Arkansas ~ Sales and Use Tax: Purchases Not Qualified for Manufacturing Machinery and Equipment Exemption

CCH Tax Day Report

An Arkansas manufacturer’s purchase of calibration services did not qualify for a manufacturing machinery and equipment exemption from sales tax because these services constituted a machinery repair service rather than replacement. Under Arkansas law, an exemption is available for the purchases of machinery or equipment that result in a substantial replacement of machinery or equipment to which the purchased items are attached. In this case, the calibration services restored the manufacturer’s machinery to its proper working order. Further, the manufacturer’s purchase of gutter cleaning services were taxable regardless of whether or not they were performed with a nontaxable service. Exemptions were denied for purchases of tool-holders and collets, process control panel and operator control replacements, and swing-down gauge replacements since these items were considered to be insubstantial replacements of manufacturing machinery. Finally, the manufacturer’s purchase of a transformer and chip conveyor components did not qualify for an exemption since these items were not used directly in the manufacturing process.

Administrative Decision Nos. 16-128, 16-183, 16-184, and 16-410, Arkansas Department of Finance and Administration, Office of Hearings and Appeals, April 6, 2017, ¶400-794



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