Was replacement equipment built to meet pollution rules exempt from Florida sales and use tax?

Subject

Pollution Control Equipment

Plain-English summary

Florida found the mill's condensate collection system and its integrated chlorine-dioxide facility and replacement bleach plant exempt from sales and use tax. Each system was installed to meet environmental requirements, and the Department concluded that pollution control—not increased production or meaningful operating savings—was its primary use.

The existing bleach plant was fully operational and not obsolete. The new plant had lower capacity, offered only insignificant operating-cost savings compared with its capital cost, and cost more than $67 million. On those facts, replacing it made economic sense only to comply with the EPA Cluster Rule.

What this means for you

Environmental compliance alone was not enough. Section 212.051(1) required both a DEP law-or-permit connection and primary use for pollution control. The ruling separately analyzed the condensate system and the integrated chlorine-dioxide/bleach system, then required the purchaser's statutory certificate.

Common questions

Q: Was the condensate collection system exempt? Yes. Its stripper, incinerator, scrubber, and heat sink primarily collected, treated, destroyed, or controlled hazardous pollutants.

Q: Why could a bleach plant qualify when bleaching produces paper? This was a replacement of a nonobsolete, economical plant, and the new plant would not pay for itself through production gains or lower costs. The Department found environmental compliance was the primary reason for replacement.

Q: Was a certificate required? Yes. The taxpayer had to certify that the property was required to meet a DEP-implemented law or permit condition.

Citations and references

• Fla. Stat. § 212.051(1) — pollution-control equipment exemption and purchaser certificate
• Jacksonville Electric Authority v. Department of Revenue, 486 So. 2d 1350 (Fla. 1st DCA 1986) — integrated-plant analysis cited by the Department
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 00A-031

Original ruling text

SUMMARY

QUESTION: Does the construction of a bleach plant and other
equipment in compliance with requirements of the
Environmental Protection Agency qualify for the exemption
from sales or use tax provided by section 212.051(1), F.S.,

as a facility, device, fixture, equipment, or machinery

used primarily for the control or abatement of pollution or
contaminants in manufacturing, processing, compounding, or
producing for sale items of tangible personal property at a

fixed location?

ANSWER - Based on Facts Below: Yes. Although the primary

purpose of initially constructing a bleach plant may be to
produce bleached pulp, the replacement of such a plant can
qualify as being primarily for pollution control purposes

if the plant is in no way obsolete and the new plant,
considering its costs, would not pay for itself through
increased production, or lower operating costs, or some
combination of the two. The plant must also be constructed
to meet a law implemented by, or a condition of a permit
issued by, the Florida Department of Environmental

Protection.

Jun 15, 2000

Re: Technical Assistance Advisement 00A-031
Sales & Use Tax - Pollution Control Equipment
Section 212.051(1), F.S.

XXX ("Taxpayer")
F.E.1. # XX

Dear:

This is in response to your letter dated January 5, 2000, as
supplemented by your letter of May 11, 2000, requesting the
issuance of a Technical Assistance Advisement ("TAA") concerning

the above referenced parties and matter. Your letters have been

carefully examined, and the Department finds them to be in
compliance with the requisite criteria set forth in Chapter 12-
11, F.A.C. This response to your request constitutes a TAA and

is issued to you under the authority of section 213.22, F.S.

Advisement Requested

You have requested our advisement that the equipment, processes,
and systems being installed and constructed by the Taxpayer in
compliance with requirements of the Environmental Protection
Agency are exempt from sales or use tax under section

212.051(1), F.S., as a facility, device, fixture, equipment, or
machinery used primarily for the control or abatement of

pollution or contaminants in manufacturing, processing,
compounding, or producing for sale items of tangible personal

property at a fixed location.

Discussion of Facts

Background.

The Taxpayer operates a pulp and paper facility in Florida. The
facility produces approximately 280,000 tons of bleached paper
and 240,000 tons of brown paper each year. The facility
operates two kraft paper machines and three tissue paper
machines. The facility employs approximately 1,250 people with

an annual payroll of approximately $85 million.

Processes and systems at the facility include a batch digester
system, multiple effect evaporator system, condensate stripper
system, recovery boiler, smelt dissolving tanks, lime kiln, tall
oil plant, utilities, bleach plants, chlorine dioxide plant, and
other equipment to produce finished paper products from virgin

wood.

