Snowmaking as Manufacturing

Sales tax is a considerable line item in any infrastructure improvement project in the U.S. But some resorts have cut this sizable expense out of the equation by securing sales tax abatements for their snowmaking equipment purchases, freeing up budgets for other expenses.

History and Evolution
Soon after commercial snowmaking was developed, ski resorts began seeking state tax benefits for purchases of snowmaking equipment. Eventually ski areas pushed for specific laws to establish a tax exemption for snowmaking and ski resorts. Reaching out directly to lawmakers proved considerably more effective than arguing before a tax body or court.

Many states, including Idaho and Utah, established laws which protect resorts from paying sales and use tax on not only snowmaking equipment, but also lift equipment purchases as well.

Established tax benefits for snowmaking equipment are more common in the East and Midwest where the resorts are wholly dependent upon machine-produced snow, but a few western states also provide similar protections. The issue is still very much alive, as one bill recently passed in Wisconsin and another has been introduced in Iowa. With the proper attention, your state could be the next on the list, if it hasn’t acted already.

Snowmaking as Manufacturing
Essentially, tax benefits are realized through the recognition of “snowmaking as a manufacturing enterprise.” Each state has slightly differing definitions of manufacturing and, as a result, varying ways it is treated for tax purposes. Some states (e.g. Wisconsin) allow exemptions for fuel and materials used in manufacturing, while others (e.g. Idaho) do not. Some states require a new “tangible product” to be produced, while others only require a manufacturing process be carried out.

The majority opinion in the Ski Roundtop v. Commonwealth decision is extremely helpful in securing recognition of snowmaking as a manufacturing process. The Pennsylvania Supreme Court ruled that snowmaking was “manufacturing” because it required the “application of labor and skill, which changes a material substantially into a new, different and useful item.” Special attention was paid to the skill, know­ledge, and science necessary to make snow, and the varied types of snow product that can be produced by an experienced snowmaker.

It was important for Roundtop to demonstrate that the type of snow desired can be tailored by the use of various snow guns, air pressures, and water/air ratios; it is not just a “flip the switch” situation. Demonstrating the use of both technology and scientific processes in snowmaking to craft a new and unique product is key to most states’ recognition of the process as manufacturing.

Remember that the reason for these manufacturing exemptions is to encourage the growth of manufacturing in the state. To that end, the exemptions must be flexible, and courts and lawmakers must adapt them to technological innovations. That’s a point worth emphasizing with your lawmakers.

Manufacturing tax exemptions are also intended to support economic development. This is another avenue to pursue to have snowmaking recognized as manufacturing. Ski resorts clearly contribute to local, regional and state economic development—that contribution can be many times greater than some other smaller manufacturing operations that have been afforded the exemption (think of a five-person machine shop vs. a multi-season resort). Demonstrating the significant benefits that could flow through the local, regional, and state economy as result of the exemption can also greatly strengthen your argument.

Making the Case
One of the first decisions to make is whether to pursue tax relief through the tax body and court system or through the legislature. Examine your state’s manufacturing exemption for any reference to directly selling a newly-created product. If the exemption includes this language, the tax body avenue is most likely unavailable, and you must pursue the legislative route—because you are selling lift tickets rather than snow directly to customers.

If the exemption does not include this specific restriction, it is a good sign that snowmaking can be recognized as manufacturing by your state tax body and court system, because the exemption likely focuses on the process of creating a new and distinctively different product, rather than the sale of the product.

In choosing the tax body route, you must demonstrate the integrated series of operations that produce the finished snow product (water storage and distribution, the actual process of snowmaking, grooming, etc.). It is also important to demonstrate how the form and composition of materials (water, potential additives, etc.) are altered through the application of skill and knowledge and turned into a product with a distinctively different use.

In pursuing the legislative option, use the language and rhetoric of economic development and job creation, given the current economic and political climate. If state lawmakers are convinced of the potential economic benefit to the local, regional, and state economy in terms of additional jobs, tourism revenues, etc., as well as the importance of staying competitive with neighboring states in the encouragement of manufacturing (and snowmaking), you may be able to secure tax protections for snowmaking and even lift equipment.

Note that there are often differences between state and local authorities in the taxability of transactions. For instance, a state may not impose a sales tax on a particular type of transaction, while cities within the state do. For this reason, it’s a good idea to include local and county lawmakers and officials in any conversations with state lawmakers and tax officials.

More and more states are recognizing snowmaking as a manufacturing process, and as such are granting tax exemptions from a variety of business taxes. If yours doesn’t, you or your state association can make a strong case for doing so. Here’s a quick overview of how different states provide manufacturing exemptions across a range of different types of taxes.

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Great article.