Which machines and related items qualified for South Carolina's manufacturing sales-tax exemption under RR 04-7?

Plain-English summary

South Carolina Revenue Ruling #04-7 replaced the Department's former “production line” approach with the court-driven integral and necessary test for the manufacturing-machine sales-tax exemption.

A machine qualified when it was used at a facility manufacturing tangible personal property for sale, served as an essential and indispensable part of the manufacturing process on an ongoing basis, and was substantially used in manufacturing. The ruling treated more than one-third manufacturing use as substantial, citing a case that found 35% sufficient.

The test focused on what was necessary to the manufacturing process, not merely useful to the manufacturer. Warehouse, distribution, storage, administrative, and general maintenance equipment remained taxable. Buildings and ordinary building components also did not become exempt machines just because they housed or supported exempt equipment.

The ruling applied that framework to chemicals and lubricants, cleaning machines, racks and tanks, forklifts and conveyors, building foundations and structural materials, protective clothing, and machine parts and attachments.

What this means for you

Manufacturers

Document the equipment's actual manufacturing function and usage. A fixture or a device without moving parts could qualify, but only if it was integral and necessary to producing goods for sale.

Plant engineers and purchasing teams

The same type of equipment could be taxable or exempt depending on how it was used. For example, a cleaning machine used continuously to keep an exempt production component functioning could qualify, while equipment used for general maintenance did not.

Contractors and tax professionals

Do not treat the whole manufacturing building as exempt. The ruling treated ordinary foundations, structural steel, roofing, siding, paint, and pipe supports as taxable building components rather than manufacturing machines.

Common questions

Q: Did exempt machinery have to contain moving parts?
A: No. A static item could qualify if it was an integral and necessary part of the manufacturing process.

Q: Did the machine have to be used exclusively in manufacturing?
A: No, but incidental use was insufficient. The ruling said more than one-third manufacturing use was substantial.

Q: Were storage racks and tanks exempt?
A: Generally no when used for storage rather than as an ongoing part of manufacturing.

Q: Were manufacturing buildings and their structural components exempt?
A: No. The ruling treated buildings and ordinary components benefiting the land generally as taxable.

Citations and references

• S.C. Code Ann. § 12-36-2120(17) — manufacturing-machine exemption
• S.C. Code Ann. § 12-36-2120(54) — specified clean-room clothing
• S.C. Regulations 117-302.5 and 117-302.6 — manufacturing machines, parts, and attachments
• Springs Industries, Inc. v. SCDOR, 99-ALJ-17-0153-CC — integral-and-necessary analysis discussed
• Anonymous Taxpayer v. SCDOR, 02-ALJ-17-0350-CC — building and component analysis discussed
• Hercules Contractors & Engineers, Inc. v. S.C. Tax Commission, 280 S.C. 426, 313 S.E.2d 300 (Ct. App. 1984) — machine and substantial-use principles quoted

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: RR04-7.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214
Website Address: http://www.sctax.org

SC REVENUE RULING #04-7

SUBJECT:

Sales and Use Tax Machine Exemption
Springs Industries, Inc. v. SCDOR (99-ALJ-17-0153-CC)
Anonymous Taxpayer v. SCDOR (02-ALJ-17-0350-CC)

EFFECTIVE DATE: Applies to all periods open under the statute.
SUPERSEDES:

S.C. Revenue Ruling #91-13, S.C. Private Letter Ruling #94-7, and all
previous advisory opinions and any oral directives in conflict herewith.
See Note on Page 14.

MODIFIES:

S.C. Revenue Ruling #91-8. See Note on Page 14.

REFERENCES:

S. C. Code Ann. Section 12-36-2120(17) (Supp. 2003)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (Supp. 2000)
S. C. Code Ann. Section 1-23-10(4) (Supp. 2003)
SC Revenue Procedure #03-1

SCOPE:

The purpose of a Revenue Ruling is to provide guidance to the public and
to Department personnel. It is a written statement issued to apply
principles of tax law to a specific set of facts or a general category of
taxpayers. A Revenue Ruling is an advisory opinion; it does not have the
force or effect of law and is not binding on the public. It is, however, the
Department’s position and is binding on agency personnel until
superseded or modified by a change in statute, regulation, court decision,
or advisory opinion.

Table of Contents:
Page Number

Section
Table of Contents
Introduction
Department Guidance
Chemical, Greases, Oils, Lubricants, Coolants
Classification of Machines
Machines used in Manufacturing
Machines used for Maintenance
Machines used for Storage
Conveyances (Material Handling Machines)
Manufacturing Buildings

1

1
2
5
6
7
7
8
9
10
11

Paint and Sealant on Floors, Walls, Etc.
Foundations
Structural Steel, Steel Decking, Checker Plate
Hangers and Supports for Piping
Architectural Roofing and Siding
Administrative Machines, Furniture. Etc.
Protective Clothing
Attachments
Law and Regulations