The Environmental Protection Agency ("EPA"), after several years
of study, issued a draft rule in 1993 commonly known as the
"Cluster Rule." The term "cluster" refers to the two media or
areas, water and air, regulated by the rule. The Cluster Rule
stresses the prevention of pollution, as well as the treatment

of pollution, in manufacturing processes. The Cluster Rule was

in large part made final in April 1998.

The Florida Department of Environmental Protection ("DEP")
implements and enforces the standards, rules, and regulations of
the EPA within the State of Florida. The Taxpayer submitted
applications for required permits with the DEP and, to this

date, has received final permits on all but one of its

applications.

The Cluster Rule directs pulp and paper mills to meet air
standards, requiring a reduction of air pollutants, at various

points throughout the mills. These points include the cooking,
washing, and bleaching stages of the pulp manufacturing process.
The Rule requires major reductions in toxic air pollutants,

sulfur, volatile organic compounds, and particulate matter.

The Cluster Rule also contains new standards for the bleaching
process. Paper mills must reduce the pollutants in the
wastewater discharged during the bleaching process. Thus, the
wastewater, as produced, must contain lesser amounts of

pollutants than was previously the case.

The new standards must be met by April 16, 2001. The Cluster
Rule does not mandate the precise means or methods by which a
paper mill must meet the new air and water standards. Instead,
the EPA developed three different methods or approaches for
achieving compliance with the Cluster Rule. The approaches
involve the utilization of either Best Available Technology

("BAT") or one of two levels of Voluntary Advanced Technology
("VAT"). In each approach, the technology requires the use of
specific equipment and process chemistry to achieve compliance.
The Taxpayer chose to utilize BAT as the most cost effective
solution, although the use of BAT requires a greater level of
regulatory monitoring than does VAT. The use of BAT required
replacing elemental chlorine and sodium hypochlorite with

chlorine dioxide, oxygen, and peroxide in the bleaching process.

Elemental chlorine reacts with the lignin found in wood and
forms chlorinated pollutants such as chloroform, dioxin, and
furans, which may end up in the wastewater stream. The Cluster

Rule mandates substantial reductions in dioxin and furan

discharges to water, dioxin and furan in sludge destined for

land disposal, and chloroform.

Planned Projects to Comply with the Cluster Rule.

Air Pollution. - The Taxpayer plans to install or construct the

following equipment for the reduction of air pollution:

• Anew steam stripper for the removal of hazardous air

pollutants from pulping condensate.

• Anew SOG (stripper off gas) incinerator and scrubber for
  the destruction of hazardous air pollutants and control of

by-product SO2 gas.

• An upgrade of the pre-evaporator for condensate

segregation.

• Additional aerators for upgrading the wastewater treatment
  system, including electrical distribution modifications
  needed to support the increased electrical demand of the

additional aerators.

Water Pollution. - Chlorine dioxide is unstable and cannot be
transported; it must be manufactured on-site. Additionally,
chlorine dioxide is not as efficient as a bleaching agent as is
elemental chlorine. Additional processing equipment, along with
other changes in the bleaching process, is needed to maintain
the same level of production as with elemental chlorine.
Accordingly, the Taxpayer plans to install or construct a

chlorine dioxide plant and a new three-stage bleach plant that
will replace two existing bleach plants. The new plant will
include an unbleached pulp high density chest and a direct entry

repulper.

Detailed Description of the Processes and Components.

I. Condensate Collection System.

New Stripper Feed Tank and Condensate Stripper. - The new

stripper feed tank will collect condensates. The stripper is a

large column with trays. Liquid flows through the trays, steam

is added to heat the liquid, and a number of elements boil off

as Stripper Off Gas, which is conveyed to the incineration

system to destroy any hazardous air pollutants. The hazardous

air pollutants (TRS gases and methanol) resulting from the

stripper process are routed to the incinerator. In addition, a

vacuum system draws non-condensible gasses and sulfur compounds

from other areas of the plant to the incinerator.

New Incinerator. - The incinerator will be fueled by natural gas

and will operate above 1600 degrees Fahrenheit. Sulfur
compounds and methanol will be consumed by this oxidation
process, and hazardous air pollutants will be reduced in the
gases fed into the incinerator by 98 percent. Residual sulfur

dioxide will remain after incineration.

