SALT Report 1982 – The Indiana Department of Revenue issued a letter ruling regarding a Taxpayer who did not pay sales or use tax on various purchases. The Department audited the Taxpayer and determined that the Taxpayer should have self-assess use tax on its purchases of die ovens. The Department issued an assessment and the Taxpayer filed an appeal.
The Taxpayer in this case is in the aluminum processing business. He produces aluminum extrusions by heating aluminum billets to several hundred degrees Fahrenheit. The billets are then forced through dies to produce the desired shape or form. In order to produce the aluminum extrusions, the dies must first be heated in a die oven.
The issue is whether the die ovens are directly used in the manufacturing process. Regulation 45 IAC 2.2-5-8(c) provides that materials are directly used in the production process if “they have an immediate effect on the article being produced.” Property is considered to have an immediate effect “if it is an essential and integral part of an integrated process which produces tangible personal property.”
However, 45 IAC 2.2-5-8(g) states that: “The fact that property may be considered essential to the conduct of the business of manufacturing because its use is required by law or by practical necessity does not itself mean that the property has an immediate effect upon the article being produced.”
In their final decision, the Department recognized that die ovens are a necessary and crucial part of the Taxpayer’s manufacturing process. Without the heated dies, the manufacturing processes could not continue. Although the die oven is critical to the Taxpayer’s process, its use–to heat the dies prior to the dies’ placement on the Taxpayer’s presses–is one step removed from the actual manufacturing process. Therefore, the Department determined that “the die ovens are not directly used in direct production.” Consequently, the Taxpayer’s appeal was denied and the use tax assessment was enforced.
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