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Manufacturing Sales Tax Exemptions: Are Suppliers Entitled to Them?

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If you are a supplier to a manufacturer, should you be allowed to take advantage of a reduced rate manufacturing exemption for electricity use? For at least one supplier in Arkansas, the answer to that question is yes.

Background: The taxpayer operates a blast-freezing and temporary cold storage facility in Arkansas. They work closely with large poultry producers in Arkansas, as well as other local food producers, to turn fresh foods or food ingredients into frozen food products that are shipped across the country.

Ruling: The taxpayer qualified for the reduced AR sales tax rate because the Office of Revenue Legal Counsel determined that the electricity was used directly in the manufacturing process. Even though the taxpayer is a separate and different entity from the owner and processor of the poultry, the taxpayer's blast freezing service is a direct part of the poultry manufacturing process because it is used to preserve and prevent spoilage of poultry food products.

As an additional service, the taxpayer also provides temporary storage services (dry, refrigerated and frozen). While AR Rule 2007-5(B)(7) does not allow for a reduced rate for storage and warehouse facilities, it also states that electricity used in temporary cooling/chilling areas would qualify for the reduced sales tax rate. (AR Revenue Legal Opinion No. 20140508-S, Arkansas Department of Finance and Administration, April 4, 2016)

Comments or Questions? Do you agree with this ruling? Could it be applied to any other supplier services?

About the Author: Lauren Stinson,CMI, is Principal and National Leader - Sales & Use Tax at Cherry Bekaert LLP; a national CPA and consulting firm ranked as one of the top 25 in the country. Previously, Lauren was Owner and President of Windward Tax, a sales and use tax consulting firm. She has more than 25 years experience working with manufacturers on sales and use tax issues. Lauren is pleased to share her expertise with SalesTaxSupport readers as the Manufacturing contributor in SalesTaxSupport’s Industry blog, as well as the Georgia Sales Tax contributor in the States blog.

Comments or questions may be submitted by using the on-page "Comment" feature, subject to disclaimer at bottom of page. More specific questions or requests may be sent to Lauren directly using the orange "REQUEST" link on Lauren's Firm Profile page.

Other recent “Manufacturing & Distribution” posts by Lauren Stinson, CMI:

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