Was Woodex made from rice hulls, sawdust, and binder exempt when burned instead of fuel oil in greenhouse boilers?

Plain-English summary

Woodex was a pelletized mixture of rice hulls, sawdust, and a binder. A greenhouse operator burned it in boilers that had previously used fuel oil.

The heat maintained suitable temperatures for growing vegetable and ornamental plants for sale. California assumed the pellets were delivered in bulk rather than in packages.

On those assumptions, Woodex was an agricultural or forest waste by-product used as substitute fuel in an industrial facility, and the sale was exempt under section 6358.1.

What this means for you

Greenhouse operators, biomass-pellet sellers, and tax advisers

Document the pellet ingredients, delivery form, replaced fuel, boiler use, and commercial crop activity. The approval expressly depended on the letter's assumptions.

Common questions

Q: What was Woodex made from?

A: Rice hulls, sawdust, and a binder pressed into pellets.

Q: What fuel did it replace?

A: Fuel oil.

Q: Did delivery form matter?

A: Yes. The letter assumed bulk delivery under the then-current statute.

Citations and references

• California Revenue and Taxation Code § 6358.1
• Senate Bill 1576, as cited in the source

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 596.0800
• Original supporting opinion: 596.0800 PDF

Original ruling text

596.0800

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
(916) 445-5550

March 30, 1981
Dear ______,
Your letter of February 29, 1981, has been referred to me for reply. In your letter you ask whether your purchases of Woodex are exempt from sales tax under Senate Bill 1576. Senate Bill 1576 added Section 6358.1 to the Sales and Use Tax Law. That section, among other things, exempt from sales or use tax waste byproducts from agricultural or forest products operations which are delivered in bulk and are used in an industrial facility as a fuel source in lieu of the use of oil, natural gas, or coal. We understand that Woodex is a mixture of rice hulls and sawdust which are apparently mixed with some kind of binder and then pressed into pellets approximately one-half inch by three-quarters of an inch. You have purchased the Woodex to consume in the boiler of your greenhouses and to replace fuel oil which was formerly used. We assume that the Woodex was used to produce heat to maintain an appropriate temperature in your greenhouses where you grow vegetable and ornamental plants for sales by you. We also assume that the Woodex was purchased and delivered to you in bulk and not in packages. If these assumptions are correct, the sale to you of the Woodex is exempt from sales tax. Very truly yours,

John H. Murray
Tax Counsel