Does a trash compactor bought for an expanded manufacturing facility qualify for Utah's manufacturer's sales tax exemption?

Plain-English summary

A manufacturer was expanding its manufacturing facility and, as part of that expansion, purchased a trash compactor. The company's expansion generated more materials requiring disposal, and the compactor was bought to handle the increased volume of by-products, materials, and other elements of the manufacturing process that were no longer useful in making the finished goods for resale. The compactor had a useful life of more than three years and did not replace an existing compactor. The company asked the Commission whether the compactor qualified for Utah's sales tax exemption for machinery and equipment used in new or expanding manufacturing facilities, under Utah Code § 59-12-104(16).

The Commission said no. It treated the request as one for an advisory opinion and referred it to its Auditing Division, whose recommendation the Commission adopted. Under Sales Tax Rule R865-19-85S(A)(1), exempt "machinery" means machines incorporated into the manufacturing or assembling process "from the initial stage where actual processing begins through the completion of the finished end product, including final processing, finishing or packaging of articles which are for sale in commerce." Under subparagraph (2), exempt "equipment" means a device separate from machinery but essential to the integrated manufacturing or assembly process, or a component of machinery, such as dies, jigs, patterns, and molds.

The Commission found that a trash compactor is not used in any phase of the manufacturing process — it plays no role in finishing a product or packaging an article for sale. It distinguished the compactor from the equipment at issue in the Idaho Supreme Court case Richardson v. State Tax Commission, where a pneumatic blower and chip bin were used to further process and package wood chips that were themselves sold as a by-product to a paper manufacturer. Because the compactor here simply disposed of waste rather than processing or packaging something that would itself be sold, it fell outside the exemption. The Commission noted its conclusion was based on the facts as presented, and that a different outcome could follow if the facts differed.

What this means for you

Manufacturers buying waste-handling equipment

If you're expanding or upgrading a manufacturing facility and buying equipment to deal with trash, scrap, or waste by-products, don't assume it automatically qualifies for the manufacturer's sales tax exemption just because it's "necessary" to keep the plant running efficiently. The Commission's test looks at whether the equipment is used in the manufacturing/assembly process itself — through final processing, finishing, or packaging of the product you sell — not whether it supports the facility generally. A trash compactor used purely for disposal did not qualify.

Equipment that processes or packages a saleable by-product

The ruling draws a real distinction, citing Richardson v. State Tax Commission: equipment that further processes or packages a by-product that is itself sold in commerce (there, wood chips sold to a paper manufacturer) can be different from equipment that merely disposes of waste. If your waste-handling equipment is actually part of turning a by-product into something you sell, that's a materially different fact pattern than the one in this ruling — get it evaluated on its own facts.

Accountants and tax professionals

When advising a manufacturing client on the machinery/equipment exemption, apply the two-part rule definitions cited here: "machinery" (Rule R865-19-85S(A)(1)) covers machines incorporated into the process from initial processing through finishing/packaging of articles for sale; "equipment" (subparagraph (2)) covers independent devices essential to that same integrated process, or components of machinery. Equipment whose function is disposal rather than processing or packaging a saleable product is likely to fall outside the exemption, per this ruling.

Common questions

Is a trash compactor used in a factory ever exempt from Utah sales tax as manufacturing equipment?

Not on the facts presented in this ruling. The Commission held that a trash compactor is not used in any phase of the manufacturing process and does not qualify for the exemption under Utah Code § 59-12-104(16).

Does it matter that the compactor was required because of a plant expansion?

No. The company argued the compactor was a "necessary part of the expanded manufacturing process," but the Commission's analysis turned on whether the equipment was used in manufacturing, finishing, or packaging — not on whether it was necessary for the facility to operate efficiently or was tied to an expansion.

How is this different from the equipment in the Richardson case?

In Richardson v. State Tax Commission (an Idaho Supreme Court case), a pneumatic blower and chip bin were used to further process and package wood chips that were themselves sold as a by-product to a paper manufacturer — equipment tied to turning a by-product into a saleable article. The trash compactor here had nothing to do with finishing or packaging a product for sale; it just handled disposal.

Can I rely on this 1991 ruling for my business today?

Not as binding precedent, and be cautious even as guidance. A private letter ruling binds the Commission only for the taxpayer and facts it was issued to. This ruling is also over three decades old — Utah's sales tax statutes and administrative rules have been renumbered and amended many times since 1991, so confirm the current text of the manufacturing exemption and its implementing rules before relying on the reasoning here.

