Ohio Sales / Use Tax- Ohio Supreme Court Recognizes Expansive Scope of Manufacturing Exemption

Smiling worker with radio controlling the work processThe Ohio Supreme Court recently reversed an Ohio Board of Tax Appeals decision addressing when the manufacturing process begins in Lafarge N. Am., Inc. v. Testa. Lafarge used bull-dozers, loaders, and dump trucks to break up and transport slag from a slag mountain. The bull-dozers ripped slag from the slag mountain and then crushed it to form a pile. Then, the front-end loaders transferred the crushed slag to dump trucks to be transported to a screening plant, where it was sorted by size and used in manufacturing steel. Lafarge asserted this equipment was entitled to the manufacturing under R.C. 5739.02(B)(42)(g) since it changed the form of the slag and transported the raw material as work-in-process.


The critical issue was when the manufacturing operation commenced – when the slag was broken up from the mountain or not until it had been transported to the screening plant? For Ohio tax purposes, a manufacturing operation begins when raw materials are committed to the manufacturing process or handling from initial storage is complete. Ohio Admin. Code 5703-09-21(B)(1). Raw materials are committed when some affirmative action is taken in furtherance of the manufacturing process, such as mixing, measuring, heating, or otherwise treating or preparing the materials for manufacturing.


The Ohio Supreme Court reversed the BTA and found that the slag, a raw material in steel production, was committed to manufacturing process when it was broken up and cut from the slag mountain. At this point, the slag is being transformed into smaller, marketable pieces. Therefore, the equipment at issue, including its fuel and repair parts, was exempt from Ohio use tax.


If you have any questions about how your business can maximize the manufacturing exemption, please contact a member of our team. Steve Dimengo and Rich Fry are both partners with Buckingham’s Taxation Practice Group with a focus on State and Local Tax.