A total of 37 states provide full exemptions from sales and use taxes on manufacturing equipment and machinery, but for the rest of the states, the rules can be different.
Thomson Reuters has been identifying some of those differences for its Checkpoint Catalyst research service, which recently added a Sales and Use Tax: Manufacturing section.
The conditions for the tax exemptions can vary by state. Some states, such as California, Hawaii, Mississippi and Alabama, offer a reduced tax rate for machinery and equipment, in other words, a partial exemption.
“Connecticut has a partial exemption available to certain items and purchasers that don’t qualify for the state’s full exemption,” said Sarah Horn, an author and editor who covers state and local tax for Thomson Reuters Checkpoint Catalyst. “The state offers a full exemption for certain machinery and equipment purchased by a qualifying manufacturer for use directly in a manufacturing process. To supplement that, Connecticut also has a partial exemption for a broader range of purchasers (including fabricators, processors, and some independent contractors) and for a broader range of items.”
A few states such as Nevada, New Mexico and South Dakota, along with the District of Columbia, provide no special tax treatment for manufacturing and machinery.
Others, such as Alaska, Delaware, Montana, New Hampshire and Oregon, have no sales tax to begin with anyway.
Below you can see an infographic mapping the differences across the country.