Indiana – Tanks Used for Manufacturing Were Not Taxable

SALT Report 2338 – The Indiana Department of Revenue issued a letter of finding regarding an Indiana Taxpayer’s protest of an assessment of use tax on steel and fiberglass tanks it claimed were used in its bleach manufacturing business. The Department conducted an administrative hearing to determine whether the tanks were directly used in the direct production of bleach.

In its response the Department referred to IC § 6-2.5-5-3(b) which states that: “…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.”

Also referenced was regulation 45 IAC 2.2-5-8(c) which provides an exemption for materials that are directly used in the production process if “they have an immediate effect on the article being produced.” Property has an immediate effect “if it is an essential and integral part of an integrated process which produces tangible personal property.”

Upon review of the case the Department determined that the steel tanks purchased by the Taxpayer were used to continuously circulate sodium hydroxide, which is a necessary step in the Taxpayer’s integrated bleach production process. Therefore, the Department concluded that the steel tank were directly used in Taxpayer’s direct production of bleach and qualified for the exemption under IC § 6-2.5-5-3.

With respect to the fiberglass tanks the Department noted that the unfinished bleach is required to settle for several hours in order to allow particles to be separated from the remaining bleach. This settling process occurs during the integrated production process and has an immediate effect on the bleach. Accordingly, the fiberglass tanks qualified for the exemption under IC §6-2.5-5-3.

For Further Information

Indiana Department of Revenue – Letter of Findings No. 04-20120532