Did a sheet-metal job shop's $319,000 laser qualify for Florida's industrial-machinery exemption as equipment used in a new business?

Subject

Laser Cut Metal Work

Plain-English summary

The Department concluded that the manufacturer's $319,000 laser qualified for the industrial-machinery exemption as equipment used in a new business. The job shop already used a turret or punch press to make thin sheet-metal components for electronic devices. It bought the laser to cut much thicker steel-plate parts for grinding and shredding machines.

The Department had initially classified the project as an expanding business because it believed the laser-cut parts were physically comparable to the existing products. The taxpayer then submitted samples showing that the old product was a small, thin electronics component, while the new product was a quarter-inch steel plate cut into four sickle-shaped blades with a central shaft hole.

After reviewing the samples and seven comparison factors, the Department found a preponderance of differences. The products had different industrial classifications, material categories, intended uses, machinery, and production techniques. Although both were custom-fabricated metal parts measured by piece count, those similarities did not outweigh the differences.

Because the new laser products were not physically comparable to products already made at the fixed location, the laser acquisition fit the statutory new-business exemption. No sales or use tax was due on the purchase.

What this means for you

For this exemption, a "new business" could include new machinery installed at an existing plant to make a product not physically comparable to the plant's existing products. It did not require an entirely new company or facility.

The taxpayer carried the burden of proof. Product samples and detailed evidence about materials, industrial classifications, uses, machinery, and manufacturing methods changed the Department's original decision.

Common questions

Q: Why did the Department first deny the exemption? Based on the information initially available, it thought the laser-cut and turret-press products were physically comparable and classified the project as an expanding business.

Q: What was different about the new product? It was a thick steel-plate mechanical part for grinding and shredding equipment, rather than a thin sheet-metal component for an electronic device.

Q: Did one comparison factor control the result? No. The ruling said no single factor was decisive; the Department weighed the overall similarities and differences.

Q: Are products different merely because of size or model? Not under the ruling's test. Differences only in size, color, flavor, style, packaging, or model line were treated as physically comparable.

Citations and references

• Fla. Stat. § 212.08(5)(b)1. — industrial machinery and equipment exemption for qualifying new businesses
• Fla. Admin. Code R. 12A-1.096(2)(e)2. — new-business definition and physical-comparability burden
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-033

Original ruling text

SUMMARY

A job shop sheet metal manufacturer produces parts from
thin metal on a turret press (punch press) for the
electronics industry. The manufacturer has applied for an
exemption from sales tax on the purchase of a laser which
has the capability to cut thick metal parts for use in
grinding and shredding machines. After consideration of
all relevant facts and an examination of sample products,
the Department has determined that the thick metal parts
cut by a laser are not physically comparable to the thin
metal parts produced on a turret press. Accordingly, the
purchase of the laser qualifies for exemption from sales
tax as a new business.

May 05, 1997

Re: Technical Assistance Advisement 97A-033
Sales and Use Tax; Laser Cut Metal Work
Section 212.08(5)(b), F.S.
Rule 12A-1.096, F.A.C.

Dear:

This is in response to your letter of March 6, 1997,
requesting a technical assistance advisement (TAA) concerning
the Department's prior determination that your company
(hereinafter "Taxpayer") should be classified as an expanding
business for the purposes of the exemption from sales and use
tax on purchases of machinery and equipment pursuant to s.
212.08(5)(b), F.S.

REVIEW

Taxpayer is a job shop sheet metal manufacturer and
supplier to the electronics industry. The parts which are
produced and sold are made on a turret press (commonly called a
punch press). The sheet metal used is less than .119 inches in

thickness. In September 1996 Taxpayer purchased a laser for the
purpose of cutting metal parts of .250 to .500 inches in
thickness. Metal pieces of those thicknesses could not be
produced on Taxpayer's existing equipment. Although Taxpayer
could process metal with a maximum thickness of .188 inches on a
turret press, the wear on the press is excessive and the part
produced is of lesser quality. Taxpayer applied for an exemption
from sales tax on the purchase of the laser as a new business
pursuant to subparagraph 1. of the exemption statute.

After consideration of the then available information, it
was the Department's determination that metal parts cut by a
laser were "physically comparable" to parts cut by a turret
press and, therefore, the business should be classified as an
expanding business pursuant to subparagraph 2. of the exemption
statute. Since the purchase price of the laser was $319,000, the
statutorily mandated $50,000 tax threshold for expanding
businesses could not be exceeded. As a result, Taxpayer's
application for exemption was denied.

CURRENT REQUEST

Taxpayer disputes the Department's determination and
maintains that the metal parts cut by a laser are not
"physically comparable" to parts cut by a turret press. As
support for this position, Taxpayer has submitted samples of the
"old" and "new" products made at the facility.

