Sales Tax Articles
Sales Tax State Activity Update - May 2007
H 2 0 No, Iowa Vaporizes Exemption Status of Water for this Manufacturer
The Iowa Department of Revenue issued a Policy Letter indicating water used to cool manufacturing equipment is taxable. A plastic bottle manufacturer purchases water for use in "open loop" and "closed loop" cooling systems throughout the manufacturing process.
The water in the "open loop" system assists the cooling of hydraulic oil used in injection molding machines and oil in plant air compressors. The water in the "closed loop" controls the temperature of injection and blow molds and air handlers used to control the atmosphere in the processing room.
Iowa sales and use tax law provides exemptions for property that becomes a part of other tangible personal property intended to be sold ultimately at retail, property used to generate electric current, or that is a solvent, sorbent, reagent or chemical used primarily to produce a chemical effect.
The water purchased for use in the "open loop" and "closed loop" cooling systems produce physical effects (i.e. cooling) rather than chemical effects (i.e. change in form) and is subject to sales tax.
The full text can be viewed on the Iowa Tax Research Library.
(Iowa Department of Revenue Policy Letter No. 07300016, 02/26/2007)
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