Which scrap-metal processing operations qualified as manufacturing for Connecticut sales and use tax exemptions?

Note -- superseded historical guidance. DRS marks this ruling "not current" and states that it was superseded by Ruling 94-8.

Plain-English summary

DRS divided scrap-metal businesses into basic handling operations and processors that created prepared grades for remelting.

Basic sorting, cutting, and baling did not substantially change the scrap into a product with a different name, nature, and use. Junk yards, motor-vehicle wreckers, peddlers, collectors, and transfer stations therefore did not qualify as manufacturers under the ruling.

By contrast, an entire operation qualified when it also crushed, pulverized, shredded, baled, sheared, magnetically or chemically separated, chemically treated, blended, or mixed scrap to customer specifications into prepared metallic grades sold to steel mills, foundries, and smelters for remelting. Those steps produced a substantially changed product.

What this means for you

The historical line was transformation into a specification-grade product, not merely reducing size or sorting material. Ruling 94-8 superseded this guidance, so use the later authority for current treatment.

Common questions

Did ordinary junk yards qualify as manufacturers? No under the ruling.

What kind of processor qualified? One that transformed scrap into prepared grades meeting customer specifications for remelting.

Citations and references

• Conn. Gen. Stat. §§ 12-412(18) and (34).
• Conn. Agencies Regs. § 12-426-11b(a)(10).
• American Frozen Foods v. Dubno and Connecticut Water Co. v. Barbato, discussed in the ruling.
• Ruling 94-8 -- identified by DRS as superseding this ruling.

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 90-72

Original ruling text

Ruling 90-72, Scrap Metal Processors / Manufacturing

This information is not current and is being provided for reference purposes only

Ruling 90-72

Scrap Metal Processors Manufacturing

This Ruling has been superseded by   Ruling 94-8

In light of the court decisions in the cases of American Frozen Foods v. Dubno , No. 301353 (Super. Ct. April 30, 1987) and Connecticut Water Co. v. Barbato , the Department has reviewed the issue of whether the members of the scrap metal processing industry qualify for the manufacturing exemptions from our sales and use tax under Sections 12-412(18) and (34) of the Connecticut General Statutes and Section 12-426-11b of the Regulations of Connecticut State Agencies.

The American Frozen Foods and Connecticut Water Co. cases both base their decisions in favor of taxability on the conclusion that the processing involved did not meet the definition of manufacturing under Regulation Section 12-426-11b(a)(10) because:

A. it did not place personal property in a form, composition or character different from that in which it was acquired for sale; and

B. the change in form, composition or character must be a substantial change, and it must result in a transformation of property into a different product having a distinctive name, nature and use.

Based on the applicable statutes, regulations and case law, the following ruling is issued.

Those scrap metal operations which only involve the basic functions of sorting, cutting, baling and do not make prepared grades of remelting scrap according to consumer specifications, do not qualify for manufacturing status. Such operations do not place tangible personal property in a form, composition or character different from that in which it was acquired. The tangible personal property after cutting and sorting is not sold as scrap for remelting purposes by steel mills, foundries and smelters. Similarly, motor vehicle junk businesses, and auto wreckers, including junk yards, peddlers, collectors and transfer stations, do not qualify for manufacturing status.

The Department will continue its longstanding policy of according manufacturing status to the entire operation of scrap metal processors who, in addition to the basic operations listed above, crush, pulverize, shred, bale, shear, separate magnetically or chemically, or treat chemically, or blend or mix, according to consumer specifications into prepared grades of metallic scrap for sale to steel mills, foundries and smelters for remelting.. The scrap may be shipped in boxes, bales, bundles and drums, or may be smelted into briquettes or ingots.

In these more sophisticated operations, the Department recognizes that the scrap has been placed in a form, composition or character different from which it was acquired and, having undergone a substantial change, has become a different product having a distinctive name, nature and use.

James F. Meehan

Commissioner

November 14, 1990