A CATEGORY-BY-CATEGORY GUIDE FOR U.S. MANUFACTURERS
The short answer: probably yes—but many manufacturers are still paying sales tax they don't legally owe. Most U.S. states exempt machinery, equipment, and production-related purchases from sales tax when used directly in manufacturing. The catch? Rules vary by state, and the exemption only works if you provide the right certificate to your supplier.
The Big Picture
Manufacturing exemptions exist to prevent "tax pyramiding"—the problem that arises when the same cost gets taxed multiple times as it moves through the supply chain, inflating prices for end customers. States that want to attract and retain manufacturing investment remove this friction.
Critically, these are not the same as resale or wholesale exemptions. A resale certificate applies to goods purchased for resale. A manufacturing exemption applies to goods purchased for use in making a product. If your team is submitting resale certificates for production equipment purchases, that's the wrong document—and it creates audit exposure for your supplier.
What Qualifies for a Manufacturing Sales Tax Exemption: Category by Category
Machine tools, CNC machining centers, lathes, grinders, presses, and similar equipment that directly participates in transforming raw materials into finished goods are exempt in virtually every manufacturing-exemption state. Most states require the equipment to be used more than 50% of the time in qualifying manufacturing.
Replacement parts for qualifying machinery are generally exempt—the logic being that parts are integral to keeping exempt machines running. Kansas law explicitly lists "drill bits, grinding wheels, cutting bars, and saws" as qualifying parts. New York confirms qualifying parts can be purchased exempt on Form ST-121. Key rule: parts must be for machinery that itself qualifies.
End mills, inserts, drill bits, saw blades, cutting fluids, and coolants that contact the workpiece often qualify—they make a physical change to the product. Georgia, Kansas, and Texas explicitly include these when they make a chemical or physical change in the product. Washington State requires a useful life of one year or more, so true consumables may not qualify there.
Wrenches, hammers, calipers, screwdrivers—generally taxable in most states, even when used exclusively on a manufacturing floor. Texas is explicit that a hammer is taxable even if it's used in fabricating a product for sale. Exception: dies, jigs, molds, and patterns used to directly form products typically do qualify.
Usually taxable. North Carolina exempts safety apparel that protects the product, like cleanroom garments, but taxes items that protect the employee, like hard hats and gloves. Most states apply similar logic.
Scope of state exemptions
Not all exemptions are created equal. The chart below illustrates the relative breadth of exemptions across major manufacturing states.
How Broadly Each State's Exemption Extends
State Quick Reference
| State | Exemption Type | Includes Consumables? | Key Notes |
|---|---|---|---|
| Georgia | BROAD | Yes | Includes energy, packaging, consumable supplies |
| Kansas | BROAD | Yes | Explicitly lists drill bits, grinding wheels, cutting bars |
| Iowa | BROAD | Yes | Computers and peripherals used in processing also exempt |
| New York | BROAD | Yes | Form ST-121 required; repair services also exempt |
| Texas | BROAD | Partially | Direct use standard; hand tools explicitly excluded |
| South Carolina | BROAD | Yes | Includes distribution facilities |
| Washington | BROAD | No | Useful life ≥1 yr required; true consumables excluded |
| Florida | BROAD | No | NAICS 31–33 required; >50% use threshold |
| California | PARTIAL | No | 3.9375% off state rate only; local taxes still apply |
| Oregon / MT / NH / DE / AK | NO SALES TAX | N/A | No sales tax — exemption not needed |
| Hawaii / New Mexico | GRT/GET | No | Gross receipts tax model; no broad manufacturing exemption |
State rules change. Always verify current treatment with a qualified tax advisor. Local/county rates may differ from state rates.
Getting the Certificate Right
The exemption only applies when the buyer provides the correct certificate to the seller. A resale certificate is not the right document for a manufacturing exemption. Common forms include:
➞ New York: Form ST-121, Exempt Use Certificate➞ Texas: Form 01-339 (back), Sales and Use Tax Exemption Certificate
➞ Multi-state: Streamlined Sales Tax (SST) Exemption Certificate, accepted in 24+ states
➞ Important: Different items in the same order may have different tax treatment (e.g., a CNC machine vs. a hand wrench). Category-level certificate management matters.
Frequently Asked Questions
Do manufacturers have to pay sales tax on machinery and equipment?
In most cases, no. 38 U.S. states offer full or partial sales tax exemptions on machinery, equipment, and production-related purchases used directly in manufacturing. The exemption only applies when the buyer provides the correct exemption certificate to the supplier—using a resale certificate instead is the wrong form and creates audit risk.
What is the difference between a resale certificate and a manufacturing exemption certificate?
A resale certificate applies to goods purchased to resell to a customer. A manufacturing exemption certificate applies to goods purchased for use in making a product. Submitting a resale certificate for production equipment is the wrong document and can create audit exposure for the supplier.
Do hand tools qualify for the manufacturing sales tax exemption?
Generally, no. Wrenches, hammers, calipers, and screwdrivers are taxable in most states, even when used exclusively on a manufacturing floor—Texas explicitly states a hammer is taxable even if used to fabricate a product for sale. Dies, jigs, molds, and patterns used to directly form products are a common exception.
Which states have the broadest manufacturing sales tax exemptions?
Georgia, Kansas, Iowa, New York, Texas, South Carolina, Washington, and Florida all offer broad manufacturing exemptions covering machinery, parts, and in most cases consumables. California offers only a partial exemption (3.9375% off the state rate), and Hawaii and New Mexico use a gross receipts tax model with no broad manufacturing exemption.
What form do I need to claim a manufacturing sales tax exemption?
It varies by state. New York requires Form ST-121, Exempt Use Certificate. Texas requires Form 01-339 with the manufacturing exemption reason stated on the back. Many other states accept the multi-state Streamlined Sales Tax (SST) Exemption Certificate, recognized in more than 24 states.
Footnotes & State References
38 states full/partial exemption; 60% capital expenditure estimate. Source: handsoffsalestax.com, April 2026; Annual Survey of Manufactures.
Kansas: K.S.A. § 79-3606(kk). Integrated Plant Theory. Explicitly includes drill bits, grinding wheels, cutting bars, saws.
Georgia: O.C.G.A. § 48-8-3.2. Includes machinery, parts, consumable supplies, industrial materials, packaging, and energy.
Iowa: Iowa Department of Revenue. Machinery, equipment, replacement parts, supplies, and computers directly and primarily used in processing.
South Carolina: S.C. Code Ann. § 12-36-2120. Machines and their parts, attachments, and replacements necessary to operation.
Texas: Texas Tax Code § 151.318; Comptroller Pub. 94-124. Direct Use Standard. Excludes hand tools.
Predominant use threshold (>50%): Applied in Florida, Kansas, Washington, and others. Source: Numeral, June 2026.
New York: N.Y. Tax Law § 1115(a)(12). Exempt Use Certificate Form ST-121. Repair services also exempt.
Washington State: RCW 82.08.02565; WA Dept. of Revenue. Useful life ≥1 year required.
North Carolina: N.C. Gen. Stat. § 105-164.13. Safety apparel protecting the product is exempt; protecting the employee is taxable.
Florida: Fla. Stat. § 212.08(7)(jj). Full exemption for industrial M&E at a fixed location; NAICS codes 31–33; >50% use threshold.
California: Cal. Rev. & Tax. Code § 6377.1. Partial exemption of 3.9375% off state rate only. Local/district taxes still apply.
travers.com | For educational purposes only. Not tax or legal advice. Consult a qualified tax professional for guidance specific to your situation.
