When did SC Revenue Ruling 91-6 treat a large, fixed manufacturing structure as machinery or equipment rather than a general real-property improvement?

Plain-English summary

South Carolina Revenue Ruling 91-6 adopted a four-factor use test for deciding whether a large, fixed industrial structure was manufacturing machinery or equipment for property-tax purposes.

The structure qualified when it:

1. was used directly in manufacturing;
2. was necessary and integral to the manufacturing process;
3. was used solely to make the products the facility was intended to produce; and
4. did not benefit the land generally or serve various users of the land.

The ruling emphasized function over physical form. A structure could be large, concrete, fixed, and immovable and still be machinery.

Why classification mattered

Section 12-37-930 generally valued property at fair market value through appraisal. For machinery and equipment used in a manufacturing business, however, the ruling said fair market value was determined by reducing original cost under a statutory depreciation schedule.

Manufacturers and tax authorities therefore needed a way to classify structures such as concrete vats, basins, slag pits, and blast-furnace stock bins that looked like real-property improvements but functioned as production equipment.

The Hercules use test

The ruling relied on Hercules Contractors and Engineers, Inc. v. South Carolina Tax Commission. That case treated a textile plant's wastewater facility—vats, basins, tanks, pumps, troughs, pipes, and other devices operating together—as one machine.

The court rejected physical attachment and movement as decisive tests. Fixed and static components could be machinery when their use satisfied the manufacturing criteria. The ruling used the example that separating the moving blades of a butter churn from its static barrel would make little functional sense.

Structures that did not qualify

The ruling distinguished a production structure from a general-purpose building. Concrete vats and basins with no use apart from the integrated machine could qualify. Buildings housing textile mills or nuclear reactors did not qualify on that reasoning because they benefited the land generally and could serve various users.

The final question was therefore not “Does it look like a building?” but “How exclusively and integrally does it function in manufacturing?”

What this means for you

Manufacturers

Document the structure's direct production role, necessity, integration, exclusive use, and lack of general land benefit.

Property-tax teams

Do not classify solely from size, permanence, concrete construction, or attachment to the land. RR 91-6 treated use as controlling.

Engineers and appraisers

System diagrams and functional descriptions can help show whether fixed components operate as one manufacturing machine.

Current property owners

Confirm today's valuation rules before using this test. The statute and depreciation method discussed are historical.

Common questions

Q: Did a structure have to move to be machinery?

A: No. Static components could qualify when their manufacturing use met the four factors.

Q: Did attachment to real estate make the structure taxable as a building?

A: Not by itself. The ruling focused on use, integration, and whether the improvement benefited the land generally.

Q: Could an ordinary factory building qualify as machinery?

A: Not under the cited reasoning when the building benefited the land generally and could serve various users.

Q: Was the ruling a blanket tax exemption?

A: No. It supplied classification guidelines affecting the historical property-valuation method.

Q: What were the four factors?

A: Direct manufacturing use, necessity and integration, sole manufacturing purpose, and no general land benefit or multiple-user function.

Citations and references

• S.C. Code Ann. § 12-37-930 — historical property valuation and manufacturing-machinery treatment
• Hercules Contractors and Engineers, Inc. v. South Carolina Tax Commission, 280 S.C. 426, 313 S.E.2d 300 (Ct. App. 1984)
• Commonwealth v. Philadelphia Electric, 472 Pa. 530, 372 A.2d 815 (1977)
• In re Borough of Aloquippa (Jones & Laughlin), 405 Pa. 421, 175 A.2d 856 (caption as printed in the ruling)
• Gulf Oil Corporation v. City of Philadelphia, 357 Pa. 101, 53 A.2d 250 (1947)

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR91-6.pdf

Original ruling text

SC REVENUE RULING #91-6

SUBJECT:

Manufacturing Machinery and Equipment
(Property Taxes)

TAX MANAGER:

John P. McCormack

EFFECTIVE DATE:

Applies to all periods open under the statute.

REFERENCE:

S.C. Code Ann. Section 12-37-930 (Supp. 1990)

AUTHORITY:

S.C. Code Ann. Section 12-3-170 (1976)
SC Revenue Procedure #87-3

SCOPE:

A Revenue Ruling is the commission's official interpretation of how
tax law is to be applied to a specific set of facts. A Revenue Ruling is
public information and remains a permanent document until
superseded by a Regulation or is rescinded by a subsequent Revenue
Ruling.

Question:
What are the guidelines for determining whether a structure used in a manufacturing business is
machinery or equipment for property tax purposes?
Facts:
Some machines and equipment used in manufacturing businesses are complex, large, fixed and
immovable. Such machines and equipment are not built in a factory and shipped to the
manufacturing site as a single unit, but are constructed on site using concrete, reinforced steel,
and other materials to create a "structure".
The court in Hercules Contractors and Engineers, Inc. v. South Carolina Tax Commission, 280
S.C. 426, 313 S.E. 2d 300, (1984 App.) (writ of certiorari was denied on May 17, 1984) held:
We find no judicial interpretation of a statute similar to that of South Carolina which
makes a distinction as to whether a machine is a fixture or personal property. Many, if not
most, of the larger machines used in manufacturing are at the same time fixtures upon the
real estate where they stand.