New Scrubber. - The residual sulfur dioxide is fed into the
scrubber and combined with caustic. The resulting mixture is
recycled into the chemical recovery process. Any remaining
substance, which will be completely within EPA requirements, is

released into the atmosphere.

Heat Sink - Third Effect Pre-Evaporator Body. - An additional

tank or vessel must be added to two existing pre-evaporators to

remove excess heat generated by the new stripper.

Il. Chlorine Dioxide Facility.

The new plant will provide sufficient chlorine dioxide to

replace all elemental chlorine and sodium hypochlorite, as well
as existing generated chlorine dioxide. The plant will produce
54 tons per day of chlorine dioxide in comparison with the
existing generator, which produces 8 tons per day of chlorine

dioxide.

The chlorine dioxide generating process utilizes sodium
chlorate, sulfuric acid, and methanol to produce the chlorine
dioxide. These chemicals are mixed in a large titanium vessel
called a generator in the presence of heat and under a vacuum.
Agitation is provided by a large and specialized titanium

recirculation pump. The process produces a gas stream of water

vapor and chlorine dioxide. The gas stream must be cooled, using
a titanium heat exchanger to condense the water vapors. The
condensate is then absorbed into water that has been chilled to
38 degrees Fahrenheit and becomes a chlorine dioxide solution,

which is then pumped to storage tanks.

The chlorine dioxide process generates a by-product known as
saltcake (sodium sulfate). The saltcake is collected, dissolved
in hot water, and returned to the mill's kraft pulp cooking

liquor system to replace the sodium and sulfur lost from the
process. This injection into the cooking liquor cycle minimizes
the loss of this saltcake to the process sewer and thus benefits
the environment by reducing the inorganic load (conductivity) in

the mill's effluent.

The plant is an organized arrangement of specialized tanks,
pumps, and piping, mostly constructed of titanium. The majority
of the equipment will be housed in a 4-story building built of
galvanized steel with a stainless steel roof deck. Three of the

four floors are concrete with acid resistant coating.

Concrete foundations will be provided for all equipment in the
plant. In addition to the equipment housed in the above-
described building, there will also be specialized tanks and
pumps for the unloading and storage of sodium chlorate,

methanol, and sulfuric acid.

Sulfuric Acid Unloading and Storage System. - The mill will

maintain the existing sulfuric acid storage tank. A full
containment wall will be constructed around the tank. The acid
will be unloaded from a new rail car unloading facility with
appropriate under-the-car catch basin and managed drain system.
There will be a back up truck unloading site constructed to
prevent spill from going to the earth. A computer-controlled
metering and valve system will ensure that the proper amount of

sulfuric acid enters the chlorine dioxide generator.

Sodium Chlorate Unloading and Storage System. - Sodium chlorate

arrives at the site by specialized rail car in a crystallized
form. The unloading system includes several pumps with

specialized metallurgy, a water heating system, and a mix tank.

The mix tank is first filled with water and heated to

approximately 190 degrees Fahrenheit. The hot water is pumped
into the rail car to dissolve the chlorate, and the solution is
pumped back to the mix tank. The solution is then pumped to a
tile-lined storage tank, which must be kept heated so that the
chlorate will stay in solution. The solution is pumped from the
storage tank to an elevated head tank. The head tank provides a

constant pressure feed to the chlorine dioxide generator.

Methanol Unloading and Storage System. - A new stainless steel

methanol tank will replace the old carbon steel tank to

eliminate contaminants. The new system will have full

containment and managed drains, so that no methanol will come
into contact with the ground. A computer-controlled metering

pump and valve system ensures that the proper amount of methanol

enters the chlorine dioxide generator.

Reboiler and Chlorine Dioxide Generator. - The reboiler is a

titanium heat exchanger located in the generator recirculation
loop. Its purpose is to elevate the temperature of the chemical
solution. Sulfuric acid and methanol are injected into the
venturi section of the recirculation loop just above the

reboiler. The resulting solution then enters the generator,
along with the sodium chlorate solution which was added at the
base of the recirculation loop just prior to passing through the
recirculation pump. The entire process takes place under
vacuum. This process produces chlorine dioxide. The chlorine
dioxide gas proceeds to the titanium indirect contact cooler,
where it is cooled prior to being absorbed in chilled water in

the absorption tower.

