February
27, 1991 Response from Tax
Commission
January
9, 1991 Letter from XXXXX of
XXXXX
October
18, 1990 Letter from XXXXX of XXXXX
XXXXX
Re:
Declaratory Judgment - Flux Issues
Dear
XXXXX:
This
letter is in response to your recent request for a Tax Commission ruling,
seeking confirmation that since a residue of flux is present in a finished
product the flux should be purchased tax-free as a component part of the
finished product. Your client is a manufacturer of printed circuit boards and
uses flux in the soldering process.
Although
your inquiry was framed as a request for a declaratory judgement, Tax
Commission policy is to initially treat all such inquiries as requests for
advisory opinions. As such, it was referred to the Tax Commission's Auditing
Division for their analysis and recommendation. The division's recommendation
is as follows:
1. The presence of a residue of flux in a PCB
does not make the flux a component part of the PCB. The majority of flux is
burned up or consumed in the soldering process, but that is not the reason the
sale is taxable as a consumed product. The intended use is the determining
factor. Flux is used in soldering, brazing or welding processes to clean surfaces
to be joined and to free them from oxides that will be deleterious to the union
of the two surfaces. Flux is not intended to become part of a PCB and indeed
the presence of an excessive amount of flux residue can weaken the union of the
two surfaces. As stated in your findings of facts, "Flux is used as an
activator in the soldering process."
2. In the XXXXX Utah Supreme Court case decided
in 1946, the court ruled that grinding balls, firebrick and coal did not become
a part of the finished product by wear, and were not an essential
component part of the finished product, even though residues of the grinding
balls, firebrick and coal were found present in the finished product, powder
cement.
Based
upon the facts presented in your letter, we are in agreement with the Auditing
Division's recommendations. Obviously, if there are deviations from these
facts, this opinion may be negated.
If
you do not agree with this determination, you may appeal to the Tax Commission
for a formal hearing. The results of that hearing would constitute a
declaratory judgment and be appealable to the Utah State Supreme Court. A
notice of appeal rights is attached.
For
the Commission
Joe
B. Pacheco
Commissioner
Commissioners
State
Tax Commission
160
E. 300 S.
Salt
Lake City, UT. 84134
RE:
A Declaratory Judgement on Flux Issues
In
previous years, flux has been discussed and reviewed on a number of occasions,
as it relates to sales tax. When discussing this subject with the Commission,
XXXXX was advised that flux has been interpreted as being "consumed"
in the process. With that guideline, XXXXX has paid sales tax on all of their
flux purchases. After extensive research, XXXXX offers the following as support
documentation for our conclusion that, in XXXXX's situation, when the
manufacturing process is complete, flux remains with the final product, and
should therefore be exempt from sales tax.
Findings
of Facts
The
Rosin flux used by XXXXX contains extract from evergreen trees and
alcohol. The exact make up cannot be
precisely divulged because of trade secrets, yet we do know that 63% is
alcohol, and 35% is rosin. Activators make up the remaining 2%. Flux is used as
an activator in soldering processes. Although soldering can be done without the
use of flux, doing so results in a product of lesser strength. The
manufacturers who choose to use solder far exceed those who elect otherwise.
In
the manufacture of their products, XXXXX is compelled to use flux in order to
satisfy the extraordinary quality levels demanded by their buyers. Their
quality standards are both self-imposed and directed, depending on the user. In
any event, certain minimum standards are requisite because of XXXXX' large
production volume. After inspecting this production process, XXXXX became
convinced that the flux remains with the final product, based on personal
inspection and the results of experiments performed by Chemists and Chemical
Engineers.
XXXXX
in Chicago, Illinois, supplies XXXXX with flux. XXXXX contacted Mr. XXXXX, Vice President for Research and
Development, seeking clarification on their product and obtaining his
professional opinion on whether Flux remains with the product or is consumed in
the process. Attached is a copy of the letter Mr. XXXXX sent to XXXXX in
response to their inquiry. In this letter he states that "The soldering of
printed circuit boards with fluxes always leaves on the PCB a layer of flux
residues." Later in the same letter he says that residues contained in the
flux "will become anchored to the surface of the PCB and depending on the
degree of plasticity, they will either flake off easily or be permanently part
of the surface."
To
confirm that the flux used by XXXXX does not flake off, XXXXX enlisted XXXXX
University to analyze the chemical properties of XXXXX’s finished product. Dr.
XXXXX supervised the performance of tests used in the analyses. His findings
and conclusions are attached. In this letter he states that rosin is present in
the finished sample.
Sales
and Use Tax Applications
According
to the U.C.A. 59-12-104(28) Exemptions, the following should be exempt from
sales and use taxes: "property purchased for resale in this state, in the
regular course of business, either in its original form or as an ingredient or
component part of a manufactured or compounded product". XXXXX believes that there is overwhelming
evidence that flux becomes an ingredient part of the manufactured resistors.
Conclusion
Flux
XXXXX
is convinced because of our independent research, the professional opinion of
XXXXX, and the research and conclusions of Dr. XXXXX at XXXXX University, that
flux becomes an ingredient part of the manufactured product and should
therefore be exempt from all sales and use taxes. This product should be
purchased as any other inventory item, exempt from tax. As such, we request
that the Utah State Tax Commission rule through a declaratory judgement rule in
favor of exempting this use of rosin flux. Please send your response to:
XXXXX
Thank
you for your consideration. We anxiously await your reply.
Sincerely
yours,
XXXXX
Tax
Consultant
Attention:
Mr. XXXXX
RE.: Fluxes Residues on PCB after Soldering.
Dear
Mr. XXXXX:
Pursuant
to our telephone conversation of October 16, 1990, this letter is to
authenticate the captioned matter that was discussed that day, notably:
The
soldering of printed circuit boards with fluxes always leaves on the PCB a
layer of flux residues; the nature of these residues depends on the flux that
has been used. The case discussed that day did involve XXXXX flux 1435 which is
a mildly activated rosin flux. Accordingly, the residues will be rosin mixed
with some of the reaction products between the rosin and the metals involved;
those reaction products are called metal abietate, because rosin is chiefly
abietic acid. When these residues are solidified, they will become anchored to
the surface of the PCB and depending on the degree of plasticity, they will
either flake off easily or be permanently part of the surface.
The
thickness of this layer of residues is proportional to the solid content of the
flux used, to the soldering temperature, to the speed of soldering in a wave
soldering, this effect is less pronounced in Planar-Drag-Soldering and to the
fluidity of these residues at soldering temperature. If the fluidity of these
residues is too high at soldering temperature, too much will be removed from
the board by the abrasive action of the wave.
Should
you need further information, please call or write us.
Respectfully
yours,
XXXXX
Vice
President, Research & Development