Connecticut State Department of Revenue Services

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Bulletin #30

Taxpayer Services Division
Rev. 1/91

Repair or Replacement Parts for Machinery Used Directly
In a Manufacturing Production Process

P.A. 89-251 increases the Sales and Use Tax rate for the sale of replacement and repair parts purchased exclusively for machinery used directly in a manufacturing production process to 5 1/2%. The Sales or Use Tax refund provisions for repair or replacement parts purchased exclusively for machinery used directly in a manufacturing production process are still in effect. Effective July 1, 1989 repair services to all tangible personal property (including machinery) are taxed at 8%.

Machinery used in manufacturing is defined by Connecticut General Statutes, Sec. 12-412 (34) as follows:

"The word 'machinery', as used in this subsection, means the basic machine itself, including all of its component parts and contrivances, such as belts, pulleys, shafts, moving parts, operating structures and all equipment or devices used or required to control, regulate or operate the machinery, but excluding office equipment or data processing equipment other than numerically controlled machinery used directly in the manufacturing process."

PURCHASES AT A REDUCED RATE OF TAX

I. Repair and replacement parts to be used exclusively in machinery used directly in a manufacturing production process are taxed at the rate of 5 1/2%, if purchased on or after July 1, 1989, and at the rate of 5%, if purchased before July 1, 1989.

II. The charges for repair services rendered on or after July 1, 1989 are taxed at the rate of 8%.

III. The certificate entitled "Sales and Use Tax Certificate for Purchase of Repair or Replacement Parts used in Production Machinery at the reduced rate of 5 1/2%" is required to be issued by the purchaser to the seller. A blanket certificate may be furnished to the seller for purchases of a recurring nature. (See copy of attached certificate.)

REFUNDS

Some businesses which are entitled to purchase parts at the rate of 5 1/2% may not be eligible to claim a refund because Connecticut General Statutes, Sec. 12-412d only permits the allowance of claims for refunds made by businesses assigned certain SIC codes.

I. Corporations, partnerships or proprietorships engaged in manufacturing may apply for a refund for Sales Tax paid on purchases of repair or replacement parts. The repair or the replacement parts must be purchased for exclusive use in machinery used directly in the manufacturing process.

  • The SIC code assigned under the 1972 edition of the Standard Industrial Classification must be between 3000 and 3999 inclusive.
  • B. The purchase of repair or replacement parts is for exclusive use in machinery defined under Connecticut General Statutes Section 12-412 (34).
  • C. The firm applying for the refund uses the Department of Revenue Services' application entitled, "Sales and Use Tax Refund Application: Repair and Replacement Parts for Production Machinery" (Form AU-739).
  • D. The Form AU-739 must be filed on or before the first day of the fourth month immediately following the close of the income year in which the purchases were made.

II. Documents required to be furnished with the Application for Refund:

  • A copy of the schedules which accompany the Federal Income Tax Return to substantiate the purchase of repair or replacement parts in the income year in which the purchase related to the application for refund is made. (Please note: The entire Federal Income Tax Return is not required to be submitted unless requested by the Department of Revenue Services.)
  • Sales receipts or invoices showing that the 5 1/2% Sales or Use Tax rate was applied to the purchase of the repair and/or replacement parts. When Use Tax has been paid directly to the Department of Revenue Services, indicate the filing period in which Use Tax was reported.

III. Parts being expensed or capitalized.

  • If cost for repair or replacement parts are an item of expense:

The charge is required to be recorded in an account identified as "Repair and Replacement Parts for Machinery, as defined in subsection (34) of Section 12-412 of the General Statutes".

  • If cost for repair or replacement parts are being recorded as an addition to assets and capitalized, then the charge is required to be entered separately:

With reference to applicable depreciation schedule or schedules used for purposes of the Federal Income Tax Returns.

It must identify the machine or machines on which the parts shall be used.

IV. The effective date for the refund is any income year commencing on or after January 1, 1986.

V. The Department of Revenue Services may refund up to $7500 per income year. The claim for the refund must be at least $25.

VI. The Department of Revenue Services is required to make a determination within 90 days immediately following receipt of application for a refund.

VII. If a request for a refund is denied, the firm may apply in writing for a hearing within 30 days after such notification is delivered or received by mail.