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Manufacturing Machinery & Equipment FAQs

This guidance document is advisory in nature but is binding on the Nebraska Department of Revenue (DOR) until amended. A guidance document does not include internal procedural documents that only affect the internal operations of DOR and does not impose additional requirements or penalties on regulated parties or include confidential information or rules and regulations made in accordance with the Administrative Procedure Act. If you believe that this guidance document imposes additional requirements or penalties on regulated parties, you may request a review of the document.

This guidance document may change with updated information or added examples. DOR recommends you do not print this document. Instead, sign up for the subscription service at revenue.nebraska.gov to get updates on your topics of interest.

When does the manufacturing machinery and equipment exemption become effective?

The exemption applies to all purchases, leases, or rentals made on and after January 1, 2006. The invoice date should be used to determine the date of purchase, lease, or rental. In addition, lease payments invoiced on and after January 1, 2006, for manufacturing machinery and equipment that is being leased pursuant to a lease agreement entered into prior to January 1, 2006, are exempt. For machinery and equipment that is manufactured or assembled in stages, the exemption applies to progress billings made on and after January 1, 2006.

Does the manufacturing machinery and equipment exemption extend to machinery or equipment used both in manufacturing and for other purposes?

Manufacturing machinery and equipment used both for manufacturing and for other purposes is exempt.

Does machinery and equipment used by a manufacturer to generate electricity that is consumed for its manufacturing purposes qualify for the manufacturing machinery and equipment exemption?

Yes, provided the electricity is exclusively used by the manufacturer for its manufacturing purposes. If the electricity is sold by the manufacturer or used for purposes other than its own manufacturing, such machinery and equipment is not qualified manufacturing machinery and equipment and is not exempt from tax.

Is the purchase of machinery and equipment used to produce bottled water exempt from tax?

No. The statutory definition of manufacturing specifically does not include the purification of water.

Is the purchase of machinery and equipment used for research and development purposes exempt from tax?

No. Machinery and equipment used only for research and development purposes is not exempt from tax.

Are supplies that are consumed during the manufacturing process exempt from tax?

No. Supplies such as rags, cleaning compounds, cutting oils, solvents, sand and glass beads for sand blasting, beakers and test tubes, and other similar items that are consumed during the manufacturing process are not exempt from tax.

Does the purchase of a cement mixer to be mounted on a truck qualify as manufacturing machinery and equipment?

No. The cement mixer becomes part of the truck and the exemption does not apply to licensable motor vehicles

Are bins, racks, shelving, or conveyors purchased by a manufacturer exempt?

Yes. The exemption applies to these items when purchased and used by a manufacturer to transport, convey, handle, or store either raw materials or components used in the manufacturing process, or the manufactured goods themselves.

Are purchases of battery-powered, hand-held drill/drivers or portable tools by a manufacturer exempt?

Yes. Tools which are powered by electric, battery, or pneumatic sources, whether hand-held or bench-mounted, are exempt when purchased by a manfacturer and used more than fifty percent of the time in a manufacturing capacity. However, tools that are powered solely by human effort are not exempt.

As a manufacturer, are purchases of drill bits, saw blades, sanding belts, and similar items to be used on manufacturing machinery and equipment exempt?

Yes. Certain items used in the operation of qualified manufacturing machinery and equipment are exempt. Such items must attach to the machinery or equipment and facilitate its operation or function, such as drill bits, saw blades, sanding belts or shields. Qualifying items do not include consumable supplies such as solvents or cutting oils

I am an Option 2 (or Option 3) contractor and have been hired to provide and install (annex) manufacturing machinery and equipment, such as a printing press. Does my purchase of the press qualify for the manufacturing machinery and equipment exemption?

No. The exemption is limited to purchases made by manufacturers. The Option 2 (or Option 3) contractor is not a manufacturer. Therefore, the Option 2 (or Option 3) contractor must pay sales or use tax on its cost of the press

Can a manufacturer give a Purchasing Agent Appointment and Delegation of Authority for Sales and Use Tax, Form 17, to an Option 2 or 3 contractor to authorize the contractor to purchase qualified machinery and equipment on its behalf?

No. Form 17 can only be used by exempt entities listed in Nebraska Sales and Use Tax Regulation 1-012.02C.

I am an Option 1 contractor and have been hired to provide and install (annex) manufacturing machinery and equipment for a manufacturer. Does my purchase of the equipment qualify for the manufacturing machinery and equipment exemption?

The exemption is limited to purchases made by manufacturers. The Option 1 contractor may purchase the equipment tax-free (for resale) by issuing the vendor a resale certificate. When the Option 1 contractor subsequently invoices the manufacturer for the work performed, the manufacturer will purchase the equipment exempt from tax by issuing an exemption certificate to the Option 1 contractor.

As a manufacturer, are my purchases of oil filters, oil, lubricants, grease, or coolants used in my manufacturing machinery and equipment exempt?

Yes. Items used to maintain the normal operation of qualified manufacturing machinery and equipment are exempt

I have been hired to install machinery and equipment that was purchased by the manufacturer and which qualifies for the manufacturing machinery and equipment exemption. What labor charges are subject to tax?

As of January 1, 2006, charges for the installation of qualified manufacturing machinery and equipment are exempt from tax.

The primary product we manufacture is ethanol. Is the production of our secondary product, distiller's grain, considered to be manufacturing?

Yes. The production of distiller's grain is considered to be manufacturing, and the purchase of the machinery and equipment used in the production of ethanol or distiller's grain can qualify for sales tax exemption.

Are tire chains used on a forklift eligible for the manufacturing machinery and equipment exemption?

Yes. Tire chains are exempt as accessories purchased for use with qualifying manufacturing machinery or equipment (the forklift).

Further Questions?
Contact Nebraska Taxpayer Assistance
at 800-742-7474 (NE & IA) or 402-471-5729

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