(a) The taxes imposed by this chapter shall not apply to the percentage set forth in subsection (c) of this section of the gross receipts from the sale of and the storage, use and consumption in this state of the following items: (1) Materials, tools and fuels or any substitute therefor which become an ingredient or component part of tangible personal property to be sold or which are used or consumed in an industrial plant in the manufacturing, processing or fabricating of products to be sold, in any process preparatory or related thereto or in the measuring or testing of such products or (2) machinery and equipment which will be used primarily in the process of manufacturing, processing or fabricating tangible personal property if: (A) The machinery or equipment is used for research and development, measuring or testing with respect to or in furtherance of the manufacturing, processing or fabricating of tangible personal property; (B) the machinery or equipment is used at any stage of the manufacturing, processing or fabricating process from the time any raw materials are received to the time the product is ready for delivery or storage, including overpacking and crating; (C) the machinery or equipment is used primarily to maintain or repair any machinery or equipment described in subparagraph (A) or (B) of this subdivision, or (D) the machinery or equipment is used primarily for metal finishing, provided this exemption shall not apply to any materials, tools, fuels, machinery or equipment which is used primarily in administration, general management, sales or any other activity which does not constitute manufacturing, processing or fabricating. The exemption under this subsection shall not apply to any materials, tools, fuels, machinery or equipment which is exempt under any other provision of this chapter.

(b) As used in this section: (1) “Manufacturing” means the activity of converting or conditioning tangible personal property by changing the form, composition, quality or character of the property for ultimate sale at retail or use in the manufacturing of a product to be ultimately sold at retail. Changing the quality of property shall include any substantial overhaul of the property that results in a significantly greater service life than such property would have had in the absence of such overhaul or with significantly greater functionality within the original service life of the property, beyond merely restoring the original functionality for the balance of the original service life; (2) “fabricating” means to make, build, create, produce or assemble components or tangible personal property so that they work in a new or different manner; (3) “processing” means the physical application of the materials and labor necessary to modify or change the characteristics of tangible personal property; (4) “machinery” means the basic machine itself, including all of its component parts and contrivances such as belts, pulleys, shafts, moving parts, operating structures and all equipment or devices used or required to control, regulate or operate the machinery, including, without limitation, computers and data processing equipment, together with all replacement and repair parts therefor, whether purchased separately or in conjunction with a complete machine, and regardless of whether the machine or component parts thereof are assembled by the taxpayer or another party; (5) “equipment” means any device separate from machinery but essential to a manufacturing, processing or fabricating process; and (6) “measuring or testing” includes both nondestructive and destructive measuring or testing, and the alignment and calibration of machinery, equipment and tools, in the furtherance of the manufacturing, processing or fabricating of tangible personal property.

(c) The gross receipts from the sale of and the storage, use and consumption in this state of the items set forth in subsection (a) of this section shall be exempt from the taxes imposed by this chapter, to the following extent: (1) For sales made on or after January 1, 1993, and prior to July 1, 1993, ten per cent of the gross receipts from such items; (2) for sales made on or after July 1, 1993, and prior to July 1, 1994, twenty per cent of the gross receipts from such items; (3) for sales made on or after July 1, 1994, and prior to July 1, 1995, thirty per cent of the gross receipts from such items; (4) for sales made on or after July 1, 1995, and prior to July 1, 1996, forty per cent of the gross receipts from such items; and (5) for sales made on or after July 1, 1996, fifty per cent of the gross receipts from such items.

(d) The burden of proving that an item is subject to the exemption set forth in this section is upon the person who makes the sale unless he takes from the purchaser a certificate to the effect that the property is subject to such exemption. The certificate relieves the seller from the burden of proof only if taken in good faith by the seller. The certificate shall be signed by and bear the name and address of the purchaser. The certificate shall be substantially in such form as the commissioner prescribes.

(e) If a purchaser who gives a certificate makes any use of the property other than the purposes set forth in this section, the use shall be deemed a use by the purchaser in accordance with this chapter, as of the time the property is first used by him, and the property shall be taxable to such purchaser in accordance with this chapter.

(P.A. 92-193, S. 6, 8; P.A. 94-175, S. 29, 32; May Sp. Sess. P.A. 94-4, S. 80, 85; P.A. 95-160, S. 64, 69; 95-359, S. 8, 19; P.A. 97-243, S. 26, 67.)

History: P.A. 92-193 effective July 1, 1992, and applicable to sales occurring on or after January 1, 1993; P.A. 94-175 made technical changes in Subsecs. (a) and (b), effective June 2, 1994; May Sp. Sess. P.A. 94-4 revised effective date of P.A. 94-175 but without affecting this section; P.A. 95-160 revised effective date of May Sp. Sess. P.A. 94-4 but without affecting this section; P.A. 95-359 amended Subsec. (a) to make technical change, effective July 13, 1995; P.A. 97-243 amended Subsecs. (d) and (e) to delete reference to certificate number and services, effective June 24, 1997.