The Iowa Supreme Court has upheld a ruling allowing a paint company to take a state tax exemption for its equipment. The Sherwin-Williams Company had paid Iowa use tax on machines used in its Iowa retail stores that color match paint, add tint into base paint, and mix the paint up for custom colors.
Sherwin-Williams filed a refund claim for use taxes it paid from July 1, 1992, through December 31, 2000, on the machines under an exemption for manufacturers. The Iowa Department of Revenue allowed a refund for taxes after 1997 when the law had expanded the exemption. Sherwin-Williams filed an appeal of the decision, and after reviewing the information from the appeal, the Department of Revenue revoked its earlier decision and said Sherwin-Williams was not due any tax refund.
The department said the company did not meet the definition of a manufacturer under its administrative rule, and said the color-matching machine was not directly used in the process. The Iowa Supreme Court upheld the rulings of the district and appeals court in favor of the paint company.
The high court said the Department of Revenue’s contention that only those taxpayers who are primarily engaged in manufacturing are eligible for the exemption is erroneous. In addition, the court said the color-matching machine has an active connection to the processing of the paint, and said the director’s contrary conclusion does not conform to the facts and is an unreasonable application of the agency rule.
The case was sent back to the Polk County District Court to determine the amount of the tax refund for the company.