2005 Idaho Code - 63-3622D — PRODUCTION EXEMPTION

                                  TITLE  63
                             REVENUE AND TAXATION
                                  CHAPTER 36
                                  SALES TAX
    63-3622D.  PRODUCTION EXEMPTION. There are exempted from the taxes imposed
by this chapter:
    (a)  The sale at retail, storage, use or other consumption in this state
of:
    (1)  Tangible personal property which will enter into and become an
    ingredient or component part of tangible personal property manufactured,
    processed, mined, produced or fabricated for sale.
    (2)  Tangible personal property primarily and directly used or consumed in
    or during a manufacturing, processing, mining, farming, or fabricating
    operation, including, but not limited to, repair parts, lubricants,
    hydraulic oil, and coolants, which become a component part of such
    tangible personal property; provided that the use or consumption of such
    tangible personal property is necessary or essential to the performance of
    such operation.
    (3)  Chemicals, catalysts, and other materials which are used for the
    purpose of producing or inducing a chemical or physical change in the
    product or for removing impurities from the product or otherwise placing
    the product in a more marketable condition as part of an operation
    described in subsection (a)(2) of this section, and chemicals and
    equipment used in clean-in-place systems in the food processing and food
    manufacturing industries.
    (4)  Safety equipment and supplies required to meet a safety standard of a
    state or federal agency when such safety equipment and supplies are used
    as part of an operation described in subsection (a)(2) of this section.
    (5)  Plants to be used as part of a farming operation.
    (b)  Other than as provided in subsection (c) of this section, the
exemptions allowed in subsections (a)(1), (a)(2), (a)(3) and (a)(4) of this
section are available only to a business or separately operated segment of a
business which is primarily devoted to producing tangible personal property
which that business will sell and which is intended for ultimate sale at
retail within or without this state. A contractor providing services to a
business entitled to an exemption under this section is not exempt as to any
property owned, leased, rented or used by it unless, as a result of the terms
of the contract, the use of the property is exempt under section 63-3615(b),
Idaho Code.
    (c)  The exemptions allowed in subsections (a)(1), (a)(2), (a)(3) and
(a)(4) of this section shall also be available to a business, or separately
operated segment of a business, engaged in farming or mining, whether as a
subcontractor, contractor, contractee or subcontractee, when such business or
segment of a business is primarily devoted to producing tangible  personal
property which is intended for ultimate sale at retail within or without this
state, without regard to the ownership of the product being produced.
    (d)  As used in this section, the term "directly used or consumed in or
during" a farming operation means the performance of a function reasonably
necessary to the operation of the total farming business, including, the
planting, growing, harvesting and initial storage of crops and other
agricultural products and movement of crops and produce from the place of
harvest to the place of initial storage. It includes disinfectants used in the
dairy industry to clean cow udders or to clean pipes, vats or other milking
equipment.
    (e)  The exemptions allowed in this section do not include machinery,
equipment, materials and supplies used in a manner that is incidental to the
manufacturing, processing, mining, farming or fabricating operations such as
maintenance and janitorial equipment and supplies.
    (f)  Without regard to the use of such property, this section does not
exempt:
    (1)  Hand tools with a unit purchase price not in excess of one hundred
    dollars ($100). A hand tool is an instrument used or worked by hand.
    (2)  Tangible personal property used in any activities other than the
    actual manufacturing, processing, mining, farming or fabricating
    operations such as office equipment and supplies, and equipment and
    supplies used in selling or distributing activities.
    (3)  Property used in transportation activities.
    (4)  Machinery, equipment, tools or other property used to make repairs.
    This subsection does not include repair parts that become a component part
    of tangible property exempt from tax under this section or lubricants,
    hydraulic oil, or coolants used in the operation of tangible personal
    property exempt under this section.
    (5)  Machinery, equipment, tools or other property used to manufacture,
    fabricate, assemble or install tangible personal property which is:
         (i)  Not held for resale in the regular course of business; and
         (ii) Owned by the manufacturer, processor, miner, farmer or
         fabricator;
    provided, however, this subsection does not prevent exemption of
    machinery, equipment, tools or other property exempted from tax under
    subsection (a)(2) or (a)(3) of this section.
    (6)  Any improvement to real property or fixture thereto or any tangible
    personal property which becomes or is intended to become a component of
    any real property or any improvement or fixture thereto.
    (7)  Motor vehicles and aircraft.
    (8)  Tangible personal property used or consumed in processing, producing
    or fabricating tangible personal property exempted from tax under this
    chapter in sections 63-3622F and 63-3622I, Idaho Code.
    (9)  Tangible personal property described in section 63-3622HH, Idaho
    Code.
    (g)  Any tangible personal property exempt under this section which ceases
to qualify for this exemption, and does not qualify for any other exemption or
exclusion of the taxes imposed by this chapter, shall be subject to use tax
based upon its value at the time it ceases to qualify for exemption. Any
tangible personal property taxed under this chapter which later qualifies for
this exemption shall not entitle the owner of it to any claim for refund.