Pennsylvania Sales Tax Exemption for Forklifts Used in Manufacturing
The Pennsylvania sales tax exemption for forklifts used in manufacturing is decent compared to other states with similar exemptions. Pennsylvania has a few requirements to properly identify exempt forklifts and related items, so the pioneers at Agile Consulting Group requested tax guidance from the Pennsylvania Department of Revenue for clarity on how manufacturers should be claiming the exemption. The Department issued Agile a proprietary and unique tax guidance letter that addresses the taxability of various purchase categories associated with the Pennsylvania sales tax exemption for forklifts used in manufacturing.
General Requirements for Exemption
Forklifts used in a Pennsylvania manufacturing operation will be exempt from Pennsylvania’s sales tax according to 61 Pa. Code § 32.32 if the forklifts are predominately and directly used in manufacturing. Predominately just means more than 50% and consideration shall be given to the following factors when determining if the forklifts are directly used in manufacturing:
1. The physical proximity of the property in question to the production process in which it is used.
2. The proximity of the time of use of the property in question to the time of use of other property used before and after it in the production process.
3. The active causal relationship between the use of the property in question and the production of a product. The fact that particular property may be considered essential to the conduct of the business of manufacturing because its use is required either by law or practical necessity does not of itself mean that the property is used directly in the manufacturing process.
Taxability of Forklift Purchases According to Agile’s Tax Guidance Letter
The Tax Guidance Letter issued to Agile has clarified the taxability of various forklift-related purchases and whether they qualify for the Pennsylvania sales tax exemption for forklifts used in manufacturing. Here are some of the highlights from Agile’s Tax Guidance Letter.
Forklifts – The purchase, lease or short-term rental of forklifts will be exempt from Pennsylvania’s sales tax if they are predominately and directly used in the manufacturing operation as required by 61 Pa. Code § 32.32.
Predominant Use – All tasks performed by a forklift shall be considered when determining if the 50% predominant use threshold is met, and any reasonable method of apportionment may be used to determine what percentage was directly used in exempt manufacturing activities. For example, plant personnel can document the time spent performing various exempt tasks (conveying work in process from one manufacturing step to the next manufacturing step or moving work in process to the packaging area, for example) and taxable tasks (removing raw materials from storage and conveying to the first step in the manufacturing process or loading finished goods onto customer vehicles, for example). If the total time spent on exempt tasks exceeds 50%, then the 50% threshold requirement has been met.
Exempt Usage – As provided in 61 Pa. Code § 32.32 , the manufacturing process commences at the first step in the manufacturing process and ends at the last step in the manufacturing process – when finished goods are packaged. Consequently, the movement of raw materials to the first step in the manufacturing process is pre-production and the removal of finished goods from the packaging area for conveyance to finished goods storage is post-production.
Fuel – All types of fuel (off-road diesel, propane, and electricity) used to power forklifts that are predominantly and directly used within the manufacturing operation will qualify for exemption. However, unlike an all or nothing exemption using the 50% threshold for the purchase, lease or rental of a forklift, the exemption for fuel is based on the actual exempt use percentage. For example, if the forklift is used 75% of the time performing exempt tasks, then 75% of the fuel costs will be exempt.
Operating Supplies – Operating supplies, such as grease and motor oil, which are actively and continuously used in the operation of exempt forklifts will qualify for exemption according to 61 Pa. Code § 32.32(a)(3)(ii).
Repair Labor – Separately stated labor charges to service or repair forklifts are not considered manufacturing activities according to 61 Pa. Code § 32.32(a)(3)(ii) and are therefore subject to sales tax.
Repair / Replacement Parts – Repair or replacement parts for forklifts predominately and directly used in manufacturing will qualify for exemption.
How to Claim the Pennsylvania Sales Tax Exemption for Forklifts Used in Manufacturing
In order to claim the Pennsylvania sales tax exemption for forklifts used in manufacturing, a manufacturer may issue a
Form REV-1220 – Pennsylvania Exemption Certificate to claim the exemption.
How to Claim a Sales Tax Refund for Sales Tax Paid in Error to Sellers
Pennsylvania manufacturers that paid sales tax in error to sellers on their forklift purchases, leases, fuel, or replacement and repair parts can file a claim for refund directly Pennsylvania Department of Revenue using Form REV-65 Board of Appeals Petition Form. Likewise, this form can also be used if the Pennsylvania manufacturer paid use tax in error directly to the Pennsylvania Department of Revenue.
The eligible lookback period to recover any overpaid sales and use taxes in Pennsylvania is thirty-six months. The consultants at Agile Consulting Group have experience in recovering overpaid sales and use taxes from the Pennsylvania Department of Revenue and can assist any Pennsylvania manufacturer with this cumbersome process.
Reach Out to Us with Questions
If you have any questions, comments or would like to discuss the specific circumstances you are encountering in regard to this issue or need assistance with a sales tax refund review 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 info@salesandusetax.com.
