Ruling 93-20, Sales and Use Taxes / Manufacturing Machinery

FACTS:

The Company produces hypodermic needles and related medical products. The hypodermic needles must be made according to specifications set forth by the Company's customer, which require that the end product be an extremely fine, sterile needle. The temperature, pressure, humidity and contamination of the air in the area in which the needles are made must be regulated in order to meet the customer's specifications, and so the Company is expanding its operation to include a "clean room," an enclosed, environmentally controlled area.

ISSUE:

Whether the machinery used to regulate the temperature, pressure, humidity and contamination of the air inside the Company's clean room qualifies for exemption from sales and use taxes as machinery used directly in a manufacturing production process under Conn. Gen. Stat. §12-412(34).

DISCUSSION:

Conn. Gen. Stat. §12-412(34) provides an exemption from sales and use taxes for sales, and the storage, use or consumption, of machinery used directly in a manufacturing production process. One of the guidelines included in Conn. Agencies Regs. §12-412(34)-1(f) for determining whether machinery is "used directly" is whether "machinery ... directly transforms, or has a direct effect upon, the form, composition or character of raw materials being manufactured into a product possessing a new name, nature and use which is intended for sale ..."

Under the facts and circumstances of this ruling, the Company's clean room machinery "directly transforms, or has a direct effect upon, the form, composition or character of raw materials" within the meaning of Conn. Agencies Regs. §12-412(34)-1(f) by regulating the atmospheric conditions within the clean room. The temperature, pressure, humidity and purity of the air in which the needles are produced directly affects their form, composition or character by having an impact on the level of contaminants found on the surface of the needles and the ability to create a needle with an especially fine internal diameter. Thus, the qualities of the air in the clean room has a direct effect on the production of the needles and the machinery used to regulate the atmospheric conditions of the clean room qualifies for exemption under Conn. Gen. Stat. §12-412(34).

The availability of the exemption provided under Conn. Gen. Stat. §12-412(34) for air purification or air conditioning machinery used in a clean room in the production of hypodermic needles may be contrasted with similar machinery used outside a clean room to control the environment to protect the health or safety or to promote the comfort of employees. In such case, the air purification or air conditioning machinery does not have a direct effect upon the materials being manufactured within the meaning of Conn. Agencies Regs. §12-412(34)-1(f), in that its absence from the facility would not prevent the production of a particular product from continuing. Therefore, such machinery would not be exempt under Conn. Gen. Stat. §12-412(34).

RULING:

The machinery used by the Company to regulate the temperature, humidity, pressure and contamination of the air in a clean room required for the production of hypodermic needles is exempt under Conn. Gen. Stat. §12-412(34) as machinery used directly in a manufacturing production process.

LEGAL DIVISION

Issued: October 25, 1993