In a recently issued opinion in the case of IPSCO Steel (Alabama), Inc. v. Alabama Department of Revenue, the Alabama Tax Tribunal held that work rollers used in steel manufacturing qualified for a tax exemption, but coil rollers did not. IPSCO argued that small parts of the work and coiler rollers wore off and became component parts of the steel products it manufactured.
Current Alabama tax code provides an exemption for component parts of products manufactured for sale. The exemption does not include machinery or equipment subject to depreciation allowances for Alabama income tax purposes.
The Alabama Department of Revenue argued that the exemption was not applicable because IPSCO failed to present sufficient technical evidence that parts of the work rollers and coil rolls became a component part of IPSCO's. However, the Tribunal observed that the evidence provided was sufficient to find that the rolls wore during manufacturing and that parts of the rolls became ingredients or component parts of IPSCO's products.
The Department then argued that the rollers were depreciable capital equipment or machinery excluded from the exemption. IPSCO's evidence showed that it wore out 25 to 30 work rollers in a year, but the coil rollers had a useful life of 13 months.
The Tribunal found that the work rollers, which had a useful life of less than a year, qualified for the exemption. The coil rollers with a useful life of 13 months were depreciable, and did not qualify for the exemption.