Ohio Supreme Court Expands Interpretation of Where Manufacturing Begins
The Ohio Supreme Court overruled the Tax Commissioner’s interpretation of where manufacturing begins in Lafarge N. Am., Inc. v. Testa, Slip Opinion No. 2018-Ohio-2047. At issue in the case was whether the purchase of fuel and repair parts for equipment used in Lafarge North America, Inc.’s (Lafarge) slag manufacturing process qualified for the manufacturing exemption provided in Ohio Revised Code 5739.02(B)(42)(g). The equipment (a bull dozer, front-end loaders and dump trucks) was used to rip slag from the “slag mountain,” crush the ripped slag, and transport the crushed slag to a screening plant.
At the outset, the Tax Commissioner did not dispute that Lafarge was “manufacturing” slag but found that Lafarge’s manufacturing operation did not begin until the slag reached equipment that screened and sorted the slag by size. Based on this finding, the Tax Commissioner determined that the equipment at issue, and the fuel and repair parts for such equipment, was used prior to the beginning of the manufacturing operation to transport raw material to the manufacturing process, which does not qualify for the manufacturing exemption. Lafarge appealed to the Board of Tax Appeals (“BTA”), which affirmed the Tax Commissioner’s final determination.
On appeal from the BTA’s decision, the Ohio Supreme Court disagreed, holding that manufacturing began when the slag was ripped from the slag mountain and crushed by the bull dozer. As a result, since the bull dozer, front-end loaders and dump trucks are considered used in the manufacturing process, the fuel and repair parts for that equipment qualify for the manufacturing exemption and are not subject to Ohio sales or use tax.
Manufacturers need to review their manufacturing operations to determine where manufacturing begins, keeping in mind that manufacturing can begin at different points in the process.
If you have any questions relating to Ohio’s manufacturing sales tax exemption or any other state and local tax issue, please contact John Trippier, or any of the other professionals at Zaino Hall & Farrin LLC.