United States

Arizona: Tax Court Holds Fuel Trucks Are “Directly” Used in Mining

Jan 30, 2017
From KPMG TaxWatch

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Recently, the Arizona Tax Court held that fuel trucks were “directly” used in mining and were therefore exempt from Transaction Privilege Tax (TPT). Under Arizona law, an exemption from TPT applies to “mining machinery, or equipment, used directly in the process of extracting ores or minerals from the earth for commercial purposes.” The exemption extends to equipment required to prepare the materials for extraction, handling, loading or used in transporting such extracted material to the surface. Although the opinion contained few facts, the fuel trucks at issue were used to deliver and store fuel used to operate loaders, which are machines used to move or load the ore being extracted.

The key question before the court was what “used directly” means. The court reviewed a series of prior appellate court cases and noted that in a recent decision interpreting the scope of the exemption, the appeals court had held that the machinery or equipment need not be used directly in the process of extracting ores or minerals or even as an adjunct to some machine or equipment that is used directly in extraction. Rather, the machinery or equipment must be a part of an “integrated synchronized system” that at some point involves machinery or equipment that is used directly in extraction. Based on this holding, the court concluded that the fuel trucks were exempt. In the court’s view, fuel was necessary to the functioning of the loaders, even though it played no direct part in extracting the ore. Therefore, a vehicle that transported the fuel to the loaders was considered part of an “integrated synchronized system.” Please contact Brian Phillips at 858-750-7295 with questions on Empire Southwest, LLC v. Arizona Dep’t of Revenue.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

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.