HB-5937, As Passed Senate, December 13, 2012
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.
(c) Except as provided in section 3b, interstate
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.
(C) Items included in purchase price.
(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.
(C) A transaction that includes taxable and nontaxable
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.
(c) "Coin-operated telephone service" means a
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.
(c) All of the following:
(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.
(C) 101 to 500, 20 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.
(c) A person, whether or not the person is an industrial
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.
(c) Engineering related to industrial processing.
(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.
(c) Property that is consumed or destroyed or that loses its
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.
(c) Office furniture or office supplies.
(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.
(c) Administrative, accounting, or personnel services.
(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.
(c) "Product", as used in subdivision (e), includes, but is
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.