In a recently issued opinion [IPSCO Steel (Alabama), Inc. v. Alabama Department of Revenue], the Alabama Tax Tribunal (“Tribunal”) held that work rollers used in steel manufacturing qualified for exemption, but coiler rollers did not. IPSCO argued that small parts of the work and coiler rollers wore off and became component parts of the steel products it manufactured.
Code of Ala. § 40-23-1(a)(9)(b) provides an exemption for component parts of products manufactured for sale. The exemption does not include machinery or equipment subject to depreciation allowances for Alabama income tax purposes.
The Alabama Department of Revenue (“Department”) argued that the exemption was not applicable because IPSCO failed to present sufficient technical evidence that parts of the work rollers and coiler rolls became a component part of IPSCO’s. However, the Tribunal observed that the evidence provided was sufficient to find that the rolls wore during manufacturing and that parts of the rolls became ingredients or component parts of IPSCO’s products.
The Department then argued that the rollers were depreciable capital equipment or machinery excluded from the exemption. IPSCO’s evidence showed that it wore out 25 to 30 work rollers in a year, but the coiler rolls had a useful life of 13 months.
The Tribunal found that the work rollers, which had a useful life of less than a year, qualified for the exemption. The coiler rollers with a useful life of 13 months were depreciable, and did not qualify for the exemption.
In the same hearing, the Tribunal found that brackets were not “containers” and not exempt under Code of Ala. 1975, § 40-23-1(a)(9)(c). Code of Ala. 1975, § 40-23-1(a)(9)(c) provides that a non-taxable wholesale sale includes:
A sale of containers intended for one-time use only, and the labels thereof, when containers are sold without contents to persons who sell or furnish containers along with the contents placed therein for sale by persons.
In addition, Alabama’s regulation on containers (Reg. 810-6-1-.69) also exempts “components of containers” used to shape, form, preserve, stabilize, or protect the contents of qualifying single-use containers.
IPSCO’s steel plates were shipped to customers on flatbed railcars and held in place by custom-installed brackets made to fit the shape of steel. Because “container” is not defined in the Alabama Tax Code, the Tribunal used the dictionary definition of container—a receptacle in which material is held or carried. Based on this definition, the Tribunal reasoned that the steel plates were not placed in containers, and the brackets were taxable as shipping supplies used for securing manufactured products as provided in subsection 11 of Reg. 810-6-1-.69, which provides in part: “…shipping supplies such as nails, lumber, metal straps, dunnage, and plates which are used for fastening or securing manufactured or compounded products into railroad cars, trucks, aircraft, or vessels for shipment are taxable at the time of purchase.”
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