The sample "old" or prior product is a component part of an
electronic device. It is a small, thin piece of sheet metal
(approx. 1 3/8" X 5 9/16") with one side bent at a 90 degree
angle and with 15 holes either punched or drilled into the
piece. The sample "new" or additional product is a component
part of a shredding machine. It is a 1/4" thick piece of steel
plate (approx. 6" in diameter) cut to form four sickle-shaped
blades and a central hexagonal shaft hole. (It should be noted
that it was not clearly communicated or understood when
Taxpayer's application for exemption was filed, that the laser
cut parts were not just thicker metal components for electronic
products.)

RELEVANT AUTHORITY

The following provisions of the 1996 Florida Statutes
(F.S.) and the Florida Administrative Code (F.A.C.) are
pertinent to the issues in this advisement.

Section 212.08(5)(b), F.S., provides in part:

1. Industrial machinery and equipment purchased for use in
   new businesses which manufacture, process, compound, or
   produce for sale,... items of tangible personal property at
   fixed locations are exempt from the tax imposed by this
   chapter upon an affirmative showing by the taxpayer to the
   satisfaction of the department that such items are used in
   a new business in this state....

Rule 12A-1.096(2)(e), F.A.C., provides in part:

2. A new business means an addition to or enlargement of an
   existing facility or plant or the installation of
   additional machinery and equipment for the purpose of
   manufacturing, processing, compounding or producing for
   sale, ... items of tangible personal property which are not
   physically comparable to other items which have been or are
   being produced at that particular fixed location. The
   taxpayer shall have the burden of demonstrating that items
   of tangible personal property are not physically comparable
   to other items which have been or are being produced at
   that particular fixed location. Such demonstration may
   require the submission of an independent engineer's report
   by the taxpayer if Department personnel are unable to
   determine if items are, or are not, physically comparable.

DETERMINATION

When additional products are made at an existing fixed
location, the determination whether that business is classified
for the exemption as a new business or as an expanding business
will depend upon whether the additional product(s) is physically
comparable to an existing product that is already being
manufactured, processed, compounded, or produced at that fixed

location. The Department must make a determination regarding
the physical comparability of an additional product to an
existing product on a case-by-case basis by considering the
following criteria:

1. The basic product line or Standard Industrial
   Classification (SIC) Code of the business;

2. The basic raw materials or components used to make the
   products;

3. The essential nature of the products themselves;

4. Whether the additional product is an alternative to, or
   represents a replacement technology over, the existing
   product;

5. The intended ultimate use or purpose of the products;

6. The units used to measure production of the existing
   product and the additional product; and

7. Any other characteristics which are relevant to the
   physical comparability determination for the specific case.

No single criterion stated above will decide whether
products are physically comparable. The determination will
depend upon a preponderance of similarities or equivalencies of
the existing and additional products. Products which merely
differ in size, color, flavor, style, packaging, or model line,
are considered to be physically comparable.

When the above criteria are applied to the recently
provided facts, and upon an examination of the sample products,
the following conclusions or observations are derived:

1. The SIC Code for sheet metal work is 3444. The SIC Code
   for fabricated plate work is 3443. This represents a
   difference in products.

2. The basic raw materials are sheet metal and steel plate.

Based on industry guidelines, once sheet metal exceeds .119
inches in thickness, it is classified as steel plate. This
represents a difference in products.

3. The essential nature of the products is that they are
   both custom fabricated metal parts. This represents a
   similarity in products.

4. The additional product (the steel plate part) is not an
   alternative to the existing product (the sheet metal part).
   This represents a difference in products.

5. The prior products are components of electrical devices.
   The additional products are mechanical parts of grinding
   and shredding machines. This represents a difference in
   products.

6. The units used to measure production of the prior
   products and the additional products are a piece count.
   This represents a similarity in products.

7. The prior products and the additional products require
   different machinery and manufacturing techniques. This
   represents a difference in products.

Considering the above criteria, it has been affirmatively
shown to the satisfaction of the Department that a preponderance
of differences exists between the laser cut metal parts and the
sheet metal parts that are cut by a turret press, and that the
products are not physically comparable. Therefore, the
acquisition of the laser by Taxpayer is eligible for the
exemption provisions of s. 212.08(5)(b)1., F.S., as a new
business. Accordingly, no sales or use tax is due on the
purchaser of the laser.

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 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 advise 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 Section 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 the
confidentiality of such information, we request you notify the
undersigned in writing within 15 days of any deletions you wish
made to the request or response.

Sincerely,

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

ctrl# 28244