Could a printed-circuit-board manufacturer buy soldering flux tax-free as a component part because some flux residue remained on the finished boards?

Plain-English summary

Utah Private Letter Ruling 91-001DJ addressed rosin flux used to manufacture printed circuit boards.

The manufacturer argued that flux should be purchased tax-free as an ingredient or component part because flux residue remained on finished boards.

The Commission rejected that position.

It said intended use controlled. Flux cleaned and activated surfaces during soldering and was not intended to become part of the board, so incidental residue did not make it an exempt component.

Manufacturing process

The manufacturer used flux during soldering to help join surfaces and meet product-quality requirements.

Most of the flux was burned or consumed in the process, but testing indicated that some rosin residue remained on the finished printed circuit boards.

The manufacturer relied on that residue to claim the component-part exemption.

Intended use controlled

The Commission said the amount consumed was not the decisive reason for taxation.

Instead, it focused on why the material was used.

Flux was intended to clean surfaces, remove harmful oxides, and activate the soldering process. It was not intended to become part of the finished printed circuit board.

The Commission also noted that excessive residue could weaken the union of the joined surfaces.

Incidental residue

The response referred to a redacted 1946 Utah Supreme Court case involving grinding balls, firebrick, and coal used in producing powdered cement.

According to the Commission, those materials did not become essential components merely because their residues appeared in the finished product.

It applied the same reasoning to the circuit-board flux.

Holding

Under the stated process:

• Flux was used as an activator in soldering.
• Its intended use was cleaning and preparing surfaces, not becoming part of the board.
• Incidental residue did not turn it into a component part.
• The flux did not qualify for tax-free purchase under the claimed component-part theory.
• The Commission provided a route to seek a formal declaratory judgment through appeal.

What this means for you

Electronics and circuit-board manufacturers

A detectable residue in the finished product does not by itself establish that a process material is an exempt ingredient or component.

Manufacturing procurement teams

Document the material's intended function, not just whether trace amounts remain after production.

Accountants and tax professionals

Compare process aids and consumed supplies with materials deliberately incorporated into the finished product, and verify current statutes and case law.

Common questions

Q: Was the soldering flux tax-free as a component part?

A: No.

Q: Did residue remain on the finished boards?

A: The request and supporting material said that residue remained, but the Commission found that fact insufficient.

Q: What fact controlled the result?

A: The intended use of the flux.

Q: Why was the flux used?

A: To clean and activate surfaces during soldering, not to become part of the printed circuit board.

Key source language

• Intended-use rule: “The intended use is the determining factor.”
• Function: “Flux is used in soldering, brazing or welding processes to clean surfaces to be joined and to free them from oxides.”
• Component conclusion: “Flux is not intended to become part of a PCB.”
• Residue result: “The presence of a residue of flux in a PCB does not make the flux a component part of the PCB.”

Citations and references

• Utah Code Ann. § 59-12-104(28)
• A 1946 Utah Supreme Court case discussed in the response; the official source redacts the case name and provides no reporter citation.

Source

• Landing page: Utah Private Letter Rulings
• Official ruling: Utah PLR 91-001DJ
• ID note: the official page title identifies the source as 91-001DJ even though the URL omits the suffix.
• Fetch note: the exact official URL returned HTTP 404 to a direct request and was then retrieved through Sofya.

Original ruling text

February
27, 1991 Response from Tax
Commission

January
9, 1991 Letter from XXXXX of
XXXXX

October
18, 1990 Letter from XXXXX of XXXXX

XXXXX

Re:
Declaratory Judgment - Flux Issues

Dear
XXXXX:

This
letter is in response to your recent request for a Tax Commission ruling, seeking confirmation that since a residue of flux is present in a finished product the flux should be purchased tax-free as a component part of the finished product. Your client is a manufacturer of printed circuit boards and uses flux in the soldering process.

Although
your inquiry was framed as a request for a declaratory judgement, Tax Commission policy is to initially treat all such inquiries as requests for advisory opinions. As such, it was referred to the Tax Commission's Auditing Division for their analysis and recommendation. The division's recommendation is as follows:

1. The presence of a residue of flux in a PCB
   does not make the flux a component part of the PCB. The majority of flux is burned up or consumed in the soldering process, but that is not the reason the sale is taxable as a consumed product. The intended use is the determining factor. Flux is used in soldering, brazing or welding processes to clean surfaces to be joined and to free them from oxides that will be deleterious to the union of the two surfaces. Flux is not intended to become part of a PCB and indeed the presence of an excessive amount of flux residue can weaken the union of the two surfaces. As stated in your findings of facts, "Flux is used as an activator in the soldering process."

2. In the XXXXX Utah Supreme Court case decided
   in 1946, the court ruled that grinding balls, firebrick and coal did not become a part of the finished product by wear, and were not an essential component part of the finished product, even though residues of the grinding balls, firebrick and coal were found present in the finished product, powder cement.

