Washington’s Taxation of Manufacturing — Part 2: The Sales and Use Tax Exemption for Manufacturing Machinery and Equipment

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In the first part of this series, we provided an overview of the Washington state tax consequences of engaging in manufacturing activities in Washington: see Washington’s Taxation of Manufacturing — Part 1. Businesses engaged in manufacturing typically make significant capital investments in machinery and equipment. Fortunately, Washington law provides manufacturers with a broad exemption from sales and use taxes for machinery and equipment used directly in a manufacturing operation (“M&E exemption”). The M&E exemption applies to the purchase and use by a manufacturer or processors for hire of machinery and equipment that is used directly in an eligible manufacturing operation. The exemption also applies to machinery and equipment used directly in testing a manufacturer’s or processor for hire’s tangible personal property, as well as machinery and equipment that is integral to a research and development operation. This article provides an overview of the requirements for qualifying for the M&E exemption, which can significantly reduce the state tax costs of manufacturing.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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