Finance, Revenue and Bonding Committee
AN ACT CONCERNING THE SALES TAX LIABILITY OF ASPHALT MANUFACTURERS
SUMMARY: The act makes a company that manufactures a finished product that it then uses to fulfill a paving contract eligible for the same state sales tax exemptions for the machinery, materials, tools, and fuel it buys to make the product as other manufacturers. It makes such manufacturers eligible for sales tax exemptions on:
1. gas and electricity directly used to make a finished product to be sold (CGS § 12-412 (3)(A));
2. materials, tools, and fuel (“production materials”) used directly in an industrial plant in making a finished product to be sold (CGS § 12-412 (18));
3. machinery used directly in a manufacturing production process (CGS § 12-412 (34)); and
4. materials that are not otherwise exempt and are used or consumed in manufacturing tangible personal property to be sold (CGS § 12-412i).
Under Department of Revenue Services (DRS) regulations, a taxpayer that produces an item of tangible personal property and installs it into a customer's real property is generally considered to be acting as a contractor rather than a manufacturer and is therefore required to pay sales tax on the materials it buys to make the item (Conn. Agencies Reg. , § 12-426-18 (d)). The act states that its exemption for production materials (#2 above) does not extend to someone, such as a contractor, who buys materials to use as ingredients or components for making a finished product to fulfill a paving contract.
EFFECTIVE DATE: Upon passage
BACKGROUND
Related DRS Rulings
In determining whether a company is eligible for sales tax exemptions on manufacturing materials, DRS determines the company's “predominant purpose. ” In 2005, DRS ruled that asphalt that is consumed by the company that makes it “may not be counted as a manufactured product to be sold and therefore may not be included in determining” the company's predominant purpose. Consequently, a company that consumes more than 50% of the asphalt it manufactures in providing paving services is not a “manufacturing plant” eligible for the sales tax exemption for machinery used directly in a manufacturing production process under CGS § 12-412 (34) (DRS Ruling 2005-1).
A 1989 DRS ruling also states that the sales tax exemption for production materials under CGS § 12-412 (18) does not apply when a company that manufactures asphalt uses it as part of a construction contract where the asphalt is not separately sold (DRS Ruling 89-7).
OLR Tracking: JSL: KM: JM: ts