11
12
13
13
14
14
15
16
16

Introduction:
Many states, including South Carolina, offer manufacturers a sales and use tax exemption on the
purchase of machinery and equipment used in manufacturing. Exemptions of this type are aimed
at encouraging businesses to locate new facilities or expand existing facilities within their
borders. Such exemptions are also meant to reduce pyramiding of taxes, or to reduce multiple
taxation on the sale of goods to the ultimate consumer.
During 2003, South Carolina courts decided two cases which clarify what qualifies as “machines
used in manufacturing” for purposes of the South Carolina sales and use tax machine exemption
in Code Section 12-36-2120(17). These cases are Springs Industries, Inc. v. SCDOR 1 (99-ALJ17-0153-CC) and Anonymous Taxpayer v. SCDOR (02-ALJ-17-0350-CC). In Springs Industries
the Administrative Law Judge Division (“ALJD”) found in favor of the taxpayer on most issues.
The Springs Industries case was appealed by the Department to Circuit Court and the South
Carolina Court of Appeals. The South Carolina Supreme Court denied certiorari and the Circuit
Court and Court of Appeals (in an unpublished opinion) affirmed the ALJD decision. In
Anonymous Taxpayer, the ALJD found in favor of the Department. The Anonymous Taxpayer
decision was not appealed.
Hercules Contractors and Engineers Inc. v. S.C. Tax Commission
The basis for the court’s decision in both of the cases was the determination in Hercules
Contractors and Engineers Inc. v. S.C. Tax Commission, 280 S.C. 426, 313 S.E.2d 300 (Ct. App.
1984). In Hercules the Court held that a waste water treatment facility was a machine and that
“[i]ts various parts and attachments are integral and necessary to the operation of the system as a
whole.”
The Court further defined the term “machine” to include “the concept of combination” and held
that the statute “does not require a machine to have moving parts if it is an integral part of the
manufacturing process” and that the statute makes no distinction “as to whether a machine is a
fixture or personal property.”
1

The Administrative Law Judge Division (“ALJD”) captioned this case “Anonymous Taxpayer v.
SCDOR” to satisfy the confidentiality provisions of the South Carolina Code. Thus, the caption of the
attached decision will also read “Anonymous Taxpayer v. SCDOR.” SCDOR has obtained permission
from Springs Industries to formally identify this ALJD decision as the Springs decision.

2

In determining what is machinery and equipment for purposes of the exemption, the Court held
that the “improvements, whether fast or loose, must be (1) … used directly in manufacturing the
products that the establishment is intended to produce; (2) … necessary and integral parts of the
manufacturing process; and (3) …used solely for effectuating that purpose.” In addition,
“improvements which benefit the land generally and may serve various users of the land are
subject to taxation." Based on these guidelines, the Court held that buildings, such as those
which house textile mills and nuclear reactors, do not come within the exemption.
The Court further held that the statute “does not require a machine to have moving parts if it is
an integral part of the manufacturing process and, using the example of a butter churn, held that
“no logical distinction exists between the moving parts of a machine and those which are static.”
Finally, the Court held that in order for a machine to be exempted from the tax the machine must
be substantially “used in manufacturing … tangible personal property for sale.” The statute does
not require that the machine be used exclusively in manufacturing; however, incidental
manufacturing use will not qualify for the exemption.
Springs Industries, Inc. v. SCDOR
Previously, the Department adhered to the “Production Line Theory” in determining what
machinery was used in manufacturing. Under this theory, items were found to be exempt only if
“used directly” in the manufacturing process. Based upon the recent court decisions, the
“Production Line Theory” will no longer be used. Instead, the court mandated machinery is
exempt if such machinery is “integral and necessary” to the manufacturing process. This change
is generally less restrictive than the Department’s prior interpretation. As such, some machines
that the Department would previously have held subject to the tax are exempt. However, it is
important to note that the determination hinges on whether a machine is integral and necessary to
the manufacturing process, not whether it is integral and necessary to the manufacturer. As such,
machines used for warehouse, distribution, or administrative purposes do not come within the
machine exemption.
More specifically, the Springs case, in addition to several other issues, dealt with the application
of the machine exemption to chemicals as parts, classification of machines as maintenance or
manufacturing machines, classification of machines as storage or manufacturing machines, and
conveyances (material handling machines).
Anonymous Taxpayer v. SCDOR (02-ALJ-17-0350-CC)
The case of Anonymous Taxpayer v. SCDOR (02-ALJ-17-0350-CC) dealt with the issue of
whether buildings or parts of buildings could be exempt under the machine exemption.
Considering the principles previously held in Hercules Contractors and Engineers Inc. v. S.C.
Tax Commission, the court held that the buildings in question did not function as machines and
were not exempt under the machine exemption. Although the decision in this case is consistent
with how the Department has historically viewed the exemption of buildings, it is significant in
that it utilizes the “integral and necessary” methodology to show that the exemption after Springs
is limited to “machines” which are integral and necessary to the manufacturing process and does
not encompass all items useful to a manufacturer.

3

More specifically, the case of Anonymous Taxpayer v. SCDOR (02-ALJ-17-0350-CC), in
addition to several other issues, dealt with the application of the machine exemption to buildings
used by manufacturers, paint and sealants, foundations, structural steel, steel decking and
checker plates for buildings, hangers and supports for process piping, and architectural roofing
and siding.
Issues Addressed In This Advisory Opinion:
This document is meant to aid in deciphering the machine exemption in accordance with these
court decisions and to relay general principals outlined by the courts. Based on these cases, it
must be determined what machines, or combination of machines, machine parts, and
attachments, are integral and necessary to the manufacturing process and therefore exempt from
the sales and use tax. Machines, or combination of machines, machine parts, and attachments,
used for warehouse, distribution, or administrative purposes are not integral and necessary to the
manufacturing process and therefore do not come within the machine exemption.
Following this introduction is an outline to further assist in understanding the breadth of the
machine exemption under the law as determined by these cases. This outline provides examples
of machines that are and are not integral and necessary to the manufacturing process. Note the
ALJD decisions provide a more detailed explanation of the items in contest and the reasons for
the ALJD’s decision with regard to each item.
This document addresses the following issues that have arisen as a result of the cases of Springs
Industries, Inc. v. SCDOR (99-ALJ-17-0153-CC) and Anonymous Taxpayer v. SCDOR (02-ALJ17-0350-CC and subsequent questions raised by Department employees and taxpayers:

1. Chemicals, Greases, Oils, Lubricants and Coolants
2. Classification of Machines used in Manufacturing, Maintenance, or Storage
3. Conveyances
4. Manufacturing Buildings
5. Administrative Machines, Furniture, Equipment and Supplies
6. Protective Clothing
   However, it should be noted that, while not discussed in this document, the sales or
   purchase of machines that were previously held exempt by regulation or past Department
   policy prior to these cases are still exempt now. SC Regulations 117-302.5 and 117-302.6,
   which concern the sales and use tax machine exemption, are attached. These regulations
   contain examples of items previously exempted from the tax under the machine exemption.
   Department Guidance:
   A “machine used in manufacturing … tangible personal property for sale” is exempt from the
   sales and use tax. For purposes of this opinion, manufacturing includes processing,
   compounding, mining and quarrying.

