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.

Service Repairs to Petroleum Storage Tanks Exempt in...

Friday, January 18th, 2019 -Louisiana's Board of Tax Appeals recently ruled that repairs on petroleum storage tanks were not taxable. ...

Nevada Exempts Feminine Hygiene Products in 2019

Wednesday, January 16th, 2019 -Last year, Nevada voters approved via ballot measure changes to the Sales and Use Tax Act of 1955. Voters amen...

Cleaning of Beer-Tap Lines Not Taxable in Ohio

Monday, January 14th, 2019 -The Supreme Court of Ohio recently ruled that cleaning beer-tap lines is not taxable. The taxpayer was...

Louisiana Court of Appeals Finds Marketplace Facilitators...

Friday, January 11th, 2019 -The Louisiana Court of Appeals has recently addressed the sales tax liability of marketplace facilitators. A c...

Iowa Supreme Court Determines Taxable Carpentry Services...

Wednesday, January 9th, 2019 -The Iowa Supreme Court has recently addressed the taxability of various installation services. The taxpayer wa...

Tax Applies to Metallurgical Coke in Illinois

Monday, January 7th, 2019 -Illinois recently ruled that use tax was due on purchases of metallurgical coke. The taxpayer was a business t...