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SMART TAX USA - Pennsylvania State Tax Exemptions for Manufacturing Facilities

In Pennsylvania, sales and use tax is applicable to the retail sale, consumption, rental or use of tangible personal property unless the purchaser is exempt. The use tax is also imposed on specific business services. Pennsylvania has a 6% sales tax rate. Allegheny County levies an additional 1% sales tax and Philadelphia levies an additional 2% sales tax.

Manufacturers with a facility located in Pennsylvania are exempt from taxation of property that is purchased for incorporation into products. Materials or supplies that are used predominantly and directly to produce the product are also exempt.

According to Section 32.32 of the Pennsylvania Code, the criteria for determining whether property, materials or supplies are being used directly to produce product are:

The physical proximity of the property to the production process in which it is used

The proximity of the time of use of the property to the time of use of other property used before and after it in the production process

The active causal relationship between the use of the property and the production of a product

If a single item of property is used in two or more different production activities, the property may not be exempt from sales and use tax unless it is used more than 50% of the time in a manufacturer’s primary processing operations. The following items are exempt from Pennsylvania sales and use tax when property is directly related to manufacturing or processing:

Purchases by a Manufacturer of Machinery, Equipment, Parts and Foundations

Purchases of machinery, equipment, parts and foundations that are either utilized in production or used to transport, convey, handle or store a product from the beginning of production to the time the product is packaged for the consumer are exempt from Pennsylvania sales tax. Repair parts that become an integral component of exempted machinery, equipment, parts and foundations are also exempt from sales tax.

Purchases by a Manufacturer of Pollution Control Devices

Purchases of equipment, machinery and supplies that are used to control, abate or prevent air, water or noise pollution generated during manufacturing or processing operations are exempt from the Pennsylvania sales and use tax.

Testing and inspection

Property that is used to test and inspect a product through the production cycle is considered to be part of the manufacturer’s predominant use and is therefore exempt from Pennsylvania sales tax.

Packaging

Wrapping equipment and supplies used to package products that are purchased by consumers with the packaging intact are exempt from sales tax. Property used to wash, sterilize or inspect returnable containers prior to their being filled are also exempt if the container is delivered to consumers as part of their purchase.

Research

Property that is used for manufacturing research is exempt from Pennsylvania sales tax if the objective of the research is the development of new or improved product. This exemption does not apply to market research or to research conducted to improve administrative efficiency.

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More than 5,000 U.S. jurisdictions have changed their sales and use tax legislation in the last decade. SMART TAX USA determines how these law changes provide additional exemptions, credits and tax incentives for your company.

State Courts are constantly interpreting sales tax laws and regulations. SMART TAX USA deciphers these complex laws and regulations to maximize cost saving benefits.

In today’s economy many states are adding additional tax exemptions, credits and tax incentives to create job growth within the manufacturing and industrial spectrum. SMART TAX USA specialized, comprehensive analysis can determine how these new exemptions directly affect your business and could result in a reduction of current and future tax liabilities providing significant tax savings for your business!

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