Effective January 1, 2006, a privilege tax is levied on the purchase of mill machinery or mill machinery parts or accessories by manufacturing industries or plants and contractors and subcontractors for use in the performance of a contract with a manufacturing industry or plant; manufacturing fuel by manufacturing industries or plants; and recycling equipment by a major recycling facility; and qualifying equipment or attachments or repair parts for equipment purchased by research and development companies under certain conditions.

Effective October 1, 2007, machinery or equipment to be located and used at an eligible datacenter that meets certain conditions and equipment or an attachment or repair part for equipment purchased by a software publishing company that meets certain requirements are subject to the privilege tax. Effective July 1, 2008, equipment or an attachment or repair part for equipment purchased by an industrial machinery refurbishing company that meets certain requirements is subject to the privilege tax. The privilege tax rate of 1% with a maximum tax of $80.00 per article is imposed on the purchaser of qualifying property, and the purchaser is liable for accruing and remitting the tax to the Department of Revenue. The rate of tax on manufacturing fuel is 0.5%; effective July 1, 2009, the rate is 0.3%.

The tax is to be reported separately to the Department on the Machinery, Equipment, and Fuel Tax Return, Form E-500J. A taxpayer who currently files and remits sales and use tax should file and remit the machinery, equipment, and manufacturing fuel tax using the same filing frequency and payment method as for sales and use tax. For additional information on the privilege tax on manufacturing fuel and certain machinery and equipment, refer to Sales and Use Tax Directive SD-05-1.