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 701-215.3 - Services Used in Processing

Current through Register Vol. 47, No. 3, July 24, 2024
Electricity, steam, or any taxable service is used in
				  processing only if the service is used in any operation which subjects raw
				  material to some special treatment which changes, by artificial or natural
				  means, the form, context, or condition of the raw material and results in a
				  change of the raw material into marketable tangible personal property intended
				  to be sold ultimately at retail. The following are nonexclusive examples of
				  what would and would not be considered electricity, steam, or taxable services
				  used in processing:
(1) The sales price
				from the sale of electricity or steam consumed as power or used in the actual
				processing of tangible personal property intended to be sold ultimately at
				retail would be exempt from tax. The sales price is to be distinguished from
				that of electricity or steam consumed for the purpose of lighting, ventilating,
				or heating manufacturing plants, warehouses, or offices. The latter sales price
				would be taxable.
(2) The sales
				price from electricity used in the freezing of tangible personal property,
				ultimately to be sold at retail, to make the property marketable would be
				exempt from sales tax. See
Fischer Artificial Ice & Cold Storage
				Co. v. Iowa State Tax Commission,
81 N.W.2d 437 (Iowa 1957).
(3) Electricity used merely in the
				refrigeration or the holding of tangible personal property for the purpose of
				preventing spoilage or to preserve the property in its present state would not
				be "used in processing" and, therefore, its sales price would be subject to
				tax. See
Fischer Artificial Ice, supra
.
Measurement of taxable and nontaxable use of electricity and
				  steam. The exemption provided in the case of electricity or steam applies only
				  upon the sales price from the sale of electricity or steam when the energy is
				  consumed as power or is used in the processing of food products or other
				  tangible personal property intended to be sold ultimately at retail, as
				  distinguished from electricity or steam which is consumed for taxable purposes.
				  When practical, electricity or steam consumed as power or used directly in
				  processing must be separately metered and separately billed by the supplier
				  thereof to clearly distinguish energy so consumed from electricity or steam
				  which is consumed for purposes or under conditions in which the exemption would
				  not apply. If it is impractical to separately meter electricity or steam which
				  is exempt from that electricity or steam upon which tax will apply, the
				  purchaser must furnish an exemption certificate to the supplier with respect to
				  what percentage of electricity or steam in the case of each purchaser is
				  subject to the exemption. Reference 701-subrule 15.3(2). The exemption
				  certificate must be supported by a study showing how the percentage was
				  developed. When a certificate and study are accepted by the supplier as a basis
				  for determining exemption, any changes in the processing method, changes in
				  equipment or alterations in plant size or capacity affecting the percentage of
				  exemption will necessitate the filing of a new and revised statement by the
				  purchaser. When the electric or steam energy is separately metered, enabling
				  the supplier to accurately apply the exemption in the case of processing
				  energy, the purchaser need only file an exemption certificate since the
				  supplier, under such conditions, will separately record and compute the
				  consumption of energy which is exempt from tax apart from that energy which is
				  subject to tax.
This rule is intended to implement Iowa Code section
				  423.3(50).