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Ruling 90-65

Manufacturing Exemption


Whether a manufacturer (M) of industrial gases, must charge sales tax on the lease of its bulk storage tanks to customers in this state.


Products are manufactured at an air separation plant. Through the process of cooling air drawn from the atmosphere to various temperatures, it is possible to extract from the air various elements, such as, oxygen, hydrogen, helium and nitrogen. After production is completed, these products are stored at the plant. Tank trucks are used to deliver the product in a liquid state from storage facilities at the plant site, to smaller bulk storage tanks at the customers place of business.

At the delivery point the product, still in liquid state, is transferred from the tank truck into a bulk storage tank which (M) rents to the customer. At the base of the storage tank is a converter which vaporizes the liquid product into a gaseous state. The product, now in a gaseous state, is then pumped through a short pipeline into the customers plant where it is consumed in his manufacturing process.


The rental of the bulk storage tanks do not meet the requirements for exemption under Section 12-412(18). Although the taxpayer does furnish gas, it does not deliver the gas "through mains, lines or pipes" as required by the exemption.

Similarly, the rental of the bulk storage tanks are not exempt under Section 12-412(34) which allows an exemption for machinery used directly in a manufacturing production process. Assuming that a manufacturing production process is involved in "air separation", it is the Department's position that the manufacturing production process ends with the separation into the various elements. The subsequent liquefaction and revaporization of the gas is a natural process.

Accordingly, M is leasing tangible personal property to its customers in the form of bulk storage facilities. The rental payments for such facilities are subject to sales and use tax under Section 12-407(2)(J) and are not exempt under Sections 12-412(18) or 12-412(34).


September 24, 1990