Did machinery in a sulfuric-acid plant that also generated electricity qualify for Florida sales-tax and pollution-control exemptions?

Plain-English summary

Florida found that a new sulfuric-acid plant could qualify for the machinery-and-equipment exemption even though it produced both acid and electricity. Section 212.08(5)(c), as applied in the TAA, did not disqualify equipment merely because the plant produced coproducts.

The exemption covered machinery necessary to generate electrical or steam energy, including major sulfur-burning, heat-recovery, absorption, conversion, compression, cooling, pumping, piping, instrumentation, electrical, structural, insulation, and foundation components identified in the ruling. Startup gas equipment after the metering point also qualified.

The energy exemption did not cover buildings, sulfuric-acid tank-farm equipment that did not generate energy, catalysts, chemicals, small tools, or consumable supplies that did not become part of the machinery.

Separately, equipment installed primarily to satisfy the environmental permit's pollution limits could qualify under the pollution-control exemption. Based on the environmental report, the Department included qualifying systems after the interpass absorber and pollution-control items in sulfur storage, handling, and potentially the acid tank farm. The taxpayer had to provide the required exemption certificates and remit tax on nonexempt items.

What this means for you

Industrial plant operators

Classify every component by function. Energy production, pollution control, buildings, storage, and consumables did not receive the same treatment.

Contractors and accountants

Support exempt purchases with the affidavits, self-accrual authorization, and pollution-control certificate described in the TAA. Track taxable project components separately.

Common questions

Did producing sulfuric acid defeat the energy exemption? No. The statute did not limit facilities that also produced a coproduct.

Were buildings exempt? No.

Did the acid tank farm qualify under the energy exemption? No, although particular pollution-control devices there could qualify under the separate pollution provision.

Were catalysts and consumable supplies exempt? No. The ruling excluded catalysts, chemicals, small tools, and consumables that did not become part of the machinery.

Citations and references

• Fla. Stat. § 212.08(5)(c)
• Fla. Stat. § 212.051(1)
• Fla. Stat. § 213.22

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99A-016

Original ruling text

SUMMARY

A taxpayer has constructed an additional sulfuric acid
plant at its existing facility. The acid plant will also
generate 10 megawatts of electricity for use at the
facility and for sale to the local utility.
Notwithstanding the fact that exemptions are to be narrowly
construed, the exemption provided under s. 212.08(5)(c),
F.S., does not place any limitations on facilities or
machinery and equipment that produce coproducts (acid and
electricity). Accordingly, the new sulfuric acid plant,
with certain specific exceptions, qualifies for the
exemption pursuant to s. 212.08(5)(c), F.S. Since the plant
has been constructed pursuant to a permit issued by the
Department of Environmental Protection, any devices or
items installed at the plant used primarily for the control
or abatement of pollution will also qualify for exemption
under s. 212.051(1), F.S.

Apr 07, 1999

Re: Technical Assistance Advisement 99A-016
Sales and Use Tax
Sulfuric Acid Plant Exemptions
Sections 212.051(1) and 212.08(5)(c), F.S.

Dear :

This is in response to your letter of January 29, 1999,
which requests the issuance of a Technical Assistance Advisement
concerning the applicability of the exemption from sales and use
tax pursuant to s. 212.08(5)(c), F.S., to the activities of your
client, XXX (hereinafter "Taxpayer").

FACTS

Taxpayer owns and operates a phosphate chemical plant in
the vicinity of XXX. Taxpayer is in the process of constructing

a new sulfuric acid plant at this facility. A single prime
contractor has been selected to construct the new sulfuric acid
plant. Upon completion of the new sulfuric acid plant, one of
the existing sulfuric acid plants at the facility will be shut
down. In addition to the production of about XXXX tons per day
of sulfuric acid, the plant will also generate XXXX megawatts of
electricity. Approximately XXXX megawatts of the electricity
will be sold to the local utility, while the remaining
electricity will be consumed at Taxpayer's facility.

REQUESTED RULING

It is requested that machinery and equipment installed as
components of the new sulfuric acid plant qualify for exemption
from sales and use tax pursuant to s. 212.08(5)(c), F.S.; that
Taxpayer can present to its contractor an affidavit stating that
its purchases, with certain exceptions, qualify for exemption
from sales and use tax pursuant to s. 212.08(5)(c), F.S.; and
that Taxpayer shall present to its contractor a copy of
Taxpayer's self-accrual authorization, relieving the contractor
of responsibility for collection of tax. Where charges relate
to non-exempt items, Taxpayer shall remit the applicable sales
and use tax directly to the Department.

RELEVANT AUTHORITY

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

Section 212.051(1), F.S. (1998 Supplement), provides:

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 Environmental 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.

