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Author: qwerty2001 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 80  
Subject: Re: National Sales Tax Question Date: 6/5/2001 10:36 PM
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http://boards.fool.com/Message.asp?mid=15023124


I just happened to see this this morning.

If a National Sales Tax is sooooo simple then why do so many states
disagree on this.

If you don't want to read the entire post suffice it to say that "Alabama, Georgia, Missouri, Nebraska, New York, Texas and Washington all appear to follow the physical ingredient rule, while Arkansas, California, Colorado, Illinois, Ohio and Tennessee follow the primary purpose test."


Copyright from Deloitte and Touche
NEVADA
STATE EMPLOYS A “PRIMARY PURPOSE,” Nol “PHYSICAL INGREDIENT” TEST
In an issue of first impression, the Nevada Supreme Court ruled that state statutes employ a “primary purpose” test of taxability for items used in products manufactured for sale, instead of a “physical ingredient” test. Nevada Tax Commission v. Nevada Cement Co., Nev. (9/15/00).

Nevada Cement Company purchases steel grinding balls, steel kiln chains, kiln bricks and castable materials. During Nevada Cement's cement manufacturing process, these items disintegrate and become part of the end product. The Tax Commission appealed to the Nevada Supreme Court the District Court decision that stated that the items were not taxable because iron alumina and silica are necessary components of the cement, and that these four items, being composed of these elements, contribute significant amounts of such ingredients to the cement.

The Nevada Supreme Court framed the issue as being whether to apply the “physical ingredient” test or the “primary purpose” test. Under the physical ingredient test, an item meets the resale exemption when it becomes a physical ingredient or component
of the finished product. The primary purpose test holds that if a dual-purpose item is purchased, and the primary intent is not resale, then sales and use tax would apply.

The court analyzed through its ruling that the governing statute defines a retail sale to be “a sale for any purpose other than resale... “Thus, a dual-purpose item cannot meet the resale exemption, because the statutory exemption applies only to those items for which the resale is the primary intent of the purchase.

Deloitte & Touche Comment: As an indication of the degree of conflict between states in employing the different tests, in the dicta of Nevada Cement, the court noted that Alabama, Georgia, Missouri, Nebraska, New York, Texas and Washington all appear to follow the physical ingredient rule, while Arkansas, California, Colorado, Illinois, Ohio and Tennessee follow the primary purpose test.

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