4

In reviewing the above referenced cases in conjunction with prior court cases, regulations,
Commission Decisions, and Department advisory opinions, it is the opinion of the Department
that a machine qualifies for the exemption under Code Section 12-36-2120(17) if the machine is
integral and necessary to the manufacturing process and the product being manufactured is being
manufactured “for sale.” A machine, which includes every mechanical device or combination of
mechanical powers, parts, attachments and devices to perform some function and produce a
certain effect or result, is integral and necessary to the manufacturing process if it meets all of the
following:

1. The machine is used at a manufacturing facility. This exemption only applies to machines
   used at a facility whose purpose is that of manufacturing a product “for sale.” It does not
   apply to machines used at a facility whose purpose is retailing, wholesaling, distributing,
   or some other non-manufacturing purposes. For example, machines used by a large
   industrial baker in manufacturing breads, cakes, and pies for sale may be purchased tax
   free; however, similar machines used by a “Ma & Pa” bakery on Main Street may not be
   purchased tax free since they are used at a facility whose purpose is retailing.
2. The machine is used in, and serves as an essential and indispensable component part of
   the manufacturing process, and is used on an ongoing and continuous basis during the
   manufacturing process. A machine is not a part of the manufacturing process merely
   because it is integral and necessary to the manufacturer. For example, machines used for
   warehouse, distribution, or administrative purposes are integral and necessary to the
   manufacturer, but not part of the manufacturing process.
3. The machine must be substantially “used in manufacturing … tangible personal property
   for sale.” The statute does not require that the machine be used exclusively in
   manufacturing; however, incidental manufacturing use will not qualify for the exemption.
   In the Department’s opinion, more than one-third of a machine’s use in manufacturing is
   substantial. See Hercules Contractors and Engineers Inc. v. S.C. Tax Commission where
   the Court held 35% to be substantial.
   Machines that meet the above requirements do not lose the exemption because they do not have
   moving parts or because they are fixtures upon the real estate where they stand. However,
   buildings and parts of buildings, as well as other improvements which benefit the land generally
   and may serve other users of the land, do not come within the exemption.
4. CHEMICALS, GREASES, OILS, LUBRICANTS AND COOLANTS AS PARTS
   In Springs Industries, Inc. v. SCDOR, 99-ALJ-17-0153-CC, the court concluded that certain
   chemicals were integral and necessary to the functioning of the screen washing machinery and
   were integral, necessary, and indispensable to the manufacturing process and therefore were
   exempt under Section 12-36-2120(17) as a part of the screen washing machine. In addition,
   under the same analysis, the court held that size box cleaners were exempt under Section 12-362120(17) as a part of the size box. See Section “B” of the court’s decision.

5

Therefore, chemicals, including greases, oils, lubricants, and coolants, used in an exempt
manufacturing machine that are essential to the functioning of the exempt machine during the
manufacturing process are integral, necessary, and indispensable to the manufacturing process
and are exempt as part of the machine.
Based on the above, the Department has identified the following situations in which chemicals,
greases, oils, lubricants, and coolants will be exempt as part of an exempt machine:
•

Chemicals, greases, oils (motor oils, gear oils, chain oils), lubricants, and coolants used in
an exempt manufacturing machine when such items are integral and necessary to the
manufacturing process, such as those that are essential in ensuring the functioning of the
machine during the manufacturing process, and the use of such items is an ongoing,
continuous activity.

•

Chemicals used in an exempt pollution control machine to abate or prevent pollution
when such chemicals are integral and necessary to the manufacturing process, such as the
treating of wastewater or otherwise preventing or abating pollution, and the use of such
chemicals is an ongoing, continuous activity.

•

Chemicals used to clean the exterior or interior of an exempt manufacturing machine
when the cleaning is integral and necessary to the manufacturing process, such as those
that are essential in ensuring the quality of the product is maintained, and the use of such
chemicals is an ongoing, continuous activity.

•

Chemicals used to prevent corrosion in an exempt manufacturing machine, such as an
exempt boiler, when such chemicals are integral and necessary to the manufacturing
process, such as those that are essential in ensuring the functioning of the machine during
the manufacturing process, and the use of such chemicals is an ongoing, continuous
activity.

Situations in which the chemicals would not qualify as part under the machine exemption and
would therefore be subject to the sales and use tax include:
•

Chemicals used to clean non-exempt machines, such as storage tanks.

•

Chemicals used to clean floors, walls, and other parts of the manufacturing facility.

•

Paint used on exempt manufacturing machines to prevent corrosion of the machines is
not exempt from the tax as a machine used in manufacturing tangible personal property
for sale. (Note: This is different from the chemicals used to prevent corrosion in exempt
machines, such as exempt boilers, since the painting of the machine is not an ongoing,
continuous activity. It is a maintenance activity. The chemicals, unlike the paint, are
integral and necessary to the operation of the machines since they are essential in
ensuring the functioning of the machine during the manufacturing process and are used
on an ongoing, continuous basis.) See Anonymous Corporation v. SCDOR.

6

•

Chemicals, greases, oils (motor oils, gear oils, chain oils), lubricants, and coolants used in
an exempt manufacturing machine when such items are not integral and necessary to the
manufacturing process, such as those that are not essential in ensuring the functioning of
the machine during the manufacturing process. For example, grease used on a part that
has been removed from an exempt manufacturing machine when such grease has been
placed on the part to protect it while it is in storage and not being used is subject to the
tax since the grease is not integral and necessary to the functioning of the part or the
machine during the manufacturing process.