Cooler and Absorption Tower. - The absorption tower is a

fiberglass reinforced plastic vessel with ceramic saddles. The
saddles provide a large surface area that greatly facilitates

the absorption of the chlorine dioxide gas into water. The gas
rises from the bottom of the tower, while chilled water (38
degrees Fahrenheit) trickles down from the top of the tower.
The water absorbs the chlorine dioxide gas, creating a chlorine
dioxide bleach solution of approximately 14 grams of chlorine

dioxide per liter. This solution is utilized to bleach the

pulp.

The process water, which is going to the chillers to be cooled
to 38 degrees Fahrenheit, is pre-cooled by the chlorine dioxide
solution on its way to the bleach plant application point. This
pre-cooling is done using a titanium heat exchanger. It
significantly reduces the electricity required to cool the

process water and also reduces the steam required to heat the

pulp.

Chlorine Dioxide Storage System. - The chlorine dioxide must be

kept in solution in an insulated storage tank. The solution
must be kept cold in order to prevent decomposition. The
solution is drawn from the storage tank on demand to the
bleaching process while the tank is being refilled from the
chlorine dioxide generating process. Thus, the solution is

being constantly refreshed.

Just prior to the point at which the chlorine dioxide solution
enters the process, another titanium heat exchanger uses waste
process heat to warm up the solution. This reduces the virgin

steam demand and is thus another energy conservation system.
Scrubber. - The scrubber is a reclaim system that captures any
escaped chlorine dioxide gas and returns it to the absorption

tower.

Filters, Metathesis Tank, and Saltcake Tank. - The liquid

containing saltcake is filtered and enters the metathesis tank.
A two-stage process is required to maximize the recovery of
chemicals to the generating process and to provide a usable

byproduct to enter into the cooking liquor cycle.

Concrete foundations are also provided for mechanical chillers,

a cooling tower and other support equipment required to
successfully construct and operate the generator. These systems
are needed to provide system cooling and chilled water to absorb
chlorine dioxide. The vessels, pumps, and support equipment will
be constructed on concrete foundations with curbs and managed

drains to the appropriate process sewer.

The chlorine dioxide and sodium chlorate storage tanks are

specially constructed steel vessels with an acid brick lining
throughout. Because of the specialized nature of the various
chemicals, all of the tanks have special service

characteristics.

Ill. Three-Stage Bleach Plant.

Currently, the two bleach plants utilize four stages of

processing, a chlorine stage, a caustic soda stage, a

hypochlorite stage, and a chlorine dioxide stage. Between each
stage, there is a vacuum washing step with associated pumps and
mixers for steam and chemicals. This equipment is capable of
producing a given amount of bleached fiber based on its size and
design characteristics or principles. The existing equipment is
currently produces levels of pollution no longer permissible

under the Cluster Rule.

The current maximum permitted pulp production at the plant is
1,850 Air Dried Tons of Bleached Pulp ("ADTBP") per day as a
monthly average. The new plant will be capable of a maximum
daily pulp production of 1,702 ADTBP per day with an average
monthly pulp production rate of 1,350 ADTBP per day, a

substantial decrease in production capacity.

The new plant, along with the chlorine dioxide facility and
other equipment being installed, will have a capital cost in
excess of $67 million. The operating costs of the new plant,
however, will be substantially the same as the existing plants

or perhaps slightly lower.

Both pine and hardwood will be processed through the same bleach
plant. Unbleached pulp, Known as "brown stock," has been
produced in digesters and washed to remove lignin. The

bleaching process is required to remove the remaining lignin and

to bleach the brown color from the pulp so that it may be used

to produce tissue and commercial paper products.

Because the bleaching characteristics of pine and hardwood
differ from one another, it is essential to bleach them
separately. Each species of wood is therefore bleached at a

time, and consequently, the mill must have sufficient pulp

storage to provide a flow of pulp required by the paper

machines.

Pre-bleach Wash Press. - A new pre-bleach washing press will be

installed for the process between the unbleached high-density
storage and the first stage of the bleach plant. This pre-
washing device will allow the mill to return more sodium and
sulfur-bearing byproducts to the recovery process, thus
increasing the chemical recovery and reducing the effluent load.
At the same time, it will decrease the amount of bleaching
chemicals that will be required to accomplish the desired amount
of bleaching. By reducing the amount of chlorine dioxide used,
the bleach plant will be even more efficient and thus further

reduce the organic halides.

