Ohio Manufacturing Sales Tax Exemption: R.C. 5739.011 Guide

Quick answer: Under Ohio Revised Code (R.C.) § 5739.011, machinery, equipment, tooling, repair parts, and direct utilities used primarily in a manufacturing operation to produce goods for sale are exempt from Ohio sales and use tax. The exemption covers everything from raw material introduction to final packaging. Raw materials, warehouse storage, and administrative office items do not qualify.

Ohio is an industrial powerhouse with thousands of machine shops, automotive suppliers, plastics molders, and food processors. The Ohio manufacturing sales tax exemption is one of the most valuable statutory incentives in the state—saving industrial facilities millions of dollars annually on capital equipment.

However, because the dollar figures on factory machinery and replacement parts are so large, the Ohio Department of Taxation (ODT) scrutinizes manufacturing exemptions with extreme rigor during audits.

Here is the definitive guide to Ohio's manufacturing exemption, the strict "commitment to packaging" timeline, and how to protect your plant from costly use tax assessments.

The Statutory Boundary: When Does "Manufacturing" Occur?

Under R.C. § 5739.011(A)(1) and Ohio Administrative Code (O.A.C.) 5703-9-21, Ohio defines a manufacturing operation as:

"The process in which materials are changed, converted, or transformed into a different state or form from which they previously existed, and includes refined or produced items."

To determine whether a machine or tool is tax-exempt, ODT applies a strict three-phase timeline:

graph LR
    A[Pre-Production: Raw Material Storage] -->|NOT EXEMPT| B[Commitment Point: Materials Fed into Line]
    B -->|100% EXEMPT under R.C. 5739.011| C[Active Production: Machining, Assembly, Forming]
    C -->|100% EXEMPT under R.C. 5739.02 B 15| D[Packaging Line: Boxes, Bottles, Crates]
    D -->|Packaging Completed| E[Post-Production: Finished Goods Warehouse]
    E -->|NOT EXEMPT| F[Shipping & Distribution]

1. Where Manufacturing Begins

Manufacturing begins at the point where raw materials are committed to the manufacturing process.

• Not Exempt: Forklifts, cranes, or conveyors used to unload raw material trucks or move raw steel/resin into warehouse storage racks.
• Exempt: The automated feeder, conveyor, or hopper that moves the raw material directly from staging into the first production machine (CNC mill, injection mold, vat).

2. The Active Production Zone (Exempt)

All machinery and tools directly involved in cutting, shaping, mixing, heating, cooling, assembling, or inspecting products along the continuous line are exempt.

3. Where Manufacturing Ends

Under R.C. § 5739.011(A)(1), manufacturing ends when:

"The product is in the form in which it will be sold, or when packaging has completed."

• Exempt: Bottle fillers, case packers, box sealers, robotic palletizers, and stretch-wrap machines.
• Not Exempt: Once the pallet is wrapped and moved to the finished-goods warehouse, all subsequent equipment (finished goods forklifts, loading dock levelers, warehouse racking) is fully taxable.

What Qualifies for the Exemption?

The Trench Truth: "Mixed-use" equipment is the primary audit trap for manufacturers. If a forklift spends 60% of its hours moving pallets in the finished-goods warehouse (taxable) and 40% loading raw materials onto the stamping press (exempt), does it qualify? Under Ohio's "primary use" standard (O.A.C. 5703-9-21), equipment is either 100% exempt or 100% taxable based on its primary use (greater than 50%). If a machine's primary use is taxable, ODT assesses use tax on the full purchase price.

Sourcing & Combined Tax Rates on Taxable Plant Purchases

When a manufacturing facility purchases non-exempt items—such as warehouse racking, office computers, or plant maintenance supplies—the purchase is subject to the combined state (5.75%) and county sales tax rate at the delivery point:

Calculate the tax on any equipment purchase using our Ohio Sales Tax Calculator or check local county rates with the Ohio ZIP Code Sales Tax Calculator.

Packaging Exemption: R.C. 5739.02(B)(15)

In addition to the core machinery exemption, Ohio provides an explicit packaging exemption under R.C. § 5739.02(B)(15).

