CONNECTICUT said in a tax ruling that developers of merchant plants must pay sales taxes on machinery and equipment purchased for use in their projects, but at a 3% rate
The ruling — issued this summer — said four things. First, many states exempt equipment purchased for use in “manufacturing” facilities altogether from sales tax. Connecticut does, too, but the ruling said Connecticut does not consider generating electricity “manufacturing.” Second, in Connecticut, a reduced tax rate of 3% applies to equipment used in ‘processing” operations. Electricity generation is “processing.” Third, spare parts and other supplies used “directly” in generating electricity are exempted from sales taxes under a special rule. Finally, there is no relief for material that ends up as part of the smokestack. Taxes must be paid on it at the full rate of 6%. That’s because the smokestack is “real property” rather than equipment because it is affixed to land. The same logic probably applies to any portion of the project that is considered a “building” for tax purposes.