SUT-158 - Cotton Ginning - Manufacturing Exemption

A business owns a gin. The business buys cotton from area farmers, processes the cotton by separating the seed from the fiber, and sells the seed and cotton to others for further sale. Under these conditions, and upon application to the Department of Revenue, the business may qualify as a manufacturer (processor) eligible for sales tax exemption on machinery and equipment used to process the cotton and reduced tax rates on water and energy fuel used by the manufacturer.

This business is not providing for-hire services to process the farmers’ cotton and therefore will not qualify for the agricultural certificate of exemption. The cotton gin, repair and replacement parts, and repair labor for the cotton gin can be purchased exempt from tax if the business has qualified for and received authorization as a manufacturer. The electricity, natural gas, liquefied gas, or fuel oil used to operate the cotton gin will be subject to tax at the 1.5% tax rate on energy fuel sold to and used by qualified manufacturers.

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