2. CLASSIFICATION OF MACHINES USED IN MANUFACTURING, MAINTENANCE
   OR STORAGE
   A. Manufacturing:
   In Springs Industries, Inc. v. SCDOR, 99-ALJ-17-0153-CC, the court held that the washing of a
   textile print screen was done specifically for the purpose of manufacturing a final product, that
   without washing the print screen would be rendered useless thereby preventing further
   manufacturing of the final product, and that the print screens could not be continually used
   without the screen washing machine. In addition, the print screen washing machine was located
   close to the production line machinery. As such, the court further held that the print screen
   washing machine was integral and necessary to the manufacturing process, was not a
   maintenance or repair machine, and was, therefore, exempt under Section 12-36-2120(17). See
   Section “B” of the court’s decision.
   Therefore, machines and machine parts used in manufacturing are exempt machines provided
   that they are integral and necessary to the manufacturing process, are used as a function of the
   manufacturing process, and the process is an ongoing, continuous activity.
   In addition to print screen machines described above and machines previously held as exempt by
   regulation (see attached), the following machines are considered exempt as manufacturing
   machines.
   •

Buffing machines used to buff the cot of an exempt textile spinning machine when such
machines are an integral and necessary part of the manufacturing process and the buffing
is required to maintain the yarn quality at a consistent level and is an ongoing, continuous
activity. See Springs Industries, Inc. v. SCDOR.

•

Traveling water screens used to filter water from a river, lake, or other water source at a
water treatment plant processing water for sale.

•

Quality control machines used in a lab at a manufacturing facility to test sample products
being manufactured for sale on an ongoing and continuous basis.

•

Pressure washing machines and ultrasonic cleaning machines used to clean exempt
manufacturing machines or parts when the cleaning of the exempt manufacturing
machine or part is integral and necessary to the manufacturing process and essential in
7

ensuring the functioning of the exempt machine or part during the manufacturing process
or essential in ensuring the quality of the product is maintained, and the cleaning is an
ongoing, continuous.
•

Machines or machine parts used in removing sawdust from saws in a sawmill that are
attached to the sawing mechanism. Machines used in removing sawdust from saws in a
sawmill that are not attached to the sawing mechanism but only if the removal of sawdust
is integral and necessary to the manufacturing process, such as those that are essential in
ensuring the quality of the product is maintained, and the removal of the sawdust is an
ongoing, continuous activity. 2

Note: See section below for a discussion of “Conveyances” that may be exempt from the sales
and use tax as machines used in manufacturing tangible personal property for sale.
B. Maintenance:
Maintenance machines used at a manufacturing facility are not exempt from the tax as a machine
used in manufacturing tangible personal property for sale. In listing examples of machines that
do not qualify for the machine exemption, Regulation 117-302.5 states that the exemption does
not apply to maintenance machines.
In Springs Industries, Inc. v. SCDOR, 99-ALJ-17-0153-CC, the court was asked to determine
whether a machine was used in manufacturing or used for maintenance. In that case, the court
held that the washing of a textile print screen was done specifically for the purpose of
manufacturing a final product. Without the washing of the print screen it would be rendered
useless thereby preventing further manufacturing of the final product, and that the print screens
could not be continually used without the screen washing machine. In addition, the print screen
washing machine was located close to the production line machinery and used on an ongoing and
continuous basis. As such, the court further held that the print screen washing machine was
integral and necessary to the manufacturing process, was not a maintenance or repair machine,
and was, therefore, exempt under Section 12-36-2120(17).
Therefore, machines that are used to maintain non-exempt machines (machines that are not
integral and necessary to the manufacturing process), or are not used on an ongoing, continuous
basis to maintain exempt manufacturing machines (machines that are integral and necessary to
the manufacturing process) are maintenance machines and are not exempt from the tax as
machines used in manufacturing tangible personal property for sale.
The Department has identified the following machines to be maintenance machines under
Regulation 117-302.5 and therefore subject to the sales and use tax:
•

Pressure washing machines and ultrasonic cleaning machines used to clean non-exempt
machines or parts, such as storage tanks.

2

As stated in the section on “Maintenance,” machines used in removing sawdust from the floor of a
sawmill are not exempt.

8

•

Machines used to clean floors and other parts of realty (e.g., machines used in removing
sawdust from the floor of a sawmill).

•

Machines, such as maintenance machines, which are not integral and necessary to the
manufacturing process.

•

Machines, such as pressure washing machines and ultrasonic cleaning machines, used to
clean exempt manufacturing machines or parts when the cleaning of the exempt
manufacturing machine or part is not integral and necessary to the manufacturing
process, such as those that are not essential in ensuring the functioning of the exempt
machine or part during the manufacturing process or those that are not essential in
ensuring the quality of the product is maintained. In addition, if the cleaning is not an
ongoing, continuous activity, then the machines are not integral and necessary to the
manufacturing process.

C. Storage:
In Springs Industries, Inc. v. SCDOR, 99-ALJ-17-0153-CC, the court held that beam racks that
hold yarn after it has completed a certain level of processing were not exempt manufacturing
machines. The court determined that storage racks were not an integral and necessary part of
manufacturing. In a later decision the Court reached a similar conclusion for movable storage
racks used in a warehouse where the finished product is stored while it cures (the product cannot
be shipped until it has cured the required amount of time). In Anonymous Corporation v.
SCDOR, 02-ALJ-17-0350-CC, the court held that movable racks used to store fiber in a curing
warehouse were not used in the manufacturing of tangible personal property, were not integral
and necessary to the manufacturing process, and were used solely for storage purposes. The
court held that such racks were not exempt under Section 12-36-2120(17).
In addition to the beam racks used to hold yarn and the movable racks used to store fiber in a
curing warehouse, as described above, the Department has identified the following machines to
be storage and therefore taxable:
•

Racks used to store raw materials or finished goods.

