Ark. Code Ann. § 26-53-114 (2026)

Research References

ALR.

Parts and supplies used in repair as subject to sales and use taxes. 113 A.L.R.5th 313.

Am. Jur. 67B Am. Jur. 2d, Sales and Use Taxes, §§ 108, 183.

U. Ark. Little Rock L.J.

Fifteenth Annual Survey of Arkansas Law, 15 U. Ark. Little Rock L.J. 427.

Case Notes

Constitutionality.

This section is not unconstitutional on the ground that General Assembly in granting exemptions acted in an arbitrary manner. Teague v. Scurlock, 223 Ark. 271, 265 S.W.2d 528 (1954).

In General.

Exemptions afforded taxpayer by this section were not repealed by § 26-53-201 et seq., relating to contractors. Larey v. Wolfe, 242 Ark. 715, 416 S.W.2d 266 (1967); Heath v. Research-Cottrell, Inc., 258 Ark. 813, 529 S.W.2d 336 (1975).

Construction.

Tax exemption provisions must be strictly construed. C.J.C. Corp. v. Cheney, 239 Ark. 541, 390 S.W.2d 437 (1965).

Any tax exemption provision must be strictly construed against the exemption, and to doubt is to deny the exemption. S.H. & J. Drilling Corp. v. Qualls, 268 Ark. 71, 593 S.W.2d 178 (1980); Qualls v. Georgia-Pacific Corp., 269 Ark. 426, 602 S.W.2d 646 (1980); Pledger v. Baldor Int'l, Inc., 309 Ark. 30, 827 S.W.2d 646 (1992).

Purpose.

The purpose of the 1968 amendment is perfectly clear — the original act, by exempting all tangible personal property used by manufacturers, could arguably have exempted office furniture, typewriters, automobiles, and various other personal property not used directly in the manufacturing process; the amendment limited the exemption to machinery and equipment used directly in manufacturing, but it still has to be used “at manufacturing or processing facilities.” Gaddy v. Hummelstein Iron & Metal, Inc., 266 Ark. 1, 585 S.W.2d 1 (1979).

By enacting this section the legislature did not change the prior law but merely intended to clarify it. Pledger v. Baldor Int'l, Inc., 309 Ark. 30, 827 S.W.2d 646 (1992).

Appeals.

On appeal, the Supreme Court reviews tax exemption cases de novo and does not reverse a finding of fact unless it is clearly against the preponderance of the evidence. S.H. & J. Drilling Corp. v. Qualls, 268 Ark. 71, 593 S.W.2d 178 (1980).

Articles of Commerce.

Tax exemption is properly denied where finished products are not “articles of commerce” as required under the exemption provisions of subdivision (a)(1)(A) of this section. C & C Mach., Inc. v. Ragland, 278 Ark. 629, 648 S.W.2d 61 (1983).

Burden of Proof.

Since taxation is the rule and exemption the exception, the burden is on taxpayers to clearly show they are entitled to exemption from the use tax. Cheney v. Georgia-Pacific Paper Corp., 237 Ark. 161, 371 S.W.2d 843 (1963).

There is a presumption in favor of the taxing power of the state, and a claimant has the burden to clearly establish any right to an exemption. C.J.C. Corp. v. Cheney, 239 Ark. 541, 390 S.W.2d 437 (1965).

Taxpayer has the burden of clearly establishing an exemption beyond a reasonable doubt. S.H. & J. Drilling Corp. v. Qualls, 268 Ark. 71, 593 S.W.2d 178 (1980).

Creation or Expansion.

Company engaged in construction and repair work on state highways under contracts with state was not exempt from tax on ground that material used in highway was material used in “creation of facilities.” Morley v. E.E. Barber Constr. Co., 220 Ark. 485, 248 S.W.2d 689 (1952).

Spare parts were held not to be machinery purchased “to expand existing manufacturing facilities” within meaning of subdivision (a)(1)(B) of this section. Qualls v. Georgia-Pacific Corp., 269 Ark. 426, 602 S.W.2d 646 (1980).

Manufacturing or Processing.

Dam used in part to manufacture electricity is a manufacturing facility. Morley v. Brown & Root, Inc., 219 Ark. 82, 239 S.W.2d 1012 (1951).

Personal tangible property purchased by contractors engaged in construction of dam used in part for manufacturing of electricity was exempt from use tax to the extent that property went into construction of dam. Morley v. Brown & Root, Inc., 219 Ark. 82, 239 S.W.2d 1012 (1951).

Company engaged in construction and repair of roads held not a manufacturer. Morley v. E.E. Barber Constr. Co., 220 Ark. 485, 248 S.W.2d 689 (1952).

General Assembly did not have any intent to exempt poultry feed from tax by virtue of enactment of this section. Teague v. Scurlock, 223 Ark. 271, 265 S.W.2d 528 (1954) (decided prior to enactment of §§ 26-52-404 and 26-53-120).

