Washington Administrative Code › Title 458 - Revenue, Department of › Chapter 458-20 - Excise tax rules › Section 458-20-113 - Ingredients or components, chemicals used in processing new articles for sale

Current through Register Vol. 24-14, July 15, 2024
(1) The term
			 "retail sale" means "every sale of tangible personal property . . . other than
			 a sale to one who purchases for the purpose of resale . . . or for the purpose
			 of consuming the property purchased in producing for sale a new article of
			 tangible personal property or substance, of which such property becomes an
			 ingredient or component or is a chemical used in processing, when the primary
			 purpose of such chemical is to create a chemical reaction directly through
			 contact with an ingredient of a new article being produced for sale . . .
			 (RCW
			 82.04.050.)
(2) Ingredients or components. The sale of
			 articles of tangible personal property which physically enter into and form a
			 part of a new article or substance produced for sale does not constitute a
			 retail sale. This does not exempt from the retail sales tax the sale of
			 articles consumed in a manufacturing process which do not enter into and become
			 a physical part of the new article produced for sale, such as fuel used for
			 heating purposes, oil for machinery, sandpaper, etc.
(3) Also, the definition of retail sale does
			 not exclude consumables purchased for use in manufacturing, refining, or
			 processing new articles for sale merely because some constituents of the
			 consumables may also be traceable in the finished product, which are impurities
			 or undesirable or unnecessary constituents of the finished product.
(4) For articles to qualify for sales and use
			 tax exemption as ingredients or components of products produced for sale, such
			 articles or their constituents must be traceable in the finished product and
			 identifiable as having been directly provided by the article claimed for
			 exemption.
(5) Chemicals used in
			 processing. Sales of chemicals to a person for use in processing articles
			 produced for sale are not retail sales, and therefore are not subject to the
			 retail sales tax.
(6) "Chemicals
			 used in processing" carries its common restricted meaning in commercial usage.
			 It includes only chemical substances which are used by the purchaser to unite
			 with other chemical substances, present as ingredients or components of the
			 articles or substances being processed, to produce a chemical reaction
			 therewith, as contrasted with merely a physical change therein. A chemical
			 reaction is one in which there takes place a permanent change of certain
			 properties, with the formation of new substances which differ in chemical
			 composition and properties from the substances originally present, and usually
			 differ from them in appearance as well. It is not necessary that all of the new
			 substances which are formed be present in the final completed article or
			 substance which is sold; one or more of such new substances resulting from the
			 chemical reaction may be removed or drawn off in the processing.
(7) To illustrate: Sales of chemicals to a
			 pulp mill for use in the digesting and bleaching of pulp are not subject to the
			 retail sales tax because such chemicals react chemically with the cellulose in
			 the pulp fiber which, in turn, becomes a major ingredient of the final product,
			 paper. Similarly, sales of carbon to an aluminum reduction plant for the
			 primary purpose of forming a chemical reaction with alumina to remove its
			 oxygen content are not retail sales.
(8) Conversely, sales of water purifiers and
			 wetting agents to a pulp mill are taxable sales. The treated water acts
			 primarily as a conveyor or carrier of the pulp fibers and only an insignificant
			 part of the water becomes an ingredient of the final product. Similarly, sales
			 of caustic soda to potato processors to remove peelings from potatoes are
			 retail sales because the chemical reacts only with the peelings which are
			 removed as waste, and not with the potatoes which are sold as the final
			 product.
(9) Sales of diesel or
			 fuel oil to a steel mill or foundry, for use or consumption primarily in
			 generating heat, are retail sales and subject to the retail sales tax,
			 notwithstanding the fact that some portion of the oil may cause a chemical
			 reaction and to some extent alter the character of the article being
			 manufactured or processed.
(10)
			 Effective April 3, 1986, (chapter 231, Laws of 1986), purchases for the purpose
			 of consuming the property purchased in producing ferrosilicon which is
			 subsequently used in producing magnesium for sale, if the primary purpose is to
			 create a chemical reaction directly through contact with an ingredient of
			 ferrosilicon, are not subject to retail sales tax or use tax.
(11) In special cases where doubt exists, a
			 special ruling will be made by the department of revenue upon submission of all
			 the pertinent facts relative to the nature of the chemical substances concerned
			 and the use made thereof by the purchaser.
Revised June 1, 1970.
Statutory Authority:
				  RCW
				  82.32.300. 86-20-027 (Order 86-17), §
				  458-20-113, filed 9/23/86; Order ET 70-3, § 458-20-113 (Rule 113), filed
				  5/29/70, effective 7/1/70.