Sales Tax State Activity Update November 2005

Alabama Explores Dual Use Manufacturing Equipment

The Administrative Law Judge of Alabama recently determined that tangible personal property used by the engineering department to manufacture software and drivers that are necessary and essential components of a laser printer are subject to the reduced machine tax rate.

The Alabama Department of Revenue assessed use tax on the tangible personal property purchased and used in the manufacture of software and drivers required to enable the printer to function.

The Department of Revenue argued the engineering department used the tangible personal property to manufacture the software and drivers in other non-manufacturing related activities (i.e. dual use).

In spite of the engineering department’s dual use of the tangible personal property, the Administrative Law Judge determined that the rate applied because several court cases permitted a broad all inclusive interpretation of the statute related to the machine rate.

In the final analysis the property performed an integral function to the manufacture of tangible personal property and the machine rate may apply even if property is occasionally used for non-manufacturing purposes. The full text may be accessed at: http://216.226.178.107/aljrules/04-178.pdf Alabama Administrative Law Judge Ruling 04-178, 9/29/05