Okla. Admin. Code § 710:65-13-150.1

Current through Vol. 42, No. 4, November 1, 2024

Section 710:65-13-150.1 - Manufacturing exemption; taxable and exempt transactions

(a)Definitions. The following words and terms, when used in this Section, shall have the following meaning, unless the context clearly indicates otherwise:

(1)"Administration" means activities performed in the areas of general management, communications, security, employee training, personnel administration, including time-keeping, general accounting and purchasing, employee benefit activities and employee recognition, legal services, public relations, and the establishment, maintenance, billing and collection of accounts.

(2)"Distribution" means those activities involved in the movement of manufactured items by vehicles, aircraft, watercraft, railroads or pipelines from a manufacturing site to a customer's location.

(3)"Incidental use" means that the property or service is used infrequently or for a minor portion of the total time it is used.

(4)"Manufacturing"means and includes the activity of converting or conditioning tangible personal property by changing the form, composition, or quality of character of some existing material or materials, including natural resources, by procedures commonly regarded by the average person as manufacturing, compounding, processing or assembling, into a material or materials with a different form or use. "Manufacturing" does not include extractive industrial activities such as mining, quarrying, logging, and drilling for oil, gas and water, nor oil and gas field processes, such as natural pressure reduction, mechanical separation, heating, cooling, dehydration and compression. [68 O.S.S § 1352(14)]

(5)"Manufacturing operation"means the designing, manufacturing, compounding, processing, assembling, warehousing, or preparing of articles for sale as tangible personal property. A manufacturing operation begins at the point where the materials enter the manufacturing site and ends at the point where a finished product leaves the manufacturing site."Manufacturing operation"does not include administration, sales, distribution, transportation, site construction, or site maintenance. Extractive activities and field processes shall not be deemed to be a part of a manufacturing operation even when performed by a person otherwise engaged in manufacturing. [68 O.S. § 1352(15) ]

(6)"Manufacturing site"means a location where a manufacturing operation is conducted, including a location consisting of one or more buildings or structures in an area owned, leased, or controlled by a manufacturer. [68 O.S. § 1352(16) ] It is not required that the building or structures owned, leased, or controlled by a manufacturer be located on a single tract of land or on contiguous tracts of land.

(7)"Predominant or predominantly" means the most frequent or for the most part.

(8)"Sales" means the activities involved in selling a manufacturer's goods to others, and includes advertising or marketing, printing, preparation, and distribution of catalogs and flyers, and product exhibition and promotion.

(9)"Site construction" means the construction of buildings and other structures and improvements to real property. The term includes land preparation, new construction, reconstruction, remodeling, renovation, repair, upgrading and making alterations and additions to the real property, whether the work is done by the manufacturer or by other firms.

(10)"Site maintenance" means the provision of facilities support services as defined in the North American Industry Classification System, Code 561210. "Site maintenance" does not include items used in the manufacturing operation, as defined in this Section, or in waste disposal activities resulting from the manufacturing operations.

(11)"Transportation" means to move or carry tangible personal property to a manufacturing site, prior to the time it enters into the manufacturing process, and to move or carry, tangible personal property from a manufacturing site, after such property leaves the manufacturing operation. The term "transportation" includes the purchase, maintenance, repair, overhaul, rebuilding, storage and operation of vehicles and transportation equipment.

(b)Activities included in manufacturing operations. Purchases by a manufacturer of tangible personal property or services for use in a manufacturing operation are exempt from sales and use taxes in Oklahoma. Operations performed by a sub-contractor to the manufacturer may also qualify as a manufacturing operation if the contractor is performing sub-assembly work leading to completion of the finished product. Activities included in a manufacturing operation include the following:

(1)Product development. Examples of property used in product development include raw materials, machinery, and equipment utilized in designing and making prototypes.

(2)Production. Production includes those processes and activities consisting of manufacturing, compounding, processing, assembling, or preparing of articles for sale as tangible personal property.

