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.

Louisiana Sales Tax Rates and Exemptions Set to Change...

Friday, May 25th, 2018 -Louisiana's sales tax rates and exemptions are set to change July 1, 2018, when several 2016 law changes will ...

Florida Exempts Generators Used in Assisted Living...

Thursday, May 24th, 2018 -Florida recently adopted an emergency rule on exempt sales of emergency generators for use at nursing homes an...

Washington Penalty Reduction Program

Monday, May 21st, 2018 -Businesses that apply to register with Washington's Marketplace Fairness Penalty Reduction Program by June 30,...

Fuel Used to Heat Detached Garages Taxable in Maine

Monday, May 21st, 2018 -Maine Revenue Services recently released a publication explaining that sales tax applies to fuel that is used ...

Cloud Software No Longer Taxable in Indiana

Thursday, May 17th, 2018 -Effective July 1, 2018, cloud software will no longer be taxable in Indiana. Indiana taxes the sale, lease,...

Sales Tax Increase in the Historic Triangle Region of...

Monday, May 14th, 2018 -Effective July 1, 2018, there will be an additional one percent (1%) regional sales and use tax imposed in the...