The Louisiana Fifth Circuit Court of Appeal recently determined that a polypropylene manufacturer's chemical catalyst purchases were taxable. Louisiana taxes tangible personal property unless an exemption or exclusion applies. Louisiana excludes raw materials from tax when they (1) become a recognizable and identifiable component of a final product, (2) are beneficial to the product, and (3) are material for further processing and bought to be included in the product. This is known as the further processing exclusion. The exclusion only covers materials that are themselves further processed into tangible personal property. It does not cover all materials used in processing.
The circuit court concluded that the catalyst caused a chemical reaction. The manufacturer bought the catalyst to be consumed during the manufacturing process. It was not used to be included in the final product. This was true even if a few trace elements ended up in the final product. So, tax applied.