Oil Refinery Equipment Exempt from Sales Tax in Utah

Friday, December 20th, 2013


The Utah Tax Commission has released a letter ruling stating that certain laboratory equipment purchased by an oil refinery was exempt manufacturing equipment. The refinery's purchases of a train engine and fire suppression system components were not exempt.

The taxpayer operated an oil refinery. It purchased laboratory equipment, hydrants and nozzles used in a fire water system, and a train engine. All of this equipment had an economic life of three or more years. The refinery used the laboratory equipment to test materials before putting them in various stages of the refining process. Materials in the refining process were also tested to ensure safety and meet environmental regulations. If materials failed these tests, they did not continue to the next stage of the manufacturing process. The train engine was used to move storage tanks of finished products within the refinery.

Utah exempts sales of machinery and equipment used in the manufacturing process. This exemption applies to equipment with an economic life of three or more years. The testing of in-process materials is part of the manufacturing process.

The Utah State Tax Commission determined that laboratory equipment qualified for the exemption. Because this equipment was used to test in-process materials, it qualified for the manufacturing exemption. Although the equipment was also used to test materials before the manufacturing process, this did not disqualify the equipment from exemption. As long as the equipment was primarily used for testing in-process materials, it was exempt.

The train engine, hydrants, and nozzles did not qualify for the exemption. The refinery's manufacturing process ended when the finished product was put in the storage tanks. Because the train was used to carry storage tanks of the finished products, it was used after the manufacturing process had ended. The engine therefore did not qualify for this exemption. The hydrants and nozzles did not qualify for the exemption either. Although they were placed in a manufacturing facility, the fire water system was not used in the manufacturing process itself. These items therefore were not exempt.


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