One of my seminar participants told me about her disagreement with the auditor.
In her state, in-line quality control testing is exempt as part of the manufacturing process. But the auditor assessed her tax on her purchases of testing equipment and materials. It turns out that she manufactures explosives. She really can't DO in-line testing since she'd blow up the plant. A lot.
They must take the samples WAY off-site. But that takes the testing outside of the concept of "in-line," at least as far as the auditor is concerned.
I had to say that I agreed with the auditor. The fact that what she produces doesn't lend itself to that type of quality control really isn't the state's problem. In fact, in some states (not this one), they specifically say that destructive testing is NOT allowed as an exemption. And usually, finished goods testing is also taxable.
Just one more of those weird situations where the law doesn't work really well.
The Sales Tax Guy