98-024
Response
April 9, 1998
REQUEST
LETTER
FACSIMILE
TRANSMISSION
Message:
We
are doing a job that involves a high speed door, and would like to have you review
it for sales/use tax treatment.
The
high speed door operates in its own frame, and is bolted to the wall. It is
used in conjunction with a fire door that is mounted on the other side of the
door opening, and is mandated by code. We have no question about the treatment
on the fire door, but the high speed door is only installed here to keep a
production area clean. The production
area is a clean room environment, and is kept that way with positive pressure
ventilation. The high speed door allows
traffic in and out without loosing all the air pressure and thus keeping dust
and dirt out.
The
second page of this fax is a diagram of the door construction and
installation. The tax treatment
opinions that we would like you to consider are:
1. We treat the door as we would any regular door, which
would have us purchase as tangible
personal property and convert it to real
property.
2. We treat the door as tangible personal property, attached to
the realty in a semi-permanent manner. This would then be treated as any other
tangible personal property and would be taxed as such, or would qualify for
exemptions allowed for equipment that is related to the manufacturing or
production process.
We
would have not problem with this determination if the door was not virtually
free standing, and also if it was not redundant since the fire door on the
other side controls the security.
Please
give me a call at ##### after you have had a chance to look at the drawing and
help us with the proper treatment.
April
9, 1998
NAME
ADDRESS
CITY
STATE ZIP
RE: Advisory
Opinion - Installation of a “Clean Room” Door and Application of the Sales Tax
Exemption for Manufacturing Equipment
Dear
NAME,
We have received your request for an
advisory opinion as to whether your company’s product, a high speed door
installed in a clean room manufacturing environment, qualifies for the sales
tax exemption for manufacturing equipment.
Should the manufacturing exemption not apply, you have also asked
whether the door would be considered for sales tax purposes as personal
property that has become attached to real property or whether it would still be
considered personal property.
The manufacturing exemption. The first issue is whether the high speed
door is considered “machinery and equipment” as defined in Utah Admin. Code
R865-19S-85(3) for purposes of the manufacturing equipment exemption. To qualify, the device must be one
“incorporated into a manufacturing process from the initial stage where actual
processing begins, through the completion of the finished end product .... [or]
any peripheral device that is essential to a continuous manufacturing process.”
The high speed door at issue here is
not equipment that is involved in the actual processing of a product, but is
needed at the production facilities to ensure positive pressure ventilation in
a clean room environment. As you have
indicated, the high speed door allows traffic in and out without losing all the
air pressure, thus keeping out dirt and dust.
A similar issue concerning equipment needed for the production
environment arose several years ago and was heard by the Utah Supreme Court in Morton
International, Inc. v. USTC, 814 P.2d 581 (S.Ct. 1991). There, the court upheld a Commission ruling
that had denied the manufacturing exemption to environmental features
incorporated into the production building.
Among the features denied the manufacturing equipment exemption were
special conductive flooring, protective blast and blowout walls and ceilings,
and chemical dust collection filters.
Each item of equipment in Morton,
like your high speed door, was necessary for the production process to occur, but
was not used in an actual step of the continuous manufacturing process. The Commission has not extended the
exemption to equipment of this nature.
Therefore, the high speed door does not qualify for the manufacturing
equipment exemption.
Real or personal property. From your letter and from phone
conversations with you, we know the following concerning the installation of
the high speed door:
1. It operates in its own frame, which is
bolted to the wall of the building.
2. It is used in conjunction with a fire
door that is mounted on the other side of the door opening. This fire door is mandated by code and
controls the security of the area.
3. It is hard wired into the building’s
electrical system.
Utah Admin. Code R865-19S-58(E)
provides that, under certain circumstances, an item may remain personal
property even when attached to real property.
The rule also provides the following examples of when this might occur:
1. Moveable items that are attached to
real property merely for stability or for an obvious temporary purpose;
2. Manufacturing equipment and machinery
and essential accessories appurtenant to the manufacturing equipment and
machinery;
3. Items installed for the benefit of the
trade or business conducted on the property that are affixed in a manner that
facilitates removal without substantial damage to the real property or to the
item itself; and
4. Public
utility lines or pipelines.
Let us first address how the
property is attached. Is it attached
merely for stability and for an obvious temporary purpose? No.
While it is attached for stability, it also serves some of the functions
of an ordinary door. Among the
functions of a door are to secure the interior and to keep out the outdoor
elements. While the fire door serves
the former function, the high speed door serves the latter by keeping the
outdoor’s lower air pressure and unclean air out of the production
facilities. Also, there is no
indication that the attachment is temporary.
It will be needed for the life of the production facilities; i.e., as
long as the clean room environment is needed.
Permanence is also suggested by the door being hard-wired into the
facility’s electrical system.
Is
the high speed door an essential accessory appurtenant to the manufacturing
equipment? No, as discussed previously,
we have determined that the high speed door is not a part of the continuous
manufacturing process.
Can the high speed door be removed
without substantial damage to itself or the underlying structure? Perhaps.
The door has its own frame which is bolted to the wall, and it is
hard-wired into the building’s electrical system. Though there would be some damage to remove the door, the damage
would not appear to be severe.
Given this analysis, we determine that
the high speed door is an improvement to real property for tax purposes and
does not retain the characteristics of personal property. Though the needs here are unique, this
facility, like homes and other buildings, needs structural features that will protect
the interior environment from the exterior conditions. Walls, ceilings, windows, and doors serve
such a purpose. Because this building
has two doors that serve this purpose, where either alone would not suffice,
and because of the manner of affixation, the high speed door is considered an
improvement to real property.
For
the Commission,
Joe
B. Pacheco,
Commissioner
^^