That may not be so. My understanding is that some supplies are COGS - things that have a direct impact on the manufacturing process. In your case, I think the molds would be COGS, but the rags you use to clean up with would be a regular expense. I learned this through my state Sales & Use Tax office - if it's an expense you still have to pay tax on it. Only COGS items are non-taxable. They want to get their due, so they're up on the finer details!