South Carolina Code of Regulations › Chapter 117 - DEPARTMENT OF REVENUE › Article 11 - SALES AND USE TAX REGULATIONS › Section 117-302.5 - Machines

Current through Register Vol. 48, No. 6, June 28, 2024
(A) Introduction:
Machines used in manufacturing, processing, compounding,
				mining, or quarrying tangible personal property for sale, and the replacement
				parts and attachments to such machines, are exempt from the sales and use tax
				under Code Section
				12-36-2120(17).
				Materials or equipment which might constitute a machine or machinery when not
				used for manufacturing, processing, compounding, mining, or quarrying tangible
				personal property for sale are not exempted.
(B) General Guidance:
(1) A "machine used in manufacturing ...
			 tangible personal property for sale" is exempt from the sales and use tax. For
			 purposes of this regulation subsection (117-302.5), manufacturing includes
			 processing, compounding, mining and quarrying.
A machine qualifies for the exemption under Code Section
				12-36-2120(17)
				if the machine is integral and necessary to the manufacturing process and the
				product being manufactured is being manufactured "for sale." A machine, which
				includes every mechanical device or combination of mechanical powers, parts,
				attachments and devices to perform some function and produce a certain effect
				or result, is integral and necessary to the manufacturing process if it meets
				all of the following:
(a) The machine
			 is used at a manufacturing facility. This exemption only applies to machines
			 used at a facility whose purpose is that of manufacturing a product "for sale."
			 It does not apply to machines used at a facility whose purpose is retailing,
			 wholesaling, distributing, or some other non-manufacturing purposes. For
			 example, machines used by a large industrial baker in manufacturing breads,
			 cakes, and pies for sale may be purchased tax free; however, similar machines
			 used by a "Ma & Pa" bakery on Main Street may not be purchased tax free
			 since they are used at a facility whose purpose is retailing.
(b) The machine is used in, and serves as an
			 essential and indispensable component part of the manufacturing process, and is
			 used on an ongoing and continuous basis during the manufacturing process. A
			 machine is not a part of the manufacturing process merely because it is
			 integral and necessary to the manufacturer. For example, machines used for
			 warehouse, distribution, or administrative purposes are integral and necessary
			 to the manufacturer, but not part of the manufacturing process.
(c) The machine must be substantially "used
			 in manufacturing ... tangible personal property for sale." The statute does not
			 require that the machine be used exclusively in manufacturing; however,
			 incidental manufacturing use will not qualify for the exemption. For purposes
			 of the exemption, more than one-third of a machine's use in manufacturing is
			 substantial.
Machines that meet the above requirements do not lose the
				exemption because they do not have moving parts or because they are fixtures
				upon the real estate where they stand. However, buildings and parts of
				buildings, as well as other improvements which benefit the land generally and
				may serve other users of the land, do not come within the exemption.