2023 Michigan Compiled Laws › Chapter 205 - Taxation › Act 94 of 1937 - Use Tax Act (205.91 - 205.111) › Section 205.94o - Exemptions; Limitation; Industrial Processing; Definitions.

205.94o Exemptions; limitation; industrial processing; definitions.
Sec. 4o.
(1) The tax levied under this act does not apply to property sold to the following after March 30, 1999, subject to subsection (2):
(a) An industrial processor for use or consumption in industrial processing.
(b) A person, whether or not the person is an industrial processor, if the tangible personal property is intended for ultimate use in and is used in industrial processing by an industrial processor.
(c) A person, whether or not the person is an industrial processor, if the tangible personal property is used by that person to perform an industrial processing activity for or on behalf of an industrial processor.
(d) A person, whether or not the person is an industrial processor, if the tangible personal property is 1 of the following:
(i) A computer used in operating industrial processing equipment.
(ii) Equipment used in a computer assisted manufacturing system.
(iii) Equipment used in a computer assisted design or engineering system integral to an industrial process.
(iv) A subunit or electronic assembly comprising a component in a computer integrated industrial processing system.
(v) Computer equipment used in connection with the computer assisted production, storage, and transmission of data if the equipment would have been exempt had the data transfer been made using tapes, disks, CD-ROMs, or similar media by a company whose business includes publishing doctoral dissertations and information archiving, and that sells the majority of the company's products to nonprofit organizations exempt under section 4(1)(w).
(vi) Equipment used in the production of prewritten computer software or software modified or adapted to the user's needs or equipment by the seller, only if the software is available for sale from a seller of software on an as-is basis or as an end product without modification or adaption.
(2) The property under subsection (1) is exempt only to the extent that the property is used for the exempt purpose stated in this section. The exemption is limited to the percentage of exempt use to total use determined by a reasonable formula or method approved by the department.
(3) Industrial processing includes the following activities:
(a) Production or assembly.
(b) Research or experimental activities.
(c) Engineering related to industrial processing.
(d) Inspection, quality control, or testing to determine whether particular units of materials or products or processes conform to specified parameters at any time before materials or products first come to rest in finished goods inventory storage.
(e) Planning, scheduling, supervision, or control of production or other exempt activities.
(f) Design, construction, or maintenance of production or other exempt machinery, equipment, and tooling.
(g) Remanufacturing.
(h) Processing of production scrap and waste up to the point it is stored for removal from the plant of origin.
(i) Recycling of used materials for ultimate sale at retail or reuse.
(j) Production material handling.
(k) Storage of in-process materials.
(l) Production, manufacturing, or recycling of aggregate by the property, and for the purpose, described in subsection (4)(i) if that aggregate is subject to the tax levied under this act.
(4) Property that is eligible for an industrial processing exemption includes the following:
(a) Property that becomes an ingredient or component part of the finished product to be sold ultimately at retail or affixed to and made a structural part of real estate located in another state.
(b) Machinery, equipment, tools, dies, patterns, foundations for machinery or equipment, or other processing equipment used in an industrial processing activity and in their repair and maintenance.
(c) Property that is consumed or destroyed or that loses its identity in an industrial processing activity.
(d) Tangible personal property, not permanently affixed and not becoming a structural part of real estate, that becomes a part of, or is used and consumed in installation and maintenance of, systems used for an industrial processing activity.
(e) Fuel or energy used or consumed for an industrial processing activity.
(f) Machinery, equipment, or materials used within a plant site or between plant sites operated by the same person for movement of tangible personal property in the process of production. Property exempt under this subdivision includes front end loaders, forklifts, pettibone lifts, skidsters, multipurpose loaders, knuckle-boom log loaders, tractors, and log loaders used to unload logs from trucks at a saw mill site for the purpose of processing at the site and to load lumber onto trucks at a saw mill site for purposes of transportation from the site.
(g) Office equipment, including data processing equipment, used for an industrial processing activity.
(h) Tangible personal property used or consumed in an industrial processing activity to produce alcoholic beverages that are sold at retail by that industrial processor through its own locations.
(i) Notwithstanding anything to the contrary in subsection (6)(d), property that performs an industrial processing activity upon an aggregate product or material that will be used as an ingredient or component part for the construction, maintenance, repair, or reconstruction of real property in this state if that aggregate product or material is subject to the tax levied under this act.
(5) Property that is not eligible for an industrial processing exemption includes the following:
(a) Tangible personal property permanently affixed and becoming a structural part of real estate in this state including building utility systems such as heating, air conditioning, ventilating, plumbing, lighting, and electrical distribution, to the point of the last transformer, switch, valve, or other device at which point usable power, water, gas, steam, or air is diverted from distribution circuits for use in industrial processing.
(b) Office equipment, including data processing equipment used for nonindustrial processing purposes.
(c) Office furniture or office supplies.
(d) An industrial processor's own product or finished good that it uses or consumes for purposes other than industrial processing.
(e) Tangible personal property used for receiving and storage of materials, supplies, parts, or components purchased by the user or consumer.
(f) Tangible personal property used for receiving or storage of natural resources extracted by the user or consumer.
(g) Vehicles, including special bodies or attachments, required to display a vehicle permit or license plate to operate on public highways, except for a vehicle bearing a manufacturer's plate or a specially designed vehicle, together with parts, used to mix and agitate materials at a plant or job site in the concrete manufacturing process.
(h) Tangible personal property used for the preparation of food or beverages by a retailer for ultimate sale at retail through its own locations, except as provided in subsection (4)(h).
