Response
January 31, 1992
January
31, 1992
XXXXX
Re:
Sales Tax Exemption for Manufacturing Machinery
Dear
XXXXX:
This
letter is in response to your recent request for a Tax Commission ruling on
whether your purchase of a radiographic inspection system qualifies for sales
tax exemption under Code Section 59-12-104(15) and Rule R865-19-85S.
The
Tax Commission policy is to refer such requests to the division most qualified
to analyze the request and make recommendations concerning it. As such, your
request was referred to the Tax Commission's Auditing Division for their
analysis and recommendation. The division's recommendation is as follows:
XXXXX
is a manufacturer with SIC code 3443. With the acquisition of the new
inspection system, they will be able to expand their sales by 100% and begin a
two shift operation. Inspection is part of a continuous manufacturing process.
The purchase of the radiographic inspection system does qualify for exemption
from sales tax.
Based
upon the facts presented in your letter, we are in agreement with the Auditing
Division's recommendation. 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 and a copy of the Utah Taxpayer's Bill of Rights are attached.
For the Commission,
Joe B. Pacheco
Commissioner
Utah State Tax Commission
160 East Third South
Salt Lake City, Utah 84134
Attention:XXXXX
Subject: Request for Confirmation of Tax Exemption
Dear XXXXX:
XXXXX, Division of XXXXX, XXXXX, operates a propane tank manufacturing
plant in XXXXX, Utah.
We recently committed for the purchase of some equipment for use in
that plant that we consider to be tax exempt under the provisions of Title 59,
Chapter 12, Paragraph 104, Subparagraph 16. And further, by compliance to the
definitions of the Administrative Rule R865-85S. (See our Purchase Order No. 009810-07, attached).
Specifically, we have purchased a XXXXX. This system is used to provide
"Real Time" radiographic images of the weld seams in the propane
tanks we produce in the XXXXX plant.
One of the requirements of the design code for the tanks we produce is that
we must radiographically examine a certain percentage of the welds in the tanks
to give assurance of weld integrity and to correspondingly give assurance of
the safety of these tanks which will ultimately be used to contain a highly
explosive gas under pressure. As the extent of radioscopy increases, the design
code allows for a reduction of the thickness of material required for the body
of the tank. The equipment we have purchased will allow us to examine 100% of
the body welds, thereby allowing us to use the thinnest allowable material.
The material cost savings can be used to allow us to be more
competitive and to acquire a larger market share of the products we produce. In
anticipation of that development, we have recently added a second shift to our
XXXXX plant. That added work crew is currently being trained and is expected to
be at full capacity by the time the radioscopy equipment is installed in late
February 1992.
We feel that this equipment should qualify for exemption from sales tax
because of the following:
1. It is an electronic machine
which is required for the completion of the manufacturing process of the
finished end product.
2. This is an expanding
operation which is substantially different in purpose from prior activities (we
could not previously perform 100% radioscopy, could not realize the material
cost savings, could not be as competitive, and could not support a two shift
operation).
3. We have an increase in
productive capacity (100% increase) because of being able to be more
competitive with the addition of this equipment.
4. We are a manufacturer that
produces a product with an S.I.C. Code No. 3443.
5. Our
"Establishment" is located at a single physical location in Utah.
6. The added equipment will be
tangible personal property with a useful economic and accounting life of more
than three years.
Please review these qualifications and confirm your agreement to the
exemption as soon as possible.
Regards,
XXXXX
Manager, Administration