Did chemicals used in power-plant air-pollution systems and closed cooling-water systems qualify for Florida's specialty-chemical exemption?

Plain-English summary

The power producers could not use Florida's specialty-chemical exemption for any of the described chemicals. The statute defined specialty chemicals as chemicals used to enhance or further treat wastewater.

Chemicals in flue-gas desulfurization, nitrogen-oxide removal, and combustion-turbine water injection controlled airborne pollution, not wastewater. Even though environmental law required that control, the statutory chemical exemption did not extend to air pollutants.

Chemicals in the closed recirculating cooling-water systems also failed. Their main purpose was controlling biological growth and chemical scale in water continuously reused within the cooling system. That was process water, not wastewater.

What this means for you

A pollution-control purpose alone did not exempt a chemical. The material had to fit the statute's narrower wastewater-treatment definition, while equipment could have different exemption rules.

Common questions

Q: Were chemicals used against airborne pollutants exempt? No.

Q: Were closed-loop cooling chemicals exempt? No.

Q: Why was the cooling water not wastewater? It stayed in the system and was continuously recirculated, aside from operational losses.

Citations and references

• Fla. Stat. § 212.051(1), (3) — pollution-control exemption and specialty-chemical definition
• Florida Growers Coop Transport v. Department of Revenue, 273 So. 2d 142 (Fla. 1st DCA 1973)
• Rinker Materials Corp. v. City of North Miami, 286 So. 2d 552 (Fla. 1973)
• State v. Webb, 398 So. 2d 820 (Fla. 1981)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01A-069

Original ruling text

SUMMARY

QUESTION: Power producers are required to control pollution
at their electric power generating plants. Certain
chemicals are used in pollution control activities in the
flue gas desulfurization equipment, closed recirculating
cooling water systems, nitrogen oxide removal systems, and
water injection systems for combustion turbines. The issue
is whether the chemicals used to control pollution in these
systems are "specialty chemicals" as that term is defined
by s. 212.051(3), F.S., and exempt from sales and use tax.

ANSWER - Based on Facts Below: The tax exemption available
to specialty chemicals is limited to those that are
utilized in wastewater treatment. Since the chemicals used
in the flue gas desulfurization equipment, the nitrogen
oxide removal systems, and the water injection systems for
combustion turbines are all chemicals used to control or
abate airborne pollutants or contamination, the exemption
is not applicable. The primary purpose of the chemicals
that are used in the closed recirculating cooling water
systems is to control biological growth and chemical
scaling in the cooling towers. Accordingly, the water used
in this system is process water, not wastewater.
Therefore, the exemption is also not available for the
chemicals used in the closed recirculating cooling water
systems.

Nov 16, 2001

Re: Technical Assistance Advisement 01A-069
Sales and Use Tax
Chemicals Used for Pollution Control
Section 212.051, F.S.

Dear :

This is in response to your letter of August 14, 2001,
which requests a technical assistance advisement concerning
certain chemicals that are used by your clients, the members of
the XXX (hereinafter "Power Producers"), for pollution control
purposes.

FACTS

Power Producers are electrical utilities operating power
plants in the State of Florida. They are regulated by both the
federal government and the State of Florida, including the
Florida Department of Environmental Protection. As a part of
this regulation, Power Producers are required to control or
abate pollution and contamination resulting from the operation
of their facilities. The following is a brief overview of the
pollution control systems and the chemicals utilized in those
systems.

Flue Gas Desulfurization Equipment

Flue gas desulfurization equipment (FGD), sometimes
referred to as "scrubbers," is used to remove gaseous sulfur
dioxide contained in the exhaust gases generated from the
burning of fossil fuels (coal or oil) in industrial boilers.
FGD systems utilize a reagent slurry to react with the sulfur
dioxide in the flue gas to form either calcium sulfate (gypsum)
or calcium sulfite. These chemicals can be subsequently
recycled or placed in a landfill. The following chemicals are
used in FGD systems: limestone, dibasic acid, and adipic acid.

Closed Recirculating Cooling Water Systems

The high pressure steam needed to operate a turbine is
created by heating water in tubes that are within the boiler.
Once the energy within the steam has been expended in the
turbine, the steam must be condensed back into water for reuse
in the boiler where the water is again converted back into
steam. The process of converting steam back into water is done
in a condenser.

