Was natural gas used to control humidity and heat circuit-board cleaning water exempt as industrial manufacturing fuel?

Plain-English summary

Natural gas used in the production dehumidifier and circuit-board cleaning station was exempt manufacturing fuel.

The dehumidifier served a sealed production area and was separate from ordinary building heating and air conditioning. Maintaining 45% to 60% humidity prevented moisture-related solder defects and static damage; it was not used for employee comfort.

Natural gas also heated water in an aqueous cleaning station used to remove flux from sealed circuit boards. Without the required water temperature, the manufacturing process could not produce a finished product meeting specifications.

The customer was entitled to recover previously paid tax from the utility. After refunding the customer, the utility could claim a return credit or request a Department refund. The ruling cited a three-year limitation.

What this means for you

The exemption rested on direct, integral manufacturing use at a fixed location. The Department verified the production conditions during a facility tour.

Common questions

Q: Was the dehumidifier ordinary comfort equipment? A: No. It served the controlled production area and manufacturing specifications.

Q: Why was cleaning-station gas exempt? A: It heated water needed to remove flux and complete production.

Q: Could the manufacturer recover tax already paid? A: Yes, first from the utility dealer.

Q: What was the stated refund limit? A: Three years.

Citations and references

• Fla. Stat. § 212.08(7)(b) — industrial boiler-fuel exemption
• Fla. Admin. Code r. 12A-1.059(10) — manufacturing-fuel exemption
• Fla. Admin. Code r. 12A-1.014(7) and Fla. Stat. § 215.26 — refund procedure and limitation
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95A-013

Original ruling text

Apr 13, 1995

Re: Technical Assistance Advisement 95A-013 Sales and Use Tax; Boiler Fuel Exemption Section 212.08(7)(b), F.S. Rule 12A-1.059(10), F.A.C.

Dear :

This reply is to your letter dated May 6, 1994, in which you requested the issuance of a Technical Assistance Advisement ("TAA") regarding the exempt status of natural gas sales made to your customer, XXXXX (hereinafter referred to as "Customer"). Your letter provides in part:

"[Customer] recently relocated to XXXXX and is currently a XXXXX utility customer. As explained in the attached letter, [Customer] is requesting a Sales Tax exemption on the purchase of natural gas as provided by F.S. 212.08(7)(b).

"Please issue a Technical Assistance Advisement on this matter and advise us if [Customer] is eligible for a refund back to January, 1994, when they first became a natural gas customer."

Information contained in a letter dated May 2, 1994, from Customer to you states in part:

"[Customer]... is a contract manufacturer of extremely sensitive electronic and electro-mechanical assemblies.... One major component of the renovation [of the facility] required by our manufacturing process was the installation of a complete 100% outdoor dehumidification unit with wall mounted humidistats to monitor and maintain relative humidity in th[e] manufacturing area at manufacturing and quality specifications.

"Failure to maintain relative humidity at manufacturing and quality specifications will result in `blow holes' in electronic circuit bonds (sic). Specifically, electronic circuit laminates have a specific acceptable moisture content. Water content, then, as a function of humidity, increases in a high humidity environment. When the boards are subjected to heat, as in the solder process, the excess water in the board expands, and erupts through the solder seal, creating a blow hole, and effectively stopping the manufacturing process. While blow holes can be repaired, the process is time consuming and sometimes cost prohibitive.

"Prevailing industry knowledge maintains that the best long range remedy for absorbed moisture as a source of blow holes is maintaining a low humidity area. Accordingly
[Customer], as part of the facility renovation, installed the natural gas powered WRINGER Model W-4 outdoor air dehumidification unit to maintain humidity at manufacturing and quality specifications. Natural gas, the energy source for the dehumidification unit, is an integral part of the manufacturing process. It should be noted here, that the dehumidification unit is not used for temperature control or employee comfort. The only purpose of the unit, as indicated earlier, is to maintain humidity at manufacturing and quality specifications....

"In addition to natural gas being used to facilitate maintenance of acceptable humidity levels in the manufacturing process, natural gas is also used in the wave solder and cleaning phase of the manufacturing process.... Flux is essential for all assemblies.... When the boards
[h]ave been sealed, manufacturing and quality specifications require the removal of water soluble flux. Failure to remove this flux will result in the board failing to meet specifications.... Accordingly, these sealed boards are then placed in a hydro station aqueous cleaner. Natural gas is the energy source used exclusively by the hydro station to heat and maintain the temperature of the water used in the cleaning phase at the manufacturing and quality specifications needed to ensure

the removal of all flux. Without the use of natural gas to heat and maintain the water temperature in the hydro station at manufacturing and quality specifications, the manufacturing process would stop, and a finished product would not be possible."

RELEVANT AUTHORITY

The statutory authority for the exemption for natural gas purchases which Customer seeks is provided by Section 212.08(7)(b), F.S., and described in Rule 12A-1.059(10), F.A.C., which provides in part:

"`Boiler' fuels. When purchased as a combustible fuel, purchases of natural gas, residual oil, recycled oil, waste oil, solid waste material as defined in s. 403.703(13), F.S., coal, sulfur, wood, wood residues, or wood bark used in an industrial manufacturing, processing, compounding, or production process at a fixed location in this state are exempt from the taxes imposed by this chapter; provided, however, that this exemption shall not apply to such fuels that are not used in manufacturing, processing, compounding, or producing items of tangible personal property for sale...."

DISCUSSION/RESPONSE

On August 25, 1994, Mr. Jeff Soff, Mr. Tim Leadbeater, and myself joined you for a tour of the operations of the facility of Customer. We found that production is carried out in a sealed, controlled area apart from the administrative offices of Company. Extensive measures are taken to insure that unconditioned air does not enter the production area. The dehumidification unit is not a part of the building's regular heating and air conditioning system.

The humidity is controlled at a level of 45 to 60 percent, which is mandatory for the manufacturing process to be continuous and successful. As previously stated in Customer's letter and as explained by Customer's personnel during the tour, when the humidity level is too high, moisture expands within the

circuit board when it is subjected to the heat of the soldering process. This may create a "blow hole" in a soldered connection. It was obvious from our examination of Customer's circuit boards that a blow hole defect may be physically impossible to repair. If the humidity level is too low, it creates static which may damage the miniature circuit board components. It was also obvious from our tour that the control of static was a major concern.

Based on the information provided by Customer and our tour of the facility, the Department concludes that the natural gas purchased by Customer for the use in the dehumidifier and the circuit board cleaning operations is integral in the manufacturing process of Customer. Therefore, Customer's purchase of the natural gas is exempt and is entitled to a refund of previously paid taxes.

Rule 12A-1.014(7), Florida Administrative Code, states:

"A taxpayer who has overpaid tax to a dealer, or who has paid tax to a dealer when no tax is due, must secure a refund of the tax from the dealer and not from the Department of Revenue."

Once the tax has been refunded to the Customer, you will then be allowed to claim a credit on your next sales and use tax return or apply for a refund directly from the department.

Section 215.26, F.S., provides a three year statute of limitations for obtaining a refund of taxes paid in error.

This response constitutes a Technical Assistance Advisement under s. 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 s. 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 and your request are public records under Chapter 119, F.S., which are subject to disclosure to the public under the conditions of s. 213.22, F.S. Your name, address, and any other details which might lead to identification of the taxpayer must be deleted by the Department before disclosure. In an effort to protect confidential information, we request you notify the undersigned in writing within 15 days of any deletions you wish made to the request or this response.

Sincerely,

Bonnie Everton
Technical Assistant

/e
Cont. #15613