If you change the use of an item
If you buy an item exempt to use in a production activity, it becomes taxable if you stop using it in a production activity. You must then pay tax on the fair market value of the item.
Example
You buy a forklift to move raw goods from one part of the factory to another during the production process. The forklift qualifies for the exemption because it’s directly used in the production process. After two years, you move the forklift into the finished goods warehouse to load trucks. Loading trucks isn’t part of the production process. The forklift is now taxable on its fair market value. You must determine the fair market value of the forklift, and pay use tax on that amount.
Note: The opposite isn’t true. If you pay tax on an item because you use it in a nonproduction activity, you can’t claim a tax credit if you begin to use it in a production activity.
Example
On January 1, you bought and paid tax on a forklift for the shipping warehouse. In July, you moved the forklift from shipping to the fabricating line (a nontaxable activity). You can’t claim a credit for tax paid on a forklift if you move the forklift into a production activity from a taxable activity.