Did SC PLR 92-9 exempt the parts and components of a 410-foot power-plant chimney stack as manufacturing pollution-control machinery?

Plain-English summary

South Carolina PLR 92-9 held that the described parts, attachments, and components of a new 410-foot power-plant chimney stack were exempt manufacturing machines under the sales-and-use-tax law.

The stack was pollution-control equipment required to keep a coal-fired generating station within federal and state air-quality limits. The ruling treated the complete system as necessary and integral to manufacturing electricity for sale.

Why the taller stack was needed

ABC operated two generating units and two existing 250-foot chimneys at a station below the Lake Murray dam. Modeling showed that sulfur-dioxide concentrations could exceed the stated ground-level limits. Wind turbulence and downdrafts from the dam also disrupted gas flow from the existing stacks, forcing the station at times to operate below full capacity.

ABC considered higher-quality coal, conversion to natural gas, and a taller stack. The study found that better coal would not reliably solve the concentration problem, while natural gas was eliminated because of cost. A single 410-foot chimney was determined necessary to address the wind effects.

The U.S. Environmental Protection Agency and South Carolina Department of Health and Environmental Control certified that the height conformed to good-engineering-practice guidelines. DHEC also certified that the new stack was necessary and would eliminate, mitigate, or prevent air pollution.

What the exempt system included

The project components described in the ruling were:

• a 410-foot reinforced-concrete column and concrete foundation;
• two acid-resistant brick liners;
• breaching ducts connecting incoming gas to the liners;
• ladders and platforms;
• a personnel elevator for pollution-monitoring safety;
• motorized fans and vents that moved gas through the baghouse, ducts, and liners;
• the chimney roof; and
• an electrical system providing aircraft-safety lighting.

Why the manufacturing exemption applied

Section 12-36-2120(17) exempted machines used in manufacturing tangible personal property for sale, including necessary parts and attachments customarily used in operating those machines.

Regulation 117-173 extended that treatment to pollution-control machines installed and operated to comply with state or federal requirements where pollution came from other manufacturing machines. It required a certified statement from the ordering agency that the equipment was necessary to prevent or abate the pollution.

The ruling relied on Hercules Contractors and Engineers, Inc. v. South Carolina Tax Commission, where an integrated pollution-treatment facility—including required railings, walkways, and ladders—was treated as one exempt machine. It also cited Commission Decision #92-19 concerning pollution-abatement devices used in manufacturing electricity.

On those authorities and certifications, every described stack component was necessary and integral to the complete pollution-control system and electricity-manufacturing process.

What this means for you

Manufacturers and electric utilities

The ruling looked beyond the core mechanical equipment. Structural, access, monitoring, ventilation, and safety components qualified because they were required parts of the integrated system.

Pollution-control projects

Agency necessity and environmental-compliance evidence were central. The PLR did not exempt an ordinary structure merely because it affected emissions.

Engineers and procurement teams

Project documentation should identify each component's function within the pollution-control and manufacturing system.

Tax professionals

The analysis combined manufacturing use, integration, legal necessity, and agency certification. A different project must prove those facts independently.

Common questions

Q: Was only the chimney's mechanical equipment exempt?

A: No. The ruling covered all described parts and components, including the concrete structure, foundation, ladders, platforms, elevator, roof, and safety-lighting system.

Q: Why was a chimney treated as a machine?

A: It was a required, integrated pollution-control system necessary to manufacture electricity within the applicable air-quality limits.

Q: Did environmental agencies approve the stack height?

A: Yes. EPA and DHEC certified the 410-foot height under the cited guidelines, and DHEC certified the project's pollution-control necessity.

Q: Did the ruling apply to any pollution-control structure?

A: No. It applied only to the specifically described system and supporting facts.

Q: Can another utility rely on PLR 92-9?

A: No. The ruling was temporary, fact-specific, and nonprecedential.

