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Business Taxes Law Guide—Revision 2024
Sales and Use Tax Annotations
A B C D E F G H I J L M N O P R S T U V W X
P
440.0000 Property Used in Manufacturing—Regulation 1525
Annotation 440.1854
(b) Property Becoming Component Part of Finished Product
(1) In General
440.1854 Drill-Align Panels (Etched Panels). A taxpayer manufactures multi-layer, laminated circuit boards to the special order of its customers. The circuit boards are unfinished when the taxpayer transfers them to its customers. The customers finish the boards and then install them in electronics equipment for sale. The taxpayer makes a separate charge for drill-align panels. Since the boards are laminated, holes must be drilled in them so that circuits on each layer can be connected by lines of copper to circuits on other layers. Each hole must be drilled within .001 inch for a proper connection. Since the taxpayer does the drilling, it takes the first circuit board off the production line, places it in a drill, and drills the holes. The board is also "etched," that is, the copper cover is removed to allow visual inspection of the interior to verify that the holes were drilled correctly. If this first board was drilled correctly, the remaining boards are drilled and all of the boards, including the original drill-align board, are then transferred to the customer. The customer will specify in its purchase order for the taxpayer to drill the boards. If the customer has elected to drill its own boards, the taxpayer does not prepare or bill for a drill-align panel. However, the taxpayer may still etch one of the boards so that the customer can input the interior and verify that the boards were manufactured to specifications.
The described drill-align panel is simply one of the circuit boardsmanufactured to the customer's order. It happens to be the first board drilled, and is therefore inspected carefully to see that the drill was aligned properly, but it is not otherwise used in the manufacturing process. Thus, the drill-align panels are properly sold for resale and are not used prior to sale. 1/4/96.