Indiana – Sales to a Related Corporation are Exempt

SALT Report 1561 – The Indiana Department of Revenue determined that a manufacturer’s sales of structural steel building components was not liable for Indiana sales or use tax because they were incorporated into parts that were sold to a sister corporation who provided a valid exemption certificate.
The Taxpayer is in the business of manufacturing steel joists, floor decks, stairways, and handrails. The sister corporation is in the business of designing and constructing commercial and industrial buildings. The taxpayer and the sister corporation work hand-in-hand; one fabricates structural steels parts, and the other purchases the steel parts to incorporate them into buildings for resale.
It is the Taxpayer’s the position that the parts used in the manufacturing process fall within the definition of “direct use” under 45 IAC 2.2-5-8(c) which states, “transactions involving manufacturing machinery, tools, and equipment are exempt from the state gross retail tax if the person acquiring that property acquires it for direct use in the direct production, manufacture, fabrication, assembly, extraction, mining, processing, refining, or finishing of other tangible personal property.” Therefore, sales tax did not apply to the taxpayer’s sales of property because they were incorporating the materials into other tangible personal property.
Additionally, IC §6-2.5-3-7(b) states, “a retail merchant is not required to produce evidence of non-taxability… if the retail merchant receives from the person who acquired the property an exemption certificate which certifies that the acquisition is exempt from sales tax.” Accordingly, the Department found that the manufacturer was not required to collect sales tax from its sister corporation because the sister corporation provided a valid exemption certificate.
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