A manufacturer’s sales of coffee and brewing equipment were subject to Alabama’s reduced sales and use tax rate since the products qualify as machines used to process tangible personal property (TPP). The taxpayer manufactures coffee and tea brewers, cappuccino mixers, and frozen beverage dispensers, as well as related accessories and repair and replacement parts. Alabama taxes the storage, use or other consumption of machines used in mining, quarrying, compounding, processing, and manufacturing of TPP at a reduced rate of 1.5%.
In this case, the taxpayer sold its equipment to a customer that processes green coffee beans and raw tea leaves into a marketable form by roasting the coffee beans and cutting and blending the tea leaves and packaging the products in dry form. The customer then sold its products to retailers, distributors, restaurants, hotels, and other businesses. Regarding the cappuccino mixers and frozen beverage dispensers, the customer supplies cappuccino mix and juice concentrate but does not process those items at its facilities. The customer’s sales can be characterized in one of two ways: to wholesale customers (e.g. grocery stores, food distributors) who sell the customer’s products at retail, or to customers (e.g. restaurants, convenience stores, those in office settings) who serve or consume the products on site. The sales to wholesale customers do not involve the equipment sold by the taxpayer. To many of the other customers, the taxpayer’s equipment is provided with the packaged coffee, tea, cappuccino mix, or juice concentrate. In situations where the customer provides the taxpayer’s equipment along with its products, the equipment converts the packages of dry coffee and tea into consumable drinks.
The taxpayer’s coffee and tea brewers, cappuccino mixers, and frozen beverage dispensers qualified as machines used to process TPP. Specifically, the taxpayer’s equipment converted dry coffee and tea, cappuccino base, and pre-mixed base concentrate into consumable drinks. The dry and base forms of those items were not consumable prior to the direct operation of the taxpayer’s equipment. The equipment performed “an integral function in the procedure by which the” consumable drinks were produced and played “a direct part in the processing program.” The functioning of the equipment was not “merely incidental” to the processing of the dry and base forms of the products, because those products were not “ready for use by the consumer” prior to being acted on by the taxpayer’s equipment. As such, the sales of brewing equipment were subject to the state’s reduced 1.5% tax rate. (Bunn-O-Matic Corporation v. Alabama Department of Revenue, Alabama Tax Tribunal, No. S. 17-614-JP, April 30, 2020)