1

Guidance has been requested in determining when a "structure" used in a manufacturing business
is machinery or equipment for property tax purposes. This determination is important because
Code Section 12-37-930 provides that all property is valued at fair market value, generally
through an appraisal. However, that section also provides that the fair market value of machinery
and equipment used in a manufacturing business is determined by reducing original cost by a
statutory depreciation schedule.
Examples of structures that have presented taxing authorities and the courts with this dilemma
include: slag pits with concrete walls, concrete vats and basins, and blast furnace stock bins.
For purposes of this ruling, the term "structure" means property which is large, fixed and
immovable and appears to be an improvement or addition to real property, but may constitute
machinery or equipment used in a manufacturing business.
Discussion:
In Hercules Contractors and Engineers, Inc. v. South Carolina Tax Commission, 280 S.C. 426,
313 S.E. 2d 300, (1984 App.) (writ of certiorari was denied on May 17, 1984), the court
reviewed the tax exempt status of a waste water facility at a textile plant near Society Hill, South
Carolina. The facility was "situated in an uncovered area on plant property and [consisted] of
various vats, basins, tanks, pumps and other mechanical devices, as well as troughs and pipes
which carry the waste from one part of the facility to another".
The court concluded that "this facility operates as one single entity, and that entity is a
'machine'." The court cited Commonwealth v. Philadelphia Electric, 472 PA. 530, 372 A.2d 815
(1977), (a Pennsylvania Supreme Court property tax decision which concerned the "problem of
the connection of a manufacturing machine with the land upon which it sits") which held:
Under our case law, the large, fixed, and immovable nature of the property in
question is not dispositive. We have long rejected tests such as "physical
attachment" or "applies force or involves the quality of motion" as doctrines not
adapted "to the business and improvements of the age."... Thus, this court has held
that such fixed and immovable items as ore yards, blast furnace stock bins, and slag
pits ... and oil refinery tanks ... are machinery and equipment and not taxable as
realty. (Citations omitted.)
The test for determining what is machinery and equipment, first formulated in [In re
Borough of Aloquippa] Jones & Laughlin, 405 Pa. [421] at 431, 175 A.2d [856] at
861, provides:
"[I]mprovements, whether fast or loose, which (1) are used directly in manufacturing
the products that the establishment is intended to produce; (2) are necessary and
integral parts of the manufacturing process; and (3) are used solely for effectuating
that purpose are excluded from real estate assessment and taxation. On the other
hand.improvements which benefit the land generally and may serve various users of
the land are subject to taxation."

2

Our court, therefore, concluded that "a particular 'structure' may or may not constitute a machine
for tax purposes, depending not upon its form but upon its use." The court in Hercules
Contractors and Engineers, Inc. v. South Carolina Tax Commission, supra, further cited Gulf Oil
Corporation v. City of Philadelphia 357 Pa. 101, 53 A.2d 250 (1947) "to show that no logical
distinction exists between the moving parts of a machine and those which are static". The court,
in Gulf Oil, using the example of a butter churn, held:
If for purposes of taxation static machinery must be
separated from machinery that moves, it would be necessary, for example, in
assessing butter manufactories to separate the blades which beat the cream, from the
barrel which contains it.
Our court also held that the above rationale would not apply to buildings in that "[t]he concrete
vats and basins ..., unlike buildings, have utterly no use apart from the machine of which they are
an intergral part". Specifically, the court held that buildings which house textile mills and nuclear
reactors were not tax exempt machines, as such structures do benefit the land generally and will
serve various users of the land.
In summary, the South Carolina Supreme Court, in Hercules, has established guidelines for
determining whether a structure is a machine used in manufacturing. A structure may be
classified as a machine if it is:
1.

used directly in manufacturing;

2.

a necessary and integral part of the manufacturing process;

3.

used solely for the purpose of manufacturing the products it was intended to produce;
and,

4.

does not benefit the land generally, and will not serve various users of the land.

Conclusion:
The guidelines for determining whether a structure is machine or equipment for property tax
purposes can be found in the court's ruling in Hercules. Therefore, the guidelines to be used in
determining whether a structure is machinery or equipment used in a manufacturing business are:
Whether the structure is:
1.

used directly in manufacturing;

2.

a necessary and integral part of the manufacturing process;

3.

used solely for the purpose of manufacturing the products it was intended to produce;
and,

3

4.

does not benefit the land generally, and will not serve various users of the land.
SOUTH CAROLINA TAX COMMISSION
s/S. Hunter Howard, Jr.
S. Hunter Howard, Jr., Chairman
s/A. Crawford Clarkson, Jr.
A. Crawford Clarkson, Jr., Commissioner
s/T. R. McConnell
T. R. McConnell, Commissioner

Columbia, South Carolina
April 18,
, 1991

4