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Integrated production process, examples

production equipment qualifies as capital equipment. If

Example 1. A newspaper publisher buys a computer

the equipment is used more than 50 percent of its oper-

system to permanently store completed news stories for

ating time for work on nonproduction equipment or in

future reference. The publisher also adds devices for

other nonqualifying activities, it does not qualify as capital

quality control. Some devices measure the quality of the

equipment.

ink flow and its color, while others are used for employee

and job scheduling. The computer system and the de-

Example 6. An industrial machinery manufacturer adds

vices used to store completed stories and measure the

several pieces of equipment to its research and devel-

quality of the actual product qualify as capital equipment.

opment shop. The equipment includes additional com-

The devices used for employee and job scheduling do

puter aided design (CAD) and computer aided manufac-

not qualify because they do not control or regulate pro-

turing (CAM) systems, a blueprint machine, and an inte-

duction equipment and do not have an effect on the

grated communication system. The blueprint machine

product.

prepares blueprints for use by employees during the as-

sembly process. The integrated communication system

Example 2. A wood products fabricator purchases

keeps track of costs and labor hours for each piece of

equipment to package products before placing them into

machinery during the assembly process. The CAD sys-

finished goods inventory. The company also purchases

tem and the blueprint machine qualify as capital equip-

boxing, shrink-wrapping and palletizing equipment used

ment. The CAM system qualifies as replacement capital

by the shipping department to prepare products taken out

equipment. If it was used to operate and control new pro-

of finished goods inventory. All the equipment used pri-

duction equipment, it would qualify as capital equipment.

marily to package products prior to loading for shipment

The communication system does not qualify since it is

qualifies as capital equipment.

used for plant communications.

Example 3. A meat packer builds a new plant. Environ-

Example 7. A candy wholesaler buys bulk candies from

mental control systems are installed throughout the plant,

manufacturers, blends various candies together, and

including beginning and finished goods inventory areas.

packages the assortment into individual bags. The

These systems maintain very cold temperatures to en-

equipment used to blend candies together and to pack-

sure that meat products are not contaminated by bacte-

age the candy into individual bags qualifies as capital

ria. The system used for storage of raw meat does not

equipment.

qualify since capital equipment does not include equip-

ment used to receive or store raw materials. However,

Example 8. A wood products manufacturer expands

the environmental control systems for production areas

operations by adding collection systems for wood waste,

and for storage of the completed meat products qualify

conveyors, a boiler, and equipment to generate electric-

as capital equipment. The systems for support and ad-

ity. This equipment is used collectively to generate elec-

ministrative areas do not qualify.

tricity that powers the facility and the production equip-

Example 4. A bakery installs a washing system to clean

ment and qualifies as capital equipment.

and sterilize baking pans and production equipment.

Example 9. A manufacturer contracts with an outside

They also purchase pressure washers used to clean the

fabricator for precision drilling to be performed on its steel

floors and walls. The washing system to clean and steril-

tubes. While the outside fabricator does not produce a

ize baking pans and production equipment qualifies as

product that will be sold ultimately at retail, the precision

capital equipment because it affects the quality of the

drilling is essential to the integrated production process

baked product. The pressure washers do not qualify

for the manufacturer. Any equipment and machinery

since they are used in support operations for general

used 50% or more of the time to fabricate tangible per-

plant maintenance and cleaning.

sonal property for another manufacturer’s product quali-

fies as capital equipment.

Example 5. A foundry adds equipment to construct and

maintain special tooling. The equipment is used to as-

semble and maintain production equipment and non-

production equipment and to make general building re-

pairs. Equipment used primarily (50 percent or more of its

operating time) to create and maintain special tooling and

Note: The integrated production process is similar but not the same as the industrial production process. The result is

that even though the equipment may qualify for the capital equipment refund, items used or consumed in the equipment

(such as fuels) may not qualify for the industrial production exemption. Request Fact Sheet 145, Industrial Production,

for more information on industrial production.

Capital Equipment, Replacement Capital Equipment Sales Tax Fact Sheet 103 - Minnesota Department Of Revenue Page 4

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