Which chemicals used in paper and pulp manufacturing were taxable aids, and which qualified as incorporated components?

Plain-English summary

Board counsel classified a long list of chemicals by their stated roles in pulp and paper manufacture.

Taxable manufacturing aids included Busan 90 for bacteria and slime control; zinc and sodium hydrosulphite on the understanding then supplied; cooking-liquor chemicals; chlorine and chemicals used to make sodium hypochlorite; hydrogen-peroxide bleaching solution and its stabilizers; defoamers; sodium hydroxide used in caustic extraction; chemicals used to make chlorine-dioxide bleach; and Vanzak 112 pitch dispersant.

Mistron Talc qualified for resale because it remained in paper as a desired pitch-control component. Ammonium hydroxide qualified because it became part of a waterproof surface coating. Sodium hydroxide and sulfur dioxide used to control peroxide-bleaching reaction rates qualified on the stated facts because no washing followed and their retained material served a beneficial purpose.

Each result was process-specific: the same chemical could receive different treatment when used for another purpose. The first page dates the memorandum March 10, 1965; a second-page header says March 10, 1985, but the text is continuous and this page follows the first-page document date.

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/440-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/440-0400.pdf

Original ruling text

State of California

Memorandum

To:

Marysville – Auditing

From:

Tax Counsel (GAT)

Board of Equalization

440.0400

March 10, 1965

We have reviewed the information which has been submitted regarding chemicals and compounds used by taxpayer in the manufacture of paper products. Busan 90 is a bromohydroxy acetophenone product which is injected into wood pulp slurries, processing waters and paper coatings, to prevent the growth of bacteria and the formation of slime on the pulp and on finished paper. In our opinion, Busan 90 is purchased for use in the process of manufacturing paper and not for the purpose of resale. Zinc Hydrosulphite and Sodium Hydrosulphite are chemicals which are used as bleaching agents in the process of manufacturing paper from wood pulp. On the basis of our understanding that their constituents do not become incorporated into the finished product, it is our opinion that they are purchased for consumption and not for resale. Caustic Soda (Sodium Hydroxide), Limestone (Calcium Carbonate), and Sodium Sulphate are chemicals which are used to charge and alkaline cooking liquor. The liquor digests wood chips leaving cellulose pulp which is made into paper products. In our opinion, Sodium Hydroxide, Calcium Carbonate and Sodium Sulphate, so used, are purchased for consumption and not for resale. Taxpayer manufactures Sodium Hypochlorite from Chlorine and Sodium Hydroxide. The Sodium Hypochlorite is used to bleach kraft pulp. Although their components remain in the pulp in residual amounts, it is our opinion that the Sodium Hydroxide and Sodium Sulphate are purchased for use as manufacturing aids and not for the purpose of resale. Chlorine is introduced into a multi-stage kraft bleaching process. It combines with lignin and renders it reactive for subsequent bleaching operations. In our opinion, chlorine so used is purchased for use as a manufacturing aid and not for resale.

Marysville Auditing

-2-

March 10, 1985
440.0400

Hydrogen Peroxide is combined with Sodium Silicate, Magnesium Sulphate, Trisodium Phosphate and Versenek 80 (Diethylenetriamine-Penta-Acetic Acid) to form a solution which is used to bleach ground wood pulp. The Hydrogen Peroxide is the active agent and the other chemicals are stabilizers which prevent premature dissociation of the Hydrogen Peroxide by impurities in the pulp. In our opinion, these chemicals are purchased for use as manufacturinjg aids and not for the purpose of resale. Mistron Talc is a Magnesium Silicate compound which is added to wood pulp to control the deposition of pitch. It remains in the paper as a component thereof, presumably imparting desirable characteristics thereto. On the basis of the foregoing, it is our opinion that Mistron Talc is purchased for the purpose of incorporation in finished paper products manufactured by taxpayer. Ammonium Hydroxide is used in solution as a mineral dispersant and becomes a part of the waterproof surface coating of finished paper products. The sale thereof for such purpose is an exemptnontaxable sale for resale. Defoamers, including NOPCO DF-120, DF-160 and DF-303, are detergent compounds which inhibit foaming in the process of manufacturing paper. They also serve as retention aids, preventing fine pulp particles from being washed away. The major portion of such products are flushed away with other process effluents. Defoamers so used are manufacturing aids, and are not purchased for resale. Sodium Hydroxide is used in the caustic-extraction stage of kraft pulp bleaching operations. It serves to remove water insoluble chlorinated lignin material. In our opinion, it is purchased for use as a manufacturing aid and not for resale. Sodium Hydroxide and Sulpher Dioxide are used to control reaction rates in peroxide bleaching of ground wood pulp. No washing of the pulp is done after bleaching and Sodium and Sulpher from these compounds remain in the pulp and the paper products made therefrom [for a beneficial purpose]. In our opinion, sales of Sodium Hydroxide and Sulpher Dioxide for such purposes are exemptnontaxable sales for resale. Sulphuric Acid, Sodium Chlorate and Sulphur Dixoide are combined by taxpayer to make a chlorine dioxide bleaching solution which is used as a bleach for kraft pulp. In our opinion, such chemicals are purchased for use as manufacturing aids and not for resale. Vanzak 112 is a liquid product which is used to disperse pitch in kraft and ground wood pulps. Most of the Vanzak and pitch are eventually washed out of the pulp. In our opinion, Vanzak 112 is a taxable manufacturing aid.

GAT:cw

[1b]