In a decision issued on October 23, 2025, the Alabama Tax Tribunal (the “Tribunal”) denied Alabama Chips, Inc.’s (“Alabama Chips”) refund claim for sales tax paid on certain heavy equipment. The case centered on whether certain purchases qualified for Alabama’s reduced sales tax rate applicable to “machines used in mining, quarrying, compounding, processing, and manufacturing of tangible personal property” under Alabama Code § 40-23-2(3) and whether Alabama Chips erroneously paid sales tax on services related to wood chip production. Alabama Chips, Inc. v. Dep’t of Revenue, No. S. 24-0251-JP (Ala. Tax. Trib. Oct. 23, 2025).

The Facts: Alabama Chips operates an industrial wood-processing facility where it receives and processes raw timber (i.e., timber logs) into commercial wood chips for sale to paper mills. According to Alabama Chips, after the timber logs are received, they are transferred to a designated “wet yard” where the logs are positioned by equipment to undergo a chemical treatment before entering the primary machines that debark and chip the wood. Alabama Chips characterized this wet yard as a controlled, continuous conditioning environment designed to preserve moisture and fiber quality so that debarking and chipping are more effective and efficient. 

Alabama Chips sought application of the reduced sales tax rate of 1.5 percent (versus the general 4 percent rate) on its purchases of heavy equipment—specifically log cranes, excavators, loaders, and forklifts—used to lift, carry, and position logs from receipt, through the wet yard, and into the infeed of the debarking drum. 

Even though the taxpayer acknowledged that receipt of the logs does not constitute manufacturing, it maintained that once the logs enter the wet yard, they entered the manufacturing phase in which they are being actively conditioned for immediate transformation. On that premise, Alabama Chips argued that its equipment does more than transport raw materials—it “feeds” the first processing stage and therefore qualifies for the 1.5 percent reduced sales tax rate. The Department of Revenue disagreed.

The Holding: The Tribunal rejected Alabama Chips' position, holding that the taxpayer failed to meet its burden of proof necessary to trigger the reduced tax rate. The Tribunal emphasized that the record lacked evidence showing that the wet yard performed an active, continuous, and integral treatment function as part of the manufacturing process. The taxpayer offered no evidence (1) identifying the chemical that was used to condition the logs (beyond testimony vaguely referencing a “type of water”) or (2) describing how the process maintained moisture to result in measurable manufacturing outcomes at the facility. The tribunal concluded that the evidentiary gap was compounded by the taxpayer’s witnesses’ limited connection to the operations at issue, as they conceded they had never been employees of the company and had not visited the facility in more than a decade. 

Absent reliable evidence to support the taxpayer’s position, the Tribunal held that the reduced sales tax rate was inapplicable and denied the taxpayer’s refund request, underscoring that to meet their evidentiary burden taxpayers must offer competent, reliable evidence.