(A)Production supplies. Examples of production supplies include items used in the production process, such as:

(i) Raw materials.

(ii) Coal, fuel, oil, electricity, natural gas, artificial gas, steam and refrigeration, when used in the production process or when used to generate power or to create or maintain a temperature necessary for the production process.

(iii) Miscellaneous supplies that are consumed in the production process, such as lubricating oils and greases used on machinery and equipment.

(B)Manufacturing supplies. Examples of manufacturing supplies include items used to service and operate manufacturing equipment, such as:

(i) Work clothing, such as coveralls and uniforms; safety goggles; face masks; helmets, gloves, aprons, shoe and sleeve protectors.

(ii) Static mats.

(iii) Surge protectors.

(C)Manufacturing tools. Manufacturing tools eligible for exemption when purchased for use in a manufacturing operation are those tools used in the manufacturing process, such as:

(i) Scales to measure raw materials.

(ii) Knives, staple guns, tape guns.

(iii) Hand tools used on the product or in the maintenance of exempt machinery.

(D)Manufacturing equipment and machinery. Examples of manufacturing equipment and machinery eligible for exemption when purchased by a manufacturer include:

(i) Manufacturing equipment, machinery, and associated repair or replacement parts.

(ii) Dust collector equipment.

(iii) Paint booths.

(iv) Conveyors.

(v) Forklifts.

(3)Testing or quality control. Equipment and supplies used in testing or quality control, or both, may qualify for the exemption when purchased by a manufacturer for use in a manufacturing operation.

(4)Production waste disposal. Equipment and supplies purchased by a manufacturer to be used in production waste disposal at a manufacturing site may qualify for the exemption.

(5)Warehousing supplies and equipment. Examples of warehousing supplies and equipment eligible for exemption when purchased by a manufacturer include:

(A) Flow racks.

(B) Tables.

(C) Storage units.

(D) Wrapping, packing, or packaging supplies, used to further the sale of a product.

(E) Labels and label-makers.

(F) Inventory control items.

(6)Shipping. Examples of shipping supplies eligible for exemption when purchased by a manufacturer include:

(A) Boxes, scales, inserts.

(B) Tape dispensers.

(c)Non-exempt uses. The following items and uses will result in the taxability of the transaction:

(1) Items purchased for use, or manufactured and withdrawn from inventory and used, in the areas of administration, distribution, sales, site construction, site maintenance, or transportation, are subject to sales tax if the items are purchased or withdrawn from an inventory in Oklahoma. If tangible personal property is purchased or withdrawn from inventory outside Oklahoma, to be used in Oklahoma for these non-exempt purposes, it is subject to use tax. The amount of tax due is computed based upon the "sales value," of the goods withdrawn, as defined in OAC710:65-1-2.

(2)Goods, wares, merchandise, property, machinery and equipment, used in a non-manufacturing activity or process as set forth in paragraph 13 of Section 1352of Title 68 of the Oklahoma Statutes shall not be eligible for the exemption described in this Section by virtue of the activity or process being performed in conjunction with or integrated into a manufacturing operation. [68 O.S.Supp.2003, § 1359(1) ]

(d)Predominant use. Incidental use of otherwise qualifying items or machinery predominantly used in the manufacturing operation will not result in disqualification:

(1) Where an item is predominantly used in the manufacturing operation, any non-exempt use will be considered incidental, and will not disqualify the item from the exemption.

(2) Where electricity or natural gas is metered through a single meter, and the predominant use is in the manufacturing operation, any remaining usage will be considered incidental, and will be exempt.

(e)Applicability of examples. Items enumerated in (b) and (c) of this Section are examples and illustrations only, and are not intended to be exclusive or exhaustive.

Okla. Admin. Code § 710:65-13-150.1

Added at 17 Ok Reg 2712, eff 6-25-00; Amended at 21 Ok Reg 2581, eff 6-25-04; Amended at 25 Ok Reg 2070, eff 7-1-08; Amended at 27 Ok Reg 2308, eff 7-11-10