Production Exemption
tax.idaho.gov/prodexempt
- Businesses that qualify for the exemption
- Businesses that don't qualify for the exemption
- Purchases that qualify for the exemption
- Purchases that don't qualify for the exemption
- If you change the use of an item
- Logging, broadcasting, and publishing exemptions
- Buyer's responsibility when making exempt purchases
- Selling the goods you produce
- Seller's responsibility to document sales
- Use tax
- Laws and rules
- Print ALL
Does your business manufacture, process, or fabricate goods that you'll sell? If so, you might qualify to buy some equipment and supplies without paying sales or use tax. This is called the production exemption.
Businesses that qualify for the exemption
To be eligible for the production exemption, your business must:
- Engage in a qualifying production activity
- Farming – including custom farming
- Ranching – including custom ranching
- Mining – including contract mining
- Fabricating
- Manufacturing
- Processing – including processing tangible personal property for use as fuel to produce energy
- Raising or maintaining wildlife or fish for taxable hunting and fishing activities
- Own the goods you produce. (If you're a custom farmer, custom rancher, contract miner, or an energy producer, you don't have to own the goods that are produced.)
- Sell the goods you produce. Either you or someone else must sell the goods at retail.
- Be primarily devoted to qualifying production activities. One way many businesses satisfy this requirement is that they devote the majority of their business operations to qualifying production activities. Example: Spending more than 50% of the business's working time and activities producing goods for sale.
A separately operated business segment can also qualify. It can be a division, branch, or even a cost center. You must keep separate accounting records for the business segment to qualify as a separately operated business segment. This includes recording income, expenses, wages, and assets of the business segment separately. You must also have employees dedicated to operating the separate business segment.
Example:
Your business spends 40% of its time manufacturing and 60% making repairs. Manufacturing is an exempt activity, but repairing someone else's property isn't. Because your business doesn't spend more than 50% of its time producing goods, you don't qualify for the production exemption. Your manufacturing activities might qualify for an exemption if you make them a separate operation.
Businesses that don't qualify for the exemption
Generally, retailers and other service-related businesses (such as restaurants and dry cleaners) don't qualify. The production exemption is only for businesses that spend the majority of their time producing goods for sale.
Idaho law excludes the following businesses from the production exemption:
- Utility companies delivering products through pipes, wires, or mains to the place where the customer will use the product
- Publishers of tax-exempt literature
- Contractors improving real property
The production exemption isn't granted to individuals who don't operate a business.
Example:
Equipment for your hobby doesn't qualify for the exemption because you're not a business.
