipment that handle raw, semi-finished or finished materials before the manufacturing process begins are not used directly in manufacturing. Machinery or equipment that not used in a manufacturing process are subject to tax. To be considered part of the manufacturing process, the machinery and equipment must be utilized in actual manufacturing operations at any point from the initial stage where the raw material is first acted upon and changed through the completion and packaging of the product. (Revenue Legal Counsel Opinion No. 20180315, Arkansas Department of Finance and Administration, December 18, 2018)

Posted on January 18, 2019