Maine – Taxability of Fabrication Services

SALT Report 3106 – Maine Revenue Services has updated a sales and use tax bulletin that discusses the taxability of fabrication services to reflect recent legislative changes. The bulletin defines fabrication as those services that result in the production of tangible personal property, or that are a step in a process or series of operations that result in the production of tangible personal property that did not originally exist.

Because fabrication services generally result in the creation of tangible personal property, charges for these services are subject to the service provider tax.  This applies whether the purchaser, or a third party, provides the materials. For example:

  • A customer supplies steel and wants it cut, shaped, drilled, and formed
  • A customer supplies paper to a printer to produce an advertising pamphlet
  • A paper mill supplies logs to a chipper and requests that the logs be chipped into biomass fuel, or
  • A customer supplies a carpenter with lumber and wants cabinets made from the lumber

Purchases of machinery, equipment, and repair parts by fabricators are exempt from sales and use tax if they will be used in the provision of fabrication services and meet all of the following qualifications:

  • The property produced is intended for sale or lease, not for use by the owner
  • The property produced is intended for sale or lease as tangible personal property, not as real estate
  • The machinery or equipment must be used directly in the production of tangible personal property.  It cannot be used in procurement or storage operations, or in any other activity that is incidental, convenient, or remote to production, and
  • The machinery or equipment must be used primarily, more than 50% of the time, in production

Additionally, items that will be physically incorporated into tangible personal property and passed along to the purchaser as an ingredient or component part of property may be purchased tax-free by the fabricator as they are essentially being purchased for resale.

In certain situation, the items may qualify for the exemption for property consumed or destroyed in production. This exemption applies only if the item that is consumed or destroyed has a physical life expectancy of less than one year in the use to which it is applied.

The revised publication also provides several examples of fabrication services that are exempt form sales and use tax.

For Further Information

Maine Revenue Services – Sales and Use Tax Instructional Bulletin #46