The pre-bleach wash press will also allow the mill to operate
the first stage of the bleach plant at medium consistency (10-
12%) instead of the conventional approach of low consistency (3-
4%). This will increase the overall system efficiency and thus

reduce the amount of chlorine dioxide required in the process.

New Bleach Facility and Process. - The new bleach plant will

include three new wash presses of Valmet manufacture. In
addition, there will be three large and specialized retention
towers. The bleaching process is sequential: the pulp flows
through stages until it leaves as a finished pulp product on its
way to the high density storage towers where it is ready to be

utilized for the making of paper.

Each stage is unique and requires uniquely designed retention
towers, specialized pulp pumps, filtrate tanks, and washers.
The washers, pumps, and some of the tanks will be housed ina
new structure, 124 feet by 58 feet with an elevated operating
floor. The weight and physical size of the washers, towers, and
tanks requires a substantial concrete foundation. The bleach
plant transformer and motor control center will be housed in a

separate but adjoining structure.

The bleaching process begins with brown stock produced during
the pulp making process. Washers separate the cellulose fiber,

desirable for bleaching and making paper, from the spent cooking

chemicals and portions of the wood not desirable for the making
of paper. The cellulose is sent to the unbleached high-density
pulp storage vessels on its way to the bleach plant for color

removal.

The spent cooking chemicals and the wood not desirable for the
making of paper are sent to the cooking chemical recovery area
of the mill for processing. A pulp washer mechanically cleans

the pulp by displacing the liquid with cleaner liquid.

The pulp is pumped to pulp storage chests at about a 12 percent
consistency using a medium consistency pump. In order to remove
pulp from the bottom of the storage chest, agitated water is

added to the bottom of the chests to dilute the pulp solution so

that it may be pumped from the tower. The pulp is fed to the
pre-bleach wash press, which presses the pulp to about 30%
consistency. The water pressed out of the thickener is

recycled. The pulp is then diluted with bleach plant recycle

waters to about 12 percent consistency and is ready to be sent

to the first stage of bleaching.

First Stage. - In a mixer, chlorine dioxide is added to the

brown stock. The mixture then enters a loop that allows time

for the bleach to fully permeate the stock. An agitator at the
bottom of the loop keeps the stock moving, and the pulp is
pumped to the washer. Wash water is introduced at the pump and
at the wash press to purge the pulp of color bodies and spent
bleaching chemicals. Dioxide filtrate is used for dilution of

the brown stock. The pulp discharges from the wash press at a
consistency of approximately 30 percent, ready for the second

stage.

Second Stage. - The second stage elevates the pH, dramatically
allowing the chlorine dioxide and lignin to be extracted from

the stock. First, steam is injected into a mixer to raise the
temperature of the stock. Caustic and peroxide are added to the
pulp, and the pulp is then pumped into a pressurized vessel.
Oxygen is inserted into the pressurized pulp. The pulp is

pumped to a wash press where the pulp is rinsed to remove spent
bleaching chemicals and color bodies. The stock is discharged

from the wash press at 30 percent consistency, ready for the

third stage.

Third Stage. - Sufficient steam is added to elevate the pulp to
optimal bleaching temperature. The pulp is diluted to
approximately 12 percent consistency and pumped to the chlorine
dioxide mixer and then into the up-flow tower. Chlorine dioxide
is injected into the pulp prior to entering the bottom of the
up-flow tower. Upon discharge from the up-flow tower, the pulp
goes into the down-flow tower. The down-flow tower discharges
at the bottom, and the pulp is then discharged and pumped into
the final wash press, where the remaining color bodies are
rinsed from the pulp. The pulp is discharged from the wash press
at approximately 30 percent consistency. It is diluted to 12
percent consistency and pumped into an existing bleached high-

density chest for subsequent use by the paper making machines.

Repulper System. - A backup repulper system is included as an

integral part of the new bleach facility and will provide pulp
to the tissue mill during a maintenance shutdown or outage of
the bleach plant. Because the bleach plant replaces two prior
elemental chlorine bleach plants, one of which was always

operational, a backup system is a necessity.