If
you do not agree with this determination, you may appeal to the Tax Commission for a formal hearing. The results of that hearing would constitute a declaratory judgment and be appealable to the Utah State Supreme Court. A notice of appeal rights is attached.

For
the Commission

Joe
B. Pacheco

Commissioner

Commissioners

State
Tax Commission

160
E. 300 S.

Salt
Lake City, UT. 84134

RE:
A Declaratory Judgement on Flux Issues

In
previous years, flux has been discussed and reviewed on a number of occasions, as it relates to sales tax. When discussing this subject with the Commission, XXXXX was advised that flux has been interpreted as being "consumed" in the process. With that guideline, XXXXX has paid sales tax on all of their flux purchases. After extensive research, XXXXX offers the following as support documentation for our conclusion that, in XXXXX's situation, when the manufacturing process is complete, flux remains with the final product, and should therefore be exempt from sales tax.

Findings
of Facts

The
Rosin flux used by XXXXX contains extract from evergreen trees and alcohol. The exact make up cannot be precisely divulged because of trade secrets, yet we do know that 63% is alcohol, and 35% is rosin. Activators make up the remaining 2%. Flux is used as an activator in soldering processes. Although soldering can be done without the use of flux, doing so results in a product of lesser strength. The manufacturers who choose to use solder far exceed those who elect otherwise.

In
the manufacture of their products, XXXXX is compelled to use flux in order to satisfy the extraordinary quality levels demanded by their buyers. Their quality standards are both self-imposed and directed, depending on the user. In any event, certain minimum standards are requisite because of XXXXX' large production volume. After inspecting this production process, XXXXX became convinced that the flux remains with the final product, based on personal inspection and the results of experiments performed by Chemists and Chemical Engineers.

XXXXX
in Chicago, Illinois, supplies XXXXX with flux. XXXXX contacted Mr. XXXXX, Vice President for Research and Development, seeking clarification on their product and obtaining his professional opinion on whether Flux remains with the product or is consumed in the process. Attached is a copy of the letter Mr. XXXXX sent to XXXXX in response to their inquiry. In this letter he states that "The soldering of printed circuit boards with fluxes always leaves on the PCB a layer of flux residues." Later in the same letter he says that residues contained in the flux "will become anchored to the surface of the PCB and depending on the degree of plasticity, they will either flake off easily or be permanently part of the surface."

To
confirm that the flux used by XXXXX does not flake off, XXXXX enlisted XXXXX University to analyze the chemical properties of XXXXX�s finished product. Dr. XXXXX supervised the performance of tests used in the analyses. His findings and conclusions are attached. In this letter he states that rosin is present in the finished sample.

Sales
and Use Tax Applications

According
to the U.C.A. 59-12-104(28) Exemptions, the following should be exempt from sales and use taxes: "property purchased for resale in this state, in the regular course of business, either in its original form or as an ingredient or component part of a manufactured or compounded product". XXXXX believes that there is overwhelming evidence that flux becomes an ingredient part of the manufactured resistors.

Conclusion
Flux

XXXXX
is convinced because of our independent research, the professional opinion of XXXXX, and the research and conclusions of Dr. XXXXX at XXXXX University, that flux becomes an ingredient part of the manufactured product and should therefore be exempt from all sales and use taxes. This product should be purchased as any other inventory item, exempt from tax. As such, we request that the Utah State Tax Commission rule through a declaratory judgement rule in favor of exempting this use of rosin flux. Please send your response to:

XXXXX

Thank
you for your consideration. We anxiously await your reply.

Sincerely
yours,

XXXXX

Tax
Consultant

Attention:
Mr. XXXXX

RE.: Fluxes Residues on PCB after Soldering.

Dear
Mr. XXXXX:

Pursuant
to our telephone conversation of October 16, 1990, this letter is to authenticate the captioned matter that was discussed that day, notably:

The
soldering of printed circuit boards with fluxes always leaves on the PCB a layer of flux residues; the nature of these residues depends on the flux that has been used. The case discussed that day did involve XXXXX flux 1435 which is a mildly activated rosin flux. Accordingly, the residues will be rosin mixed with some of the reaction products between the rosin and the metals involved; those reaction products are called metal abietate, because rosin is chiefly abietic acid. When these residues are solidified, they will become anchored to the surface of the PCB and depending on the degree of plasticity, they will either flake off easily or be permanently part of the surface.

The
thickness of this layer of residues is proportional to the solid content of the flux used, to the soldering temperature, to the speed of soldering in a wave soldering, this effect is less pronounced in Planar-Drag-Soldering and to the fluidity of these residues at soldering temperature. If the fluidity of these residues is too high at soldering temperature, too much will be removed from the board by the abrasive action of the wave.

Should
you need further information, please call or write us.

Respectfully
yours,

XXXXX

Vice
President, Research & Development