Services which are an integral, inseparable component of services involving the manufacture, fabrication, processing, or manipulation of tangible personal property or any product transferred electronically are considered to be for resale. Receipts from the sale of a service for resale by the purchaser are not subject to sales tax provided the purchaser furnishes an exemption certificate. In order for the transaction to be a sale for resale, the following conditions must be present:

1. (1) The manufacturer, fabricator, processor, or manipulator does not use the service in any manner other than resale; and

2. (2) The service is delivered or resold to the ultimate customer without any alteration or change.

   Declaratory Rulings:

   The commissions and buyer's fees received by an auctioneer as a result of its auction services in the sale of tangible property for resale are gross receipts subject to the retail sales and service tax imposed by SDCL 10-45-4. The services are used and consumed by the sellers and buyers and are not resold to another party. Secretary of Revenue Declaratory Ruling 91-1, May 6, 1991.

   The engineering services provided by a technical services company to a company that builds and repairs building components are subject to tax pursuant to SDCL 10-45-4. They are not an integral, inseparable component of services involving the manufacture, fabrication, processing, or manipulation of tangible personal property. Secretary of Revenue Declaratory Ruling 92-1, September 11, 1992.

   Examples:

3. (1) ABC Manufacturing builds garden tractors. It does not have the capacity to paint the finished product, and hires Rainbow Paint Company to do so. The services of Rainbow are an integral part of the manufacturing process, and may be purchased by ABC for resale provided ABC furnishes an exemption certificate to Rainbow.
4. (2) Ace Mechanic contracts to repair a wrecked automobile. Ace repairs the damage except for the radiator which is taken to Sam's Radiator Service. Sam fixes the radiator and is paid by Ace. Ace then bills the owner of the vehicle for the repair work, which charge includes the sum paid to Sam. The amount paid by Ace to Sam would not bear tax if Ace gave Sam an exemption certificate. The entire amount paid by the owner to Ace is subject to tax.

Source: 15 SDR 58, effective October 19, 1988; 16 SDR 76, effective November 1, 1989; 18 SDR 3, effective July 14, 1991; 21 SDR 219, effective July 1, 1995; 24 SDR 180, effective July 1, 1998; 28 SDR 178, effective July 1, 2002; 33 SDR 226, effective June 27, 2007; 35 SDR 48, effective September 8, 2008.

General Authority: SDCL 10-45-47.1(4) , 10-46-35.1(4).

Law Implemented: SDCL 10-45-1(10) , 10-45-2.4 , 10-45-4 , 10-45-4.1 , 10-45-20 , 10-46-2.1 , 10-46-2.2.