[Code of Federal Regulations]
[Title 26, Volume 14]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR17.1]

[Page 237-238]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 17_TEMPORARY INCOME TAX REGULATIONS UNDER 26 U.S.C. 103(c)--Table of Contents
 
Sec.  17.1  Industrial development bonds used to provide solid waste disposal facilities; temporary rules.

    (a) In general. Section 103(c)(4)(E) provides that section 103(c)(1) 
shall not apply to obligations issued by a State or local governmental 
unit which are part of an issue substantially all the proceeds of which 
are used to provide solid waste disposal facilities. Section 1.103-8(f) 
of this chapter provides general rules with respect to such facilities 
and defines such facilities. In the case of property which has both a 
solid waste disposal function and a function other than the disposal of 
solid waste, only the portion of the cost of the property allocable to 
the function of solid waste disposal (as determined under paragraph (b) 
of this section) is taken into account as an expenditure to provide 
solid waste disposal facilities. A facility which otherwise qualifies as 
a solid waste disposal facility will not be treated as having a function 
other than solid waste disposal merely because material or heat which 
has utility or value is recovered or results from the disposal process. 
Where materials or heat are recovered, the waste disposal function 
includes the processing of such materials or heat which occurs in order 
to put them into the form in which the materials or heat are in fact 
sold or used, but does not include further processing which converts the 
materials or heat into other products.
    (b) Allocation. The portion of the cost of property allocable to 
solid waste disposal is determined by allocating the cost of such 
property between the property's solid waste disposal function and any 
other functions by any method which, with reference to all the facts and 
circumstances with respect to such property, reasonably reflects a 
separation of costs for each function of the property.
    (c) Example. The principles of this paragraph may be illustrated by 
the following example:

    Example. Company A intends to construct a new facility to process 
solid waste which City X will deliver to the facility. City X will pay a 
disposal fee for each ton of solid waste that City X dumps at the 
facility. The waste will be processed by A in a manner which separates 
metals, glass, and similar materials. As separated, some of such items 
are commercially saleable; but A does not intend to sell the metals and 
glass until the metals are further separated, sorted, sized, and cleaned 
and the glass is pulverized. The metals and pulverized glass will then 
be sold to commercial users. The waste disposal function includes such 
processing of the metals and glass, but no further processing is 
included.

    The remaining waste will be burned in an incinerator. Gases 
generated by the incinerator will be cleaned by use

[[Page 238]]

of an electrostatic precipitator. To reduce the size and cost of the 
electrostatic precipitator, the incinerator exhaust gases will be cooled 
and reduced in volume by means of a heat exchange process using boilers. 
The precipitator is functionally related and subordinate to disposal of 
the waste residue and is therefore property used in solid waste 
disposal. The heat can be used by A to produce steam. Company B operates 
an adjacent electric generating facility and B can use steam to power 
its turbine-generator. B needs steam with certain physical 
characteristics and as a result A's boilers, heat exchanger and related 
equipment are somewhat more costly than might be required to produce 
steam for some other uses. The disposal function includes the equipment 
actually used to put the heat into the form in which it is sold.
    Company A intends to construct pipes to carry the steam from A's 
boiler to B's facility. When converted to such steam the heat is in the 
form in which sold, and therefore the disposal function does not include 
subsequent transporting of the steam by pipes. Similarly, if A installed 
generating equipment and used the steam to generate electricity, the 
disposal function would not include the generating equipment, since such 
equipment transforms the commercially saleable steam into another form 
of energy.

[T.D. 7362, 40 FR 26028, June 20, 1975]