Ruling 90-34

Manufacturing

You have inquired as to whether the purchase of a truck chassis by taxpayer an exempt purchase pursuant to Connecticut General Statutes Section §12-412(18).

X Company is in the business of manufacturing and selling specialized ground support vehicles for use in the aircraft industry. The ground support vehicles are used to provide 400 cycle electricity to the aircraft prior to its departure and often landing.

X Company purchases a stripped-down truck chassis from a Connecticut vendor for approximately $15,000. X Company attaches a ground power unit, costing approximately $25,000, to the truck chassis utilizing customized support brackets, and then modifies the vehicle's electrical system and attaches fenders, mud guards, bumpers, and platforms. In some cases the fuel tank is relocated and a modified hydraulic system is added.

The product produced is sold for approximately $50,500. Taxpayer collects sales tax on the finished product.

RULING

Section 12-412(18) provides for an exemption from sales and use tax for the "sales of and the storage of or use of materials, ...which become an ingredient or component part of tangible personal property to be sold or which are used directly in ..., an industrial plant in the actual fabrication of the finished product to be sold...".

This ruling must be analyzed in the context of a recent Connecticut case, Accessory Controls and Equipment Corp. v. Commissioner, 4 C.S.C.R. (Part 1) 216 (January 24, 1989). In this case the taxpayer sought an exemption under Section 12-412(18) on the purchase of a stripped-down truck which was then transformed into a ground support vehicle for aircraft. The court analyzed the question in the context of whether a different product resulted from the process or whether the product remained basically the same with some modification. The court found that many different operations were performed on the truck chassis before the process was completed, including cutting into the frame of the vehicle. The truck chassis was only a bare skeleton of what was to be the final product.

X Company must satisfy the exemption by proving that the truck was a production material that became a component part of property to be sold. In accordance with the regulations (§12-426-11b) the material must be manufactured. Among other things manufacturing requires that there be a transformation of property into a different product having a distinctive name, nature and use.

As with the taxpayer in Accessory Controls, the taxpayer herein has created an end product which is a different product from the original chassis. The alterations to the chassis and the incorporation of a ground power unit onto the vehicle have resulted in a machine which provides electrical support to stationary aircraft. Because this process results in the creation of a different product having a distinctive name, nature and use, it is hereby ruled that the taxpayer's purchase of the truck chassis is exempt from sales and use tax pursuant to Section 12-412(18).

James F. Meehan
Commissioner

March 12, 1990