12 Nov Connecticut Manufacturing Sales Tax Exemption for Machinery
In accordance with Connecticut Agencies Regulations 12-412(34)-1 and Connecticut General Statutes 12-412(34), Connecticut offers a broad exemption for machinery used directly in a manufacturing production process.
For the purposes of this exemption, a business must substantially alter raw or finished materials into a product possessing new characteristics in order to be considered a manufacturer. Additionally, the production process must result in a good or product that is intended for resale. The following are guidelines in determining whether a process qualifies as manufacturing under the Connecticut manufacturing machinery exemption:
- The process must occur at a manufacturing plant located in Connecticut. The term “manufacturing plant” means an establishment that has manufacturing as its predominant purpose and that is generally recognized as such. Predominant purpose can be determined by evaluating use of floor space, number of employees dedicated to the manufacturing production process, wages and salary of employees working at the location, costs attributable to the manufacturing production process, or whether sales are made at the location.
- The more dramatic the change to the property as a result of the manufacturing process, the more likely it is to be considered manufacturing. For example, chemical change to property is more likely viewed as manufacturing than only physical change to property.
- The process must be commonly regarded as manufacturing. For example, the state of Connecticut draws a distinction between the operation of a bakery within a supermarket and a bakery, which would not qualify as manufacturing; and a bakery where the baking is primarily intended for other than on-site sale, which would qualify as manufacturing.
- If the manufacturing process involves production in standardized sizes, qualities and/or multiple quantities, the process is more likely to be considered manufacturing.
- Steam or electricity generation is not considered manufacturing.
- Software development is not considered to be manufacturing.
- Radio, television or cable programming equipment may be exempt from sales and use taxes based on a number of criteria. Contact us for additional information.
A key concept in the application of the Connecticut manufacturing machinery exemption is “direct use.” Machinery and equipment that qualify for the Connecticut manufacturing machinery exemption must be used directly in the manufacturing production process. “Direct use” is determined by the following principles:
- Machinery or equipment that has a direct effect upon the character of the product being manufactured is used directly in the manufacturing process.
- Machinery or equipment that is used predominantly in production, to control or monitor production or to test or measure products being manufactured can qualify as machinery used directly in the manufacturing process depending on the nature of the machinery or equipment at its relation to the production of goods intended for resale.
- Machinery or equipment that is used to perform an activity that occurs prior to the first stage of the manufacturing process or after the last stage of production is not considered to be used directly in production.
- Machinery or equipment that is used to repair or maintain machinery described above or to remanufacture tools used in production is not considered to be used directly in the production process.
Businesses that qualify for this exemption can request a refund from the state of Connecticut for sales tax paid in error. Labor is generally taxable, only purchases of tangible personal property will qualify for this exemption. Additional industry specific exemptions are also available.
As with all Sales & Use Tax research, the specifics of each case need to be considered when determining taxability. Agile Consulting Group’s sales tax consultants can be found on our page summarizing Connecticut sales and use tax exemptions. If you have questions, comments or would like to discuss the specific circumstances you are encountering in regard to this issue or any other Sales & Use Tax issue, please contact us at (888) 350-4TAX or (888) 350-4829 or via email at firstname.lastname@example.org.