One engaged in ginning cotton held not engaged in the business of manufacturing or processing. Scurlock v. Henderson, 223 Ark. 727, 268 S.W.2d 619 (1954), superseded by statute as stated in, Ragland v. Ark. Valley Coal Servs., Inc., 275 Ark. 108, 627 S.W.2d 559 (1982) (decision prior to 1955 amendment).

“Manufacturing” and “processing” are not considered as two distinct operations, “processing” having reference to some stage of manufacture. Pellerin Laundry Mach. Sales Co. v. Cheney, 237 Ark. 59, 371 S.W.2d 524 (1963).

Laundry and dry cleaning machinery and equipment are not manufacturing or processing equipment and machinery. Pellerin Laundry Mach. Sales Co. v. Cheney, 237 Ark. 59, 371 S.W.2d 524 (1963).

Out-of-state purchases of incubators for use in commercial hatchery held not for use in processing within meaning of this section. Peterson Produce Co. v. Cheney, 237 Ark. 600, 374 S.W.2d 809 (1964).

In determining what will constitute a manufacturer or processor within the exemption provided by this section Supreme Court will follow the common usage or popular meaning of words. C.J.C. Corp. v. Cheney, 239 Ark. 541, 390 S.W.2d 437 (1965).

Foreign corporation supplying ready-mix concrete to contractor was not exempt as a “manufacturer or processor.” C.J.C. Corp. v. Cheney, 239 Ark. 541, 390 S.W.2d 437 (1965).

Fabrication of drainage culverts from abandoned railroad tank cars constituted a manufacturing process within meaning of subdivision (a)(1)(A) of this section. Ark. Ry. Equip. Co. v. Heath, 257 Ark. 651, 519 S.W.2d 45 (1975).

Evidence held sufficient to show company was in business of producing and selling bottled carbonated soft drinks, entitling it to exemption as manufacturer. Ark. Beverage Co. v. Heath, 257 Ark. 991, 521 S.W.2d 835 (1975).

One processing and packaging slaughtered poultry for sale and cooked poultry for transportation and marketing held not a manufacturer. Heath v. Westark Poultry Processing Corp., 259 Ark. 141, 531 S.W.2d 953 (1976).

Manufacturing and processing are not two distinct operations and a taxpayer, in order to be entitled to the exemption, must first qualify as a manufacturer. Gaddy v. Hummelstein Iron & Metal, Inc., 266 Ark. 1, 585 S.W.2d 1 (1979).

A dealer in scrap metal is not a manufacturer of scrap metal, because that is what it begins with and what it ends with; it changes the form of scrap metal, but it does not make a new product. Gaddy v. Hummelstein Iron & Metal, Inc., 266 Ark. 1, 585 S.W.2d 1 (1979).

Coal company's crushing process held not to constitute “manufacturing” because process did not change essential identity of the coal. Ragland v. Ark. Valley Coal Servs., Inc., 275 Ark. 108, 627 S.W.2d 559 (1982).

Automated equipment, or “minilabs,” purchased and used by businesses which process film, do not fall within the manufacturing exemption from use tax because the equipment is not used to produce “articles of commerce.” Pledger v. Noritsu America Corp., 320 Ark. 371, 896 S.W.2d 595 (1995).

Packaging materials purchased out-of-state by a taxpayer in connection with its business of hazardous waste disposal did not qualify as machinery and equipment used directly in producing, manufacturing, fabricating, assembling, processing, finishing, or packaging of articles of commerce at manufacturing or processing plants or facilities in the state as the taxpayer paid cement kilns and power plants to take packaged waste and burn it and those entities never paid the taxpayer for packaged fuel during the audit period. Rineco Chem. Indus., Inc. v. Weiss, 344 Ark. 118, 40 S.W.3d 257 (2001).

Pollution Control.

Provisions in subdivision (a)(3) of this section exempting antipollution equipment from the tax applies to any industry including utilities. Heath v. Research-Cottrell, Inc., 258 Ark. 813, 529 S.W.2d 336 (1975).

Exemption granted by subdivision (a)(3) of this section applies to contractors as well as to manufacturers or processors. Heath v. Research-Cottrell, Inc., 258 Ark. 813, 529 S.W.2d 336 (1975).

Subdivision (a)(3) of this section applies to the design, furnishing, and installation of natural draft cooling tower to prevent water pollution. Heath v. Research-Cottrell, Inc., 258 Ark. 813, 529 S.W.2d 336 (1975).

Recorder to monitor pollutants was not exempt from use tax as machinery or equipment used directly in manufacturing process. Southern Steel & Wire Co. v. Wooten, 276 Ark. 37, 631 S.W.2d 835 (1982).

Replacement of Existing Machinery.

