Manufacturer's sales/use tax exemption for machinery and equipment (M&E)

Manufacturer's sales/use tax exemption for machinery and equipment (M&E)

Generally, a business must report under one or more of the manufacturing B&O tax classifications to be eligible for the manufacturer’s sales and use tax exemption. Other requirements apply.


M&E Exemption

The Manufacturers' Sales and Use Tax Exemption (M&E) provides a retail sales and use tax exemption for machinery and equipment used directly in a manufacturing operation or research and development operation. Sales of or charges made for labor and services rendered in respect to installing, repairing, cleaning, altering, or improving qualifying machinery and equipment are also exempt from sales tax. In addition, the exemption may be taken for qualifying machinery and equipment used directly in a testing operation by a person engaged in testing for a manufacturer or processor for hire.

Cannabis Processors: Cannabis processors must pay retail sales tax or use tax on all purchases of machinery and equipment used in the manufacturing, research and development or testing of cannabis, useable cannabis, or cannabis infused products, including cannabis concentrates. Cannabis businesses that perform these activities are not eligible for the M&E exemption.

To qualify for the M&E sales and use tax exemption:

  • The property must meet the definition of "machinery and equipment" as a:
    • Device,
    • Industrial fixture,
    • Support facility, or
    • Tangible personal property that becomes an ingredient or component of any of the above, including repair and replacement parts, lubricants, etc., with a useful life of one year or more.
  • The purchase or use must be by a manufacturer or processor for hire or person engaged in testing for a manufacturer or processor for hire,
  • The machinery and equipment must be used directly in a manufacturing operation, research and development by a manufacturer, or testing operation,
  • The machinery or equipment must have a useful life of one year or more, and
  • The machinery and equipment must be used more than 50% of the time on an eligible activity (majority use threshold).

The purchase or use must be by a manufacturer or processor for hire or person engaged in testing for a manufacturer or processor for hire.

"Manufacturing operation" means the manufacturing of articles, substances, or commodities for sale as tangible personal property.

A manufacturing operation begins at the point where the raw materials enter the manufacturing site and ends at the point where the processed material leaves the manufacturing site. The operation includes storage of:

  • raw materials at the site,
  • in-process materials at the site, and
  • the processed material at the site.

The manufacturing operation is defined in terms of a process occurring at a location. To be eligible as a qualifying use of M&E, the use must take place within the manufacturing operation, unless specifically exempted by law. Storage of raw material or other tangible personal property, packaging of tangible personal property, and other activities that potentially qualify under the "used directly" criteria, and that do not constitute manufacturing in and of themselves, are not within the scope of the exemption unless they take place at a manufacturing site.

Note: The statute specifically allows testing to occur away from the site.

“Testing” means activities performed to establish or determine the properties, qualities, and limitations of tangible personal property.

"Testing operation" means the testing of tangible personal property for a manufacturer or processor for hire.

A testing operation begins at the point where the tangible personal property enters the testing site and ends at the point where the tangible personal property leaves the testing site. The term also includes that portion of a cogeneration project that is used to generate power for consumption within the site of which the cogeneration project is an integral part.

The testing operation is defined in terms of a process occurring at a location. To be eligible as a qualifying use of M&E, the use must take place within the testing operation, unless specifically exempted by law.

“Research and development operation” means engaging in research and development as defined in RCW 82.63.010 by a manufacturer or processor for hire.

RCW 82.63.010 defines "research and development" to mean: Activities performed to discover technological information, and technical and nonroutine activities concerned with translating technological information into new or improved products, processes, techniques, formulas, inventions, or software. The term includes exploration of a new use for an existing drug, device, or biological product if the new use requires separate licensing by the Federal Food and Drug Administration under chapter 21, C.F.R., as amended. The term does not include adaptation or duplication of existing products where the products are not substantially improved by application of the technology, nor does the term include surveys and studies, social science and humanities research, market research or testing, quality control, sale promotion and service, computer software developed for internal use, and research in areas such as improved style, taste, and seasonal design.