HB-5937, As Passed House, November 29, 2012

HOUSE BILL No. 5937

September 20, 2012, Introduced by Rep. MacGregor and referred to the Committee on Tax Policy.

A bill to amend 1937 PA 94, entitled

"Use tax act,"

by amending sections 3a, 4, and 4o (MCL 205.93a, 205.94, and

205.94o), section 3a as amended by 2012 PA 299, section 4 as

amended by 2008 PA 314, and section 4o as amended by 2010 PA 115.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 3a. (1) The use or consumption of the following services

is taxed under this act in the same manner as tangible personal

property is taxed under this act:

(a) Except as provided in section 3b, intrastate

telecommunications services that both originate and terminate in

this state, including, but not limited to, intrastate private

communications services, ancillary services, conference bridging

service, 900 service, pay telephone service other than coin-

operated telephone service, paging service, and value-added

nonvoice data service, but excluding 800 service, coin-operated

telephone service, fixed wireless service, ~~1-way paging service,~~

prepaid calling service, telecommunications nonrecurring charges,

and directory advertising proceeds.

(b) Rooms or lodging furnished by hotelkeepers, motel

operators, and other persons furnishing accommodations that are

available to the public on the basis of a commercial and business

enterprise, irrespective of whether or not membership is required

for use of the accommodations, except rooms and lodging rented for

a continuous period of more than 1 month. As used in this act,

"hotel" or "motel" means a building or group of buildings in which

the public may obtain accommodations for a consideration,

including, without limitation, such establishments as inns, motels,

tourist homes, tourist houses or courts, lodging houses, rooming

houses, nudist camps, apartment hotels, resort lodges and cabins,

camps operated by other than nonprofit organizations but not

including those licensed under 1973 PA 116, MCL 722.111 to 722.128,

and any other building or group of buildings in which

accommodations are available to the public, except accommodations

rented for a continuous period of more than 1 month and

accommodations furnished by hospitals or nursing homes.

telecommunications services that either originate or terminate in

this state and for which the charge for the service is billed to a

service address in this state or phone number by the provider

either within or outside this state including, but not limited to,

ancillary services, conference bridging service, 900 service,

paging service, pay telephone service other than coin-operated

telephone service, and value-added nonvoice data services, but

excluding interstate private communications service, 800 service,

coin-operated telephone service, fixed wireless service, ~~1-way~~

~~paging service,~~ prepaid calling service, telecommunications

nonrecurring charges, and international telecommunications service.

(d) The laundering or cleaning of textiles under a sale,

rental, or service agreement with a term of at least 5 days. This

subdivision does not apply to the laundering or cleaning of

textiles used by a restaurant or retail sales business. As used in

this subdivision, "restaurant" means a food service establishment

defined and licensed under the food law of 2000, 2000 PA 92, MCL

289.1101 to 289.8111.

(e) The transmission and distribution of electricity, whether

the electricity is purchased from the delivering utility or from

another provider, if the sale is made to the consumer or user of

the electricity for consumption or use rather than for resale.

(f) For a manufacturer who affixes its product to real estate

in this state and maintains an inventory of its product that is

available for sale to others or who makes its product available for

sale to others by publication or price list, the price is the

direct production costs and indirect production costs of the

product affixed to the real estate in this state that are incident

to and necessary for production or manufacturing operations or

processes, as defined by the department.

(g) For a manufacturer who affixes its product to real estate

in this state but does not maintain an inventory of its product

available for sale to others or make its product available for sale

to others by publication or price list, the price is the sum of the

materials cost of the property and the cost of labor to

manufacture, fabricate, or assemble the property affixed to the

real estate in this state, but not the cost of labor to cut, bend,

assemble, or attach the property at the site for affixation to real

estate in this state.

(2) If charges for intrastate telecommunications services or

telecommunications services between this state and another state

and other billed services not subject to the tax under this act are

aggregated with and not separately stated from charges for

telecommunications services that are subject to the tax under this

act, the nontaxable telecommunications services and other

nontaxable billed services are subject to the tax under this act

unless the service provider can reasonably identify charges for

telecommunications services not subject to the tax under this act

from its books and records that are kept in the regular course of

business.