Substitution of new metal post on moving arm of glass-cutting machine was not replacement of machinery in its entirety. Fourco Glass Co. v. Heath, 261 Ark. 192, 547 S.W.2d 121 (1977).

Construction of new glass furnace built on foundation of old furnace was not replacement in its entirety. Fourco Glass Co. v. Heath, 261 Ark. 192, 547 S.W.2d 121 (1977).

Substitution of new parts for components held not to constitute replacement of “machinery in its entirety” as would come within subdivision (a)(2) of this section. S.H. & J. Drilling Corp. v. Qualls, 268 Ark. 71, 593 S.W.2d 178 (1980).

Where company used original parts from an old boiler in reconstructing a new one, machinery was not “replaced in its entirety” under subdivision (a)(2) of this section. Qualls v. Georgia-Pacific Corp., 269 Ark. 426, 602 S.W.2d 646 (1980).

Where items were physically combined with other existing components in order to construct a machine that had a single purpose and function, replacing those items did not constitute replacement of machinery in its entirety. Southern Steel & Wire Co. v. Wooten, 276 Ark. 37, 631 S.W.2d 835 (1982).

Testing Equipment.

The exemption for testing equipment includes equipment used to test components of a finished product. Pledger v. Baldor Int'l, Inc., 309 Ark. 30, 827 S.W.2d 646 (1992).

Used Directly.

Use of commercial poultry feed to fatten fowls for market held not exempt from tax under this section, as feed not deemed an integral part of the finished product. Teague v. Scurlock, 223 Ark. 271, 265 S.W.2d 528 (1954) (decided prior to enactment of §§ 26-52-404 and 26-53-120).

Turbine generators are primary facilities used directly in processing and manufacturing. Cheney v. Georgia-Pacific Paper Corp., 237 Ark. 161, 371 S.W.2d 843 (1963).

Miscellaneous items held not to be exempt as manufacturing machinery or supplies used directly in making wood pulp or paper. Cheney v. Georgia-Pacific Paper Corp., 237 Ark. 161, 371 S.W.2d 843 (1963).

Oil and gas drilling rigs held to be used directly in mining, processing, and production of natural resources. Larey v. Wolfe, 242 Ark. 715, 416 S.W.2d 266 (1967).

Egg and poultry processing equipment replacements, hatchery equipment, feeder lids, trays, pads, and cases for baby chicks, held not an integral part of the end product and not exempt from use tax. Hervey v. Tyson's Foods, Inc., 252 Ark. 703, 480 S.W.2d 592 (1972).

Traces of chemical substances, use of which was merely incidental, were not exempt from use tax. Hervey v. International Paper Co., 252 Ark. 913, 483 S.W.2d 199 (1972).

Use of locomotive cranes and magnet held to be “directly” used in manufacturing process within meaning of subdivision (a)(1) of this section and were not removed from exemption as “transportation equipment” within meaning of subsection (c) of this section. Ark. Ry. Equip. Co. v. Heath, 257 Ark. 651, 519 S.W.2d 45 (1975).

Sufficient evidence was found that bottling machines were being used directly in the producing, assembling, processing, and packaging of finished product. Ark. Beverage Co. v. Heath, 257 Ark. 991, 521 S.W.2d 835 (1975).

Ultraviolet detection system used to monitor equipment held not exempt from use tax under subsection, not used directly in manufacturing process. Southern Steel & Wire Co. v. Wooten, 276 Ark. 37, 631 S.W.2d 835 (1982).

The purchase of a large crane was a tax-exempt transaction, because the crane was directly used in the manufacture of lumber and of wood chips, the latter being eventually sold to paper mills. Ragland v. Deltic Farm & Timber Co., 288 Ark. 604, 708 S.W.2d 90 (1986).

The purchase of a computer aided design/computer-aided manufacturing system by a hand tool manufacturer was a tax-exempt transaction, because the system performed an essential function directly in the manufacture of tools in that the system's function, designing and manufacturing, directly pertained to dies, and the dies shaped the wrenches and hand tools which were “articles of commerce.” Pledger v. EASCO Hand Tools, Inc., 304 Ark. 47, 800 S.W.2d 690 (1990).

Die block materials which constituted the molds and dies which in turn determined the physical characteristics of the finished product were exempt. Simply because the material is purchased in raw form and shaped by the taxpayer instead of being purchased in finished form should not, alone, cause it to be taxable. Pledger v. EASCO Hand Tools, Inc., 304 Ark. 47, 800 S.W.2d 690 (1990).

The term “used directly in manufacturing” does not require the equipment to directly come into contact with the finished product before qualifying for use tax exemption. Pledger v. Baldor Int'l, Inc., 309 Ark. 30, 827 S.W.2d 646 (1992).

Cited: American Television Co. v. Hervey, 253 Ark. 1010, 490 S.W.2d 796 (1973); Heath v. Midco Equip. Co., 256 Ark. 14, 505 S.W.2d 739 (1974).