North Carolina ruling on taxation of manufacturing machinery and equipment offers a reminder for taxpayers in all states

In a decision impacting manufacturers in North Carolina, the state’s Department of Revenue, Sales and Use Tax Division explained in a private letter ruling request that the purchasers of machinery and equipment for a manufacturing plant are not exempt from state sales and use tax. The taxpayer was in the business of collecting goods and processing them into products sold to customers. The goods underwent the process of sorting, baling, and weighing before becoming finished products.

The letter ruled that the taxpayer making the request did not meet the definition of a manufacturing industry or plant, and “therefore the Taxpayer’s purchases of machinery and equipment are not exempt from sales and use tax as provided in N.C. Gen. Stat § 105-164.13(5e). Taxpayer’s purchases are subject to the general State, applicable county, applicable local and applicable transit rates of North Carolina sales and use tax.”

While the ruling in North Carolina was based on the facts submitted to the Department of Revenue, all taxpayers should review the type of equipment they acquire, look at the definitions of manufacturing and manufacturers in their state laws, and see what is applicable to them for that state. They may find that they qualify for an exemption in the state and may not have to pay sales tax on the purchase of the equipment. Manufacturing exemptions are often based on use of the equipment or type of entity. (North Carolina Department of Revenue, SUPLR 2022-0003, June 9, 2022).

Posted on July 26, 2022