(3) If charges for intrastate telecommunications services or

telecommunications services between this state and another state

and other billed services not subject to the tax under this act are

aggregated with and not separately stated from telecommunications

services that are subject to the tax under this act, a customer may

not rely upon the nontaxability of those telecommunications

services and other billed services unless the customer's service

provider separately states the charges for nontaxable

telecommunications services and other nontaxable billed services

from taxable telecommunications services or the service provider

elects, after receiving a written request from the customer in the

form required by the provider, to provide verifiable data based

upon the service provider's books and records that are kept in the

regular course of business that reasonably identify the nontaxable

services.

(4) All of the following apply in the case of a bundled

transaction that includes telecommunications service, ancillary

service, internet access, or audio or video programming:

(a) If the purchase price is attributable to products that are

taxable and products that are nontaxable, the portion of the

purchase price attributable to the nontaxable products may be

subject to tax unless the provider can identify by reasonable and

verifiable standards that portion from its books and records that

are kept in the regular course of business for other purposes,

including, but not limited to, nontax purposes.

(b) The provisions of this subsection apply unless otherwise

provided by federal law.

(5) As used in this section:

(a) "Ancillary services" means services that are associated

with or incidental to the provision of telecommunications services,

including, but not limited to, detailed telecommunications billing,

directory assistance, vertical service, and voice mail services.

(b) "Bundled transaction" means the purchase of 2 or more

distinct and identifiable products, except real property and

services to real property, where the products are sold for a single

nonitemized price. A bundled transaction does not include the sale

of any products in which the sales price varies, or is negotiable,

based on the selection by the purchaser of the products included in

the transaction. As used in this subdivision:

(i) "Distinct and identifiable products" does not include any

of the following:

(A) Packaging, such as containers, boxes, sacks, bags, and

bottles or other materials such as wrapping, labels, tags, and

instruction guides, that accompany the purchase of the products and

are incidental or immaterial to the purchase of the products,

including grocery sacks, shoeboxes, dry cleaning garment bags, and

express delivery envelopes and boxes.

(B) A product provided free of charge with the required

purchase of another product. A product is provided free of charge

if the sales price of the product purchased does not vary depending

on the inclusion of the product provided free of charge.

(ii) "Purchase price" means the price paid by the seller for

the property.

(iii) "Sales price" means that term as defined in section 1 of

the general sales tax act, 1933 PA 167, MCL 205.51.

(iv) "Single nonitemized price" does not include a price that

is separately identified by product on binding sales or other

supporting sales-related documentation made available to the

purchaser in paper or electronic form, including, but not limited

to, an invoice, bill of sale, receipt, contract, service agreement,

lease agreement, periodic notice of rates and services, rate card,

or price list.

(v) Bundled transaction does not include any of the following:

(A) The purchase of tangible personal property and a service

if the tangible personal property is essential to the use of the

service and is provided exclusively in connection with the service

and the true object of the transaction is the service.

(B) The purchase of services if 1 service is provided that is

essential to the use or receipt of a second service and the first

service is provided exclusively in connection with the second

service and the true object of the transaction is the second

service.

products and the purchase price of the taxable products is de

minimis. As used in this sub-subparagraph, "de minimis" means the

seller's purchase price or sales price of the taxable products is

10% or less of the total purchase price or sales price of the

products. A seller shall use the full term of a service contract to

determine if the taxable products are de minimis. A seller shall

use either the purchase price or the sales price of the products to

determine if the taxable products are de minimis. A seller shall

not use a combination of the purchase price and sales price of the

products to determine if the taxable products are de minimis.

(D) The retail sale of exempt tangible personal property and

taxable tangible personal property if all of the following

conditions are satisfied:

(I) The transaction includes food and food ingredients,

prescription or over-the-counter drugs, durable medical equipment,

mobility enhancing equipment, medical supplies, or prosthetic

devices.

