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