Maine Revenue Services Sales, Fuel & Special Tax Division Instructional Bulletin No. 46 Sheet printable pdf download

MAINE REVENUE SERVICES

SALES, FUEL & SPECIAL TAX DIVISION

INSTRUCTIONAL BULLETIN NO. 46

FABRICATION SERVICES

This bulletin is intended solely as advice to assist persons in determining, exercising or

complying with their legal rights, duties or privileges.

It contains general and specific

information of interest as well as interpretations and determinations by Maine Revenue Services

regarding issues commonly faced by your business.

From July 16, 1986 to June 30, 2004,

“fabrication services” were subject to the 5% sales/use tax. Effective July 1, 2004 the imposition

of the tax was changed to the “service provider tax”. Portions of the Sales and Use Tax and

Service Provider Tax Law referred to in this bulletin can be found at the end of the bulletin in

Attachment #1.

FABRICATION SERVICES IN GENERAL

“Fabrication services" means the production of tangible personal property for

consideration for a person who furnishes, either directly or indirectly, the materials used in that

production. Fabrication services are now taxable under Maine’s Service Provider Tax law, but

until the enactment of that statute, they were included as a “taxable service” under the Sales Tax

law.

The Legislature recognized that without a tax on fabrication services, a person could

unfairly avoid sales tax on the production of certain items of tangible personal property. For

example, if a desk was manufactured and sold in Maine, the entire sales price would be subject

to sales tax. When the manufacturer determines what the selling price will be, the manufacturer

takes into consideration the material, labor and overhead costs. Prior to the legislation that made

fabrication services taxable, if a customer provided the materials to the manufacturer, the

manufacturer’s labor to construct the desk was exempt. It was easy to avoid sales tax, therefore,

by simply having the customer provide the materials. This underlying rationale for the taxation

of fabrication services will generally answer the question of whether a particular service is

taxable as a fabrication service or not: if the service would otherwise qualify as part of the

“production” of tangible personal property, then it is a taxable fabrication service.

"Fabrication services", then, includes those services that result in the production of

tangible personal property or that constitute a step in a process or series of operations that result

in the production of tangible personal property that did not originally exist. “Fabrication

services” includes any process whereby raw materials, components, sub-assemblies or parts that

are owned or furnished by the purchaser are assembled to create a new functioning unit.

Charges for fabrication services are subject to the service provider tax whether the purchaser or a

third party, at the direction of the purchaser, furnishes the materials.

Maine Revenue Services Sales, Fuel & Special Tax Division Instructional Bulletin No. 46 Sheet