Bill Summary – FastDemocracy

Stricken language would be deleted from and underlined language would be added to present law.
 State of Arkansas
 94th General Assembly                        A Bill
 Regular Session, 2023                                                             SENATE BILL 256
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 By: Senator B. Johnson
 By: Representative Beaty Jr.
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                                   For An Act To Be Entitled
                 AN ACT TO AMEND THE SALES AND USE TAX EXEMPTION FOR
                 CERTAIN MACHINERY AND EQUIPMENT USED IN
                 MANUFACTURING; TO INCLUDE MACHINERY AND EQUIPMENT
                 USED IN RESEARCH AND DEVELOPMENT IN THE SALES AND USE
                 TAX EXEMPTION FOR CERTAIN MACHINERY AND EQUIPMENT
                 USED IN MANUFACTURING; AND FOR OTHER PURPOSES.
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                                               Subtitle
                          TO INCLUDE MACHINERY AND EQUIPMENT USED
                          IN RESEARCH AND DEVELOPMENT IN THE SALES
                          AND USE TAX EXEMPTION FOR CERTAIN
                          MACHINERY AND EQUIPMENT USED IN
                          MANUFACTURING.
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 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF ARKANSAS:
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         SECTION 1.       Arkansas Code § 26-52-402(a)(1)(A), concerning the items
 eligible for the sales tax exemption for certain machinery and equipment, is
 amended to read as follows:
                 (1)(A)     Gross receipts or gross proceeds derived from the sale of
 tangible personal property consisting of machinery and equipment used
 directly in the research and development of or the producing, manufacturing,
 fabricating, assembling, processing, finishing, or packaging of articles of
 commerce at manufacturing or processing plants or facilities in the State of
 Arkansas, including facilities and plants for manufacturing of feed,
 processing of poultry or eggs, or both, and livestock, and the hatching of
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 poultry, but only to the extent that the machinery and equipment is purchased
 and used for the purposes set forth in this subdivision (a)(1).
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      SECTION 2.     Arkansas Code § 26-52-402(a)(2)(A), concerning the items
 eligible for the sales tax exemption for certain machinery and equipment, is
 amended to read as follows:
            (2)(A)     Machinery purchased to replace existing machinery and
 used directly in the research and development of or the producing,
 manufacturing, fabricating, assembling, processing, finishing, or packaging
 of articles of commerce at manufacturing or processing plants or facilities
 in this state will be exempt under this subdivision (a)(2).
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      SECTION 3.     Arkansas Code § 26-52-402(c)(1), concerning the sales tax
 exemption for certain machinery and equipment, is amended to read as follows:
      (c)(1)(A)    It is the intent of this section to exempt only the
 machinery and equipment as shall be used directly in the actual manufacturing
 or processing operation at any time from the research and development stage,
 to the initial stage when actual manufacturing or processing begins, and
 through the completion of the finished article of commerce and the packaging
 of the finished end product.
                     (B)   As used in this subsection, “directly” is used to
 limit the exemption to only the machinery and equipment used in research and
 development or actual production during processing, fabricating, or
 assembling raw materials or semifinished materials into the form in which the
 personal property is to be sold.
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      SECTION 4.     Arkansas Code § 26-52-402(c)(2)(A) and (B), concerning the
 definition of "used directly" in relation to the sales tax exemption for
 certain machinery and equipment, are amended to read as follows:
                     (A)(i)     Machinery and equipment used in actual production
 includes machinery and equipment that meet all other applicable requirements
 and which cause a recognizable and measurable mechanical, chemical,
 electrical, or electronic action to take place as a necessary and integral
 part of manufacturing, the absence of which would cause the manufacturing
 operation to cease.
                              (ii) “Directly” does not mean that the machinery and
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 equipment must come into direct physical contact with any of the materials
 that become necessary and integral parts of the finished product.
                          (iii) Machinery and equipment which handle raw,
 semifinished, or finished materials or property before research and
 development or the manufacturing process begins are not used directly in the
 manufacturing process.
                          (iv) Machinery and equipment which are necessary for
 purposes of storing the finished product are not used directly in the
 manufacturing process.