Law and Analysis

Section 212.051, F.S., which became effective January 1, 1999,

provides as follows:

Sec. 212.051. Equipment or machinery for pollution control;

not subject to sales or use tax. --

(1) Notwithstanding any provision to the contrary, sales,

use, or privilege taxes shall not be collected with respect

to any facility, device, fixture, equipment, or machinery

used primarily for the control or abatement of pollution or
contaminants in manufacturing, processing, compounding, or
producing for sale items of tangible personal property at a
fixed location, or any structure, machinery, or equipment
installed in the reconstruction or replacement of such

facility, device, fixture, equipment, or machinery. To

qualify, such facility, device, fixture, equipment, or

structure must be installed or constructed to meet a law
implemented by, or a condition of a permit issued by, the
Department of Environment Protection; however, such
exemption shall not be allowed unless the purchaser signs a
certificate stating that the facility, device, fixture,

equipment, or structure to be exempted is required to meet

such law or condition.

The statute accordingly sets forth two requirements for the
exemption, the first being that the property must be used
primarily for the control or abatement of pollution or
contaminants, and the second being that the property must be
installed or constructed to meet a law implemented by, or a
condition of a permit issued by, the DEP. The Department has
carefully examined the applications and permits concerning the
property described in this letter and finds that the Taxpayer
meets the second requirement with respect to all of the
property. The Taxpayer has in effect had to rebuild most of its

facility to comply with the Cluster Rule.

The property must be examined, however, in light of the first
requirement. The language of the statute mandates that the
Department must inquire into the primary use of each item of
property and determine whether it is primarily used for the
control or abatement of pollution, or whether it is primarily

used for another purpose, such as manufacture or production.
For purposes of this inquiry, the property can be divided into
two parts: (1) the items comprising the new condensate
collection system; and (2) the items comprising the new chlorine

dioxide facility and bleach plant.

I. Condensate Collection System.

The essential components of the condensate collection system are
the stripper feed tank and condensate stripper, the incinerator,

the scrubber, and the heat sink. The function of the stripper is

to collect and treat hazardous air pollutants, primarily

methanol and total reduced sulfur compounds, and channel them to
the incinerator for further treatment. In the incinerator, the
hazardous air pollutants are consumed by oxidation, leaving

residual sulfur dioxide. The scrubber is used to recycle in

usable form the residual sulfur dioxide that remains after
incineration, enabling the release of pollutants into the
atmosphere at a level within MACT requirements. The heat sink

removes the excess heat generated by the new stripper.

The components of the condensate collection system are therefore
property that is used primarily for the control or abatement of
pollution or contaminants. Accordingly, as required by section
212.051(1), F.S., if the Taxpayer signs a certificate stating

that the system is required to meet a law or condition of a

permit of the DEP, the purchase and installation of the

condensate collection system will be exempt from sales or use

tax.

Il. Chlorine Dioxide Facility and Three-Stage Bleach Plant.

The primary use of the chlorine dioxide facility is the
production of chlorine dioxide for use in the bleaching process,
and the chlorine dioxide facility is therefore an integral part

of the bleaching process. See, Jacksonville Electric Authority

v. Department of Revenue, 486 So.2d 1350 (Fla. 1st DCA 1986), in

which the court applied an “integrated plant theory,” in
determining the scope of the exemption for machinery and
equipment used in the production of electrical or steam energy
found in section 212.08(5)(c), F.S. The integrated plant theory
effectively states that all parts of a plant used in the process

of producing a product are part of the manufacturing process
even if the parts are not intrinsically necessary for the
production of the product or simply make a plant function more

efficiently.

Accordingly, the chlorine dioxide facility and the new bleach
plant will be considered as one integrated unit for purposes of

this analysis.

As indicated, the bleaching process is a necessary part of the
production of kraft and tissue papers. In the past, the

bleaching process has been accomplished at the Taxpayer's plant
through the use of elemental chlorine, and the new chlorine
dioxide facility produces a chemical that, in its use, is less

harmful to the environment than elemental chlorine.

The chlorine dioxide facility consists of tanks for the storage

of sodium chlorate, sulfuric acid, and methanol, which are
required to produce chlorine dioxide. The chemicals are heated,
combined in a generator to form chlorine dioxide, which is then
cooled and fed into an absorption tower. The chlorine dioxide

is there absorbed into water, creating a bleach solution that

must be stored for use in the bleaching process. A scrubber is
used to capture escaped chlorine dioxide gas from the absorption
tower, and filters, a metathesis tank, and a saltcake tank are

used to recover and recycle remaining chemicals.

