Sales Tax Articles
Sales Tax State Activity Update - March 2006
Utah Co-Generation Plant Misses Exemption Criteria
In a recent private letter ruling, the Utah Tax Commission determined that purchases of machinery and equipment were taxable when used at a co-generation facility to manufacture electricity, steam and water for sale.
A taxpayer operating a single-cycle combustion turbine plant, which qualifies as a co-generator and a "qualifying facility" under the federal Public Utility Regulatory Policy Act, plans an expansion of the facility and requests whether it may purchase equipment exempt from tax.
Utah sales and use tax statutes provide an exemption from tax for the purchase of machinery and equipment with an economic life of three years or more, used in the manufacturing process, used to manufacture an item sold as tangible personal property, used in new or expanding operations and at a manufacturing facility in Utah. The exemption is limited to companies operating under specific North American Industries Classification System ("NAICS") codes. The definition of tangible personal property includes electricity, water and steam.
The Utah Tax Commission determined that some of the activities of the co-generator were indeed manufacturing activities. The manufacture of electricity, water and steam are within the statutory meaning of tangible personal property for sale. However, the co-generator operates under an NAICS classification that is not specifically included within the manufacturing exemption. In order to qualify for the exemption, a manufacturer must establish that it meets all statutory criteria. Since the co-generator does not operate under an NAICS within the exemption, equipment purchased for the plant expansion is taxable when used in the manufacture of electricity, water and steam for sale.
Access the full text on the Utah State tax Commission website.( Utah Tax Commission, Private Letter Ruling No. 05-010)
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