Ryan & Company's Dispute Resolution Group recently obtained a proposed decision in Comptroller's Hearing No. 40,243 holding that prior to October 1, 1997, a tire recycling system that fed waste tires as fuel into the kilns at a cement-making plant qualified for exemption as manufacturing equipment.
The taxpayer manufactures portland cement in three rotary kilns which measure 450 feet in length by 12 feet in diameter. Until 1996 the taxpayer burned coal powder almost exclusively as its fuel source to process slurry into cement clinker. In 1996 the taxpayer constructed a waste tire recycling system, the purpose of which was to inject whole waste or scrap tires into the kilns as a fuel source that is less expensive than coal. Much of the system is made up of various types of conveyors and sensing devices. The tires burned in the kilns now provide 20%-22% of the energy used to produce heat in the kilns. The steel belts in the tires also provide a portion of the iron needed in cement production.
The agency argued that the tire recycling system was one step removed from the actual manufacture of the cement, that it was not necessary and essential because the kilns would still operate with natural gas or coal, and that it was merely intraplant transportation.
The DRG successfully argued that the tire recycling system is a single, integrated unit, without which the proper size tires could not be fed as fuel into the kilns, thereby making the tire recycling system necessary and essential to the manufacturing process. The Administrative Law Judge was not persuaded by the agency's argument that the taxpayer could have used other fuel sources because there is no statute or rule that limits the exemption to one fuel source.
The Administrative Law Judge is now considering the exceptions filed by the agency. If you have any questions regarding the above information, please contact a Ryan & Company Dispute Resolution Group professional by calling 512.476.0022.
- Topics
- Transaction Tax
- Manufacturing