The new bleaching equipment will allow the mill to perform
environmentally more efficient mixing and washing with less
water per ton of fiber than the existing equipment. The new
pumps are designed to more intimately mix fibers with either
liquids and/or gases than the existing equipment, thereby

effectively producing white, clean fiber with fewer by-products.

The process chemistry in the new bleach plant will produce less
chlorinated material. This is the result of chlorine dioxide's
capacity to oxidize more than to chlorinate (the use of chlorine
produces substantially more chlorinated material). Chlorine
dioxide is also capable of destroying the small amounts of
chlorinated organic by-products produced in the process, whereas
elemental chlorine does not destroy those by-products. This is
also true of the pressurized high temperature oxygen and
peroxide stage, in which a significant amount of organic

“colored material" is removed and destroyed within the stage

itself.

The net effect is that elemental chlorine and sodium
hypochlorite will be removed from the bleach plant and will be
replaced by chlorine dioxide and oxygen peroxide. The new
process results in less pollution, as well as the actual

destruction of polluting substances.

There can therefore be no doubt but that the new chlorine
dioxide facility and the new bleach plant meet the requirements
of section 212.051, F.S., as equipment installed or constructed

to meet EPA and DEP standards and that the facility and plant

are used for the control or abatement of pollution. The only
question remaining under the statute is whether the new facility
and plant are used primarily for the control or abatement of

pollution.

The purpose of constructing a bleach plant is to produce
bleached pulp. Therefore, if a bleach plant were being
constructed in the first instance as part of a new pulp mill, it
would be apparent that the primary purpose of constructing the
plant would be the production of bleach pulp, even if the plant
were the most environmentally efficient plant possible. A
bleach plant is simply not constructed primarily for the control

or abatement of pollution.

The question is different, however, where there is an existing
bleach plant that is fully operational and capable of

economically producing bleached pulp. If the plant is in no way
obsolete, the destruction of the plant and the erection of a new
plant would not be for the primary purpose of producing bleached
pulp unless the new plant, considering its costs, would pay for
itself through increased production, or lower operating costs,

or some combination of the two.

The Taxpayer has shown that the existing bleach plant is not
obsolete. Over the course of years, parts of the plant could
continually be replaced and upgraded at relatively small costs,
but from a purely economic standpoint, the existing plant would
not be totally replaced at this time or in the foreseeable

future. Additionally, the new plant will have a substantially

lower production capacity than the existing plant. There may be
a minimal reduction in operating costs of the new plant, but

that reduction is insignificant when compared to the capital
costs of the new plant. It would make no economic sense for the
Taxpayer to destroy a fully-operational facility and spend more
than $67 million to construct a new facility, for any reason

other than that the new plant is necessary for environmental

purposes.

In short, although the bleaching process is necessary to produce
strong and absorbent white fiber, the only reason the Taxpayer

is investing in the new plant and process chemistry is to

achieve environmental compliance with the Cluster Rule.
Accordingly, the components of the chlorine dioxide facility and
the new three-stage bleach plant are all property that is used
primarily for the control or abatement of pollution or
contaminants. As required by section 212.051(1), F.S., if the
Taxpayer signs a certificate stating that the system is required

to meet a law or condition of a permit of the DEP, the purchase
and installation of such components will be exempt from sales or

use tax.

This response constitutes a Technical Assistance Advisement
under section 213.22, F.S., which is binding on the Department
only under the facts and circumstances described in the request
for this advise, as specified in section 213.22, F.S. Our
response is predicated upon those facts and the specific
situation Summarized above. You are advised that subsequent
statutory or administrative rule changes or judicial
interpretations of the statutes or rules upon which this advice

is based may subject similar future transactions to a different

treatment from that which is expressed in this response.

You are further advised that this response, your request and
related backup documents are public records under Chapter 119,
F.S., which are subject to disclosure to the public under the
conditions of section 213.22, F.S. Confidential information
must be deleted before public disclosure. In an effort to
protect confidentiality, we request you provide the undersigned
with an edited copy of your request for Technical Assistance
Advisement, the backup material and this response, deleting
names, addresses and any other details which might lead to
identification of the taxpayer. Your response should be
received by the Department within 15 days of the date of this

letter.

Sincerely,
Robert D. Heyde
Senior Attorney

Technical Assistance & Dispute Resolution

Control #39870