Were an aluminum-can manufacturer's steel strapping and seals for scrap bales excluded from sales and use tax, and were reinforced screens inside paint-sprayer nozzles exempt machine parts?

Plain-English summary

South Carolina Private Letter Ruling 89-15 gave an aluminum-can manufacturer favorable answers on two sales-and-use-tax questions:

• Steel strapping and seals used to hold saleable bundles of scrap aluminum were excluded from tax as packaging materials.
• Reinforced screens inside paint-sprayer nozzles were exempt as necessary and customarily used parts of manufacturing machinery.

The two holdings used different statutory provisions. The strapping and seals qualified because of how they packaged tangible personal property for sale. The screens qualified because of their function inside the machine used to paint cans.

Steel strapping and seals for scrap-aluminum bundles

ABC manufactured aluminum cans at a South Carolina plant. A machine called a cupper pressed cups from coils of aluminum, and those cups eventually became cans.

The process also produced scrap metal. ABC compressed the scrap into bales or bundles, secured each bundle with steel strapping and seals, and sold the bundles to outside customers.

Section 12-35-170 included materials and containers used to package tangible personal property for shipment or sale within its definition of wholesale sales. Because the strapping and seals held together bundles that ABC sold, the Commission concluded that ABC's purchases of those items were excluded from sales and use tax.

Reinforced screens inside paint-sprayer nozzles

ABC sent the cans through a spraying machine that painted their interiors. Nozzles applied the paint evenly, and reinforced screens inside the nozzles filtered particles such as paint clumps. Without that filtering, the paint could be applied unevenly and the cans could deteriorate.

Section 12-35-550(17) exempted manufacturing machines and included their parts, attachments, and replacements when they were necessary to operate the machines and customarily used for that purpose.

Based on ABC's information, the Commission found that the reinforced screens met those requirements. Their purchase was therefore exempt from sales and use tax.

Why the distinction matters

The ruling did not treat every manufacturing purchase under a single broad exemption:

• The strapping and seals were analyzed as packaging materials for tangible personal property being sold.
• The screens were analyzed as parts necessary to the operation of manufacturing machinery.

The facts connecting each item to its statutory use drove the result.

What this means for you

Manufacturers selling scrap or byproducts

Packaging used to bind a saleable byproduct may qualify based on its role in preparing tangible personal property for shipment or sale, even though the byproduct is not the manufacturer's primary product.

Plant and maintenance teams

A replacement component can qualify as a machine part when it is necessary to the manufacturing machine's operation and is customarily used that way.

Accountants and tax professionals

Document the exact function of each purchased item. PLR 89-15 reached favorable results under two different provisions because the manufacturer explained how the materials and machine parts were actually used.

Readers applying the ruling today

PLR 89-15 applied statutes cited in 1989. Current exclusions, exemptions, definitions, and documentation requirements must be checked under current law.

Common questions

Q: What property did the strapping and seals hold together?

A: Bundles of scrap aluminum produced during can manufacturing and sold to outside customers.

Q: Why were the strapping and seals excluded from tax?

A: Section 12-35-170 covered materials used to package tangible personal property for shipment or sale.

Q: What did the reinforced screens do?

A: They filtered particles and paint clumps inside sprayer nozzles so paint could be applied evenly to the cans' interiors.

Q: Why were the screens exempt?

A: The Commission found that they were necessary and customarily used parts of the manufacturing machine under section 12-35-550(17).

Q: Can another manufacturer rely on PLR 89-15?

A: No. The ruling says it applied only to ABC's facts, had no precedential value, and was not intended for distribution.

Citations and references

• S.C. Code section 12-35-170 (1976) — wholesale packaging-material exclusion
• S.C. Code section 12-35-550(17) (1976) — manufacturing-machine exemption
• S.C. Code section 12-7-130 (1976) — PLR authority cited in the ruling

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR89-15.pdf

Original ruling text

SC PRIVATE LETTER RULING #89-15

TO:

ABC

SUBJECT:

Manufacturer- Packaging Material and Machine Parts
(Sales and Use)

REFERENCE:

S.C. Code Ann. Section 12-35-170 (1976)
S.C. Code Ann. Section 12-35-550 (17) (1976)

AUTHORITY:

S.C. Code Section 12-7-130 (1976)

SCOPE:

A Private Letter Ruling is a temporary document issued to a taxpayer, upon
request, and it applies only to the specific facts or circumstances related in the
request. Private Letter Rulings have no precedential value and are not
intended for distribution.

Questions:

1. Are purchases of steel strapping and seals by ABC excluded from the sales and use tax,
   pursuant to Code Section 12-35-170?
2. Are purchases by ABC of reinforced screens, located inside paint sprayer nozzles,
   exempt from the sales and use tax, pursuant to Code Section 12-35-550(17)?
   Facts:
   ABC is a manufacturer of aluminum cans, with a plant located in South Carolina. During the
   manufacturing process, a machine called a "cupper" presses out cups from coils of aluminum.
   These cups eventually become cans.
   Scrap metal is a direct result of this process. The scrap is sent to a machine that compresses the
   metal to form bales/bundles of scrap aluminum. The strapping, in question, is used to hold these
   bundles together; and, the seals are used to hold the strapping together. The bundles are then sold
   to outside customers.
   As part of the process, the cans are sent to a spraying machine, which paints the inside of the
   cans. Located in this machine are nozzles, which enable the paint to be sprayed evenly. Located
   inside these nozzles, are reinforced screens, which filter out any particles that may be in the
   paint. Particles, such as clumps of paint, will cause the can to be sprayed unevenly, which may
   lead to deterioration of the cans.

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Discussion:

1. As concerns the strapping and seals, Code Section 12-35-170, which defines the terms
   "wholesale sale" and "sale at wholesale", reads, in part:
   Such terms shall likewise include materials, containers, cores, labels, sacks or
   bags used for packaging tangible personal property for shipment or sale (emphasis
   added).
   And, as stated in the "Facts", the strapping and seals, in question, are used to hold the
   bundles of scrap together; and, the bundles are sold to outside customers.
2. As for the screens, Code Section 12-35-550(17) exempts from the tax:
   The gross proceeds of the sale of --- machines used in --- manufacturing of
   tangible personal property; provided that the term "machines," as used in this
   article, shall include the parts of such machines, attachments and replacements
   therefor which are used, or manufactured for use, on or in the operation of such
   machines and which are necessary to the operation of such machines and are
   customarily so used; (emphasis added).
   Based upon information provided by the taxpayer, the screens meet the criteria contained
   within the above code section.
   Conclusions:
3. Purchases of the steel strapping and seals, in question, are excluded from the sales and
   use tax, pursuant to Code Section 12-35-170.
4. Purchases of the reinforced screens, located inside the sprayer nozzles, are exempt form
   the sales and use tax pursuant to Code Section 12-35-550(17).

SOUTH CAROLINA TAX COMMISSION
s/S. Hunter Howard Jr.
S. Hunter Howard, Jr., Chairman
s/A. Crawford Clarkson Jr.
A Crawford Clarkson, Jr., Commissioner
s/T. R. McConnell
T. R. McConnell, Commissioner
Columbia, South Carolina
. 1989
August 23

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