Was a chemical absorbed into manufactured concrete roof tiles subject to Florida sales and use tax?

Plain-English summary

A roof-tile manufacturer used a biodegradable methyl-ester chemical called E-44 in production. Engineering reports stated that more than 99% of the chemical was absorbed into the finished concrete tiles, with only an insignificant amount wasted.

Florida ruled that the incorporated E-44 was not subject to sales and use tax. The cited statute excluded industrial materials that become ingredients or components of tangible personal property manufactured for resale.

What this means for you

A manufacturing chemical can qualify for resale treatment when the evidence shows it becomes part of the finished product. The holding here depended on the engineering evidence and the chemical's incorporation into the tiles.

Common questions

Was E-44 taxable merely because it was consumed during manufacturing? No. The ruling focused on its incorporation into the finished product.

How much of the chemical entered the tiles? The source says more than 99% was incorporated or absorbed.

What evidence supported the result? Engineering laboratory reports and a letter from the environmental manager and process engineer.

Citations and references

• Fla. Stat. § 212.02(14)(c) (industrial materials becoming components or ingredients)
• Fla. Admin. Code r. 12A-1.039(1)(b)6. (property incorporated into products manufactured for sale)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 07A-044

Original ruling text

SUMMARY
QUESTION: Taxpayer manufactures roof tiles using a chemical called E-44. Is the
chemical subject to Florida use tax?
ANSWER: No. Pursuant to Section 212.02(14) (c), F.S., and Rule 12A-1.039, F.A.C.,
the purchase of E-44 that is incorporated into roof tiles during manufacturing is not
subject to Florida sales and use tax.

December 18, 2007

Re:

Technical Assistance Advisement 07A-044
Sales and Use Tax – Taxability of a Chemical Agent
Section 212.02(14) (c), F. S.
Rule: 12A-1.039(1) (b)6., F.A.C.
XXX (“Taxpayer”)
FEI #: XXX

Dear :
This response is in reply to your letter dated September 12, 2007, requesting the
Department’s issuance of a Technical Assistance Advisement (“TAA”) pursuant to
Section 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding the Department’s position
on the issue of manufacturing. An examination of your letter has established that you
have complied with the statutory and regulatory requirements for issuance of a TAA.
Therefore, the Department is hereby granting your request for issuance of a TAA.
FACTS
You have provided the following in your letter referenced above:
[Taxpayer] is one of the largest manufacturers of premium-quality roofing
tile in the United States.… E-44 is a fully biodegradable and methyl ester
compound that is used in [Taxpayer’s] production of roofing tiles. Due to
the way the chemical is applied, an insignificant amount of this compound
is wasted in manufacturing process. [The Taxpayer’s] engineer states that
more than 99% of the E-44 chemical purchased is incorporated into the
manufactured tiles.

You have provided the engineering lab reports and a letter written by the Taxpayer’s
environmental manager and process engineer. The letter explains the lab reports and
states that 99% of the chemical E-44 is absorbed into the concrete roof tile.

ISSUE PRESENTED
Whether E-44, a chemical used in the production of roof tiles, is subject to Florida use
tax.
TAXPAYER POSITION
You have provided the following in your letter referenced above:
…[W]e respectfully request that the Department confirm to us in writing
the [Taxpayer’s] use of chemical agent E-44 in manufacturing of roofing
tile is exempt from sales tax in Florida….
APPLICABLE STATUTES AND RULES
The following provisions of the Florida Statutes (F.S.) and Florida Administrative Code
(F.A.C.) are pertinent to the issues under consideration.
Section 212.02(14) (c), F.S., provides in part:
(c)…The terms ["retail sales," "sale at retail," "use," "storage," and
"consumption"] do not include the sale, use, storage, or consumption of
industrial materials, including chemicals and fuels except as provided
herein, for future processing, manufacture, or conversion into articles of
tangible personal property for resale when such industrial materials,
including chemicals and fuels except as provided herein, become a
component or ingredient of the finished product….
Rule 12A-1.039, F.A.C., provides in part:
(1)(b) A sale for resale is exempt from the tax imposed by Chapter 212,
F.S., only when the sale for resale is in strict compliance with the
provisions of this rule. For purposes of this rule, a "sale for resale"
includes the following sales, leases, or rentals when made to a person who
is an active registered dealer. This is not intended to be an exhaustive list.

6. The sale of tangible personal property to a dealer when such property
   will be incorporated as a material, ingredient, or component part of
   tangible personal property that is being produced for sale by
   manufacturing, processing, or compounding.

RESPONSE
Pursuant to Section 212.02(14)(c), F.S., and Rule 12A-1.039, F.A.C., chemicals that
become a component of the finished product are not included in the definitions of “retail
sales,” “sale at retail,” “use,” “storage,” and “consumption” and are not subject to Florida
sales and use tax.
Under the facts provided, your purchase of E-44 that is incorporated into roof tiles during
manufacturing is not subject to Florida sales and use tax.
This response constitutes a Technical Assistance Advisement under Section 213.22, F.S.,
which is binding on the Department only under the facts and circumstances described in
the request for this advice as specified in Section 213.22, F.S. Our response is predicated
on those facts and the specific situation summarized above. You are advised that
subsequent statutory or administrative rule changes, or judicial interpretations of the
statutes or rules, upon which this advise is based, may subject similar future transactions
to a different treatment than expressed in this response.
You are further advised that this response, your request and related backup documents are
public records under Chapter 119, F.S., and are subject to disclosure to the public under
the conditions of s.213.22, F.S. Confidential information must be deleted before public
disclosure. In an effort to protect confidentiality, we request you provide the undersigned
with an edited copy of your request for Technical Assistance Advisement, the backup
material and this response, deleting names, addresses and any other details which might
lead to identification of the taxpayer. Your response should be received by the
Department within 15 days of the date of this letter.
Sincerely,

Valerie Koenitzer
Tax Law Specialist
Technical Assistance and Dispute Resolution
(850) 922-9412
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