Form Rpd-41378 - Application For Type 11 Or 12 Nontaxable Transaction Certificates (Page 6 of 14) in pdf

RPD-41378

State of New Mexico - Taxation and Revenue Department

Rev. 04/30/2013

Application for Type 11 or 12 Nontaxable Transaction Certificates

Deduction for Tangibles Consumed in the Manufacturing Process

Instructions

Page 1 of 9

What is Manufacturing?

Manufacturing means combining or processing components or materials to increase their value for sale in the

ordinary course of business, but does not include construction.

For purposes of this deduction, combining means assembling two or more pieces of tangible personal property to

create another piece of personal property. Processing means to convert tangible personal property into a market-

able form.

A person is engaged in the business of manufacturing only if:

(1) that person combines or processes components or materials;

(2) the value of the tangible personal property which has been combined with other tangibles or which has been

processed has increased as a direct result of the manufacturing process; and

(3) the person manufacturing sells the same or similar type of manufactured products in the ordinary course of

business.

Following are some examples illustrating the application of the definition of manufacturing.

Example 1: X, who owns a used car lot and garage, places the parts and bodies in and on used cars from his lot. X

then resells the renovated cars to the general public in the ordinary course of business. X is manufacturing because

X is assembling and fabricating the cars to increase their value and is selling them in the ordinary course of busi-

ness.

Example 2: Y, a machine tool firm, assembles three machine tools solely for its own use in producing components.

Y does not sell any of these three machine tools. Assembling the machine tools is not “manufacturing” because Y

is not assembling the tools to increase their value for sale in the ordinary course of business.

Example 3: S is in the business of building custom boats. S is furnished blueprints by customers and all the materi-

als that are to be purchased are specified in those blueprints. S purchases the materials and builds the boats to the

specifications set out in the blueprints and then sells the boats to customers in the ordinary course of business. S

is manufacturing boats.

Example 4: R is in the business of retreading and recapping pneumatic tires. If R retreads and recaps a tire carcass

which R owns in order to increase its value for sale in the ordinary course of business and that tire carcass becomes

a component part of a recapped tire, then R is “manufacturing”.

Example 5: P is in the business of printing and silk screening. If P uses only printing supplies which P owns as an

ingredient or component part of the end product which P sells in the ordinary course of business, then P is “manu-

facturing”. If P uses printing supplies such as paper, ink, staples, glue, binding, chemicals, and dyes provided by the

customer, then even though such supplies become ingredient or component parts of an end product which P sells

in the ordinary course of business, P is “performing a service” and not “manufacturing”.

Example 6: N is a newspaper publishing company and Z is a printing company. N arranges to have Z print the

newspapers which it publishes. Z is required to provide newsprint (paper), ink, and all the materials required for

the production of newspapers. Z is manufacturing printed material.

Example 7: A is in the business of painting oil and water color pictures for sale in the ordinary course of business.

A is a manufacturer of tangible personal property. A combines oils, color pigments, fixing agents, canvas, frames

and glass in a painting as components.

Form Rpd-41378 - Application For Type 11 Or 12 Nontaxable Transaction Certificates Page 6

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