United States

Arkansas: Department Revises Ruling; Blast Freezer is Manufacturer for Purposes of Reduced Sales Tax Rate for Electricity

Apr 25, 2016
From KPMG TaxWatch

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Recently, the Arkansas Department of Finance and Administration issued a revised legal opinion concluding that a taxpayer qualified for the reduced sales tax rate for electricity purchased by a manufacturer. The taxpayer at issue, the operator of a cold storage and blast freezing facility in Arkansas, asserted that it was engaged in the final step of manufacturing poultry processed by its customers.  Under Arkansas law, a reduced sales tax rate applies to electricity purchased and used by a manufacturer directly in the actual manufacturing process. The taxpayer argued that it qualified for the reduced rate because it fell within the requisite manufacturing NAICS code. The taxpayer also noted that other cold storage facilities conducting the same process were approved for the reduced rate on electricity. Originally, the Department disagreed with the taxpayer’s position. In its view, the electricity used in the taxpayer’s blast freezing process was not used “directly” in manufacturing because the blast freezing was used to preserve and prevent spoilage of already processed (i.e., manufactured) poultry. In the recently revised opinion, the Department concluded that the “quick freeze” processing was a direct part of the manufacturing process, despite the fact that the taxpayer was an entity that was separate and distinct from the processor of the poultry. Because the exemption extends to power used in temporary cooling/chilling areas, the Department ruled that electricity used to store the frozen poultry prior to it being shipped from the taxpayer’s facility, likewise, qualified for the exemption. For more information on this Office of Revenue Legal Counsel opinion, please contact Brandon Fulmer at 214-840-2497.

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The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.