16 Aug Ohio Sales Tax Exemption for Manufacturing
The Ohio sales tax exemption for manufacturing is broad and encompasses a wide array of purchases used in the manufacturing process. Ohio Revenue Code Ann. 5739.02(B)(42)(g) provides an Ohio sales tax exemption when the purpose of the purchaser is to “use the thing transferred primarily in a manufacturing operation to produce tangible personal property for sale.” It is important to note that only purchases used primarily in the manufacturing operation, which involves the change, conversion, or transformation of materials into a different state or form from which they previously existed qualify for this sales tax exemption per Ohio Administrative Code 5703-9-21(B)(1). Purchases used in administrative, personnel, security, inventory control, ordering, billing, or other similar activities are not considered as part of the manufacturing operation and thus, will not qualify for the Ohio sales tax exemption for manufacturing.
Since the Ohio sales tax exemption for manufacturing will only apply for purchases used primarily in the manufacturing operation, manufacturers also need to understand when the manufacturing operation starts and finishes according to Ohio sales tax law. Per Ohio Administrative Code 5703-9-21(B)(1), the manufacturing operation begins when raw materials or parts are committed to the manufacturing process. The point of commitment occurs when, “the materials handling from such initial storage has ceased or the point where the materials or parts have been mixed, measured, blended, heated, cleaned, or otherwise treated or prepared for the manufacturing process, whichever first occurs.” This means that the initial storage of raw materials and parts, once they have been received at the manufacturing facility or any movement of those materials and parts prior to the point of commitment, is not part of the manufacturing operation. The manufacturing operation ends at the point where the product is completed, which occurs when the manufactured item is in the form or condition as it will be sold by the manufacturer. An item is completed when, “all processes that change or alter its state or form or enhance its value are finished, even though the item subsequently will be tested to ensure its quality or be packaged for storage or shipment.”
Examples of Purchases Which Qualify for the Ohio Sales Tax Exemption
Some examples of types of purchases that qualify for the Ohio sales tax exemption for manufacturing include the following:
- Production machinery and equipment that act upon the product
- Machinery and equipment used to treat parts or materials in preparation for the manufacturing operation
- Materials handling equipment that moves work in process, such as forklifts
- Equipment that temporarily stores the product during the manufacturing operations
- Consumables that interact with the product and are integral to the manufacturing operation such as catalysts, solvents, water, acids, or oil
- Machinery, equipment or other tangible personal property used to test raw materials, the product being manufactured, or the completed product
- Electricity, gas, water, steam or any other fuel or source of power for machinery used in the manufacturing operation
- Parts, components, and repair and installation services for any of the above referenced machinery and equipment
How to Claim the Ohio Sales Tax Exemption for Manufacturing
To claim the Ohio sales tax exemption for manufacturing, qualifying manufacturers need to complete Ohio sales tax exemption Form STEC B, which is a Sales and Use Tax Blanket Exemption Certificate, and provide a copy of this certificate to their vendors. In addition to requiring purchaser information, such as name, address, and business type, Ohio Form STEC B also requires an explanation for why the purchaser is claiming an exemption. This explanation should include the qualifying exempt items (i.e. repair parts used for production machinery) as well as the specific statute in Ohio sales tax law that provides the exemption.
Manufacturers Can Recover Sales Taxes They Have Already Paid
For manufacturers who have already paid sales taxes to their vendors or self-assessed use taxes on their Ohio UUT 1 use tax return, they can complete and submit Ohio Form ST AR, which is a Sales/Use Tax Application for Refund, to recover sales taxes on qualifying tangible personal property used directly in a manufacturing operation. The ST AR must be filed within four years from the payment date of the tax, otherwise, the statute of limitations will have lapsed, and any taxes paid in error will not be eligible for a refund. The STEC B and ST AR forms are both located on the Ohio Department of Revenue website. The experienced consultants at the Agile Consulting Group can provide guidance and assistance with the completion of both forms.
As with all sales and use tax research, the specifics of each case need to be considered when determining taxability. Additional advice from Agile Consulting Group’s sales tax consulting team can be found on our page summarizing Ohio sales and use tax exemptions.
Reach Out to Us with Questions
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 and use tax issue, please contact a member of Agile Consulting Group’s sales tax consulting team at (888) 350-4TAX (4829) or via email at firstname.lastname@example.org.