97-012
Request
February
14, 1997
Ruling
Request
Dear
Mr. Pacheco:
We
respectfully submit for your consideration a request for a ruling on whether
platinum used in making ammonium nitrate and other chemicals is exempt from
sales and use tax.
Facts:
Our
client (the "Company") is a processor and seller of ammonium nitrate
and other chemicals used in the agricultural and explosive industries. The
Company purchases large quantities of platinum to be used in the process. The
platinum comes in a wire mesh. Platinum makes up 92 percent of the wire mesh
contents.
The
process consist of natural gas being heated and cooled at different stages. At
certain stages of the process water and other raw materials are add to the
natural gas. The addition of water and other materials determines what products
are made. As the process takes place the product passes through the platinum.
The product reacts with the platinum and certain products are made. A small
portion of the platinum becomes a component part of the finished products. The
platinum mesh is occasionally replaced. In order for certain chemicals to be
made the product must react with the platinum.
Issues:
1
) Would the platinum be exempt as a precious metal?
2)
Would the platinum be exempt as ingredient or component if it becomes an
ingredient or component part? a) by accident b) not by accident
3)
Would the platinum be exempt as machinery if the manufacturer qualified as a
new or expanding business.
Conclusion:
1)
The platinum's purity is in excess of the standard set by the statute. The
platinum should be exempt from Utah's sales and use tax.
2)
The platinum would be considered a wholesale sale. The statute allows items
that become a component part of an item being manufactured to be classified as
a wholesale sale. Sales at wholesale are not subject to sale or use tax.
3)
The platinum is acting as a machine. It is causing a chemical reaction to
occur. The platinum is exempt after the law was changed with regard to
replacement machinery.
Discussion:
Issue
One
UT
59-12-102(15)(b)(vi) and (vii) excludes gold, silver, or platinum ingots from
the definition of tangible personal property. The ingots must be 80 percent
pure. Utah sales and use tax applies to the sale or use of tangible personal
property and taxable services. The statute excludes platinum from the sales and
use tax imposed by the state. Utah's Internal Customer Support group was
contacted about this question. Their response was that the platinum was exempt
if it met the 80 percent requirement.
Issue
Two
UT
59-12-102(10) Sales are wholesale if they become an integral or component part
of tangible personal property or a product that is further manufactured or
compounded for sale.
Issue
Three
The
platinum is performing a distinct part of the process. Other jurisdictions have
help that if the item is performing a distinct functional process then it is
machinery. See Nigara Mohawk Power Corp v Wanamaker, 286 App div 446, 144
N.Y.S. 2d 458(NY55) and Lowell Gas V commissioner of Corporation and Taxation,
377 Mass. 255 (1979). Vulcraft Cold Finish Neb. Court of App. A95 686 Nov 96.
The platinum would be considered an appurtenance of the machinery.
Sincerely,
NAME
NAME
ADDRESS
CITY
STATE ZIP
Advisory
Opinion - Sales tax on platinum wire mesh used in manufacturing.
Dear
NAME,
We have received your request for
sales tax guidance pertaining to purchases of platinum wire mesh used in
producing ammonium nitrate and other chemicals. We offer the following guidance:
1. Purchases of platinum wire mesh for use
in a manufacturing process is considered a sale of tangible personal
property. Section 59-12-102 (23) sets
out the definition of tangible personal property. The definition excludes intangibles and “gold, silver, or
platinum ingots . . . .” The wire mesh
material in question here is not a “platinum ingot,” so this exclusion does not
apply.
2. Whether an item is eligible for a
resale exemption as an ingredient of the final product depends upon the primary
use of the item. If the item is
purchased as a raw material to be blended or compounded with other ingredients
to make the final taxable product, the item qualifies for the resale exemption. If the item is purchased and consumed in the
production process, it is not eligible for the resale exemption even if it
becomes an incidental ingredient of the final product. From your description, it appears that the
wire mesh is purchased for its use in the manufacturing process, and not for
its use as an ingredient in the final product.
If that is true, this exemption does not apply.
3. Sales or leases of machinery and
equipment by a manufacturer for use in a new or expanding operations related to
the manufacturing process in a Utah manufacturing facility are exempt from
sales tax. A manufacturing facility is
defined as an establishment described SIC codes 2000 - 3999 of the 1987
Standard Industrial Classification Manual.
For purposes of this opinion, we assume that your client operates with
SIC code 2873 or some other qualifying classification. The item must be used in the manufacturing
process, and it must have an economic life of three years or more.
From your description, we assume
that the platinum mesh item in question is purchased for use in an existing
manufacturing facility. Purchases made
on or after July 1, 1996 may qualify for partial exemption if the item meets
the definition of a normal operating replacement.
On July 1, 1996, normal operating
replacements became eligible for partial exemption as follows:
1. For
tax years beginning July 1, 1996, 30% of the exemption is allowed.
2. For
tax years beginning July 1, 1997, 60% of the exemption is allowed.
3. For
tax years beginning July 1, 1998, 100% of the exemption is allowed.
To
qualify for this exemption, the item must have an economic life of three or
more years, and it must replace or adapt an existing item to extend the normal
estimated useful life of qualifying machinery or equipment. Items used for normal repairs or maintenance
do not qualify.
If the platinum mesh does not have
an economic life of three or more years, and it does not function to extend the
estimated useful life of qualifying manufacturing equipment, this exemption
cannot apply. In that case, we would
consider the item to be consumed in the manufacturing process, and, therefore,
taxable.
Please let us know if you have other
questions.
For
the Commission,
Joe
B. Pacheco,
Commissioner