(II) Where the seller's purchase price or sales price of the

taxable tangible personal property is 50% or less of the total

purchase price or sales price of the bundled tangible personal

property. A seller may not use a combination of the purchase price

and sales price of the tangible personal property when making the

50% determination for a transaction.

telecommunications service paid for by inserting money into a

telephone that accepts direct deposits of money to operate.

(d) "Conference bridging service" means an ancillary service

that links 2 or more participants of an audio or video conference

call and may include the provision of a telephone number, but does

not include the telecommunications services used to reach the

conference bridge.

(e) "Detailed telecommunications billing service" means an

ancillary service of separately stating information pertaining to

individual calls on a customer's billing statement.

(f) "Directory assistance" means an ancillary service of

providing telephone number information or address information.

(g) "Fabricate" means to modify or prepare tangible personal

property for affixation or assembly.

(h) "Fixed wireless service" means a telecommunications

service that provides radio communication between fixed points.

(i) "International" means a telecommunications service that

originates or terminates in the United States and terminates or

originates outside the United States, respectively. United States

includes the District of Columbia and any possession or territory

of the United States.

(j) "Interstate" means a telecommunications service that

originates in 1 United States state, territory, or possession and

terminates in a different United States state, territory, or

possession.

(k) "Intrastate" means a telecommunications service that

originates in a United States state, territory, or possession and

terminates in the same United States state, territory, or

possession.

(l) "Manufacture" means to convert or condition tangible

personal property by changing the form, composition, quality,

combination, or character of the property.

(m) "Manufacturer" means a person who manufactures,

fabricates, or assembles tangible personal property.

(n) "Paging service" means a telecommunications service that

provides transmission of coded radio signals for the purpose of

activating specific pagers, which may include messages or sounds.

(o) "Pay telephone service" means a telecommunications service

provided through any pay telephone.

(p) "Prepaid calling service" means the right to access

exclusively telecommunications services that must be paid for in

advance and that enables the origination of calls using an access

number or authorization code, whether manually or electronically

dialed, and that is sold in predetermined units or dollars that

decline with use in a known amount.

(q) "Private communications service" means a

telecommunications service that entitles the customer to exclusive

or priority use of a communications channel or group of channels

between or among termination points, regardless of the manner in

which that channel or group of channels are connected, and includes

switching capacity, extension lines, stations, and any other

associated services that are provided in connection with the use of

that channel or group of channels.

(r) "Telecommunications nonrecurring charges" means an amount

billed for the installation, connection, change, or initiation of

telecommunications service received by the customer.

(s) "Telecommunications service" means the electronic

transmission, conveyance, or routing of voice, data, audio, video,

or any other information or signals to a point, or between or among

points, including a transmission, conveyance, or routing in which

computer processing applications are used to act on the form, code,

or protocol of the content for purposes of transmission,

conveyance, or routing without regard to whether that service is

referred to as voice over internet protocol services or is

classified by the federal communications commission as enhanced or

value added. Telecommunications service does not include any of the

following:

(i) Data processing and information services that allow data to

be generated, acquired, stored, processed, or retrieved and

delivered by an electronic transmission to a purchaser where the

purchaser's primary purpose for the underlying transaction is the

processed data or information.

(ii) Installation or maintenance of wiring or equipment on a

customer's premises.

(iii) Tangible personal property.

(iv) Advertising, including, but not limited to, directory

advertising.

(v) Billing and collection services provided to third parties.

(vi) Internet access service.

(vii) Radio and television audio and video programming

services, including, but not limited to, cable service as defined

in 47 USC 522(6) and audio and video programming services delivered

by commercial mobile radio service providers as defined in 47 CFR

20.3, regardless of the medium, including the furnishing of

transmission, conveyance, and routing of those services by the

programming service provider.

(viii) Ancillary services.

(ix) Answering services, if the primary purpose of the

transaction is the answering service rather than message

transmission.

(x) Digital products delivered electronically, including, but

not limited to, software, music, video, reading materials, or ring

tones.