In the condenser, a separate supply of cooling water is

piped through a series of tubes. As the hot steam passes over
these tubes containing the cooling water, the temperature of the
steam is lowered to a point where the steam condenses back into
water. After the cooling water leaves the condenser, it can
either be returned to its original source, or it may be piped to
a cooling tower where the now heated water interacts with
ambient air. This interaction causes the cooling water to
release the heat that it absorbed in the condenser. The
recooled cooling water is then returned to the condenser for
reuse in the system.

Untreated, the cooling water would cause biological growth
and chemical scaling in the cooling tower. These conditions
would impact the efficiency of the cooling tower. Therefore,
the chemicals sodium hypochlorite, sodium bromide, and sulfuric
acid are added to the cooling water for the purposes of
controlling the biological growth and scaling.

Nitrogen Oxide Removal Systems

The combustion of fossil fuels results in the formation of
nitrogen oxides. Nitrogen oxides (NOx) are removed through the
use of selective catalytic reduction (SCR) or non-selective
catalytic reduction (NSCR) systems. Both SCR and NSCR systems
use ammonia.

Water Injection Systems for Combustion Turbines

Combustion turbines burn natural gas and/or diesel fuel to
generate electricity. This combustion process also results in
the formation of NOx. To prevent the formation of NOx, ultra
pure water is injected into the combustion chambers. This
injection water is produced by first chemically treating
groundwater to remove biological material. Then, the chemical
constituents (cations and anions) are removed from the water in
either a demineralizer or a reverse osmosis system. The
chemicals used in the production of the injection water are:
sodium hypochlorite, sulfuric acid, and sodium hydroxide.

REQUESTED RULING

The Power Producers request the Department's ruling that
the above mentioned chemicals are exempt pursuant to s. 212.051,
F.S. It is Power Producers' contention that the above mentioned
chemicals are "specialty chemicals" as that term is defined by
subsection (3) of the exemption statute. Power Producers
further contend that the reference to "wastewater" within
subsection (3) is not limiting, but demonstrative.

RELEVANT AUTHORITY

The following passage from the Florida Statutes (F.S.) is
pertinent to the issues in this advisement.

Section 212.051, F.S., provides:

212.051 Equipment, machinery, and other materials 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, machinery,
specialty chemical, or bioaugmentation product 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,
structure, specialty chemical, or bioaugmentation product
must be used, installed, or constructed to meet a law
implemented by, or a condition of a permit issued by, the
Department of Environmental Protection; however, such
exemption shall not be allowed unless the purchaser signs a
certificate stating that the facility, device, fixture,
equipment, structure, specialty chemical, or
bioaugmentation product to be exempted is required to meet
such law or condition.

(2) Equipment, machinery, or materials required to meet any
law implemented by, or any condition of a permit issued by,

the Department of Environmental Protection that are
purchased for the monitoring, prevention, abatement, or
control of pollution or contaminants at privately owned or
operated landfills or construction and demolition debris
disposal facilities shall be exempt from taxation as
otherwise imposed by this chapter; however, such exemption
shall not be allowed unless the purchaser signs a
certificate stating that the equipment, machinery, or
materials to be exempted are required to meet such law or
condition. This exemption does not include solid waste
collection vehicles, compactors, graders, or other
earthmoving equipment.

(3) For the purposes of this section, "specialty chemicals"
means those chemicals used to enhance or further treat
wastewater, including, but not limited to, defoamers,
nutrients, and polymers, and "bioaugmentation products"
means the microorganisms used in waste treatment plants to
break down solids and consume organic matter.

DISCUSSION/OPINION

Three general criteria must be met before an exemption may
be granted under s. 212.051(1), F.S. First, but not necessarily
most important, subsection (1) limits the exemption to those
businesses that manufacture, process, compound, or produce
tangible personal property for sale. It is the established
position of the Department that electrical energy and steam
energy are forms of tangible personal property that are produced
for sale. Accordingly, Power Producers are engaged in a type of
business that would be eligible for the exemption.

Second, the facility, device, fixture, equipment,
machinery, specialty chemical, or bioaugmentation product
purchased by the eligible business must be used primarily for
the control or abatement of pollution or contaminants created by
those business operations. It may be generally stated that the
operations of Power Producers create pollutants or
contamination.

Third, the items purchased for the control of pollution or

contaminants "must be used, installed, or constructed to meet a
law implemented by, or a condition of a permit issued by, the
Department of Environmental Protection." It may also be
generally stated that Power Producers must meet laws implemented
by, or conditions of permits issued by, the Department of
Environmental Protection.

