Sales Tax State Activity Update - January 2003

Distribution of Scrap Materials Not Exempt in Utah

The Supreme Court of Utah has ruled that an establishment that is engaged in the distribution of scrap and waste materials does not meet the definition of a manufacturing facility.

Atlas Steel, Inc appealed the decision of the Utah State Tax Commission. The audit division had issued a notice to Atlas declaring that the taxpayer owed sales tax and interest on the purchase of (1) A Newell 98104 Super Heavy Duty Dry Shredding System. (2) A capped disc rotor for use in the new shredder (3) a hard faced capped rotor for the new shredder and (4) a Hydraulic excavator that replaced four cable cranes. The tax and interest resulted in an assessment of $57,470.91.

The Taxpayer claimed an exemption from sales tax under subsection 59-12-104(15) whereby purchases by a manufacturer for use in new or expanding operations in any manufacturing facility in Utah is exempt from sales tax. Atlas argued that the equipment that was purchased qualified for the exemption, because they meet the definition of a manufacturing facility on the basis of SIC Code 3313 “Electrometallurgical Products, Except Steel” or alternatively, SIC Code 3399 “Primary Metal Products, Not Elsewhere Classified”.

The Supreme Court rejected the taxpayers argument and concluded that the taxpayer does not qualify for a manufacturing exemption under Utah law because the SIC code that best describes the taxpayer is not 3313 or 3399 but SIC Code 5093 “Establishments primarily engaged in assembling, breaking up, sorting and wholesale distribution of scrap and waste materials.” Also, the commission interpreted SIC Code 3399 to require that the products manufactured by the facility must be similar to the products listed in the code. The Commission ruled that none of Atlas’ products were similar to the products listed in the SIC Code 3099. In addition, the taxpayer does not qualify under subsection 59-12-104(15) for a sales tax exemption because the taxpayer is not a manufacturer in the process of establishing a new or expanding manufacturing operation in Utah.

(Atlas Steel Inc v Utah State Tax Commission, [No. 20010483], filed 12/19/2002) 01/03

---

Subscribe to CyberTax News and receive the latest indirect tax news, including rate changes, rule updates, compliance issues, and more, delivered directly to your email.

Email Address