(t) "Value-added nonvoice data service" means a

telecommunications service in which computer processing

applications are used to act on the form, content, code, or

protocol of the information or data primarily for a purpose other

than transmission, conveyance, or routing.

(u) "Vertical service" means an ancillary service that is

offered in connection with 1 or more telecommunications services

that offers advanced calling features that allow customers to

identify callers and to manage multiple calls and call connections,

including conference bridging services.

(v) "Voice mail service" means an ancillary service that

enables the customer to store, send, or receive recorded messages,

but does not include any vertical services that the customer may be

required to have in order to utilize the voice mail service.

(w) "800 service" means a telecommunications service that

allows a caller to dial a toll-free number without incurring a

charge for the call, typically marketed under the designation

"800", "855", "866", "877", or "888" toll-free calling, or any

subsequent number designated by the federal communications

commission.

(x) "900 service" means an inbound toll telecommunications

service purchased by a subscriber that allows the subscriber's

customers to call in to the subscriber's prerecorded announcement

or live service, typically marketed under the designation "900"

service, and any subsequent number designated by the federal

communications commission, but does not include a charge for

collection services provided by the seller of the

telecommunications services to the subscriber, or the service or

product sold by the subscriber to the subscriber's customer.

Sec. 4. (1) The following are exempt from the tax levied under

this act, subject to subsection (2):

(a) Property sold in this state on which transaction a tax is

paid under the general sales tax act, 1933 PA 167, MCL 205.51 to

205.78, if the tax was due and paid on the retail sale to a

consumer.

(b) Property, the storage, use, or other consumption of which

this state is prohibited from taxing under the constitution or laws

of the United States, or under the constitution of this state.

(i) Property purchased for resale. Property purchased for

resale includes promotional merchandise transferred pursuant to a

redemption offer to a person located outside this state or any

packaging material, other than promotional merchandise, acquired

for use in fulfilling a redemption offer or rebate to a person

located outside this state.

(ii) Property purchased for lending or leasing to a public or

parochial school offering a course in automobile driving except

that a vehicle purchased by the school shall be certified for

driving education and shall not be reassigned for personal use by

the school's administrative personnel.

(iii) Property purchased for demonstration purposes. For a new

vehicle dealer selling a new car or truck, exemption for

demonstration purposes shall be determined by the number of new

cars and trucks sold during the current calendar year or the

immediately preceding calendar year, without regard to specific

make or style, according to the following schedule but not to

exceed 25 cars and trucks in 1 calendar year for demonstration

purposes:

(A) 0 to 25, 2 units.

(B) 26 to 100, 7 units.

(D) 501 or more, 25 units.

(iv) Motor vehicles purchased for resale purposes by a new

vehicle dealer licensed under section 248(8)(a) of the Michigan

vehicle code, 1949 PA 300, MCL 257.248.

(d) Property that is brought into this state by a nonresident

person for storage, use, or consumption while temporarily within

this state, except if the property is used in this state in a

nontransitory business activity for a period exceeding 15 days.

(e) Property the sale or use of which was already subjected to

a sales tax or use tax equal to, or in excess of, that imposed by

this act under the law of any other state or a local governmental

unit within a state if the tax was due and paid on the retail sale

to the consumer and the state or local governmental unit within a

state in which the tax was imposed accords like or complete

exemption on property the sale or use of which was subjected to the

sales or use tax of this state. If the sale or use of property was

already subjected to a tax under the law of any other state or

local governmental unit within a state in an amount less than the

tax imposed by this act, this act shall apply, but at a rate

measured by the difference between the rate provided in this act

and the rate by which the previous tax was computed.

(f) Property sold to a person engaged in a business enterprise

and using and consuming the property in the tilling, planting,

caring for, or harvesting of the things of the soil or in the

breeding, raising, or caring for livestock, poultry, or

horticultural products, including transfers of livestock, poultry,

or horticultural products for further growth. This exemption

includes machinery that is capable of simultaneously harvesting

grain or other crops and biomass and machinery used for the purpose

of harvesting biomass. This exemption includes agricultural land

tile, which means fired clay or perforated plastic tubing used as

part of a subsurface drainage system for land used in the

production of agricultural products as a business enterprise and

includes a portable grain bin, which means a structure that is used

or is to be used to shelter grain and that is designed to be

disassembled without significant damage to its component parts.

