35 Miss. Admin. Code Pt. IV, Subpt. 7, Ch. 03 — Manufacturers and Custom Processors

100 General
101 Mississippi sales tax law provides for a reduced rate and certain exemptions for
manufacturers and custom processors. The reduced rate of 1½% applies to the sale or
rental of manufacturing machinery and machine parts that are used directly in the
manufacturing process. Manufacturers and custom processors are also eligible for an
exemption on purchases of electricity and natural gas used in the manufacturing process,
as provided either by Miss. Code Ann. Section 27 -65-107(f) or 27-65-111(n) when used
in an engine. Sales of raw materials, catalysts, processing chemicals, welding gases or
other industrial gases to a manufacturer for use directly in manufacturing or processing a
product for sale or rental are exempt.
102 (Reserved)
200 Manufacturer, Custom Processor and Manufacturing Activities
201 A "manufacturer" is defined as a person who is exclusively or predominately engaged in
the business of fabricating, compounding, or creating from his own raw materials or
ingredients any tangible personal property through the application of skill and labor,
either by hand or through the use of machinery, for sale or rental through the regular
channels of trade.
202 "Manufacturing" refines, improves, changes the condition of raw materials, or converts
the form of the materials into new, different, or more useful property and includes the
fabrication or production of special made -to-order articles and the generation of
electricity. A person who is engaged in manufacturing and non -manufacturing activities
may be classified as a manufacturer provided that said manufacturing activities are
operated as a separate business or division.
203 Persons performing work such as logging operations, cooking, and serving food by a
restaurant, washing and screening sand and gravel, mining, severing or otherwise
producing natural resource products, transporting raw materials from place of production
to point of processing, etc., are not considered manufacturers. Neither are persons
performing such activities as hatching and raising baby chicks for market considered to
be manufacturers.
204 A "remanufacturer" is defined as a person who is engaged in performing activities of an
industrial or commercial nature wherein labor or skill is applied by hand or machinery, to
materials, a portion of which may belong to the customer, so that rebuilt articles of
tangible personal property, comparable in quality to new articles of the same property,
are created, a majority of the value of which is produced by the remanufacturing activity.
205 A "custom processor" is defined as any person who performs a manufacturing or
remanufacturing service done or made to order upon the property of the customer and
includes laundering, cleaning, and pressing.
206 Remanufacturing or custom processing does not include repairs or maintenance which
restores the property to a workable condition, and which does not constitute a majority of
the value of the property repaired.
207 "Manufacturing plant" means the real and personal property owned or leased by a
manufacturer which is assembled and used at a fixed location to perform activities
defined as manufacturing.
208 "Manufacturing" begins at the point where the raw materials are transferred to the actual
processing operation from storage or stockpile at the plant, and ends when the
manufactured product leaves the assembly line for storage or shipment, and includes the
processing of the by-product or waste materials to avoid air and water pollution.
209 (Reserved)
300 Manufacturing Machinery
301 "Manufacturing machinery" is the machinery that is used within a plant exclusively and
directly in manufacturing a commodity for sale, rental or in custom processing for a fee.
Motorized units and other conveyor systems serving a specific function within the line of
process at the plant site will be classified as manufacturing machinery, as well as
equipment used in the processing of waste materials to avoid air and water pollution.
302 Manufacturing machinery does not include machinery for use in the severance of timber,
sand, gravel, oil, gas, or other natural resources produced or severed from the soil or
water; maintenance or repair machinery; research laboratory machinery; storage facilities
warehouse machinery; equipment for protection of the plant or comfort of the personnel
or other equipment and supplies of like character. Equipment used in the treatment of
water by a manufacturer qualifies for the reduced rate of tax of 1½%. Equipment used in
the treatment of water by a public or private water system or sewage system is not
classified as manufacturing machinery and does not qualify for the reduced rate of tax.
The term "manufacturing machinery" does not include foundations or materials for their
construction, nor does it include portable equipment that is not assembled and used at a
fixed location.
303 "Machine parts" are component parts of manufacturing machinery and do not include
parts for service equipment, non -manufacturing machinery, fuels, lubricants, paints, or
tools for maintenance.
304 (Reserved)
400 Pollution Control Equipment Used by Manufacturers and Custom Processors
401 Purchases of pollution control equipment by manufacturers and custom processors are
exempt from sales or use tax. The term "pollution control equipment" means equipment,
devices, machinery, or systems used or acquired to prevent, control, monitor or reduce
air, water, or ground water pollution, or solid or hazardous waste as required by federal or
state law or regulation. The use of pollution control equipment for other purposes would
not result in the exemption being disallowed.
402 The taxpayer will be required to substantiate that any equipment purchased for purposes
of pollution control does qualify for the exemption. The taxpayer must provide
certification from a professional engineer that the purchases do meet the requirements of
the exemption regarding the prevention, control, monitoring, or reduction of air, water, or
ground water pollution or solid or hazardous waste. The certification must provide a list
of the purchases and a description of the use of such purchases. Certification may
include:

