DALLAS, Dec. 11, 2015 /PRNewswire/ -- On December 3, 2015, the Arizona Court of Appeals issued its decision in Chevron U.S.A. Inc. v. Department of Revenue, Arizona Court of Appeals, No. 1 CA-TX 14-0013, holding that proceeds from the sale of Chevron's industrial oils and greases to Freeport-McMoRan, Inc. ("Freeport"), for use in Freeport's mining and metallurgical operations, are exempt from transaction privilege tax under Ariz. Rev. Stat. section 42-5061(B)(1),(2), (18).
Chevron filed a refund claim related to taxes paid between July 2002 and March 2006 for various transactions with Freeport, asserting that the sales of oils and greases were exempt from transaction privilege tax as 1) machinery or equipment used directly in the manufacturing of metallurgical operations under Ariz. Rev. Stat. section 42-5061(B)(1), 2) mining machinery or equipment under Ariz. Rev. Stat. section 42-5061(B)(2), and 3) machinery or equipment used directly to meet or exceed pollution control regulations under Ariz. Rev. Stat. section 42-5061(B)(18). The Arizona Department of Revenue ("Department") issued a refund for taxes paid on sales of hydraulic oils and transmission fluids but denied portions related to engine oil, gear oil, grease, and open gear lube. Chevron filed an appeal with the tax court. The tax court ruled in favor of the Department, agreeing with the Department's reasoning that such greases and oils for exempt machinery and equipment were taxable "expendable materials" with a short useful life. The Appellate Court rejected the Department's argument, as the useful life analysis does not apply if items are exempt under Ariz. Rev. Stat. section 42-5061(B).
In its reasoning, the Appellate Court relied on the Arizona Supreme Court's analysis in Arizona Department of Revenue v. Capital Castings, Inc., 207Ariz. 445 (2004) ("Capital Castings") that if the items in question are essential or necessary to the completion of the finished product, and such items are part of a "harmonious integrated synchronized system" with exempt equipment, then such items will be exempt from tax. The Appellate Court reasoned that such oils and greases were an essential part of the integrated process; without the use of the oils and greases the exempt machinery and equipment would not be able to function.
On December 3, 2015, the Appellate Court issued its decision, reversed the tax court's determination, and held that industrial oils and greases used for mining and metallurgical operations were not subject to Arizona's transaction privilege tax. At this time, court records do not indicate whether the Department has appealed the Appellate Court's decision.
Ryan is an award-winning global tax services firm, with the largest indirect and property tax practices in North America and the seventh largest corporate tax practice in the United States. With global headquarters in Dallas, Texas, the Firm provides a comprehensive range of state, local, federal, and international tax advisory and consulting services on a multi-jurisdictional basis, including audit defense, tax recovery, credits and incentives, tax process improvement and automation, tax appeals, tax compliance, and strategic planning. Ryan is a three-time recipient of the International Service Excellence Award from the Customer Service Institute of America (CSIA) for its commitment to world-class client service. Empowered by the dynamic myRyan work environment, which is widely recognized as the most innovative in the tax services industry, Ryan's multi-disciplinary team of more than 2,100 professionals and associates serves over 12,000 clients in more than 40 countries, including many of the world's most prominent Global 5000 companies. More information about Ryan can be found at ryan.com.
TECHNICAL INFORMATION CONTACTS:
Jeremiah T. Lynch
Available Topic Expert(s): For information on the listed expert(s), click appropriate link.
ProfNet - http://www.profnetconnect.com/jeremiahlynch