This exemption does not include transfers of food, fuel, clothing,

or similar tangible personal property for personal living or human

consumption. This exemption does not include tangible personal

property permanently affixed to and becoming a structural part of

real estate. As used in this subdivision, "biomass" means crop

residue used to produce energy or agricultural crops grown

specifically for the production of energy.

(g) Property or services sold to the United States, an

unincorporated agency or instrumentality of the United States, an

incorporated agency or instrumentality of the United States wholly

owned by the United States or by a corporation wholly owned by the

United States, the American red cross and its chapters or branches,

this state, a department or institution of this state, or a

political subdivision of this state.

(h) Property or services sold to a school, hospital, or home

for the care and maintenance of children or aged persons, operated

by an entity of government, a regularly organized church,

religious, or fraternal organization, a veterans' organization, or

a corporation incorporated under the laws of this state, if not

operated for profit, and if the income or benefit from the

operation does not inure, in whole or in part, to an individual or

private shareholder, directly or indirectly, and if the activities

of the entity or agency are carried on exclusively for the benefit

of the public at large and are not limited to the advantage,

interests, and benefits of its members or a restricted group. The

tax levied does not apply to property or services sold to a parent

cooperative preschool. As used in this subdivision, "parent

cooperative preschool" means a nonprofit, nondiscriminatory

educational institution, maintained as a community service and

administered by parents of children currently enrolled in the

preschool that provides an educational and developmental program

for children younger than compulsory school age, that provides an

educational program for parents, including active participation

with children in preschool activities, that is directed by

qualified preschool personnel, and that is licensed pursuant to

1973 PA 116, MCL 722.111 to 722.128.

(i) Property or services sold to a regularly organized church

or house of religious worship except the following:

(i) Sales in which the property is used in activities that are

mainly commercial enterprises.

(ii) Sales of vehicles licensed for use on the public highways

other than a passenger van or bus with a manufacturer's rated

seating capacity of 10 or more that is used primarily for the

transportation of persons for religious purposes.

(j) A vessel designed for commercial use of registered tonnage

of 500 tons or more, if produced upon special order of the

purchaser, and bunker and galley fuel, provisions, supplies,

maintenance, and repairs for the exclusive use of a vessel of 500

tons or more engaged in interstate commerce.

(k) Property purchased for use in this state where actual

personal possession is obtained outside this state, the purchase

price or actual value of which does not exceed $10.00 during 1

calendar month.

(l) A newspaper or periodical classified under federal postal

laws and regulations effective September 1, 1985 as second-class

mail matter or as a controlled circulation publication or qualified

to accept legal notices for publication in this state, as defined

by law, or any other newspaper or periodical of general

circulation, established at least 2 years, and published at least

once a week, and a copyrighted motion picture film. Tangible

personal property used or consumed in producing a copyrighted

motion picture film, a newspaper published more than 14 times per

year, or a periodical published more than 14 times per year, and

not becoming a component part of that film, newspaper, or

periodical is subject to the tax. After December 31, 1993, tangible

personal property used or consumed in producing a newspaper

published 14 times or less per year or a periodical published 14

times or less per year and that portion or percentage of tangible

personal property used or consumed in producing an advertising

supplement that becomes a component part of a newspaper or

periodical is exempt from the tax under this subdivision. A claim

for a refund for taxes paid before January 1, 1999 under this

subdivision shall be made before June 30, 1999. For purposes of

this subdivision, tangible personal property that becomes a

component part of a newspaper or periodical and consequently not

subject to tax, includes an advertising supplement inserted into

and circulated with a newspaper or periodical that is otherwise

exempt from tax under this subdivision, if the advertising

supplement is delivered directly to the newspaper or periodical by

a person other than the advertiser, or the advertising supplement

is printed by the newspaper or periodical.

