Sales Tax Articles
Sales Tax State Activity Update - April 2008
Fabrication Does Not Count as Manufacturing for Tennessee Contractor
The appellant, Gate Bluegrass Precast, Inc. asserted that their precast architectural concrete panels business should be considered as a manufacturing activity.
Accordingly, they should be eligible for the exempt for resale purchase of materials and related industrial equipment and utilities.
However, audit findings characterized Gate as a "contractor/dealer". This position stemmed from the fact that most of the concrete panels were fabricated to fulfill its installation contracts. To the Department's credit, the assessment was reduced when evidence showed that some of the panels were sold without installation.
While more than 70 % of the company's gross sales came from the manufacture of concrete panels, the trial court agreed with the audit determination that the industrial machinery exemption indicated in TN Cod ยง 67-6-206 did not apply. In reading the analysis of the case, it becomes apparent that the ultimate purpose of the manufacturing/fabricating activity in the majority of sales was to install the concrete panels into real property. Hence, the court reached the conclusion that, in essence, the object was a construction contract.
Depending on the state, particular definitions apply to activities such as manufacturing, assembly and fabrication. Companies with related activities that pass through more than one level of trade before the final sale or contract fulfillment may want to review the facts and analysis of this case.
The full text can be accessed on the Tennessee Administrative Office of the Courts Website (PDF)
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