•

Storage tanks used to store raw materials, gasses, or water.

•

Racks and tanks used to store a finished product while it cures.

Note: As stated below under “Conveyances,” warehouse machines (e.g., forklifts) that, in
addition to being used in loading, unloading, storing, and transporting raw materials from the
warehouse to the manufacturing area, or transporting finished products from the manufacturing
area to the warehouse, are also used substantially 3 to feed raw material into or onto the first
3

In Hercules Contractors and Engineers, Inc. v. S.C. Tax Commission, 280 S.C. 426, 313 S.E.2d 300 (Ct.
App. 1984), the court held that a wastewater treatment machine in which 35% of the water treated was
wastewater from machines manufacturing tangible personal property for sale was substantially used itself
in manufacturing tangible personal property for sale and was exempt.

9

processing machine in the manufacturing process area are exempt as machines used in
manufacturing.

3. CONVEYANCES (MATERIAL HANDLING MACHINES):
   In Springs Industries, Inc. v. SCDOR, 99-ALJ-17-0153-CC, a mezzanine lift designed to carry
   drums of textile dye to a higher level so that the dye can be gravity fed into the apparatus for the
   dyeing of cloth is exempt from the tax as a machine used in manufacturing tangible personal
   property for sale. The court held that the mezzanine lift was integral and necessary to the
   manufacturing process.
   In addition to the mezzanine lift described above and machines previously held as exempt by
   regulation (see attached), the Department has identified the following conveyances to be exempt.
   •

Wheeled conveyances known as “print screen truck” used by a textile manufacturer in the
movement of print screens from a holding area to the exempt print machines, to the print
screen washing machine, and back to the holding area racks after the style or pattern is
changed and the print screen is washed. See Springs Industries, Inc. v. SCDOR, 99-ALJ17-0153-CC.

•

Warehouse machines (e.g., forklifts) that, in addition to being used in loading, unloading,
storing, and transporting raw materials from the warehouse to the manufacturing area, or
transporting finished products from the manufacturing area to the warehouse, are also
used substantially 4 to feed raw material into or onto the first processing machine in the
manufacturing process area.

Regulation 117-302.5 (approved February 29, 2004 and effective March 26, 2004) states that
conveyors are subject to the tax up to the point where the materials go into the process. The last
machine to come within the exemption is that machine which discharges the finished product
from the last machine used in the process. Under this rule, it is the Department’s opinion that the
following conveyors are subject to the tax.
•

Conveyors used solely by the taxpayer in the warehousing of raw materials and finished
goods.

•

Conveyors which are not integral and necessary to the manufacturing process.

•

Piping leading to and from storage tanks. 5

•

Piping, pumps, and well connections installed for use by a manufacturer to supply the
manufacturing plant with water necessary for the manufacture of tangible personal
property. 6

4

See Footnote #3.
In listing examples of machines that do not qualify for the machine exemption, Regulation 117-302.5
states that the exemption does not apply to storage tanks and piping leading to and from storage tanks.

5

10

•

Warehouse machines that are used for warehouse purposes, such as loading, unloading,
storing, transporting raw materials from the warehouse to the manufacturing area, or
transporting finished products from the manufacturing area to the warehouse.

4. BUILDINGS USED BY MANUFACTURERS:
   A building which houses a manufacturing process is not exempt from the tax as a machine, or a
   part or attachment to a machine, used in manufacturing tangible personal property for sale. In
   Anonymous Corporation v. SCDOR, 02-ALJ-17-0350-CC, the court held, citing Hercules
   Contractors and Engineers, Inc. v. S.C. Tax Commission, 280 S.C. 426, 313 S.E.2d 300 (Ct.
   App. 1984), that “the Court of Appeals explicitly provided that buildings are not exempt from
   the sales and use tax.” As such, if the structure in question is a building, it is not a machine and
   the materials used to construct the building are not exempt from the tax as a machine, or a part or
   attachment to a machine, used in manufacturing tangible personal property for sale.
   A. Paint or Sealant on Floor, Walls, and Other Parts of a Manufacturing Building
   Paint or sealant used to seal the floor or walls of the manufacturing area of a building to provide
   chemical resistance in the event of a spill is not exempt from the tax as a machine, or a part or
   attachment to a machine, used in manufacturing tangible personal property for sale. Anonymous
   Corporation v. SCDOR, 02-ALJ-17-0350-CC. The court held that such paint or sealant was not
   integral or necessary to the plant system as a whole and when applied to the floors, that the paint
   and sealant became part of the building and were, therefore, not used in the manufacturing
   process and did not qualify for the exemption as a machine or machine part or attachment used in
   manufacturing tangible personal property for sale under Section 12-36-2120(17).
   In the same case paint used on the floor of the textile manufacturing area of a building to
   facilitate the threading of warping machines so that employees can more easily see the thread
   was found to be taxable.
   Paint used on exempt manufacturing machines to prevent corrosion of the machines is not
   exempt from the tax as a machine used in manufacturing tangible personal property for sale. See
   also Anonymous Corporation v. SCDOR, 02-ALJ-17-0350-CC.
   Note: As stated above, the paint is not integral and necessary to the operation of the
   manufacturing machines. This is different from the chemicals used to prevent corrosion in
   exempt machines, such as exempt boilers. Such chemicals, unlike the paint, are exempt when
   such chemicals are integral and necessary to the functioning of the exempt machine during the
   manufacturing process and the use of these chemicals to prevent corrosion is an ongoing,
   continuous activity. Paint is not integral and necessary to the functioning of the machine “during
   the manufacturing process” and painting the machine is not an ongoing continuous activity.

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In listing examples of machines that do not qualify for the machine exemption, Regulation 117-302.5
states that the exemption does not apply to piping, pumps, and well connections installed for use by a
paper manufacturer to supply the manufacturing plant with water necessary for the manufacture of paper.

