1. The machinery and equipment performs one or more essential functions and is utilized directly in the manufacturing process; and

2. The machinery and equipment is utilized in actual manufacturing operations at any time from the initial stage where the raw material is first acted upon and changed in any essential respect through the completion and packaging of the article of commerce, as defined in GR-55(F)(6) of this rule; and

3. The machinery and equipment does not consist of hand tools, buildings, transportation equipment, office machines and equipment, machinery and equipment used in administrative, accounting, sales or other such activities of the business involved, or any and all other machinery and equipment not directly used in the manufacturing operation.

1. The machinery and equipment satisfy the requirements of GR-55(B)(1), (B)(2), and (B)(3); and either

2. The purchase of the machinery results in an economic expansion of the taxpayer's plant or facility (regardless of whether there is a physical expansion) by:

3. The purchase of the machinery results in a physical expansion of the taxpayer's plant or facility regardless of whether there is an economic expansion.

1. The machinery and equipment satisfies the requirements of GR-55(B)(1), (B)(2), and (B)(3); and

2. The “machinery and equipment purchased to replace existing machinery” means that substantially all of the machinery and equipment required to perform an essential function is physically replaced with new machinery. The term “substantially” is intended to exclude routine repairs and maintenance and partial replacements - but is not intended to mean that foundations and minor components that can be economically adapted, rebuilt, or refurbished must be substantially replaced when such replacement would be more expensive or impractical than adapting, rebuilding or refurbishing the old foundation or minor components.

3. When individual machines or machinery are interconnected in order to accomplish a single function and the function of each such individual machine is not complete before the adjacent machines begin to function, the result is a new single identifiable machine. The machinery purchased to replace this resulting existing machine must satisfy the requirements of GR-55(D)(2) above and the exemption is not available for the replacement of only some of the individual machines that now form component parts of the aforementioned machine. An individual machine that performs a separate distinct function in the manufacturing operation as part of a production line, constitutes a single machine for purposes of this exemption and may be replaced tax exempt.

1. “Machinery” means mechanical devices or combinations of mechanical powers and devices purchased or constructed by a taxpayer or his agent and used to perform some function and to produce a certain effect or result. Machinery includes electrical, mechanical, and electronic components which are a part of machinery and are necessary for the machine to produce its effect or result.

2. “Equipment” means any tangible personal property other than machinery as defined in GR-55(F)(1) of this rule, used directly in the manufacturing process except those items specifically excluded from the exemption as provided in GR-55(B)(3). In certain circumstances chemicals can be considered “equipment” for purposes of this exemption. (See GR-55.1.)

3. “Directly” limits the exemption to only that machinery and equipment which is used in actual production during processing, fabricating or assembling raw materials or semi-finished materials into the form in which such personal property is to be sold in the commercial market.

Example 1: Machinery and equipment used in actual production include machinery and equipment that meet all other applicable requirements and which cause a recognizable and measurable mechanical, chemical, electrical, or electronic action to take place as a necessary and integral part of manufacturing, the absence of which would cause the manufacturing operation to cease. “Directly” does not mean that the machinery and equipment must come into direct physical contact with any of the materials that become necessary and integral parts of the finished product. Machinery and equipment which handle raw, semi-finished, or finished materials or property before the manufacturing process begins are not utilized directly in the manufacturing process. Machinery and equipment which are necessary for purposes of storing the finished product are not utilized directly in the manufacturing process. Machinery and equipment used to transport or handle product while manufacturing is taking place are used directly.

Example 2: Machinery and equipment “used directly” in the manufacturing process shall include, but shall not be limited to the following: molds and dies that determine the physical characteristics of the finished product or its packaging materials to the extent that the dies and molds satisfy the requirement of GR-56; testing equipment to measure the quality of the finished product; computers and related peripheral equipment that directly control or measure the manufacturing process; machinery and equipment that produce steam, electricity, or chemical catalysts and solutions that are essential to the manufacturing process but which are consumed during the course of the manufacturing process and do not become necessary and integral parts of the finished product. NOTE: The exemption is limited only to the machinery and equipment that produce steam, electricity, or chemical catalysts and solutions and does not exempt the steam, electricity, or chemical catalysts and solutions.

Example 3: Machinery and equipment “used directly” in the manufacturing process shall not include the following: hand tools; machinery, equipment, and tools used in maintaining and repairing any type of machinery and equipment; transportation equipment, including conveyors, used solely before or after the manufacturing process has been started or completed; office machines and equipment including computers and related peripheral equipment not directly used in controlling or measuring the manufacturing process; buildings; machinery and equipment used in administrative, accounting, sales or other such activities of the business; all furniture; and all other machinery and equipment not used directly in manufacturing or processing operations as defined herein.

Example 4: Machinery and equipment used by a manufacturer to produce or repair replacement dies, molds, repair parts, or replacement parts used or consumed in the manufacturer's own manufacturing process are not “used directly” and are not exempt.

4. “Manufacturing” includes those operations commonly understood within their ordinary meaning, and shall also include mining; quarrying; extracting and refining of brine, oil, and gas; cotton ginning; the drying of rice, soybeans and other grains; the manufacturing of feed; the processing of poultry or eggs and livestock and the hatching of poultry; and printing of all kinds, types, and characters, including the services of overprinting and photographic processes incidental to printing; the processing of scrap metal into grades and bales for further processing into steel and other metals; the retreading of tires for automobiles, trucks, and other mobile equipment powered by electrical or internal combustion engines or motors; the rebuilding or remanufacturing of used parts for automobiles, trucks, and other mobile equipment powered by electrical or internal combustion engines or motors, provided that the rebuilt or remanufactured parts - are not sold directly to the consumer but are sold for resale; and the production of protective coatings which increase the quality and durability of a finished product.

5. “Hand tool” means any tool which is solely powered by a human being.

6. “Article of commerce” includes any property to be placed on the market for retail sale to the general public and any property which becomes a recognizable integral part of a manufactured product in its finished and packaged form ready to be placed on the market for retail sale. Custom items which are produced for specific customers in response to special orders and which are not readily marketable to the general public are not articles of commerce.

7. “Foundation,” as used in GR-55(D)(2), means a customized foundation necessary for the support and proper operation of the machinery. The foundation may be affixed to a building foundation but must be capable of being removed without major structural damage to the building or its foundation.

8. The exempt gross receipts or gross proceeds under this rule include gross receipts or gross proceeds as defined in GR-3. See also GR-66 for the exemption related to pollution control machinery and equipment.