TR 27: Manufacturers

Manufacturing is the making of goods and articles by hand or by machinery. Manufacturers are exempt from paying sales/use tax on the purchase of "tangible personal property sold at wholesale that is actually transformed by the process of manufacture and becomes through the manufacturing process a necessary and recognizable ingredient and component of the finished product, and whose presence in the finished product is essential to the use thereof in the hands of the ultimate consumer" (subsection 3-2-6(c), BRC, 1981). This definition would include, but would not be limited to, component or piece parts, paint, glue, and screws.

Manufacturing supplies used in the process that do not become a necessary and recognizable ingredient and component of the finished product are subject to sales/use tax when purchased by a manufacturer. This includes, but is not limited to, electricity and power, machine oil, welding gases, cleaners and solvents. The State of Colorado has a utility usage exemption for manufactures, but the City of Boulder does not. Therefore, utility usage is subject to Boulder sales/use tax. (See the State of Colorado FYI - Sales Tax Exemption on Industrial Utility Usage and State of Colorado Special Industry Regulation - Gas and Electric for more information.)

The State of Colorado also has an exemption for the purchase of manufacturing equipment by manufacturers, but the City of Boulder does not. Therefore, the purchase of manufacturing equipment is subject to Boulder sales/use tax. (See the State of Colorado FYI Manufacturing Equipment Exemption for more information)

Examples:

1. A manufacturer purchases the following items for use in manufacturing circuit boards: solder, welding gases, copper wire and latex gloves. The welding gases and the latex gloves are supplies used in the manufacturing process, not a necessary and recognizable ingredient and component of the finished product. Therefore, they are subject to sales/use tax. The other items will become an ingredient and component of the finished product that will be resold. Therefore, the solder and copper wire are exempt from sales/use tax.
2. A manufacturer purchases new manufacturing equipment. The equipment is subject to Boulder sales/use tax, but may be exempt from State sales tax. (See the State of Colorado FYI Manufacturing Equipment Exemption for more information)

Last Updated on Wednesday, 11 July 2012 12:20