Citations and references

• S.C. Code Ann. § 12-36-2120(17) — manufacturing-machine exemption
• S.C. Regulation 117-173 — required pollution-control machines used with manufacturing equipment
• S.C. Regulation 117-174.120 — regulation cited by the ruling
• Section 123 of the Clean Air Act Amendments of 1977 — good-engineering-practice stack height
• Hercules Contractors and Engineers, Inc. v. South Carolina Tax Commission, 280 S.C. 426, 313 S.E.2d 300 (Ct. App. 1984)
• Commission Decision #92-19 — electricity-generation pollution-abatement equipment cited by the ruling

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR92-9.pdf

Original ruling text

SC PRIVATE LETTER RULING #92-9

TO:

ABC Corporation

SUBJECT:

Chimney Stack
(Sales and Use Tax)

TAX ANALYST:

Deana West

REFERENCES:

S.C. Code Ann. Section 12-36-2120 (Supp. 1991)
Regulation 117-174.120
Regulation 117-173

AUTHORITY:

S.C. Code Ann. Section 12-4-320 (Supp. 1991)
SC Revenue Procedure #87-3

SCOPE:

A Private Letter Ruling is a temporary document issued to a taxpayer,
upon request, and it applies only to the specific facts or circumstances
related in the request.
Private Letter Rulings have no precedential value and are not intended for
distribution.

Question:
Are certain parts, attachments and components of a chimney stack used in the manufacture of
electricity considered "machines", and therefore, exempt from sales and use tax?
Facts:
ABC is a corporation engaged primarily in manufacturing and selling electricity. ABC owns and
operates the XYZ Generating Station located on the Saluda River below the Lake Murray dam.
The station has two generating units that were both built in the late 1950's. The station also has
two 250 foot chimneys (i.e. smoke stacks). The smoke stack assists in air pollution control, in
that, it causes an imbalance in the atmospheric pressures inside the chimney and outside the
chimney to throw the pollutants higher into the atmosphere for wider dispersion.
Since the original construction of the XYZ Station, a coal fired generating station, more stringent
Federal and State air pollution control regulations and standards have been enacted. Today,
regulations exist concerning ground level concentration requirements for certain pollutants, such
as sulfur dioxide. The ambient air quality standards for the State of South Carolina are contained
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in the Air Pollution Control Regulation, Regulation No. 62.5; Air Pollution Control Standard,
Standard No. 2 and it provides, in part:
Pollutant

Measuring
Interval

Micrograms Per
Cubic Meter

Sulfur Dioxide

3 hours
24 hours
Annual

1300
365
80

• Not to be exceeded more than once a year.
  Through modeling, it was determined that ground level concentrations for sulfur dioxide
  described above would at times be exceeded at the XYZ Station. It was also determined that
  wind passing over the Lake Murray Dam was causing turbulence and downdrafts that impacted
  the natural gas flow out of the two existing smoke stacks. As a result of these factors, the XYZ
  Station must at times be operated below 100% capacity to remain within the environmental
  particulate limits.
  In order to remedy these problems, ABC considered the following options: (1) using a higher
  quality coal, (2) converting to natural gas, or (3) constructing a taller smoke stack.
  The modeling study determined that even if the XYZ Station switched to a higher quality coal
  the ground level concentrations for sulfur dioxide could still be exceeded with the two existing
  smoke stacks. It was determined that switching from coal to natural gas would allow the XYZ
  Station to meet ground level concentrations with the existing two smoke stacks; however, this
  option was eliminated because of its cost.
  The last option under consideration that would enable the XYZ Station to meet the
  environmental limits was replacement of the two existing smoke stacks with a single, taller
  smoke stack. A study was conducted by X, Inc., environmental consultants, to determine the
  stack height necessary to meet federal and state regulations. The study showed that a single 410
  foot chimney was necessary to circumvent the adverse wind effects of the Lake Murray dam.
  The study was submitted to the United States Environmental Protection Agency and to the South
  Carolina Department of Health and Environmental Control (DHEC), and each agency certified
  that the 410 foot chimney conformed to Good Engineering Practice (GEP) Guidelines for stack
  height determination. According to Section 123 of the 1977 Clean Air Act Amendments, GEP
  stack height is defined to be:
  "that stack height necessary to ensure that emissions from the stack do not result in
  excessive concentrations of any air pollutant in the immediate vicinity of the source as a
  result of atmospheric downwash, eddies, or wakes which may be created by the source
  itself, nearby structures, or nearby terrain obstacles..."
  In addition, DHEC certified to ABC Corporation that construction of the new chimney smoke
  stack was "necessary" and would "result in the elimination, mitigation, or prevention of air
  pollution."
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On July 1, 1991, ABC began construction the new smoke stack. The major components of the
project include the following:

1. 410 foot reinforced concrete column
2. concrete foundation
3. brick liners
4. breaching ducts
5. ladders
6. platforms
7. personnel elevator for safety in monitoring of pollution
8. motorized fans and vents located at the base and top of the structure
9. chimney roof
10. electrical system to supply lighting for aircraft safety
    (See Exhibits 1 and 2 for a diagram of the new smoke stack.)
    A short explanation of the mechanical purpose and function is provided for the brick liners,
    breaching ducts and the motorized fans referred to above.
    Brick Liners - There are two independent brick liners within the interior of the concrete shell that
    extend 410 feet. The liners are composed of acid resistant brick with acid resistent mortar. Their
    purpose is to convey the hot gas from the breaching ducts at the bottom to the top of the chimney
    where the gas is discharged into the atmosphere.
    Breaching Ducts - The breaching ducts serve as a metal transition device to convey the incoming
    gas from the horizontal duct at the bottom of the chimney into the brick liners on the interior of
    the chimney.
    Motorized fans and vents - The induced fans are located between the baghouse outlet and the
    breaching ducts for the chimney. These fans provide the necessary pressure to pull the gas
    through the baghouse and send it through the breaching ducts into the brick liners within the
    interior of the chimney.
    Discussion:
    Code Section 12-36-2120(17) exempts from sales and use tax:
    ...the gross proceeds of sales of...machines used in manufacturing...tangible personal property for
    sale. 'Machines' include the parts of machines, attachments, and replacements used...on or in the
    operation of the machines and which are necessary to the operation of machines and are
    customarily so used.
    Regulation 117-173 provides that the term "machine" described in Code Section 12-36-2120(17)
    includes machines that are required by state or federal agencies for the abatement of pollution
    caused by machines used in manufacturing tangible personal property for sale.

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This regulation reads, in part:
...Frequently, these machines cannot be operated when the same pollute the air or water
beyond regulated levels and in compliance with orders of agencies of the United States or
of this state to abate or prevent the pollution of the air or water caused or threatened by
the operation of such machines it is necessary to install other machines that are designed
and operated exclusively for the purpose of abating or preventing this pollution. The
purpose of this regulation is to classify the machines, their parts or attachments, as
machines used in ...manufacturing tangible personal property when the same are installed
and operated for compliance with an order of an agency of the United States or of this
state to prevent or abate pollution of the air or water caused or threatened by the
operation of other machines used in ...manufacturing of tangible personal property.

...Any person engaged in the business of ...manufacturing of tangible personal property
shall furnish the commission a certified statement from the ordering agency that any
machine for which the exemption is claimed is necessary to prevent or abate water or air
pollution caused or threatened by the operation of other machines that are used in the
...manufacturing of tangible personal property.
The law, therefore, provides that machines, their parts and attachments, required to be used by
state or federal agencies to abate or prevent pollution caused by the operation of machines used
in the manufacture of tangible personal property for sale, may qualify for the exemption found in
Code Section 12-36-2120(17).
The South Carolina Court of Appeals reviewed the application of Code Section 12-36-2120(17)
and Regulation 117-173 in Hercules Contractors and Engineers, Inc. v. South Carolina Tax
Commission, 280 SC 426, 313 SE2d 300 (1984) with respect to three waste treatment facilities.
One facility, Klopman Mills, treated waste that was produced in connection with their
manufacture of textile products for sale. Since Klopman Mills could not lawfully operate
without the pollution control machines, these machines, parts and attachments were necessary to
the operation of the mill. Accordingly, the Court held these pollution control machines were
machines within the meaning of Section 12-35-550(17) (recodified as 12-36-2120(17)) and
Regulation 117-173 and were exempt from sales tax. The Court concluded:
This facility operates as one single entity, and that entity is a "machine". Its various parts and
attachments are integral and necessary to the operation of the system as a whole. Even its
railings, walkways and ladders are required by state and federal law and are thus necessary to the
overall function of the system.
Likewise, in reviewing the above referenced statutes, the Tax Commission determined that
pollution abatement devices used in connection with the manufacture of electricity for sale
"operated exclusively in the abatement of pollution caused by the production of electricity" and,
therefore, were machines or attachments within the meaning of Code Section 12-36-2120(17).
See Commission Decision #92-19.

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Conclusion:
The parts, attachments and components of the 410 foot chimney stack, as described in the facts,
are "machines" required by state and federal law and are necessary and integral to the
manufacture of electricity. These pollution control machines, therefore, are exempt from sales
and use tax as provided under Section 12-36-2120(17) and Regulation 117-173.

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