The critical issue with respect to Power Producers is not
their ability to meet the three general criteria. The critical
issue is whether the chemicals used by Power Producers are
"specialty chemicals" qualifying for exemption as defined by s.
212.051(3), F.S. The Power Producers contend that subsection
(3) of the exemption statute should be read in such a manner
that the phrase "treat wastewater" merely demonstrates one type
of use for specialty chemicals as opposed to stating the limited
use of specialty chemicals. The Department cannot agree with
that construction of a reading. The subsection clearly states
that the purpose of specialty chemicals is to treat wastewater.
The definition then provides a non-limiting list of examples of
wastewater treatment chemicals.

In order for Power Producers' contention to be valid, the
subsection language would have to read "specialty chemicals
means those chemicals used to control or abate pollutants or
contaminants such as wastewater...." The Department cannot add
words to a statute or rearrange existing words to bring about a
desired outcome. Administrative agencies entrusted with the
authority to carry out statutory provisions are prohibited from
giving the statute an amendatory construction. Florida Growers
Coop Transport v. Department of Revenue, 273 So.2d 142 (Fla. 1st
DCA 1973), cert. denied, 279 So.2d 33 (Fla. 1973). "Where words
used in an act, when considered in their ordinary and
grammatical sense, clearly express the legislative intent, other
rules of construction and interpretation are unnecessary and
unwarranted." Rinker Materials Corp. v. City of North Miami,
286 So.2d 552 (Fla. 1973).

The Department has fully considered the possibility that
legislative intent may be different from the final enacted
statutory language. "It is a fundamental rule of statutory
construction that legislative intent is the polestar by which

the court must be guided, and this intent must be given effect
even though it may contradict the strict letter of the statute."
State v. Webb, 398 So.2d 820 (Fla. 1981). The 2000 legislation
which added subsection (3) to s. 212.051, F.S., was a part of HB
2433 (PCB FT 00-01). All available legislative history was
reviewed for the purpose of detecting a legislative intent that
was different from the final language found in subsection (3).
The only available audio tape was a committee tape of the
meeting of the House Committee on Finance & Taxation on April
18, 2000. That tape only had a brief mention of HB 2433. In
that tape, the Committee Chairman referred to the contents of HB
2433 as "glitch" items and further commented that "these were
all miniscule issues." Accordingly, no alternate meaning to the
language in subsection (3) can be discovered.

The chemicals used in the flue gas desulfurization
equipment, the nitrogen oxide removal systems, and the water
injection systems for combustion turbines are all chemicals used
to control or abate airborne pollutants or contamination.
Although the airborne pollution or contamination is the result
of producing tangible personal property (electrical energy) for
sale at the Power Producers' fixed locations and the control of
airborne pollution and contamination is mandated by the Florida
Department of Environmental Protection, the tax exemption
available to specialty chemicals is limited to those that are
utilized in wastewater treatment. Accordingly, no exemption is
available for the chemicals used in the flue gas desulfurization
equipment, the nitrogen oxide removal systems, and the water
injection systems for combustion turbines.

The provisions of s. 212.051(1), F.S., state that the
facility, device, fixture, equipment, machinery, specialty
chemical, or bioaugmentation product must be used primarily for
the control or abatement of pollution or contaminants. The
primary purpose of the chemicals that are used in the closed
recirculating cooling water systems is to control biological
growth and chemical scaling in the cooling towers. Essentially,
these chemicals only serve to improve the operational efficiency
of the cooling water system. It is the Department's
understanding that the water leaving the cooling towers is not
discharged back into the water's original source (i.e., a river

or lake). Instead, after the water has been cooled in the
towers, the water is continuously returned to the condensers.
Effectively, once in the system, the water never leaves, except
through operational losses such as evaporation. Accordingly,
the water used in this system is process water, not wastewater.
Therefore, no exemption is available for the chemicals used in
the closed recirculating cooling water systems.

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 advice as specified in Section 213.22, F.S. Our
response is predicated on 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 than
expressed in this response.

You are further advised that this response, your request
and related 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. Your name, address, and any
other details, which might lead to identification of the
taxpayer, must be deleted before disclosure. In an effort to
protect the confidentiality of such information, we request you
provide the undersigned with an edited copy of your request for
Technical Assistance Advisement, backup material and response
within fifteen days of the date of this advisement.

Sincerely,

Jeffery L. Soff
Tax Law Specialist
Technical Assistance and
Dispute Resolution

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