Policy letter; machinery & equipment; May16,2008

Topic Code: M011Machinery & Equipment           Document Reference: 08300028

May 16, 2008

Redacted Content

Re: Meat lockers.

Your email/letter to the Iowa Department of Revenue has been given to me for reply. Please allow me to introduce myself. My name is Darwin Clupper. I am a technical tax specialist with the Department of Revenue’s Policy Section. My particular area of concentration is Iowa sales and use tax law.

You inquire on behalf of a Client which is a meat locker. The Client serves three types of customers: farmers, other companies, and the public. Farmers bring animals in for processing which they have raised. Thus, their cows, hogs, or lambs are processed by cutting and wrapping into hamburgers, ham steaks, chops, and any number of other cuts of meat suitable for human consumption. Other companies will bring in the same type of animals for the same type of processing. For the purposes of answering your letter, I assume the other companies sell the meat to the general public. Finally, the Client will buy animals from farmers, process them, and sell their meat to the general public “from their retail store front.” A majority of the locker’s revenue is generated by services performed for farmers and other companies.

Subsection 423.3(47) of the Iowa Code exempts from tax sales of machinery and equipment used in a variety of ways by “manufacturers.” Subparagraph 423.3(47) “d” (4) defines “Manufacturer,” for the subsection’s purposes, as follows:

(4) "Manufacturer" means as defined in section 428.20, but also includes contract manufacturers. A contract manufacturer is a manufacturer that otherwise falls within the definition of manufacturer under section 428.20, except that a contract manufacturer does not sell the tangible personal property the contract manufacturer processes on behalf of other manufacturers. A business engaged in activities subsequent to the extractive process of quarrying or mining, such as crushing, washing, sizing, or blending of aggregate materials, is a manufacturer with respect to these activities.

Section 428.20 of the Code states:

A person who purchases, receives, or holds personal property of any description for the purpose of adding to its value by a process of manufacturing, refining, purifying, combining of different materials, or by the packing of meats, with a view to selling the property for gain or profit, is a "manufacturer" for the purposes of this title.

A person is a “Manufacturer” if its “principal business” is manufacturing, Associated General contractors of Iowa v. State Tax Commission, 255 Iowa 673, 123 N.W.2d 922, 924 (1963). Unless your Client’s circumstances are radically different from that of other meat lockers, its principal business would be of a commercial nature; it would not be a manufacturer. The usual locker is a retailer or wholesaler of meats or, like your Client, a combination of the two, but not a manufacturer. This has been the Department’s position for a number of years. This position is in harmony with the treatment of meat lockers by property tax law and in harmony with the Department’s treatment of restaurants and copy shops, other businesses which do some “processing” of tangible personal property into finished goods but which are not manufacturers.

Your also inquire if your Client is a “food manufacturer,” and my answer would be no. To explain, § 423.3(49) of the 2007 Iowa Code exempts from tax sales of carbon dioxide, the performance of taxable services, and leasing of tangible personal property for use in processing “by a manufacturer of food products. . .for human consumption.” For the reasons set out in the previous paragraph, the Department would not consider your client to be a food manufacturer.

In closing, I must issue my usual warning. Please be advised that this letter is an informal opinion and is only applicable to the factual situation referenced and to the statutes in existence at the time of issuance. Because of this, the Department could, in the future, take a position contrary to that stated in the letter.

Sincerely,

Darwin D. Clupper

Tax Specialist, Policy Section

Compliance Division

515-281-3670