# 1.

Federal law, state law or regulation requiring use of certain equipment,

# 2.

Federal permit documentation,

# 3.

State permit documentation,

# 4.

Engineering report,

# 5.

Schematic reports including project data, equipment specifications and drawings, or

# 6.

Other.
403 Replacement and/or repair parts for pollution control equipment are exempt from tax if
the initial purchase of the equipment to be repaired or refurbished was or would have
been exempt. The exemption would also apply to the repair labor.
404 (Reserved)
500 Sales and Purchases Made by Manufacturers and Custom Processors
501 Exempt sales by manufacturers include sales of component materials to contractors with
a valid material purchase certificate number, sales to other manufacturers for further
processing, sales to licensed dealers or retailers for resale through the regular course of
business, or sales to exempt customers (city, governmental agencies, etc.). Sales of
manufacturing machinery or machine parts to other manufacturers are taxable at the 1½%
reduced rate of sales tax. Sales to other consumers or users are subject to the regular retail
rate of tax.
502 Sales of tangible personal property by the manufacturer or custom processor are exempt
on the gross proceeds of sale when shipped, transported, or exported from the State and
first use occurs in another state or country, whether such shipment is made by the seller,
purchaser, or any third party. The activities of providing instructions, training, or
allowing an inspection of the property between the seller and the buyer prior to the
shipment of property does not establish a first use in the State of Mississippi.
503 Purchases of machinery, tools or repair parts or replacements, fuel or supplies used
directly in manufacturing, converting, or repairing ships of three thousand (3,000) tons
load displacement and over are exempt from sales or use tax. However, purchases of
office and plant supplies or other equipment not directly used on the ship being built,
converted, or repaired are subject to the regular retail rate of sales or use tax.
504 Purchases by manufacturers of raw materials which become a component part of the
finished product, containers for sale with the finished product, or catalysts, chemicals or
gases used directly in processing are exempt from sales or use tax. Purchases of electric
power or other fuel used directly in the manufacturing process are exempt as provided by
Miss. Code Ann. Section 27 -65-107(f) or 27 -65-111(n). Purchases of machinery or
machine parts used directly in the manufacturing process are taxable at the 1 ½% reduced
rate of sales or use tax. Purchases of all other equipment, utilities, and supplies (furniture,
fixtures, cleaning materials, etc.) are taxable at the regular retail rate of tax. Pursuant to
27-65-21(1)(a)(ii), amounts included in commercial construction contracts with
manufacturers representing the sale of manufacturing machinery shall be taxed at the
1½% reduced rate of tax in lieu of the 3½% contractors' sales tax.
505 Delivery charges are subject to sales tax when billed by vendors even though such
amounts are separately stated on the seller's invoice apart from the sales price of the
property.
506 Freight charges are subject to use tax irrespective of method billed or paid.
507 Owners or other persons receiving benefit from use of tangible personal property in this
State are liable for use tax on such property.
508 Charges for labor on repairs rendered at out -of-state locations are exempt where
specifically identifiable.
509 Rental or lease of machinery and other tangible personal property by a manufacturer is
taxed at the same rates as sales of the same property. However, manufacturing machinery
rented to a manufacturer or custom processor for use in the manufacture of wood
containers for sale is exempt from tax.
510 Adequate records must be maintained to substantiate the tax classification of sales and
purchase transactions.
511 (Reserved)
600 Methods of Reporting and Paying of Sales and Use Tax
601 All manufacturers and custom processors, with certain exceptions, are required to obtain
a Direct Pay Permit for purposes of reporting and remitting the sales and use tax
applicable to purchases or rentals of tangible personal property, utilities, with the
exception of telecommunications, and services to the Department of Revenue in lieu of
paying the applicable tax to the vendor. If a permit holder continues to pay sales tax to
the vendor rather than remit directly to the Department, then the permit holder will be
required to contact the vendor for a credit or refund of any overpayment of tax; this will
be required in all instances, even if the overpayment is discovered during a sales or use
tax audit where an assessment of additional tax has been made. No refunds or
overpayments will be allowed beyond the Statute of Limitations as provided for in Miss.
Code Ann. Section 27-65-42.
602 Any sales or use tax due from purchases made by manufacturers and custom processors
must be reported and remitted under the company's use tax account number. All sales
tax due from sales to consumers must be reported and remitted under the company's sales
tax account number.
603 (Reserved)
35.IV.07.03 revised effective August 23, 2024
Sub Part 08 Agriculture