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When is Material Handling Equipment Exempt from Sales Tax?


Most states offer some type of sales tax exemptions for material handling equipment (i.e. forklifts, pallet jacks), especially states that adhere to the integrated plant theory. But, as with most sales and use tax regulations, each state has its own set of requirements.

This sales tax exemption typically applies when equipment is used to move work-in-process goods; however, it depends on the scope of manufacturing in a particular state if the material handling equipment is exempt. For example, some states allow the exemption to apply to equipment used to move raw materials into storage before the first stage of production. Other states limit the material handling exemption to moving the work-in-process after the manufacturing process has begun.

We recommend developing a working matrix that lists your material handling equipment by serial number and indicates where the equipment is located and used at the plant. This matrix can be used as a guide for the material handling, parts, fuel, etc. Be sure to update the matrix annually with lease changes or new equipment.

If you document the location where all material handling equipment is used at the plant and the percentage the equipment is used in manufacturing, you have a better chance of taking advantage of any tax exemptions.

For more information about managing your sales and use tax risks, view our on-demand webinar:

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Lauren Stinson, CMI
Written by Lauren Stinson, CMI