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B. Foundations
Foundations (consisting of pilings, pile caps, elevated slab, and slab on grade) of a building in
which exempt manufacturing machines are housed are not exempt from the tax as a machine, or
a part or attachment to a machine, used in manufacturing tangible personal property for sale. In
Anonymous Corporation v. SCDOR, 02-ALJ-17-0350-CC, the court stated:
Concrete foundations of building in which manufacturing machines are housed are not
exempt under the machine exemption. They are not machines, parts or attachments to
exempt machines, nor are they used in the manufacturing process. Rather, they are part
of the structure of the building; they are the building foundations. Taxpayer argues they
are exempt because they support the processing equipment. However, the testimony of
the Department’s engineers was that the piling, pile caps, elevated slabs, and slab on
grade were typical for manufacturing buildings constructed in coastal areas. Such
testimony is persuasive to the court and further supports the court’s conclusion that they
are part of the building structure and do not qualify for the sales tax exemption.
Likewise, concrete foundations supporting nonexempt machines in the tank farm are not
machines, are not parts or attachments to machines, nor are they used in the
manufacturing process. As such, they do not qualify for the machine exemption. They
are integral and necessary for the proper construction of the building, but they are not
integral to the plant manufacturing process or system as a whole.
C. Structural Steel, Steel Decking, and Checker Plate for Buildings
Structural steel, steel decking, and checker plate of a building in which exempt manufacturing
machines are housed is not exempt from the tax as a machine, or a part or attachment to a
machine, used in manufacturing tangible personal property for sale. In Anonymous Corporation
v. SCDOR, 02-ALJ-17-0350-CC, the court stated:
Structural steel, steel decking, and checker plate are not exempt under the machine
exemption because they are part of the building; they are not parts or attachments to an
exempt machine. Further, they are not used in the manufacturing process. Taxpayer
argues they support and hold the processing equipment in place. However, the structural
steel, steel decking, and checker plate used in the … buildings are typical of that used in
the construction of other manufacturing facilities and are not exempt from sales tax.
Therefore, structural steel, steel decking, and checker plate of a building in which exempt
manufacturing machines are housed are not exempt from the tax as a machine, or a part or
attachment to a machine, used in manufacturing tangible personal property for sale.
D. Hangers and Supports for Process Piping
Hangers and supports used in a manufacturing building to route exempt process piping from one
area of the manufacturing process to another area of the manufacturing process via pipe racks
and cable trays are not exempt from the tax as a machine, or a part or attachment to a machine,
used in manufacturing tangible personal property for sale. In Anonymous Corporation v.
SCDOR, 02-ALJ-17-0350-CC, the court stated:
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Hangers and supports route the process piping from one area to another via pipe racks
and cable trays. It is the conclusion of this court that the hangers and supports are not
exempt because they are parts of the buildings and are not integral and necessary in the
manufacturing process as a whole. As such, they are not machines or parts of machines.
They are typical of that used in the construction of manufacturing facilities.
Therefore, hangers and supports used in a manufacturing building to route exempt process piping
from one area of the manufacturing process to another area of the manufacturing process via pipe
racks and cable trays are not exempt from the tax as machines, or parts or attachments to
machines, used in manufacturing tangible personal property for sale.
E. Architectural Roofing and Siding Enclosing a Manufacturing Building
Architectural roofing and siding enclosing a manufacturing building housing exempt
manufacturing machines is not exempt from the tax as a machine, or a part or attachment to a
machine, used in manufacturing tangible personal property for sale. In Anonymous Corporation
v. SCDOR, 02-ALJ-17-0350-CC, the court held that the roofing material (a rubber membrane)
and the siding (a multi-layer material composed of steel and rigid foam for insulation) were parts
of the building which assisted in forming an enclosure for the protection of the equipment along
with its insulation component which assisted with climate control. The court held that neither
the roof nor the siding was integral and necessary to the plant system as a whole. The court
further held the roof and the siding are not machines, machine parts, or attachments and are not
used in the manufacturing process.
Therefore, architectural roofing and siding enclosing a manufacturing building housing exempt
manufacturing machines are not exempt from the tax as machines, or parts or attachments to
machines, used in manufacturing tangible personal property for sale.

5. ADMINISTRATIVE MACHINES, FURNITURE, EQUIPMENT AND SUPPLIES:
   In Springs Industries, Inc. v. SCDOR, 99-ALJ-17-0153-CC, the court held that beam racks were
   used by the taxpayer for storage purposes only and were not an integral and necessary part of the
   manufacturing process and were not exempt under Section 12-36-2120(17). As such, while
   integral and necessary to the manufacturer, the beam racks used by the taxpayer for storage
   purposes were not an integral and necessary part of the manufacturing process. This same
   principal applies to administrative machines, furniture, equipment, and supplies.
   Therefore, administrative machines, furniture, equipment, and supplies, such as office computers
   used for word processing, recordkeeping, employee payroll, customer billing, purchasing,
   accounting, and similar purposes, office furniture, office supplies, such as pens, pencils, paper,
   and similar items, educational material, or items used for the personal comfort, convenience, or
   use of employees, are not machines used in the process of manufacturing tangible personal
   property for sale and are not exempt from the tax.