Section 212.08(5)(c), F.S. (1998 Supplement), provides:

Machinery and equipment used in production of electrical or
steam energy.1. The purchase of machinery and equipment for use at a
fixed location which machinery and equipment are necessary
in the production of electrical or steam energy resulting
from the burning of boiler fuels other than residual oil is
exempt from the tax imposed by this chapter. Such
electrical or steam energy must be primarily for use in
manufacturing, processing, compounding, or producing for
sale items of tangible personal property in this state.
Use of a de minimus amount of residual fuel to facilitate
the burning of nonresidual fuel shall not reduce the
exemption otherwise available under this paragraph.

2. In facilities where machinery and equipment are
   necessary to burn both residual and nonresidual fuels, the
   exemption shall be prorated. Such proration shall be based
   upon the production of electrical or steam energy from
   nonresidual fuels as a percentage of electrical or steam
   energy from all fuels. Purchasers claiming a partial
   exemption shall obtain such exemption by refund of taxes
   paid, or as otherwise provided in the department's rules.

3. The department may adopt rules that provide for
   implementation of this exemption. Purchasers of machinery
   and equipment qualifying for the exemption provided in this
   paragraph shall furnish the department with an affidavit
   stating that the item or items to be exempted are for the
   use designated herein. Any person furnishing a false
   affidavit to the vendor for the purpose of evading payment
   of any tax imposed under this chapter shall be subject to

the penalty set forth in s. 212.085 and as otherwise
provided by law. Purchasers with self-accrual authority
shall maintain all documentation necessary to prove the
exempt status of purchases.

JEA/FPL COURT CASE

The scope of the exemption provided under s. 212.08(5)(c),
F.S., was reviewed by the First District Court of Appeal of
Florida in Jacksonville Electric Authority v. Department of
Revenue, 486 So.2d 1350 (Fla. 1st DCA 1986). The case involved
the taxable status of certain machinery and equipment purchased
by the Jacksonville Electric Authority to be used in the burning
of coal to produce electrical energy. The Court, after
examining legislative history, determined that it was the
legislative intent to embrace the "integrated plant theory" as a
basis for interpreting the exemption for machinery and equipment
provided in s. 212.08(5)(c), F.S. Under the "integrated plant
theory," machinery and equipment used in the process of
generating electrical energy would be considered a component
part of the manufacturing process, and would qualify for the
exemption, even where: (a) such machinery and equipment is not
intrinsically necessary to generate electricity; or, (b) the
sole purpose of the machinery and equipment is to make the plant
function in a more practical manner.

DETERMINATION

It must be noted that a major difference exists between the
Jacksonville Electric Authority (JEA) case and the situation in
this advisement. The facility in JEA had a single purpose, the
generation of electrical power, while Taxpayer's plant produces
both a chemical product and power. Notwithstanding the fact
that exemptions are to be narrowly construed, the exemption
provided under s. 212.08(5)(c), F.S., does not place any
limitations on facilities or machinery and equipment that
produce coproducts. It is an academic effort, at best, to
attempt to determine which is the primary of two significant
products produced by a single system of machinery and equipment.
Accordingly, it is the Department's position that the new
sulfuric acid plant, with exceptions as follows, constitutes

machinery and equipment necessary in the production of
electrical or steam energy, and qualifies for the exemption
pursuant to s. 212.08(5)(c), F.S.

Your request for an advisement does enumerate specific
components of the new sulfuric acid plant. The following
provides an overview of the qualification for exemption for
aspects within those components.

1. Sulfur Handling - Sulfur for the facility is received by
   rail and truck. It is the position of the Department that
   the machinery and equipment qualifying for exemption begins
   at the point where the fuel for the facility is received.
   Therefore, the sulfur (fuel) handling machinery and
   equipment will qualify for exemption pursuant to s.
   212.08(5)(c), F.S. This exemption does not extend to rail
   cars, rail trackage, and paving, as these are not used in
   the process of generating electrical or steam energy.

2. Boiler Feedwater Treatment/Condensate - The following
   machinery and equipment is necessary for the enhancement of
   the production of steam to drive the turbogenerators and is
   exempt pursuant to s. 212.08(5)(c), F.S.: piping,
   instrumentation, electrical equipment, pipe racks,
   structural steel and special foundations for this
   equipment. Also exempt are tankage and pumping systems for
   treated water. Buildings within this area will not qualify
   for the exemption.

3. Sulfuric Plant Start-up - Natural gas is required to
   start sulfur burning in the furnace. After the sulfur
   starts burning on its own, the natural gas is no longer
   required. This type of auxiliary or augmentation fuel
   system is necessary in the production of electrical or
   steam energy. It is the position of the Department that
   natural gas is considered as being received at the metering
   station. Accordingly, gas pipeline occurring after the
   metering station, the gas burner, and instrumentation and
   electrical equipment will qualify for exemption pursuant to
   s. 212.08(5)(c), F.S.

