SALT Report 1899 – The Louisiana Court of Appeals upheld a sales tax assessment imposed on a Taxpayer who produces electricity and steam for resale using Circulating Fluidized Boiler (CFB) technology. CFBs produce energy, which the Taxpayer uses to create the steam that is necessary to activate the turbines that generate the electricity.
To produce the CFBs, the Taxpayer must use petroleum coke. Petroleum coke has a high sulfur level which, if not mixed with limestone, would be emitted into the atmosphere during the manufacturing process. Because of this, the Taxpayer is required by law to add limestone to the petroleum coke which will bind with the sulfur and turn into ash. Over time, the ash will clog the valves in the boiler system so the Taxpayer must use sand to flush the valves.
At issue in this case, is whether the Taxpayer purchased the limestone and sand for further processing which would make them exempt from sales taxes. In order to be “material for further processing,” the raw materials or their component parts must meet all of the following criteria:
- They must be of benefit to the end product,
- They must be a recognizable and identifiable component of the end product, and
- They must have been purchased for the purpose of reprocessing into the end product
Although, the Taxpayer claimed that the limestone and sand were purchased for further processing, the Court determined that the limestone was simply used to control the sulfur emissions and the sand was used as a maintenance or cleaning product.
Therefore, because the limestone and sand were not used for further processing, they were not exempt from sales and use tax. Accordingly, the Court ruled that the Taxpayer was not entitled to the further processing exclusion and the assessment plus court fees were imposed.
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