SENATE BILL REPORT

SB 5237

BYSenators McDermott and Gaspard; by request of Department of Revenue

Establishing a primary purpose test for ingredients and components and chemicals used in processing for excise tax purposes.

Senate Committee on Ways & Means

Senate Hearing Date(s):January 28, 1987

Senate Staff:Stephen Rose (786-7443)

AS OF JANUARY 27, 1987

BACKGROUND:

RCW 82.04.050(1)(c) and 82.04.190(1)(c) grant a retail sales/use tax exemption for the purchase or use of an item which becomes an ingredient of a new article being produced for sale.  This exemption is intended to avoid multiple taxation at the manufacturing stage of items which become part of a product which itself is eventually subject to retail sales tax.  Items such as fuel and machinery which are consumed in the manufacturing process and do not become part of a final product are not exempt as ingredients.

In Lone Star Industries, Inc. v. Department of Revenue and Van Dyk v. Department of Revenue, the court ruled that an article that had the dual use of fuel and ingredient was exempted from sales/use taxation independent of the relative portions of these uses. 

SUMMARY:

Only ingredients whose primary use is as an ingredient or component of a new article of tangible personal property being produced for sale are exempted from sales/use taxation.

Fiscal Note:      available