98-076
Response January 20, 1999
REQUEST LETTER
Dear Ms. Reese:
In February, 1998, we began installing a glacier
machine in our CITY ice cream plant. This machine will be used to make frozen
yogurt and sherbet"pucks@ which will be
sold to COMPANY A stores and COMPANY B stores .Currently, we are selling these
products to these customers in either 2
gallon or 3 gallon containers.
In your opinion would any or all of the costs
associated with installing this machine qualify for the sales tax manufacturing
exemption?
If you need further information, please call me at
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Thanking you in advance.
Sincerely,
RESPONSE
LETTER
January 20, 1999
RE: Advisory
Opinion - Applying the Manufacturing Exemption to a Glacier Machine
Dear NAME,
We have received your advisory opinion request
concerning your company=s purchase of a glacier machine. You have specifically asked if any or all of
the costs associated with installing the machine qualify for the sales tax
exemption for manufacturing equipment.
We understand from your letter and a telephone
conversation with you the following facts concerning the glacier machine. It is these facts upon which this opinion
rests. Should the facts actually be otherwise, a different opinion might
result. In February, 1998, you began
the installation of the glacier machine, with completion occurring in August,
1998. The new glacier machine produces
frozen yogurt and sherbet and is a new addition on your production line. The production line previously included
other machines that made frozen yogurt and sherbet, and these machines are
still in place and still produce frozen yogurt in either three gallon or
half-gallon bucket sizes. The new
machine increases production capacity by producing an additional product in the
shape and approximate size of a hockey puck.
No other machines were retired or replaced by the new glacier machine;
however, some Aold@ equipment was
upgraded (replaced) by new equipment to accommodate the addition of the new
glacier machine.
Your company is a manufacturer subject to the
provisions of the manufacturing equipment exemption for sales tax found in Utah
Code Ann. '59-12-104(14).
Critical to what exemptions may apply to your recent installation is a
determination of whether it is a Anew
or expanding operation@ or a Anormal
operating replacement.@ A 100%
exemption is available for equipment that is deemed Anew or expanding operations.@ While the
100% exemption also applies to Anormal
operating replacements@ purchased between July, 1, 1998, and June 30, 1999,
only a 60% exemption applies for Anormal
operating replacements@ purchased between July 1, 1997, and June 30, 1998.
Utah Admin.
Code R865-19S-85 (copy enclosed) provides definitions of these two critical
terms. Section A.5.(a)(ii) of the
rule provides that Anew or expanding operations@ includes an expansion of an existing Utah
manufacturing operation if the expanded operation increases production
capacity. Your facility is an existing one that has expanded with the addition
of a new glacier machine without the retirement or replacement of other
machines. Resulting is an increased
production capacity. Your new glacier
machine meets the criteria of Subsection (a)(ii), but Section A.5.(b) must also
be met.
Subsection
A.5.(b) provides that the new machine be one that does not meet the definition
of Anormal operating replacements.@ ANormal operating replacements,@ as defined in Subsection A.6.(a), includes new
machinery and equipment or parts that have the same or similar purpose as
machinery or equipment retired from service due to any cause within 12 months
before or after the purchase date of the new machinery and equipment or
parts. The new glacier machine itself
does not replace any retired machine, so it does not qualify as a Anormal operating replacement.@ Accordingly,
it does qualify as Anew or expanding operations@ and would qualify for a 100% sales tax exemption.
However, any other preexisting equipment that had to
be Aupgraded@ in
the installation process replaces equipment retired because of Aany cause,@
the cause here being the installation of the new glacier machine. This equipment meets the definition of Anormal operating replacements@ and consequently does not qualify as Anew and expanding operations.@ Accordingly,
any of this equipment purchased between July 1, 1997, and June 30, 1998, would
receive a 60% sales tax exemption. Any
of this equipment bought between July 1, 1998, and June 30, 1999, would receive
a 100% sales tax exemption.
Please contact us if you have any other questions.
For the Commission,
Joe B. Pacheco, CPA
Commissioner
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