Louisiana Court of Appeals: Limestone Used in the Production of Electricity Does Not Qualify for "Further Processing" Exemption

Wednesday, November 14th, 2012

 
 
Share
Link
Louisiana
General

The Louisiana Court of Appeals held that sales of limestone and sand used to produce electricity for resale did not qualify for the "further processing" exemption. Bridges v. Nelson Indus. Steam Co., ___ So.3d ___ Case No. CA-12-477 (La. App. 3d Cir. Nov. 17, 2012).

The taxpayer in this case, Nelson Industrial Steam Company (NISCO), makes electricity using Circulating Fluidized Boiler (CFB) technology which, in turn, relies on petroleum coke for fuel. NISCO purchased and used limestone in the CFB to control the sulfur emissions from the petroleum coke. And, during this process, the limestone turned to ash. NISCO could not make the electricity without the limestone, and NISCO later sold this ash to others. NISCO also purchased and used sand to prevent clogging in its CFB.

NISCO argued that it did not owe tax on its purchases of sand and limestone because it bought them for further processing. The state disagreed. Louisiana exempts from sales tax the purchase of materials for further processing into articles of personal property for sale at retail. This exemption requires three things. First, the materials must be beneficial to the end product. Second, the materials must become recognizable and identifiable components of the end product. Third, the taxpayer must buy the materials with the purpose of including them in the end product.

The court examined NISCO's purchases of limestone and sand to understand its purpose for buying them. NISCO had no option but to use limestone, and the court saw that the sand was also necessary to NISCO's process. In fact, NISCO's stated purpose for buying the limestone and sand was to use them to make electricity. NISCO spent $33 million on limestone, yet it sold the ash for only $5 million. From this, the court reasoned that the NISCO's purpose for buying the limestone and sand was to make electricity, not to reprocess them into ash for resale. Thus, the court concluded that NISCO could not claim the "further processing" exemption for its purchase of limestone and sand.

Because the "further processing" exemption did not apply, NISCO owed tax on its purchases of limestone and sand.


About TTR

Transaction (buying or selling things), Tax (the tax on this activity), Resources (our people, our website, our support services) - TTR, Inc.

TTR has a website that companies subscribe to and use daily. This website provides a list of everything that can be bought or sold in the U.S. It provides simple answers to whether buying or selling these items is taxable (subject to a sales tax or other tax), and it provides all the legal authority to support these tax answers.

TTR likes to keep things simple and fun, which is why it has great people who provide help to clients on any support questions they have about transaction tax issues.

Please visit TTR on the web at www.ttrus.com or call 866.578.8193.

Economic Nexus in Washington

Monday, August 13th, 2018 -Effective October 1, 2018, certain out-of-state businesses will be required to collect and pay Washington sale...

Economic Nexus in Michigan

Thursday, August 9th, 2018 -Effective October 1, 2018, certain out-of-state sellers will be required to collect and pay Michigan sales or ...

Georgia Suspends Tax on Jet Fuel

Wednesday, August 8th, 2018 -Effective August 1, 2018, Georgia no longer collects state level sales and use tax on jet fuel. Georgia tax...

Employment Services Contracts for Permanent Employees Not...

Monday, August 6th, 2018 -The Ohio Board of Tax Appeals recently addressed whether contracts entered into by an employment services agen...

Alarm Systems and Monitoring Not Taxable in Missouri

Wednesday, August 1st, 2018 -The Missouri Department of Revenue recently released a ruling determining that (1) security, fire, tornado, an...

Economic Nexus in Utah

Wednesday, August 1st, 2018 -Effective January 1, 2019, certain out-of-state sellers will be required to collect and pay Utah sales or use ...