(m) Property purchased by persons licensed to operate a

commercial radio or television station if the property is used in

the origination or integration of the various sources of program

material for commercial radio or television transmission. This

subdivision does not include a vehicle licensed and titled for use

on public highways or property used in the transmitting to or

receiving from an artificial satellite.

(n) A person who is a resident of this state who purchases an

automobile in another state while in the military service of the

United States and who pays a sales tax in the state where the

automobile is purchased.

(o) A vehicle for which a special registration is secured in

accordance with section 226(9) of the Michigan vehicle code, 1949

PA 300, MCL 257.226.

(p) The sale of a prosthetic device, durable medical

equipment, or mobility enhancing equipment.

(q) Water when delivered through water mains, water sold in

bulk tanks in quantities of not less than 500 gallons, or the sale

of bottled water.

(r) A vehicle not for resale used by a nonprofit corporation

organized exclusively to provide a community with ambulance or fire

department services.

(s) Tangible personal property purchased and installed as a

component part of a water pollution control facility for which a

tax exemption certificate is issued pursuant to part 37 of the

natural resources and environmental protection act, 1994 PA 451,

MCL 324.3701 to 324.3708, or an air pollution control facility for

which a tax exemption certificate is issued pursuant to part 59 of

the natural resources and environmental protection act, 1994 PA

451, MCL 324.5901 to 324.5908.

(t) Tangible real or personal property donated by a

manufacturer, wholesaler, or retailer to an organization or entity

exempt pursuant to subdivision (h) or (i) or section 4a(1)(a) or

(b) of the general sales tax act, 1933 PA 167, MCL 205.54a.

(u) The storage, use, or consumption of an aircraft by a

domestic air carrier for use solely in the transport of air cargo,

passengers, or a combination of air cargo and passengers, that has

a maximum certificated takeoff weight of at least 6,000 pounds. For

purposes of this subdivision, the term "domestic air carrier" is

limited to a person engaged primarily in the commercial transport

for hire of air cargo, passengers, or a combination of air cargo

and passengers as a business activity. The state treasurer shall

estimate on January 1 each year the revenue lost by this act from

the school aid fund and deposit that amount into the school aid

fund from the general fund.

(v) The storage, use, or consumption of an aircraft by a

person who purchases the aircraft for subsequent lease to a

domestic air carrier operating under a certificate issued by the

federal aviation administration under 14 CFR part 121, for use

solely in the regularly scheduled transport of passengers.

(w) Property or services sold to an organization not operated

for profit and exempt from federal income tax under section

501(c)(3) or 501(c)(4) of the internal revenue code, 26 USC 501; or

to a health, welfare, educational, cultural arts, charitable, or

benevolent organization not operated for profit that has been

issued before June 13, 1994 an exemption ruling letter to purchase

items exempt from tax signed by the administrator of the sales,

use, and withholding taxes division of the department. The

department shall reissue an exemption letter after June 13, 1994 to

each of those organizations that had an exemption letter that shall

remain in effect unless the organization fails to meet the

requirements that originally entitled it to this exemption. The

exemption does not apply to sales of tangible personal property and

sales of vehicles licensed for use on public highways, that are not

used primarily to carry out the purposes of the organization as

stated in the bylaws or articles of incorporation of the exempt

organization.

(x) The use or consumption of services described in section

3a(1)(a) or (b) or 3b by means of a prepaid telephone calling card,

a prepaid authorization number for telephone use, or a charge for

internet access.

(y) The purchase, lease, use, or consumption of the following

by an industrial laundry after December 31, 1997:

(i) Textiles and disposable products including, but not limited

to, soap, paper, chemicals, tissues, deodorizers and dispensers,

and all related items such as packaging, supplies, hangers, name

tags, and identification tags.

(ii) Equipment, whether owned or leased, used to repair and

dispense textiles including, but not limited to, roll towel

cabinets, slings, hardware, lockers, mop handles and frames, and

carts.

