Ohio Administrative Code › Title 5703 - Department of Taxation › Chapter 5703-9 - Sales and Use Tax › Section 5703-9-21 - Sales and use tax; manufacturing

Current through all regulations passed and filed through July 1, 2024
(A) For purposes of this rule, all purchases
			 of tangible personal property are taxable, except those in which the purpose of
			 the consumer is to incorporate the thing transferred as a material or a part
			 into tangible personal property to be produced for sale by manufacturing,
			 assembling, processing, or refining or to use the thing transferred, as
			 described in section 5739.011 of the Revised Code and
			 this rule, primarily in a manufacturing operation to produce tangible personal
			 property for sale.
This means that a person who buys tangible personal property
				and will make it a part or constituent of something that
				 is being
									manufactured for sale, or buys something that is used
				in a manufacturing operation, does not have to pay sales or use tax on the
				thing purchased.
Tangible personal property purchased by a manufacturer as a
				component or constituent of a product to be manufactured for sale is excepted
				from sales and use tax. The purchase of all such tangible personal property is
				not taxable, even though a portion will be lost or removed as waste or for
				testing. The manufacturer must pay use tax on the price, as defined in division
				(G) of section 5741.01 of the Revised Code, of
				any completed product not sold and stored or used by the manufacturer in a
				taxable manner, except such product that is consumed in testing or is disposed
				of because it is defective or otherwise unsalable.
(B)
(1)
			 "Manufacturing operation" means a process in which materials are changed,
			 converted, or transformed into a different state or form from which they
			 previously existed and includes refining materials, assembling parts, and
			 preparing raw materials and parts by mixing, measuring, blending or otherwise
			 committing such materials or parts to the manufacturing process. "Manufacturing
			 operation" does not include packaging.
Tangible personal property purchased by a manufacturer for use
				in packaging is taxable unless exempted pursuant to division (B)(15) of section
				5739.02 of the Revised
				Code.
Any business whose sole activity is a process that does not
				include conversion or alteration of tangible personal property into a different
				state or form is not a manufacturer and is not covered by this rule.
The manufacturing operation begins when the raw materials or
				parts are committed to the manufacturing process. If the raw materials or parts
				are stored after being received at the manufacturing facility, the raw
				materials or parts are not committed until after they are removed from such
				initial storage. The point of commitment is where 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. If the raw
				materials or parts are not stored, they are committed at the point where
				materials handling from the place of receipt ceases or where they are mixed,
				measured, blended, heated, cleaned, or otherwise treated or prepared for the
				manufacturing process, whichever first occurs. The commitment of the materials
				or parts need not be irrevocable, but they must have reached the point, after
				materials handling from initial storage has ceased, where they normally will be
				utilized within a short period of time. The point of commitment frequently will
				be different for particular materials and parts, since they are introduced at
				different times in the manufacturing operation.
Things used in any activity, including movement or storage of
				the materials or parts before they are committed are taxable.
See examples 1, 2, 3, 4, 6, 9, 40, 61, 63, and 64.
(2) "Refining" means removing or
			 separating a desirable product from raw or contaminated materials by
			 distillation or physical, mechanical, or chemical processes.
This definition of "refining" describes a type of manufacturing
				process and is not limited to the petroleum industry. A business whose sole
				activity is sorting material by size or other physical characteristic, or
				washing dirt or other contaminates from the surface of parts or other materials
				is not engaged in refining.
See examples 4, 5, and 63.
(3) "Assembly" and "assembling" mean
			 attaching or fitting together parts to form a product, but do not include
			 packaging a product.
Assembly generally refers to the process whereby previously
				manufactured parts or components are brought together and attached to create a
				complete, or more complete, item.
See example 15.
(4) "Manufacturer" means a person who is
			 engaged in manufacturing, processing, assembling, or refining a product for
			 sale and, solely for the purposes of division (B)(12)
			 of section 5739.011 of the Revised Code, a
			 person who meets all the qualifications of that division.
(5) "Manufacturing facility" means a single
			 location where a manufacturing operation is conducted, including locations
			 consisting of one or more buildings or structures in a contiguous area owned or
			 controlled by the manufacturer.
The manufacturer does not have to own or lease the property,
				but must have the legal right to use it. If the property under the control of
				the manufacturer is not contiguous, it is not a single manufacturing
				facility.
See examples 21, 23, and 57.
(6) "Materials handling" means the movement
			 of the product being or to be manufactured, during which movement
			 of the product is not undergoing any substantial
			 change or alteration in its state or form.
(7) "Testing" means a process or procedure to
			 identify the properties or assure the quality of a material or part.
(8) "Completed product" means a manufactured
			 item that is in the form and 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.
A product may be completed, as far as a particular manufacturer
				is concerned, even though it is not in the form in which it will be sold to the
				ultimate consumer because it will be further manufactured by another
				manufacturer. If the product will be further manufactured by the same
				manufacturer at a different manufacturing facility, the product is still
				in-process and is not completed.
See examples 8, 13, and 64.
(9) "Continuous manufacturing operation"
			 means the process in which raw materials or components are moved through the
			 steps whereby manufacturing occurs. Materials handling of raw materials or
			 parts from the point of receipt or pre-production storage or of a completed
			 product, to or from storage, to or from packaging, or to the place from which
			 the completed product will be shipped, is not a part of a continuous
			 manufacturing operation.
The continuous manufacturing operation begins at the point
				where the raw materials or parts are committed and ends at the point where the
				product is completed.
There may be several continuous manufacturing operations at the
				same manufacturing facility, each producing a different product.
The things used in the continuous manufacturing operation
				include all production machinery, the materials handling equipment that moves
				the product between the production machines, and any equipment, such as tanks,
				shelves, or racks, that temporarily store or hold the product in between
				production machines. Even though testing equipment used to test in-process
				product is not taxable under this rule, no testing procedure is part of the
				continuous manufacturing operation unless it is physically and functionally
				integrated between steps on the production line.
See examples 1, 6, 8, 11, 19, and 63.