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6. PROTECTIVE CLOTHING
Protective clothing worn by an employee working in the area in which the manufacturing process
occurs does not qualify as a machine and is not exempt from the tax as a machine used in
manufacturing tangible personal property for sale under Section 12-36-2120(17). However,
“clothing and other attire required for working in a Class 100 or better as defined in Federal
Standard 209E clean room environment” is exempt under the provisions of Section 12-362120(54).
Note: Based on the Springs Industries, Inc. v. SCDOR, (99-ALJ-17-0153-CC), S.C. Revenue
Ruling #91-13 concerning machine shops at a manufacturing facility is rescinded, S.C. Private
Letter Ruling #94-7 concerning greases and oils used in or on exempt manufacturing machines is
rescinded, and S.C. Revenue Ruling #91-8 concerning a water treatment plant is modified with
respect to the issue of the traveling water screen.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Burnet R. Maybank III
Burnet R. Maybank III, Director

April 20
, 2004
Columbia, South Carolina

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Attachment - Law and Regulations:
Code Section 12-36-2120(17) exempts from the sales and use tax:
machines used in manufacturing, processing, recycling, compounding, mining, or
quarrying tangible personal property for sale. “Machines” include the parts of machines,
attachments, and replacements used, or manufactured for use, on or in the operation of
the machines and which (a) are necessary to the operation of the machines and are
customarily so used, or (b) are necessary to comply with the order of an agency of the
United States or of this State for the prevention or abatement of pollution of air, water, or
noise that is caused or threatened by any machine used as provided in this section. This
exemption does not include automobiles or trucks. As used in this item “recycling”
means a process by which materials that otherwise would become solid waste are
collected, separated, or processed and reused, or returned to use in the form of raw
materials or products, including composting, for sale.
SC Regulation 117-302.5 concerns the above cited exemption and reads:
Machines used in manufacturing, processing, compounding, mining, or quarrying
tangible personal property for sale, and the replacement parts and attachments to such
machines, are exempt from the sales and use tax under Code Section 12-36-2120(17).
Parts of machines, attachments, and replacements used, or manufactured for use, on or in
the operation of machines are also exempt, provided the parts, attachments or
replacements are used on or in the operation of such machines, manufactured for use on
or in the operation of such machines, necessary to the operation of such machines, and
must be customarily so used. These restrictions are interpreted to mean that the part or
attachment must be purchased in the form in which it will be used by the manufacturer
without any fabrication or alteration by him, except the usual and customary minor
adjustment, (except as stated below) and that it is a standard part or attachment
customarily used and, further, that the machine or machinery on which it is used would
not do the work for which it was designed if it were not used. This, of course, exempts all
parts and attachments without which the machine would do no work, and, in addition, it
exempts parts and attachments designed to increase the efficiency of the machine.
The general rule with reference to material handling machinery and/or mechanical
conveyors is that such machinery is subject to the tax up to the point where the materials
go into process. The machine feeding the first processing machine(s) is exempt. The last
machine to come within the exemption is that machine which discharges the finished
product from the last machine used in the process. Material handling machinery used for
transporting (in process) material from one process stage to another comes within the
exemption. Warehouse machinery used only for warehouse purposes, loading and
unloading, storing, transporting raw materials and finished products, etc., is subject to the
tax, unless exempt under the provisions of Code Section 12-36-2120(51). If material
handling machinery is customarily used for a dual purpose, that is partly for an exempt
purpose and partly for a taxable purpose, and is not otherwise exempt under the
provisions of Code Section 12-36-2120(51), the machinery may be purchased free of the

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tax under the machine exemption (Code Section 12-36-2120(17)) provided the exempt
use represents a substantial portion of its use.
Manufacturers, processors, compounders, miners or quarriers are entitled to purchase at
wholesale, free of the sales or use tax, materials used by them in the building of machines
for the purpose of manufacturing or compounding tangible personal property for sale. It
should be noted that only those materials are exempt to manufacturers, processors,
compounders, miners or quarriers which are used by them in building machines for the
purpose of manufacturing or compounding tangible personal property for sale. This
ruling would not be for application in the case of the use of property in the nature of
building materials from which there is erected a "structure," which upon completion
might be used for producing tangible personal property for sale.
Electricity is tangible personal property and is characterized as such in the law.
Therefore, its production is considered as manufacturing and all machinery used for the
generation, such as boilers, engines, condensers, generators, and transformers and their
attachments, are exempt. Electrical equipment used as direct controls of machinery used
in manufacturing is considered as part of manufacturing machinery and as such is
exempt. All wires, fixtures, etc., used in lighting are taxable.
Materials or equipment which might constitute a machine or machinery when not used
for processing or manufacturing are not exempted.
This exemption applies to:
(a) trucks too large to be lawfully used upon the highways of this state, when used in
quarry pits for transporting rock or granite from the blasting site to the crushing machine.
(b) sand handling and sand condition machines used by manufacturers or processors for
conditioning and transporting, while in process, and for use in mold making.
(c) tanks which are a part of the chain of processing operations.
(d) patterns which become parts or attachments for molding machines when purchased by
a manufacturer for his use.
(e) mechanically operated devices used in making molds from sand for use in
manufacturing tangible personal property for sale.
(f) machines used in measuring, or weighing, and packaging by manufacturers,
compounders and processors when such machines are a part of the "production line"
machinery and are used to put the product in condition for sale on the open market for the
purpose for which it was produced.
(g) machines used in weighing and sacking cement and lime when used by the
manufacturer.

