The Alabama Tax Tribunal ruled that the state’s reduced “machine rate” for sales tax applied to a taxpayer’s purchases of propane and oxygen used to process metals. The Alabama Department of Revenue (DOR) had previously denied the taxpayer’s request for a refund of sales tax paid on the purchases.
The taxpayer claimed that the purchases should have been subject to sales tax at the reduced machine rate rather than the general sales tax rate. The propane and oxygen were purchased for use in a piece of equipment similar to a blow torch. The DOR had previously determined the equipment to be a hand tool, not a machine, and determined that the purchases did not qualify for the machine rate.
The taxpayer’s representative stated that purchases were used in the plant to cut down large metal pieces into smaller pieces of a marketable size and shape. The Tax Tribunal referenced Southern Natural Gas Co. v. State, which held that “[i]t is apparent that the word ‘process’ is synonymous with the expressions ‘preparation for market’ and ‘to convert to marketable form.’”
The Tax Tribunal also referenced the “integral function” test. In State v. Newbury Mfg. Co., the Alabama Supreme Court stated that “If the article in question performs an integral function in the procedure by which the tangible personal property is produced, we think it is part and parcel of the machinery used in its production.”
The DOR argued that the taxpayer’s purchases don’t qualify for the machine rate because the items are not used in a manufacturing process but rather in a service (the dismantling of large structures or objects). However, the taxpayer’s representative stated that the gas purchases were not used in the dismantling process. Rather, they were used to cut large pieces of metal into smaller pieces for marketability.
The Tax Tribunal found in favor of the taxpayer, stating that the use of the gases for cutting metal in this circumstance constitutes processing for the purpose of the machine rate. As a result, the machine rate applies to the purchases. (SLJ Holdings, Inc. v. Alabama Department of Revenue, Alabama Tax Tribunal, Nos. S. 23-618-LP S. 24-0469-LP S. 24-0470-LP, December 11, 2025)