03.06.01.30

.30 Fabrication or Production.

A. The tax shall be charged on the full selling price for the production or fabrication of tangible personal property or a digital product on a special order for a consideration. This is true even though charges for labor are segregated from the cost of the materials.

B. Production of a New Item.

(1) Whenever any new item is being produced the tax shall be collected on the full selling price as, for example, a manufacturer orders a repair part for machinery from a machine-shop—the tax shall be collected on the full selling price of the part including labor.

(2) This regulation applies with equal force to those situations where the materials are furnished by the customer and the fabrication consists wholly of labor as for example, a steel fabricator or machine shop rolling, bending, cutting, boring or punching holes, painting, or performing other services on materials furnished by the customer, if this labor is used in producing a new item. Some other examples are a tailor making a suit from materials furnished by his customers and the making of drapes or slipcovers from materials furnished by the customer.

C. New Item.

(1) "New Item" means new insofar as the ultimate purchaser is concerned. The fact that work is performed by several different persons before the item is ready for use by the ultimate purchaser does not mean that the item is not a new item. Thus, all charges for bringing the item to its finished state are subject to the tax. Likewise, the cost of repairing, remodeling, or reconditioning an item is subject to the tax if a new or different item from the original is produced by these services.

(2) The creation of a new item includes the assembly of a piece of property for the first time, on the job site or elsewhere, but not the re- assembly of a piece of property which has been fully assembled previously, disassembled for shipping convenience, and then reassembled.

D. Installation.

(1) The installation of units for tangible personal property, each of which constitutes a complete, separable, and functioning unit at the job site, will not be considered fabrication. Any process which involves the assembly of raw materials, components, subassemblies or parts into a functioning industrial unit or the creation or assembling of workable support systems such as piping systems, electrical systems, material moving systems, etc. will be considered fabrication and subject to the tax.

(2) The test to be applied is the following:

(a) If the labor is expended in producing a new or different item, it is subject to the tax;

(b) If the labor is expended in repairing or altering existing property belonging to another to restore the item to its original condition or usefulness, the tax does not apply to the labor pursuant to Regulation .03 of this chapter.