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Louisiana Supreme Court Rules Bleaching Chemicals Exempt


Manufacturing

The Supreme Court of Louisiana reversed the decision of the appellate court and reinstated the Board of Tax Appeals decision that a Louisiana manufacturer’s purchases of sodium chlorate, hydrogen peroxide, and elemental oxygen for use in the bleaching of white paper products are exempt from state sales and use tax. Although the Louisiana Department of Revenue contended that the bleaching chemicals are merely used during the manufacturing process, and not incorporated within the final product, the Board of Tax Appeals determined that the chemicals were necessary for “further processing”, and therefore statutorily exempt from sales and use tax.

The Supreme Court acknowledged that the Board applied the correct test in determining the ruling. The test states that raw materials “further processed” into end products are excluded from sales and use tax when: (1) the raw materials become recognizable and identifiable components of the end products; (2) the raw materials are beneficial to the end products; and (3) the raw materials are material for further processing, and as such, are purchased with the purpose of inclusion in the end products. The Court also determined that there was sufficient evidence to support the Board’s decision that the chemicals met all three criteria. (International Paper, Inc. vs. Bridges, Louisiana Supreme Court, No. 2007-C-1151, January 16, 2008)

(08/07/2008)
(Archived)
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