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(h) machines used to measure and sack corn meal when used by the manufacturer.
(i) machines used by soft drink bottlers for measuring and bottling their product.
(j) transformers used in manufacturing and processing tangible personal property for sale,
used by producers or distributors of electricity which process the electricity, and all
transformers used by other manufacturers, processors, or compounders as a part of their
manufacturing, processing, or compounding machinery. Capacitors and voltage
regulators are similar to and have the same exemption as transformers.
(k) machines used by cotton ginners in their processing operations.
(l) pasteurizing machines, cooling machines, mechanical separators, homogenizing
machines and bottling machines used by dairies in processing milk for sale. The machine
exemption does not extend to cover milking machines.
(m) boiler tubes used in repairing boilers used to furnish heat or power used in
manufacturing tangible personal property for sale.
(n) machines used by persons in the business of producing scrap iron and other metals
from junk for resale to steel mills and/or foundries, such as hydraulic baling presses (to
compress sheet steel into bales), cranes (to feed scrap metals to baling press), and
alligator shears (to cut scrap steel to predetermined sizes).
(o) machines used by dental laboratories in manufacturing for sale plates, bridgework,
artificial teeth and other prosthetic devices.
(p) machines used in processing and manufacturing by electric power companies
including all producing stationary machines in an electric power generating house,
stationary, processing machines located in substation houses and transformers, pole or
otherwise.
(q) starters, switches, circuit breakers and other electrical equipment which are parts of,
or attachments of machines, come within the machine exemption. In order to be exempt
this equipment must be either attached directly to the machine or be immediately adjacent
thereto. Switchboards and control boards and cabinets controlling the general electrical
supply system are not considered to be parts or attachments of machines used in
manufacturing. (Note, however, that, switchboards, automatic or manually operated,
which serve to operate exempt machinery may be classified a part or attachment thereto,
provided, same are attached thereto or located within the same structure or compound.)
The general rule is that power distribution machinery for operating machines used in
processing and manufacturing tangible personal property which starts at the main switch
within the factory building or compound is exempt.
(r) machines used directly in the wood preserving process by persons engaged in the
business of treating lumber or lumber products (wood preserving) which they own and
treat for sale.
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(s) gas pressure regulators located in the lead off from the gas main.
(t) machines used directly in the meatpacking process by meatpackers whose activities
include the curing of meats and the production of animal by-products such as lard,
sausages, or tankage.
(u) machines used directly by ice manufacturers in manufacturing or compounding ice for
sale.
(v) machines used to condition air (including humidification systems) for quality control
during the manufacturing process of tangible personal property made from natural fibers
and synthetic materials. This exemption applies to the pipes and duct used to distribute
the processed air to the production areas within the plant.
(w) recording instruments attached to manufacturing machines.
(x) machines used directly by a manufacturer in the tire recapping process.
(y) machines used by municipalities in processing or compounding water for sale.
(z) belting purchased for use on a particular machine used in manufacturing tangible
personal property for sale even though such belting may not be purchased to the exact
length required.
(aa) machines manufactured for and customarily used in removing sawdust from saws in
sawmills manufacturing lumber for sale when such machines are attached to or a part of
the sawing mechanism and machines manufactured for and customarily used to remove
waste material from planners, edgers, and other manufacturing machines used in
sawmills manufacturing lumber for sale when such machines are attached to or a part of
the planner, edger, or other manufacturing machine. Note, however, the removal or
disposal of waste materials is not of itself a manufacturing process on which a claim for
exemption could be based. The waste removal machinery must be an attachment of an
exempt machine to come within the exemption.
(bb) machines purchased by persons in the business of collecting old and used paper
(waste paper) for the purpose of grading, sorting and packaging the same for sale or
resale to paper mills.
(cc) insulation for pipe coverings, tank coverings, and boiler insulation purchased by a
paper manufacturer from the vendor in its final prefabricated form for a specific
insulation job, provided it does not have to be cut and fitted at the paper mill. Certain
fabrication is permissible around valve openings, pipe openings at pipe joints, etc. Note,
where insulation is purchased in blocks, such blocks are to be considered as taxable,
except as noted above with respect to the purchase of material in building a machine used
in manufacturing, processing, or compounding tangible personal property for sale.
This exemption does not apply to:
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(a) warehouse machines used only for warehouse purposes, such as loading and
unloading, storing, or transporting raw materials or finished products.
(b) storage tanks and piping leading to and from storage tanks and piping bringing gas or
water into the plant.
(c) power lines bringing electricity into the plant.
(d) dippers used for measuring purposes in a textile bleachery, dye or finishing plant.
(e) machines used for maintenance purposes.
(f) pipe, valves, fittings, etc., regardless of size, which are purchased by paper
manufacturers specifically for use in drinking water lines, fire protection lines, or for
transmission of water from source to water treatment plant, or from water treatment plant
itself.
(g) piping furnished and installed along with pump houses and well connections by a
contractor when intended for use by a paper manufacturer to supply his plant with the
water necessary to the manufacturer of paper.
SC Regulation 117-302.6 concerns the application of the machine exemption to pollution control
machines, and reads:
Code Section 12-36-2120(17) exempts from the sales or use tax the gross proceeds of the
sale of machines used in mining, quarrying, compounding, processing and manufacturing
of tangible personal property and the term "machine" includes parts of such machines,
attachments and replacements therefor which are used or manufactured for use on or in
the operation of such machines and which are necessary to the operation of such
machines and which are customarily so used ..." Frequently, these machines cannot be
operated when the same pollute beyond regulated levels and in compliance with orders of
agencies of the United States or of this state to abate or prevent pollution caused or
threatened by the operation of such machines it is necessary to install other machines that
are designed and operated exclusively for the purpose of abating or preventing this
pollution. The purpose of this regulation is to classify the machines, their parts or
attachments, as machines used in mining, quarrying, compounding, processing or
manufacturing of tangible personal property when the same are installed and operated for
compliance with an order of an agency of the United States or of this state to prevent or
abate pollution caused or threatened by the operation of other machines used in the
mining, quarrying, compounding, processing and manufacturing of tangible personal
property.
The term "machine" as defined in Section 12-36-2120(17) shall include machines, their
parts and attachments, when the same are necessary to comply with the order of an
agency of the United States or of this state for the prevention or abatement of pollution
that is caused or threatened by any machines used in the mining, quarrying,
compounding, processing and manufacturing of tangible personal property.

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Any person engaged in the business of mining, quarrying, compounding, processing and
manufacturing of tangible personal property shall furnish the department a certified
statement from the ordering agency that any machine for which the exemption is claimed
is necessary to prevent or abate pollution caused or threatened by the operation of other
machines that are used in the mining, quarrying, compounding, processing or
manufacturing of tangible personal property.
The order referred to herein must be issued by the agency of the United States or of this
state that is primarily charged with the duty of preventing or abating the pollution.

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