SALT Report 1963 – A Texas Administrative Law Judge issued a ruling regarding a Taxpayer’s claim for refund of sales tax it paid on purchases of component parts for use in its refinery plant. The component parts were used in conjunction with digester feed pumps, evaporator circulating pumps, lime injection pumps, seed charge pumps, and calciner feed pumps to extract aluminum oxide from bauxite ore.
The Taxpayer claimed that because the purchases were for component parts, the taxability of the purchases depends on whether the pumps were used in an exempt fashion. The Taxpayer claims that the pumps are exempt manufacturing equipment under Texas Tax Code Section 151.318(a)(4) because they control, support or supply exempt manufacturing equipment.
The Texas Comptroller denied the Taxpayer’s refund claiming that the pump parts were not exempt because the pumps were used for intraplant transportation or to supply or control non-exempt equipment. The Taxpayer appealed the decision and the Comptroller referred the case to the Office of Administrative Hearings.
In its decision the ALJ notes that Texas Tax Code Section 151.318(a)(4) exempts pumps and computerized control units if used or consumed by a manufacturer “to power, supply, support, or control equipment that qualifies for the exemption” under Texas Tax Code Section 151.318(a)(2).
Section 151.318(a)(2) applies only to equipment that is directly used or consumed in or during the manufacturing, processing, or fabrication of tangible personal property if…the product is being manufactured, processed, or fabricated for ultimate sale, or if any intermediate or preliminary product that will be become an ingredient or component part of the product is being manufactured, processed, or fabricated for ultimate sale.
The ALJ determined that the Taxpayer qualified for the manufacturing exemption from sales tax because the pumps supplied, supported, or controlled various types of exempt manufacturing equipment. However, the parts that were purchased for use in the seed charge pumps did not qualify for the exemption because the pumps injected alumina hydrate seed into a piping distribution system rather than directly into exempt processing equipment. Also, parts purchased for evaporation circulating pumps were not exempt because the evaporators were used before manufacturing or processing began.
Therefore, the Taxpayer received a partial refund for the tax paid on parts purchased for the digester feed pumps, the lime injection feed pumps, the calciner feed pumps, and for the rod mill computerized control systems.
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