You can purchase tax-free:

• Cardboard boxes, cartons, and corrugated dividers
• Glass bottles, plastic jugs, and metal cans
• Product labels, barcode stickers, and instructional manuals packed inside the box
• Wooden pallets, strapping, and stretch film used to secure cases for shipment

Equipment that produces packages or applies labels (cappers, tapers, labelers) is also 100% exempt.

How to Claim the Exemption: Form STEC-B

To buy machinery, tooling, and packaging tax-free:

1. Provide your industrial equipment dealer or tooling distributor with an Ohio Sales and Use Tax Blanket Exemption Certificate (Form STEC-B).
2. Check the box for Manufacturing.
3. Cite statutory authority: "Tangible personal property used primarily in a manufacturing operation under R.C. § 5739.011."
4. Ensure the certificate is signed by a plant manager, controller, or corporate officer.

Keep digital copies of all issued certificates. If an out-of-state equipment vendor fails to collect Ohio tax but does not have your STEC-B on file, ODT will assess Ohio consumer use tax during an audit.

Utility Exemption Studies

Did you know that electricity and natural gas used directly in manufacturing are exempt from Ohio sales tax under R.C. § 5739.011(C)(9)?

Because factories typically have a single electric meter servicing both the production floor (exempt) and the front offices/air conditioning (taxable), manufacturers can commission a utility sales tax study. An electrical engineering study measures the kilowatt-hour draw of production machinery versus building HVAC. Once certified, the local electric utility reduces your sales tax charge to reflect your exact exempt percentage.

Filing & Compliance (Direct Pay Permits)

Many large Ohio manufacturers hold a Direct Pay Permit (R.C. § 5739.031) issued by ODT.

• Under a Direct Pay Permit, you do not pay sales tax to any vendor.
• Instead, your accounting department reviews all invoices monthly, determines which items are exempt under R.C. § 5739.011 and which are taxable, and remits the use tax directly to the state on Form UST-1.
• Sales tax returns are due on the 23rd of each month, and zero returns are mandatory under R.C. § 5739.12(D).
• Unpaid tax accrues statutory interest at 7.0% per annum for 2026 under R.C. § 5703.47.

Managing hundreds of vendor exemption certificates across your supply chain? Track renewal dates and keep auditable records with our Certificate Tracker (Free during beta · Premium later).

Frequently Asked Questions

What is the Ohio manufacturing sales tax exemption? Under Ohio Revised Code § 5739.011 and Ohio Administrative Code 5703-9-21, purchases of machinery, equipment, tools, and supplies used primarily in a manufacturing operation to produce tangible personal property for sale are exempt from Ohio sales and use tax.

When does the manufacturing operation legally begin and end in Ohio? Under R.C. § 5739.011(A)(1), manufacturing begins when raw materials are committed to the manufacturing process from their initial storage point. It ends when the manufactured product is placed in its initial package or container ready for shipping.

Are packaging materials exempt under the manufacturing exemption? Yes. Machinery that places products into packages, as well as the packaging materials themselves (boxes, labels, bottles, pallets, shrink wrap), are exempt under R.C. § 5739.02(B)(15).

Is safety equipment used by factory workers tax-exempt in Ohio? Yes, provided the safety clothing or equipment is required by OSHA or state safety regulations and is used by employees operating or maintaining production machinery within the manufacturing area.

What form is required to claim the Ohio manufacturing exemption? Manufacturers furnish an Ohio Sales and Use Tax Blanket Exemption Certificate (Form STEC-B) or Unit Exemption Certificate (Form STEC-U) to equipment vendors and suppliers, citing R.C. § 5739.011.

Sources

• Ohio Revised Code § 5739.011 — Manufacturing Operation Exemption
• Ohio Administrative Code 5703-9-21 — Manufacturing Operation Rules
• Ohio Revised Code § 5739.02(B)(15) — Packaging Exemption
• Ohio Department of Taxation — Manufacturing Information Releases
• Form STEC-B — Sales and Use Tax Blanket Exemption Certificate