Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2013
Sales and Use Tax Annotations
440.0000 PROPERTY USED IN MANUFACTURING—Regulation 1525
(a) MANUFACTURING AIDS
(7) Miscellaneous Specific Aids
440.1015 Coal (Fly Ash) Used in Manufacturing of Cement. In one of the stages in the manufacturing of cement, coal is crushed into powder, blown into the kiln and ignited. The coal is used to produce heat in the kiln. Most of the coal is consumed or evaporates in the process but the inorganic elements, primarily silica, alumina and ferric oxide, remain in the form of ash called "fly ash." Approximately 98 percent of the fly ash is absorbed by and remains in the clinker (a lava-like substance which is mixed with gypsum to form the cement), while the remainder escapes in the kiln mixed with the various gasses. About 10 percent of the coal, measured by weight, is composed of the fly ash elements that remain in the cement. The fly ash in the amount that remains is a necessary and desired element of the finished cement.
Under this process, there is a dual purpose for purchasing coal, namely, the organic elements to provide heat while the inorganic elements or fly ash to be incorporated into the finished product. Therefore, the portion of the coal (fly ash) that is incorporated into the final product is not subject to tax.
Since the coal is purchased for a lump-sum price, the price must be allocated between the fly ash and the other elements of the coal. The amount of fly ash incorporated into the final product is derived from 10 percent of the coal. However, since fly ash normally sells for about one half the price of coal, the nontaxable portion should be computed based upon the fair market value of the amount of fly ash obtained from 10 percent of the coal purchased. 9/13/72.