What should I do if I'm not sure whether my equipment qualifies?

Because the outcome depends closely on the facts (what the equipment does and where it sits in the production process), consult a licensed Utah tax professional or consider requesting your own advisory opinion or private letter ruling from the Commission rather than relying on this one.

Citations and references

• Utah Code § 59-12-104(16) (as in effect in 1991) — the manufacturing facility sales tax exemption the taxpayer sought to use; renumbered/amended since this ruling.
• Utah Sales Tax Rule R865-19-85S(A)(1) — defines exempt "machinery" as machines incorporated into the manufacturing or assembly process from initial processing through completion of the finished product, including final processing, finishing, or packaging of articles for sale in commerce.
• Utah Sales Tax Rule R865-19-85S(A)(2) — defines exempt "equipment" as an independent device separate from machinery but essential to an integrated manufacturing or assembly process, or a component of machinery (e.g., dies, jigs, patterns, molds).

Case cited: Richardson v. State Tax Commission (Idaho Supreme Court) — distinguished; involved a pneumatic blower and chip bin used to process and package wood chips sold as a by-product to a paper manufacturer.

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/91-021.htm

Original ruling text

November
8, 1991 Response from Tax Commission

October
15, 1991 Letter from XXXXX

XXXXX

Re:
Manufacturer's Exemption - Trash Compactor

Dear
XXXXX:

This
letter is in response to your recent request for a Tax Commission ruling on
whether a trash compactor qualifies for exemption under Utah Code Section
59-12-104(16).

Although
your inquiry was framed as a request for a declaratory judgment, Tax Commission
policy is to initially treat all such inquires as requests for advisory
opinions. As such, your request was referred to the Tax Commission's Auditing
Division for their analysis and recommendation. The division's recommendation
is as follows:

Sales
Tax Rule R865-19-85S(A)(1) says, "'Machinery' means electronic or
mechanical machines to be incorporated into a manufacturing or assembling
process from the initial stage where actual processing begins through the
completion of the finished end product, including final processing, finishing
or packaging of articles which are for sale in commerce."

Subparagraph
2 states, "'Equipment' means any independent devise separate from any
machinery but essential to an integrated or continuous manufacturing or
assembly process or any sub unit comprising a component of any machinery or
auxiliary thereof, including such items as dies, jigs, patterns, molds, and
similar items used in manufacturing, processing, or assembling."

A
trash compactor is not used in any phase of the manufacturing process. It has
nothing to do with finishing a product or packaging an article. The purchase of
a trash compactor does not qualify for the manufacturer's exemption.

A
trash compactor is unlike the pneumatic blower and chip bin which were the
subject in the Idaho Supreme Court case, Richardson v. State Tax Commission.
That equipment was used to further process and package wood chips which were
sold as a by product of the lumber mill operation to a paper manufacturer.

Based
upon the facts presented in your letter, we are in agreement with the Auditing
Division's recommendation. Obviously, if there are deviations from these facts,
this opinion may be negated.

If
you do not agree with this determination, you may appeal to the Tax Commission
for a formal hearing. The results of that hearing would constitute a
declaratory judgment and be appealable to the Utah State Supreme Court. A
Notice of Appeal Rights and a copy of the Utah Taxpayer's Bill of Rights are
attached.

For
the Commission,

Joe
B. Pacheco

Commissioner

Utah
State Tax Commission

160
East 300 South

Salt
Lake City, Utah 84134

Dear
Sir/Madam:

Please
issue a declaratory judgement regarding the following sales tax issue as it
pertains to the exemption provision dealing with new or expanding manufacturing
facilities.

The
company is involved with a major expansion of its manufacturing facility and
one of the pieces of equipment purchased is a compactor . The compactor has a
useful life of more than three years and did not replace a compactor. The
purchase of the compactor was required because of the increase in materials
requiring disposal that resulted from the expansion of the manufacturing facility.
The compactor is a necessary part of the expanded manufacturing process and
permits the facility to operate as efficiently as possible by compacting by-
products, materials and other elements of the manufacturing process that are no
longer useful to the company in its production of finished goods for resale.

Please
advise if the purchase of this compactor qualifies for the sales tax exemption
that was adopted to encourage plant expansion in the state of Utah. Thank you
very much for your consideration of this request.

Sincerely
yours

XXXXX