Production Exemption

Sections 63-3622, 63-3622D, 63-3622X, 63-3622HH, Idaho Code 01. In General. The production exemption provides an exemption from sales and use taxes for certain tangible personal property used in production activities. Differences in the way a specific taxpayer conducts business can result in taxability determinations that are different for other taxpayers. Determinations of taxability are based upon the equipment’s primary use when such equipment is used for more than one (1) purpose. (7-1-26) a. For the purposes of this section, a separately operated segment of a business is a segment of a business for which separate records are maintained and which is operated by an employee or employees whose primary employment responsibility is to operate the business segment. (7-1-26) b. The production exemption doesn’t include the performance of contracts to improve real property, such as road or building construction, or to service-related businesses not devoted to the production of tangible personal property for ultimate sale at retail. (7-1-26) 02. Exempt Purchases. As applied to manufacturing, processing, mining, or fabrication operations, sales and purchases of the following tangible personal property are exempt, except as limited by other subsections of this section: (7-1-26) a. Equipment such as cranes, manlifts, and scissor lifts used primarily to install production equipment. (3-31-22) b. Equipment used primarily to fabricate production equipment. (3-31-22) c. Equipment and supplies used in the performance of a quality control function which is an integral and necessary step in maintaining specific product standards. (3-31-22) 03. Production Process Beginning and End. The production process begins when raw materials used in the process are first handled by the operator at the processing plant or site. The production process ends when the product is placed in storage, however temporary, ready for shipment or when it reaches the final form in which it will be sold at retail, whichever occurs last. See Section 083 regarding farming. (7-1-26) 04. Taxable Purchases. The production exemption doesn’t include any of the following: (7-1-26) a. Motor vehicles that are to be licensed by Idaho law, but not licensed, are taxable. A motor vehicle not obligated to be licensed is exempt under the production exemption only if it meets the tests in Subsection 079.03 of this section. (7-1-26) b. Paint, plastic coatings, and similar products used to protect and maintain equipment, whether applied to production equipment or other equipment. (7-1-26) c. Fuel used in equipment while performing activities that don’t qualify for the production exemption. (7-1-26) d. Equipment used primarily to construct, improve, alter, or repair real property. (3-31-22) 05. Transportation Activities. (7-1-26) a. Transportation includes the movement of tangible personal property over private or public roads or IDAHO ADMINISTRATIVE CODE IDAPA 35.01.02 State Tax Commission Idaho Sales & Use Tax Administrative Rules Section 080 Page 46 highways, canals, rivers, rail lines, through pipelines or slurry lines, or on private or public aircraft. (3-31-22) b. Transportation includes movements of tangible personal property from one (1) separate location which is a continuous manufacturing, processing, mining, fabricating or farming activity to another separate location which is a continuous exempt activity or process. (3-31-22) c. Transportation includes movement of raw materials, except farm produce, from a point of initial extraction or severance or importation to a point where processing, manufacturing, refining, or fabrication begins. See Section 083 regarding farming. (7-1-26) 06. Special Rules. Special rules apply to irrigation equipment, contractors, loggers, and farmers who act as retailers. Refer to the specific rules relating to those subjects. (3-31-22)