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contract amount. If a customer requests only that petitioner
transport the sand and gravel, petitioner charges the customer
petitioner’s costs for transporting the sand and gravel and
petitioner’s related profit for transporting the sand and gravel.
Petitioner acquires the sand and gravel from various
suppliers. During petitioner’s 1994 taxable year, 20 different
entities (20 suppliers) provided petitioner with 60 percent
(evaluated by weight in tons) of its sand and gravel needs, while
the Unimin Corp. (Unimin) supplied petitioner with the remaining
40 percent.
Unimin processes and sells a high grade of sand used
primarily in the production of wine bottles. Processing this
high grade of sand produces a byproduct consisting of water and a
lower grade of sand, known as Byron sand. After the water is
removed from the byproduct, the Byron sand can be used by
petitioner’s customers. Because petitioner must provide and
maintain all the equipment and personnel necessary to filter,
gather, and remove the Byron sand from Unimin’s processing plant,
Unimin charges petitioner a lower amount than what the 20
suppliers charge for the same grade of sand. When petitioner
computes the cost to acquire 1 ton of the Byron sand, petitioner
includes its costs in filtering, gathering, and removing the
Byron sand from Unimin’s processing plant as well as the amount
that Unimin charges petitioner for the Byron sand.
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Last modified: May 25, 2011