Tax Type
Property Tax
Description
Machinery/tools are taxable by the state as capital instead of by the locality as personal property.
Topic
Basis of Tax
Date Issued
08-27-1982
August 27, 1982
Re: Capital Not Otherwise Taxed; Idle Equipment
Dear ****************************
You asked for a copy of a ruling letter referred to in a recent newspaper article. Due to the secrecy provisions of 58-46 we cannot release any confidential taxpayer information such as the ruling you request.
However, it appears that you are primarily interested in our interpretation of the circumstances in which machinery and tools are taxable by the state as capital instead of by the locality as personal property.
Capital, in the case of a manufacturing business, includes all personal property, whether tangible or intangible in fact, except machinery and tools used in such manufacturing business and several other categories of property specifically excluded by law. Machinery and tools used in manufacturing business are not a part of capital; however, personal property, tangible in fact, other than machinery and tools used in the manufacturing business, is includible as a part of capital.
The exact language of § 58-412 is quoted below:
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- "Machinery and tools used in a manufacturing, mining, processing or reprocessing, radio or television broadcasting, dairy, dry cleaning or laundry business taxable on capital under § 58-418 shall not be held to be capital under § 58-411, nor assessed as real estate, but shall be listed for local taxation exclusively and each city, town and county shall make a separate classification for all such machinery and tools and fix the rate of levy thereon, but such rate shall not be higher than the rate imposed upon tangible personal property in such city, town, county or district. Such property shall be valued as provided in § 58-831."
In construing the above-quoted language, it must be noted that it is restricted to machinery and tools used in the specified business. Since you have not indicated that any question exists as to whether or not the equipment at issue is properly classified as "machinery and tools," the question to be resolved is whether or not the machinery and tools at issue are used in a manufacturing business.
The equipment at issue may be classified by a taxpayer as "idle and stored" which indicates its disuse, but this, of itself, would not necessarily preclude its inclusion in taxable capital. In making a determination, consideration must be given to the length of time the equipment has been idle, the reason it has been idle, and the length of time it is expected to remain idle.
As a general rule, the Department has considered that such equipment may be properly classified as machinery not used in the manufacturing business if it has been discontinued in use for as long a period as one year prior to the date as of which it is returnable for taxation, provided there is no reasonable prospect that such machinery will be converted from its idle state to an active state within at least one year after such date
Please understand, however, that this is only a general rule to indicate or support a taxpayer's intent in regard to idle equipment and is applicable only in the absence of other specific facts supporting a taxpayer's intent.
You should also be aware that the General Assembly recently made substantial revisions to the capital tax. The discussion above pertains to the law as it existed before these revisions.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner