It is enacted by the General Assembly as follows:

SECTION 1. Chapter 18 of Title 44 of the General Laws entitled "Sales and Use Tax" is hereby amended by amending subsection (7) of section 44-18-30 as follows:

(7) Purchase for manufacturing purposes. (i) From the sale and from the storage, use, or other consumption in this state of {ADD computer software, ADD} tangible personal property, electricity, natural gas, artificial gas, steam, refrigeration, and water, when the property or service is purchased for the purpose of being manufactured into a finished product for resale, and becomes an ingredient, component, or integral part of the manufactured, compounded, processed, assembled, or prepared product; or if the property or service is consumed directly in the process of manufacturing for resale {ADD computer software, ADD} tangible personal property, electricity, natural gas, artificial gas, steam, refrigeration, or water , provided, however, that the consumption occurs within one year from the date the property or service is first used or applied in the process of manufacturing .

(ii) "Consumed directly " means destroyed, used up, or worn out to the degree or extent that the property cannot be repaired, reconditioned, or rendered fit for further manufacturing use.

(iii) "Consumed directly " shall not mean or include mere obsolescence.

(iv) "Manufacturing" means and includes manufacturing, compounding, processing, assembling, preparing, or producing.

(v) "Process of manufacturing" means and includes all production operations performed in the producing or processing room, shop, or plant, insofar as the operations are a part of and directly connected with the manufacturing for resale tangible personal property, electricity, natural gas, artificial gas, steam, refrigeration, or water {ADD and all production operations performed insofar as such operations are a part of and connected with the manufacturing for resale of computer software ADD} .

(vi) "Process of manufacturing" does not mean or include administration operations such as general office operations, accounting, collection, sales promotion , and experimental work , nor shall it mean or include distribution operations which occur subsequent to production operations, such as handling, storing, selling, and transporting the manufactured products, even though the administration and distribution operations are performed by or in connection with a manufacturing business.

SECTION 2. Chapter 18 of Title 44 of the General Laws entitled "Sales and Use Tax" is hereby amended by amending Subsection (22) of Section 44-18-30 as follows:

(22) {ADD Manufacturing machinery and equipment. ADD} (i) From the sale and from the storage, use, or other consumption in this state of tools, dies, and molds, and machinery and equipment (including replacement parts thereof), used directly and exclusively in an industrial plant in the actual manufacture, conversion, or processing of tangible personal property{ADD , or to the extent used in connection with the actual manufacture, conversion or processing of computer software as that term is utilized in industry numbers 7371, 7372, and 7373 in the standard industrial classification manual prepared by the technical committee on industrial classification, office of statistical standards, executive office of the president, United States bureau of the budget, as revised from time to time, ADD} to be sold, or such machinery and equipment used in the furnishing of power to an industrial manufacturing plant. For the purposes of this subdivision, the term "industrial plant" shall mean a factory at a fixed location primarily engaged in the manufacture, conversion or processing of tangible personal property to be sold in the regular course of business;

(ii) Machinery shall be deemed to be used directly and exclusively in the actual manufacture, conversion, or processing of tangible personal property{ADD , or in connection with the actual manufacture, conversion or processing of computer software as that term is utilized in industry numbers 7371, 7372, and 7373 in the standard industrial classification manual prepared by the technical committee on industrial classification, office of statistical standards, executive office of the president, United States bureau of the budget, as revised from time to time, ADD} to be sold only where the machinery is used solely during a manufacturing, conversion or processing operation; (A) to effect a direct and immediate physical change upon the tangible personal property to be sold; (B) to guide or measure a direct and immediate physical change upon the property where that function is an integral and essential part of tuning, verifying, or aligning the component parts of such property; (C) to test or measure the property where that function is an integral part of the production flow or function; (D) to store, transport, convey, or handle the property during the manufacturing, converting, or processing operations heretofore specified; or (E) to place the property in the container, package, or wrapping in which the property is normally sold to the ultimate consumer thereof; to the extent such property is used in administration or distribution operations;

(iii) Machinery and equipment and related items used directly and exclusively in the actual manufacture, conversion or processing of any {ADD computer software or ADD} tangible personal property which is not to be sold and which would be exempt under subdivision (7) or this subdivision if purchased from a vendor thereof or machinery used during any manufacturing, converting or processing , conveying or packaging operation, or function , or for any other purpose, except as heretofore specified, shall not be exempt under this subdivision even though if that operation, function, or purpose is an integral or essential part of a continuous production flow or manufacturing process;

(iv) Where a portion of a group of portable or mobile machinery is used directly and exclusively in the actual manufacture, conversion, or processing of {ADD computer software or ADD} tangible personal property to be sold, as heretofore defined, that portion, if otherwise qualifying, shall be exempt under this subdivision even though the machinery in that group is used interchangeably and not otherwise identifiable as to use.

SECTION 3. This act shall take effect on July 1, 1997.