Were iron residual fines a taxable catalyst when added before heating to make Portland cement clinker?

Plain-English summary

Audit staff had treated iron residual fines used in Portland cement clinker as a taxable catalyst. A technical memorandum explained that cement makers blend iron oxides with limestone, silica, and high-alumina clay before heating.

During clinker production, the iron converted into calcium alumino ferrites. Those compounds were integral, essential ingredients in the clinker, and outside iron sources were required when the other raw materials did not supply enough iron.

The fines therefore were not taxable manufacturing aids merely because their presence helped production. Their primary purpose was incorporation as a necessary ingredient that gave the sold clinker a desired quality, so the cement maker's ex-tax purchases qualified for resale under Regulation 1525.

Citations and references

• California Sales and Use Tax Regulation 1525 (as cited)

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/440-3045.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Out-of-Sate – Auditing

From:

Charles J. Graziano

Subject:

H--- Corporation
SY --- XX XXXXXX

440.3045
Date:

September 28, 1984

G--- P---, Inc.
SR --- XX XXXXXX

This is in reply to your memo dated August 20, 1984. You request our opinion concerning the correct application of tax to the use of iron residual fines (“iron”) in the manufacture of P--- Cement clinker. We understand that during an audit of H--- Corporation (“H---”), it was determined that iron purchased by G--- P---, Inc., was a catalyst subject to tax because it was being used as an aid in the manufacture of P--- Cement clinker. In support of their claim that the iron sold by H--- was not used as a catalyst, H--- has provided the Board a technical memorandum from their Research Manager dated May 3, 1984. In pertinent part, this memo states: “P--- Cement is generally produced by blending together limestone, silica, high alumina clay and iron oxides; this mixture is then heated to the range of 12001450 centigrade. At these temperatures, some melting occurs which allows the blended material to intimately combine and form the complex hydraulic mineral components constituting P--- Cement clinker. The cooled mass of material issuing from the cement kiln constitutes what is classically called ‘clinker’. This material is then ground until its surface area approximates 3000- 3600 CM2 per gram of material.” “As iron oxides exist in steelmaking fines, the following forms are thought to predominate: (1) pure iron, (2) (Mn, Fe) O, Ca (Mn, Fe) O – S1O2, 2CaO – Fe2O3 and (Mg, Fe) O. In the process of clinker production, all iron is converted to highly oxidized (Fe2O3 or equivalent) forms. Further, mineralogical changes which occur convert the iron compounds to calcium alumino ferrites ranging in

Out-of-State Auditing

-2-

September 28, 1984
440.3045

composition from 6CaO – 2Al2O3 – Fe2O3 to 6CaO – Al2O3 – 2Fe2O3. These compounds have not been identified in steelmaking slag due to the severe lack of alumina in most of these slags. “The calcio-alumino ferrites are an integral part of the P--- Cement clinker. For those sources of lime, silica and alumina clay, which do not contain sufficient iron to satisfy the demand of the cement maker, outside iron sources must be purchased to satisfy this raw material demand. While the iron content (Fe2O3) does not generally rise above 6%, it is a required raw material………” From the information provided by H---, it appears to us that the iron fines are incorporated into the clinker as part of a class of compounds known as “calcium alumino ferrites,” and these compounds comprise essential ingredients of the end product which is sold. The iron fines do “aid” in the production of the cement. In that a certain required amount of iron must be present in the mixture prior to the heating stage to ultimately produce the desired amount of alumino ferrite compounds. Such action, however, does not constitute a taxable manufacturing aid under Regulation 1525, since the iron is a necessary ingredient which imparts a desired quality to the end product. Therefore, it is our opinion that the iron was purchased primarily for the purpose of incorporation as an essential ingredient in P--- Cement Clinker which is resold, and that P---’s ex-tax purchases of this item are not subject to tax.

CJG:ge