(iii) Machinery, equipment, parts, lubricants, and repair

services used to clean, process, and package textiles and related

items, whether owned or leased.

(iv) Utilities such as electric, gas, water, or oil.

(v) Production washroom equipment and mending and packaging

supplies and equipment.

(vi) Material handling equipment including, but not limited to,

conveyors, racks, and elevators and related control equipment.

(vii) Wastewater pretreatment equipment and supplies and

related maintenance and repair services.

(z) Property purchased or manufactured by a person engaged in

the business of constructing, altering, repairing, or improving

real estate for others, to the extent that the property is affixed

to and made a structural part of real estate located in another

state, regardless of whether sales or use tax was due and paid in

the state in which the property is affixed to real estate.

(2) The property or services under subsection (1) are exempt

only to the extent that the property or services are used for the

exempt purposes if one is stated in subsection (1). The exemption

is limited to the percentage of exempt use to total use determined

by a reasonable formula or method approved by the department.

Sec. 4o. (1) The tax levied under this act does not apply to

property sold to the following after March 30, 1999, subject to

subsection (2):

(a) An industrial processor for use or consumption in

industrial processing.

(b) A person, whether or not the person is an industrial

processor, if the tangible personal property is intended for

ultimate use in and is used in industrial processing by an

industrial processor.

processor, if the tangible personal property is used by that person

to perform an industrial processing activity for or on behalf of an

industrial processor.

(d) A person, whether or not the person is an industrial

processor, if the tangible personal property is 1 of the following:

(i) A computer used in operating industrial processing

equipment.

(ii) Equipment used in a computer assisted manufacturing

system.

(iii) Equipment used in a computer assisted design or

engineering system integral to an industrial process.

(iv) A subunit or electronic assembly comprising a component in

a computer integrated industrial processing system.

(v) Computer equipment used in connection with the computer

assisted production, storage, and transmission of data if the

equipment would have been exempt had the data transfer been made

using tapes, disks, CD-ROMs, or similar media by a company whose

business includes publishing doctoral dissertations and information

archiving, and that sells the majority of the company's products to

nonprofit organizations exempt under section 4(1)(w).

(vi) Equipment used in the production of prewritten computer

software or software modified or adapted to the user's needs or

equipment by the seller, only if the software is available for sale

from a seller of software on an as-is basis or as an end product

without modification or adaption.

(2) The property under subsection (1) is exempt only to the

extent that the property is used for the exempt purpose stated in

this section. The exemption is limited to the percentage of exempt

use to total use determined by a reasonable formula or method

approved by the department.

(3) Industrial processing includes the following activities:

(a) Production or assembly.

(b) Research or experimental activities.

(d) Inspection, quality control, or testing to determine

whether particular units of materials or products or processes

conform to specified parameters at any time before materials or

products first come to rest in finished goods inventory storage.

(e) Planning, scheduling, supervision, or control of

production or other exempt activities.

(f) Design, construction, or maintenance of production or

House Bill No. 5937 as amended November 28, 2012

other exempt machinery, equipment, and tooling.

(g) Remanufacturing.

(h) Processing of production scrap and waste up to the point

it is stored for removal from the plant of origin.

(i) Recycling of used materials for ultimate sale at retail or

reuse.

(j) Production material handling.

(k) Storage of in-process materials.

(4) Property that is eligible for an industrial processing

exemption includes the following:

(a) Property that becomes an ingredient or component part of

the finished product to be sold ultimately at retail [OR AFFIXED TO AND

MADE A STRUCTURAL PART OF REAL ESTATE].

(b) Machinery, equipment, tools, dies, patterns, foundations

for machinery or equipment, or other processing equipment used in

an industrial processing activity and in their repair and

maintenance.

identity in an industrial processing activity.

(d) Tangible personal property, not permanently affixed and

not becoming a structural part of real estate, that becomes a part

of, or is used and consumed in installation and maintenance of,

systems used for an industrial processing activity.

(e) Fuel or energy used or consumed for an industrial

processing activity.

