Maximizing the Manufacturing Exemption from Ohio Sales/Use Tax: Part 1 – The Commitment of Raw Materials

Generally, all property primarily used or consumed during the manufacturing operation is exempt from Ohio sales and use tax. Therefore, the scope of the manufacturing exemption is determined by the beginning and end of the taxpayer’s “manufacturing operation”. A manufacturing operation commences upon the commitment of raw materials, which occurs at the earliest point where: (i) material handling from initial storage ceases, or (ii) materials are mixed, measured, blended, heated, cleaned, or otherwise treated or prepared for the manufacturing process.

A common misconception is that one’s manufacturing operation begins with the first process whereby the state or form of the raw materials is changed or transformed. However, such a change or transformation need not occur. Rather, nearly any affirmative act taken with respect to the raw materials for purposes of preparing such materials for production will begin the manufacturing operation. After raw materials are committed, property used to handle or process the materials are exempt from Ohio sales and use tax.

Ohio Administrative Code Section 5703-9-21 contains several examples regarding the commitment of raw materials. If you need help determining the scope of your “manufacturing operation” for Ohio sales and use tax purposes, please feel free to contact us.