On March 14, 2014, the Nebraska Supreme Court determined manufacturing equipment was exempt from sales and use tax when any amount of its use was in manufacturing. The court rejected the state’s requirement that qualified equipment must be used more than 50% in manufacturing. Nebraska taxpayers that paid sales or use tax on equipment used in manufacturing, but not used more than 50% in manufacturing, should consider whether refunds should be pursued.
Any amount of use in manufacturing qualifies for the manufacturing exemption. Nebraska Sec. 77-2701.47(1) provides that manufacturing machinery and equipment includes “any machinery or equipment purchased, leased, or rented by a person engaged in the business of manufacturing for use in manufacturing,” with no condition regarding a percentage of use. The Court determined the plain meaning of the statute only requires that the machinery or equipment be used for any amount in manufacturing. According to the Court, by requiring machinery and equipment to be used in manufacturing more than 50% of the time, “the Department added language to its ruling which is not found in the statute.” Accordingly, the Court rejected the Department’s interpretation of the statute as ‘wholly unsupported by’ the statutory language and found that ‘any use’ in manufacturing would qualify the motor grader as exempt machinery and equipment.
This Nebraska Supreme Court decision reverses current Department of Revenue guidance contained in a state regulation and a revenue ruling. The original ruling was issued in 2005. Since that time, companies may have been taking Nebraska’s exemption only when machinery or equipment was used greater than 50%in manufacturing.
Note also that the manufacturing exemption requires that equipment be purchased by a person ‘engaged in manufacturing.’ Because the parties stipulated that Kerford was engaged in manufacturing, this requirement was not explored in this case. Nebraska taxpayers that paid sales or use tax on equipment used in manufacturing, but not used more than 50% in manufacturing, should consider whether refunds may be available consistent with this decision.
[Kerford Limestone Co. v. Nebraska Dep’t of Revenue et al]
287 Neb. 653, No. S-13-035
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