(f) Machinery, equipment, or materials used within a plant

site or between plant sites operated by the same person for

movement of tangible personal property in the process of

House Bill No. 5937 as amended November 28, 2012

production. Property exempt under this subdivision includes front

end loaders, forklifts, pettibone lifts, skidsters, multipurpose

loaders, knuckle-boom log loaders, tractors, and log loaders used

to unload logs from trucks at a saw mill site for the purpose of

processing at the site and to load lumber onto trucks at a saw mill

site for purposes of transportation from the site.

(g) Office equipment, including data processing equipment,

used for an industrial processing activity.

(5) Property that is not eligible for an industrial processing

exemption includes the following:

(a) Tangible personal property permanently affixed and

becoming a structural part of real estate [IN THIS STATE] including

building

utility systems such as heating, air conditioning, ventilating,

plumbing, lighting, and electrical distribution, to the point of

the last transformer, switch, valve, or other device at which point

usable power, water, gas, steam, or air is diverted from

distribution circuits for use in industrial processing.

(b) Office equipment, including data processing equipment used

for nonindustrial processing purposes.

(d) An industrial processor's own product or finished good

that it uses or consumes for purposes other than industrial

processing.

(e) Tangible personal property used for receiving and storage

of materials, supplies, parts, or components purchased by the user

or consumer.

(f) Tangible personal property used for receiving or storage

of natural resources extracted by the user or consumer.

(g) Vehicles, including special bodies or attachments,

required to display a vehicle permit or license plate to operate on

public highways, except for a vehicle bearing a manufacturer's

plate or a specially designed vehicle, together with parts, used to

mix and agitate materials at a plant or job site in the concrete

manufacturing process.

(h) Tangible personal property used for the preparation of

food or beverages by a retailer for ultimate sale at retail through

its own locations.

(i) Tangible personal property used or consumed for the

preservation or maintenance of a finished good once it first comes

to rest in finished goods inventory storage.

(j) Returnable shipping containers or materials, except as

provided in subsection (4)(f).

(k) Tangible personal property used in the production of

computer software originally designed for the exclusive use and

special needs of the purchaser.

(6) Industrial processing does not include the following

activities:

(a) Purchasing, receiving, or storage of raw materials.

(b) Sales, distribution, warehousing, shipping, or advertising

activities.

(d) Design, engineering, construction, or maintenance of real

property and nonprocessing equipment.

(e) Plant security, fire prevention, or medical or hospital

services.

(7) As used in this section:

(a) "Industrial processing" means the activity of converting

or conditioning tangible personal property by changing the form,

composition, quality, combination, or character of the property for

ultimate sale at retail or for use in the manufacturing of a

product to be ultimately sold at retail or affixed to and made a

structural part of real estate located in another state. Industrial

processing begins when tangible personal property begins movement

from raw materials storage to begin industrial processing and ends

when finished goods first come to rest in finished goods inventory

storage.

(b) "Industrial processor" means a person who performs the

activity of converting or conditioning tangible personal property

for ultimate sale at retail or use in the manufacturing of a

product to be ultimately sold at retail or affixed to and made a

structural part of real estate located in another state.

not limited to, a prototype, pilot model, process, formula,

invention, technique, patent, or similar property, whether intended

to be used in a trade or business or to be sold, transferred,

leased, or licensed.

(d) "Remanufacturing" means the activity of overhauling,

retrofitting, fabricating, or repairing a product or its component

parts for ultimate sale at retail.

(e) "Research or experimental activity" means activity

incident to the development, discovery, or modification of a

product or a product related process. Research or experimental

activity also includes activity necessary for a product to satisfy

a government standard or to receive government approval. Research

or experimental activity does not include the following:

(i) Ordinary testing or inspection of materials or products for

quality control purposes.

(ii) Efficiency surveys.

(iii) Management surveys.

(iv) Market or consumer surveys.

(v) Advertising or promotions.

(vi) Research in connection with literacy, historical, or

similar projects.

Enacting section 1. This amendatory act is retroactive and is

effective January 1, 2006.