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Good News for the Asphalt Industry
Ohio Board of Tax Appeals Reverses Use Tax Assessment Against Asphalt Manufacturer
In a decision relevant to the asphalt industry specifically and manufacturers generally, the Ohio Board of Tax Appeals (the Board) reversed the Tax Commissioner’s denial of the manufacturing exemption from sales and use tax for natural gas and other purchases made by an asphalt manufacturer in the course of its operations. Eastman & Smith attorneys Graham A. Bluhm, Matthew D. Harper and Nicholas W. Bartlett represented the manufacturer.
Focus of the Decision
Ohio provides an exemption in Ohio Revised Code 5739.02(B)(42)(g) from sales and use tax when the item purchased is used “primarily in a manufacturing operation to produce tangible personal property for sale”. Per Ohio Revised Code 5739.01(S), a “manufacturing operation” includes “a process in which materials are changed, converted, or transformed into a different state or form from which they previously existed and includes refining materials, assembling parts, and preparing raw materials and parts by mixing, measuring, blending, or otherwise committing such materials or parts to the manufacturing process.”
The manufacturer in this appeal receives refinery waste or asphalt materials from multiple sources and then manufactures homogenous products by heating, agitating and blending the raw material to meet customer specifications. The Tax Commissioner wrongly concluded these processes did not constitute manufacturing operations, but the Board reversed, finding the manufacturer’s use of different kinds of refinery waste, each with distinct physical and chemical properties, to produce specific products, each with unique viscosity, specific gravity, flash points and other measurable characteristics, constitutes manufacturing and qualifies for the sales and use tax exemption.
The Tax Commissioner also argued the manufacturing exemption only applies when the taxpayer sells a final end product. In this appeal, the taxpayer’s products are used by its customers in the further manufacturing of asphalt and roofing shingles. The Board rejected the Tax Commissioner’s “final product” argument finding that no such requirement exists under Ohio law. Hence, the taxpayer’s operations qualified for the exemption even though further manufacturing would occur before a final end product existed to be sold to an end user.
Key Takeaways
The Board’s Decision provides three takeaways:
- Any process by which raw materials are altered to create something new and specific qualifies for the manufacturing exemption.
- The manufacturing exemption must be applied based on the existing statutory language without supplementation by the Tax Commissioner.
- The manufacturing exemption exists for all phases of manufacturing along the way to producing the final end product for the public, not just to the last step along the way.
Should you have any questions regarding how the decision may affect you and your manufacturing operations, please contact Mr. Bluhm, Mr. Harper or Mr. Bartlett.
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Disclaimer: This alert has been prepared by Eastman & Smith Ltd. for informational purposes only and should not be considered legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney/client relationship.