Iowa Administrative Code › Agency 701 - Revenue Department › Title III - Sales, Use, and Excise Tax › Chapter 215 - Exemptions Primarily Benefiting Manufacturers and Other Persons Engaged in Processing › Rule 701-215.2 - Carbon Dioxide in a Liquid, Solid, or Gaseous Form, Electricity, Steam, and Taxable Services Used in Processing

Current through Register Vol. 47, No. 3, July 24, 2024
An expanded definition of "processing" is allowed to
				  manufacturers of food or food ingredients using carbon dioxide in a liquid,
				  solid, or gaseous form, electricity, steam, and taxable services. For the
				  purposes of this rule, the rental or leasing of tangible personal property is
				  treated as the furnishing of a taxable service and not as the sale of tangible
				  personal property.
(1) "Food or food
				ingredients" means the same as defined in Iowa Code section
				423.3(49)
"b."
This means that for purposes of this exemption,
				"food or food ingredients" means the same as defined in Iowa Code section
				423.3(57)
"d"
and implemented by rule
				701-220.3 (423) but also
				includes tangible personal property that could be sold for ingestion or chewing
				by humans but is sold for another use.
EXAMPLE 1: Manufacturer A produces gelatin that qualifies as
				  a food or food ingredient. Manufacturer A only sells the gelatin to a cosmetics
				  manufacturer. The sales price of any carbon dioxide in a liquid, solid, or
				  gaseous form, electricity, steam, and taxable services used by Manufacturer A
				  to produce the gelatin is exempt from sales tax even though the gelatin was not
				  sold for human consumption.
EXAMPLE 2: Manufacturer B produces two types of gelatin
				  products. Product 1 is manufactured at a quality such that it may be used for
				  technical purposes, such as an ingredient in wood glue, but humans could not
				  consume Product 1 safely. Product 2 is manufactured at a quality such that
				  humans could safely eat it, though it can also be sold for technical purposes
				  like Product 1. Product 1 is not a food or food ingredient. Product 2 is a food
				  or food ingredient.
EXAMPLE 3: Manufacturer C produces alcohol, all of which
				  qualifies as a food or food ingredient. Manufacturer C sells one-third of its
				  product to vodka Manufacturer V, one-third to fuel ethanol Manufacturer F, and
				  one-third to perfume Manufacturer P. The sales price of any carbon dioxide in a
				  liquid, solid, or gaseous form, electricity, steam, and taxable services used
				  by Manufacturer C to produce the alcohol is exempt from sales tax regardless of
				  whether Manufacturer C sells the alcohol to Manufacturer V, F, or P.
Manufacturer V's product is food-grade vodka sold at grocery
				  and convenience stores. Manufacturer V may claim exemption for the same inputs
				  used in producing its vodka as Manufacturer C.
Manufacturer F's product is only sold to be used in motor
				  vehicles and is harmful to humans if consumed. Manufacturer F cannot claim
				  exemption under Iowa Code section
				  423.3(49) for
				  any carbon dioxide in a liquid, solid, or gaseous form, electricity, steam, and
				  taxable services used to produce its ethanol fuel. Manufacturer F may qualify
				  for exemptions provided under other Iowa Code sections.
Manufacturer P's product is only sold for cosmetic purposes
				  and is harmful to humans if consumed. Manufacturer P cannot claim exemption
				  under Iowa Code section
				  423.3(49)  for
				  any carbon dioxide in a liquid, solid, or gaseous form, electricity, steam, and
				  taxable services used to produce its perfume. Manufacturer P may qualify for
				  exemptions provided under other Iowa Code sections.
a.
Certain entities
				eligible.
An entity that processes a product owned by another entity
				is eligible for this exemption, subject to satisfying the other requirements to
				properly claim the exemption.
EXAMPLE: Company A owns and operates a processing facility.
				  Company B owns corn and contracts with Company A to process the corn. Company B
				  maintains ownership of the corn the entire time it is processed and in
				  possession of Company A. Company B sells the processed corn to Company C, who
				  will make retail sales of the processed corn. Company A is eligible to claim
				  this exemption for any carbon dioxide in liquid, solid, or gaseous form,
				  electricity, steam, or other taxable service used to process the
				  corn.
b.
Determination.
The burden is on the taxpayer seeking to claim
				this exemption to establish a product is a food or food ingredient for purposes
				of this exemption. The department's determination shall be a fact-based
				determination based on the information provided by a manufacturer and the
				individual circumstances at issue.
EXAMPLE: A manufacturer produces products, such as
				  glucosamine, that are used as ingredients in orange juice, which is produced by
				  a different entity. The glucosamine and the orange juice are both food or food
				  ingredients for purposes of this exemption.