The Washington Department of Revenue has issued guidance regarding the tax treatment of items that are manufactured for a business’s own commercial or industrial use. If a business manufactures special equipment that they then use to manufacture another product for sale, tax applies unless the business qualifies for the state’s manufacturing sales and use tax exemption for machinery and equipment. When tangible personal property is manufactured for one’s own use, use tax is owed on the value of the item. The value that is subject to tax is the selling price of similar products at comparable locations in Washington. If there are no similar products, the value that is subject to tax is the cost of the item manufactured. When using the latter approach, every cost attributable to manufacturing the item must be included, which includes direct and indirect overhead costs.
When filing the excise tax return, the business must report the value of the item under the Manufacturing business and occupation (B&O) tax classification in addition to use tax. (Manufacturing Articles for Commercial or Industrial Use, Washington Department of Revenue, September 8, 2023)