                          (v)     Machinery and equipment used to transport or
 handle a product while manufacturing is taking place are used directly;
                   (B)    Machinery and equipment “used directly” in the
 manufacturing process includes without limitation the following:
                          (i)     Molds, frames, cavities, and forms that
 determine the physical characteristics of the finished product or its
 packaging material at any stage of the manufacturing process;
                          (ii) Dies, tools, and devices attached to or a part
 of a unit of machinery that determine the physical characteristics of the
 finished product or its packaging material at any stage of the manufacturing
 process;
                          (iii) Testing equipment to measure the quality of the
 finished product at any stage of the manufacturing process;
                          (iv) Computers and related peripheral equipment that
 directly control or measure the manufacturing process;
                          (v)     Machinery and equipment that produce steam,
 electricity, or chemical catalysts and solutions that are essential to the
 manufacturing process but which are consumed during the course of the
 manufacturing process and do not become necessary and integral parts of the
 finished product; and
                          (vi) Sand and other proppants used to complete a new
 oil or gas well or to re-complete, redrill, or expand an existing oil or gas
 well; and
                          (vii)    Machinery and equipment used in the research
 and development of new articles of commerce; and
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      SECTION 5.   Arkansas Code § 26-53-114(a)(1)(A), concerning the items
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                                                                                  SB256
 eligible for the compensating use tax exemption for certain machinery and
 equipment, is amended to read as follows:
               (1)(A)    Only to the extent that the machinery and equipment is
 purchased and used for the purposes set forth in this subdivision (a)(1),
 machinery and equipment used directly in the research and development of or
 the producing, manufacturing, fabricating, assembling, processing, finishing,
 or packaging of articles of commerce at manufacturing or processing plants or
 facilities in the State of Arkansas, including facilities and plants for
 manufacturing feed, processing of poultry and eggs and livestock, and the
 hatching of poultry.
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      SECTION 6.        Arkansas Code § 26-53-114(a)(2)(A), concerning the items
 eligible for the compensating use tax exemption for certain machinery and
 equipment, is amended to read as follows:
               (2)(A)    Machinery purchased to replace existing machinery in its
 entirety and used directly in the research and development of or the
 producing, manufacturing, fabricating, assembling, processing, finishing, or
 packaging of articles of commerce at manufacturing or processing plants or
 facilities in this state will shall be exempt under this section.
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      SECTION 7.        Arkansas Code § 26-53-114(c)(1) and (2), concerning the
 compensating use tax exemption for certain machinery and equipment, are
 amended to read as follows:
      (c)(1)     It is the intent of this section to exempt only such machinery
 and equipment as shall be used directly in the actual manufacturing or
 processing operation at any time from the research and development stage, to
 the initial stage when actual manufacturing or processing begins, and through
 the completion of the finished article of commerce and the packaging of the
 finished end product.
               (2)   As used in this section, “directly” is used to limit the
 exemption to only the machinery and equipment used in research and
 development or actual production during processing, fabricating, or
 assembling raw materials or semifinished materials into the form in which the
 personal property is to be sold in the commercial market.
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      SECTION 8.        Arkansas Code § 26-53-114(c)(3)(A) and (B), concerning the
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 definition of "used directly" in relation to the compensating use tax
 exemption for certain machinery and equipment, are amended to read as
 follows:
                  (A)(i)     Machinery and equipment used in actual production
 include machinery and equipment that meet all other applicable requirements
 and which cause a recognizable and measurable mechanical, chemical,
 electrical, or electronic action to take place as a necessary and integral
 part of manufacturing, the absence of which would cause the manufacturing
 operation to cease.
                           (ii) “Directly” does not mean that the machinery and
 equipment must come into direct physical contact with any of the materials
 that become necessary and integral parts of the finished product.
                           (iii) Machinery and equipment which handle raw,
 semifinished, or finished materials or property before research and
 development or the manufacturing process begins are not used directly in the
 manufacturing process.
                           (iv) Machinery and equipment which are necessary for
 purposes of storing the finished product are not used directly in the
 manufacturing process.
                           (v)   Machinery and equipment used to transport or
 handle product while manufacturing is taking place are used directly;
                  (B)     Further, machinery and equipment used directly in the
 manufacturing process includes without limitation the following:
                           (i)   Molds, frames, cavities, and forms that
 determine the physical characteristics of the product or its packaging
 materials at any stage of the manufacturing process;
                           (ii) Dies, tools, and devices attached to or part of
 a unit of machinery that determine the physical characteristics of the
 product or its packaging material at any stage of the manufacturing process;
                           (iii) Testing equipment to measure the quality of the
 product at any stage of the manufacturing process;
                           (iv) Computers and related peripheral equipment that
 directly control or measure the manufacturing process; and
                           (v)   Machinery and equipment that produce steam,
 electricity, or chemical catalysts and solutions that are essential to the
 manufacturing process but which are consumed during the course of the
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 manufacturing process and do not become necessary and integral parts of the
 finished product; and
                          (vi)   Machinery and equipment used in the research
 and development of new articles of commerce; and
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        SECTION 9.   EFFECTIVE DATE.   Sections 1-8 of this act are effective on
 the first day of the calendar quarter following the effective date of this
 act.
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Statutes affected: 
SB 256: 26-52-402(a), 26-52-402(c), 26-53-114(a), 26-53-114(c)