Louisiana Issues Guidance on Non-Taxable Manufacturing Equipment

Wednesday, January 28th, 2015

Nuts and bolts.

The Louisiana Department of Revenue released an information bulletin discussing when manufacturing machinery repair and replacement parts are eligible for depreciation.

Louisiana excludes sales of manufacturing machinery and equipment from sales tax. Items must be eligible for depreciation for this exclusion to apply. This means the machinery or equipment must (1) be a principal component of the manufacturing process and (2) have a substantially useful life beyond the taxable year. The machinery does not have to actually be capitalized and depreciated to qualify for exclusion; it merely has to qualify for depreciation. Machinery and equipment that can be expensed or depreciated under the Internal Revenue Code is eligible for depreciation. The Internal Revenue Code allows depreciation of a qualifying asset that (1) is owned by the taxpayer, (2) is used in the taxpayer's income-producing business, (3) has a determinable life span, and (4) can be expected to last more than one year.

Many repair and replacement parts are not eligible for depreciation. For example, items such as nuts, bolts, gaskets, lubricants, filters, and fuels are not eligible for the exclusion because of their short lifespans. Robotic welding machines, pumps, valves, compressors, tractors, trailers, and harvesting equipment are eligible for the exclusion because they have qualifying lifespans and are integral to the production process. Non-eligible items that are purchased and stored until needed do not become eligible for the exemption even if the parts are purchased more than one year before use.


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