4. Sulfuric Acid Tank Farm - The machinery and equipment in
this area is not used in the process of generating
electrical or steam energy and does not qualify for
exemption pursuant to s. 212.08(5)(c), F.S. However,
certain components or devices may qualify for exemption
pursuant to s. 212.051(1), F.S., as discussed below.

5. Sulfuric Acid Plant - The following machinery and
   equipment is necessary for the production of electrical and
   steam energy and is exempt pursuant to s. 212.08(5)(c),
   F.S.: sulfur furnace; waste heat boiler; drying,
   interpass, and final absorption towers and pumps;
   converter; heat exchangers; pump tank; compressor; steam
   drum; cooling tower; and acid coolers and pumps. This also
   includes necessary piping, instrumentation, electrical,
   insulation, structural steel and special foundations. The
   exemption does not extend to any structures that are
   considered buildings, nor to catalysts, chemicals, small
   tools, or consumable supplies that do not become a part of
   machinery and equipment.

It is the position of the Department that Taxpayer can
present to its contractor an affidavit stating that its
purchases, with the above-indicated exceptions, qualify for
exemption from sales and use tax pursuant to s. 212.08(5)(c),
F.S. Taxpayer may present to its contractor a copy of
Taxpayer's self-accrual authorization, relieving the contractor
of responsibility for collection of tax. Where charges relate to
non-exempt items, Taxpayer shall remit the applicable sales and
use tax directly to the Department. Further, it is understood
that the prime contract for the construction of the new sulfuric
acid plant provides that title to, and possession of, project
components will not pass to Taxpayer until the entire project is
complete and agreed specifications are satisfied. Accordingly,
sales and use tax on the taxable components of the project will
not be due until such time as the project has been completed and
the agreed specifications have been satisfied.

Under the integrated plant theory, pollution control
devices in connection with machinery and equipment necessary to
produce electrical or steam energy are exempt under the

provisions of s. 212.08(5)(c), F.S. See Jacksonville Electric
Authority, supra. As of January 1, 1999, s. 212.051(1), F.S.,
provides an exemption on facilities, devices, fixtures,
equipment, or machinery used primarily for the control or
abatement of pollution in the manufacturing, processing,
compounding, or producing for sale items of tangible personal
property. To qualify for that exemption, these items must be
installed or constructed to meet a law implemented by, or a
condition of a permit issued by, the Department of Environmental
Protection (DEP). Taxpayer's new sulfuric acid plant is subject
to permitted conditions as imposed by DEP. Generally, with the
exception of a continuous emissions monitoring system (CEMS),
the permit does not require the installation of any specific
pollution control equipment. Instead the permit only requires
that certain levels of specified pollutants may not be exceeded.
Here, these pollutants are: sulfur dioxide (SO2), sulfuric acid
mist (SAM), visible emissions (VE), and nitrogen oxides (NOx).

It must be noted that the new sulfuric acid plant uses
double absorption technology, which is inherently efficient at
controlling sulfur emissions. The objective of the process and
the pollution control requirements are effectively the same;
namely, the recovery of sulfur dioxide gas (pollutant) as
sulfuric acid (saleable product). Accordingly, the distinction
between what is production equipment and what is pollution
control equipment is unclear. However, guidance is available
within the technical evaluation report prepared by DEP on
Taxpayer's new sulfuric acid plant. That report finds that
"[a]pproximately 90-95% of acid recovery is effected in the
interpass absorber with the remainder accomplished in the second
absorber." The report also states that "[t]he second converter
and final absorption tower are beyond the economic requirements
of the process and serve as the pollution control equipment. At
some plants, converters and absorbers following the interpass
absorber are termed as 'the abatement system.'"

Based on the findings by DEP, it is the Department's
position that those components or systems occurring after the
interpass absorber, where such items are necessary to control
sulfur dioxide (SO2), sulfuric acid mist (SAM), visible
emissions (VE), and nitrogen oxides (NOx) qualify for exemption

from sales and use tax pursuant to s. 212.051, F.S. The report
issued by DEP also specifically considers sulfur storage and
handling to be a potential source of pollution. Although the
DEP report does not specifically mention the acid tank farm,
that area may represent a source of pollution as well.
Therefore, any items installed in those areas for the control of
the above indicated four types of pollutants will also qualify
for exemption.

Section 212.051(1), F.S., provides in part that "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." Accordingly, Taxpayer should issue such a
certificate to the contractor as support for the exempt status
of those components that are considered as required for
pollution control purposes.

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 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

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