(i) Tangible personal property used or consumed for the preservation or maintenance of a finished good once it first comes to rest in finished goods inventory storage.
(j) Returnable shipping containers or materials, except as provided in subsection (4)(f).
(k) Tangible personal property used in the production of computer software originally designed for the exclusive use and special needs of the purchaser.
(6) Industrial processing does not include the following activities:
(a) Purchasing, receiving, or storage of raw materials.
(b) Sales, distribution, warehousing, shipping, or advertising activities.
(c) Administrative, accounting, or personnel services.
(d) Design, engineering, construction, or maintenance of real property and nonprocessing equipment.
(e) Plant security, fire prevention, or medical or hospital services.
(7) Notwithstanding anything to the contrary in this act, the following applies only to industrial processing activities and property described in subsection (3)(l) or (4)(i):
(a) Not later than 90 days after the effective date of the amendatory act that added this subsection, the department shall cancel all outstanding balances related to such industrial processing activities and property on notices of intent to assess that were issued under section 21 of 1941 PA 122, MCL 205.21, for the tax levied under this act and that were issued before the effective date of the amendatory act that added this subsection.
(b) Not later than 90 days after the effective date of the amendatory act that added this subsection, the department shall cancel all outstanding balances related to such industrial processing activities and property on final assessments that were issued under section 22 of 1941 PA 122, MCL 205.22, for the tax levied under this act and that were issued before the effective date of the amendatory act that added this subsection.
(c) After the effective date of the amendatory act that added this subsection, the department shall not issue any new assessments for the tax levied under this act on such industrial processing activities and property for any tax period before the effective date of the amendatory act that added this subsection that is open under the statute of limitations provided in section 27a of 1941 PA 122, MCL 205.27a.
(8) As used in this section:
(a) "Aggregate" means common variety building materials like sand, gravel, crushed stone, slag, recycled concrete, recycled asphalt, and geosynthetic aggregates.
(b) "Industrial processing" means the activity of converting or conditioning tangible personal property by changing the form, composition, quality, combination, or character of the property for ultimate sale at retail, for use in the manufacturing of a product to be ultimately sold at retail or to be affixed to and made a structural part of real estate located in another state, or for the exempt purposes described in subsection (3)(l) or (4)(i). Industrial processing begins when tangible personal property begins movement from raw materials storage to begin industrial processing and ends when finished goods first come to rest in finished goods inventory storage.
(c) "Industrial processor" means a person who performs the activity of converting or conditioning tangible personal property for ultimate sale at retail, for use in the manufacturing of a product to be ultimately sold at retail or to be affixed to and made a structural part of real estate located in another state, or for the exempt purposes described in subsection (3)(l) or (4)(i).
(d) "Product", as used in subdivision (f), includes, but is not limited to, a prototype, pilot model, process, formula, invention, technique, patent, or similar property, whether intended to be used in a trade or business or to be sold, transferred, leased, or licensed.
(e) "Remanufacturing" means the activity of overhauling, retrofitting, fabricating, or repairing a product or its component parts for ultimate sale at retail.
(f) "Research or experimental activity" means activity incident to the development, discovery, or modification of a product or a product related process. Research or experimental activity also includes activity necessary for a product to satisfy a government standard or to receive government approval. Research or experimental activity does not include the following:
(i) Ordinary testing or inspection of materials or products for quality control purposes.
(ii) Efficiency surveys.
(iii) Management surveys.
(iv) Market or consumer surveys.
(v) Advertising or promotions.
(vi) Research in connection with literacy, historical, or similar projects.
History:
Add. 1999, Act 117, Imd. Eff. July 14, 1999 ;-- Am. 2004, Act 172, Eff. Sept. 1, 2004 ;-- Am. 2010, Act 115, Imd. Eff. July 13, 2010 ;-- Am. 2012, Act 474, Imd. Eff. Dec. 27, 2012 ;-- Am. 2015, Act 204, Imd. Eff. Nov. 30, 2015 ;-- Am. 2023, Act 27, Imd. Eff. May 8, 2023
Compiler's Notes:
Enacting section 1 of Act 117 of 1999 provides:“Enacting section 1. This amendatory act clarifies that, with the exception of telecommunications equipment taxed under section 3a of the use tax act, 1937 PA 94, MCL 205.93a, the tax levied does not apply to the price of property or services to the extent that the property or services are stored, used, or consumed for exempt purposes. For telecommunications equipment taxed under section 3a of the use tax act, 1937 PA 94, MCL 205.93a, this amendatory act clarifies that for periods before April 1, 1999, the tax shall not be apportioned and for periods beginning April 1, 1999, the tax shall be apportioned. This amendatory act clarifies that existing law as originally intended provides for a prorated exemption. This amendatory act takes effect for all periods beginning March 31, 1995 and all tax years that are open under the statute of limitations provided in section 27a of 1941 PA 122, MCL 205.27a.”Enacting section 1 of Act 474 of 2012 provides:"Enacting section 1. This amendatory act is retroactive and is effective January 1, 2006."Enacting section 1 of Act 121 of 2014 provides:"Enacting section 1. This amendatory act is retroactive and is effective January 1, 2005."Enacting section 2 of Act 27 of 2023 provides:"Enacting section 2. It is the intent of the legislature to annually appropriate sufficient funds from the state general fund to the state school aid fund created in section 11 of article IX of the state constitution of 1963 to fully compensate for any loss of revenue to the state school aid fund resulting from the enactment of this amendatory act."