Tennessee Exempts Blood Reagents as Industrial Materials

Monday, December 29th, 2014

Blood samples.

The Tennessee Department of Revenue ruled that reagents used to produce blood products are exempt industrial materials.

The taxpayer was a manufacturer and distributor of blood products. Its lab was in Tennessee. The taxpayer used machines and reagents to process whole blood. The reagents were consumed in a chemical reaction that detected the presence of certain communicable diseases. This testing was required by federal law and was necessary to see whether the blood was usable. If a disease was detected in the blood, the blood was destroyed.

Tennessee exempts materials used in processing items for resale if the materials are used directly in fabricating a product. To be "used directly," the materials must come into direct contact with the manufactured product and be consumed within 25 days. Materials must be used in "processing" the product. "Processing" is the transformation of materials or things into a different state or form.

The reagents qualified for the industrial materials exemption. The taxpayer "processed" blood into blood products. The reagents were necessary to process blood products for resale because the test they were used in was required by law. The reagents came into direct contact with the blood products during processing and were consumed within 25 days.


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