Court rules ethanol plant not entitled to $1.5 million tax break

By Holly Jessen | August 15, 2012

The Nebraska Court of Appeals recently ruled that Bridgeport Ethanol LLC, a 50 MMgy ethanol plant located in Bridgeport, Neb., won’t get refunded for the sales and use taxes for manufacturing machinery and equipment purchased when the plant was built.

The ethanol production plant took the case to court in March 2011 after the Nebraska Department of Revenue approved a sales tax reimbursement of only $6,324 for direct purchases of software and equipment used in the manufacturing process, according to court documents. However, it did not approve $1.5 million in requested reimbursement for building materials and equipment paid for by ICM Inc., the company Bridgeport Ethanol contracted to design and build the plant in 2007.

The decision made by the Nebraska Department of Revenue, under the direction of Douglas Ewald, state tax commissioner, was later upheld in district court. After that, Bridgeport Ethanol appealed the decision in the state’s court of appeals, which upheld the lower court’s ruling Aug. 10.

Sales tax exemption for the purchase of manufacturing machinery and equipment is limited to items purchased by “a person engaged in the business of manufacturing for use in manufacturing,” court documents said. In this case, ICM—not Bridgeport Ethanol—purchased the equipment and, as part of its contract with the ethanol plant, agreed to let the ethanol plant collect any sale tax refunds. “Under the plain language of the statutes, Bridgeport is not entitled to the exemption, because it was not the purchaser of the manufacturing machinery and equipment,” the court ruled. “Bridgeport cannot obtain a refund of taxes that it never paid.”

The statute does specifically allow for the appointment of purchasing agents, the court said in its conclusion, but the circumstances necessary for that were not present in this instance. Therefore, the court ruled that the provision in the ethanol plant’s contract that said Bridgeport was entitled to all tax credits for taxes paid by ICM was “not effective as a purchasing agent appointment,” court documents said.