If you are a supplier to a manufacturer, should you be allowed to take advantage of a reduced rate manufacturing exemption for electricity use? For at least one supplier in Arkansas, the answer to that question is yes.
Background: The taxpayer operates a blast-freezing and temporary cold storage facility in Arkansas. They work closely with large poultry producers in Arkansas, as well as other local food producers, to turn fresh foods or food ingredients into frozen food products that are shipped across the country.
Ruling: The taxpayer qualified for the reduced AR sales tax rate because the Office of Revenue Legal Counsel determined that the electricity was used directly in the manufacturing process. Even though the taxpayer is a separate and different entity from the owner and processor of the poultry, the taxpayer's blast freezing service is a direct part of the poultry manufacturing process because it is used to preserve and prevent spoilage of poultry food products.
As an additional service, the taxpayer also provides temporary storage services (dry, refrigerated and frozen). While AR Rule 2007-5(B)(7) does not allow for a reduced rate for storage and warehouse facilities, it also states that electricity used in temporary cooling/chilling areas would qualify for the reduced sales tax rate. (AR Revenue Legal Opinion No. 20140508-S, Arkansas Department of Finance and Administration, April 4, 2016)
Comments or Questions? Do you agree with this ruling? Could it be applied to any other supplier services?
Other recent “Manufacturing & Distribution” posts by Lauren Stinson, CMI:
- Manufacturing Exemption Misconception: Everything is Tax Exempt!
- Manufacturers’ Utility Studies: 5 Approaches to Utility Exemptions
- Manufacturing Sales & Use Exemptions: Open to Interpretation
- Use Tax Exemptions Case: Non-Traditional Manufacturer in Missouri
- Manufacturing Sales Tax Exemptions: Are Suppliers Entitled to Them?