SALT Report 2758 – The Indiana Department of Revenue issued a letter of finding regarding a trailer manufacturers purchase of advertising material, scissor lifts, and scales using the manufacturing exemption.
In 2012, the Department conducted an audit of the Taxpayer’s records, which resulted in an assessment of sales and use tax and interest for its purchases of the advertising materials, scissor lifts, and scales. The Taxpayer filed an appeal for the following reasons:
The advertising materials were purchased for two specific trailer shows in two different states. In both cases, the literature was shipped by the manufacturer directly to the shows and distributed by the Taxpayer to potential customers. During the audit, the Taxpayer was told that the brochures were exempt, however they were left in the audit report.
The Taxpayer stated that its employees use the scissor lift during the production process to hang sidewall and roofing metal on the trailers. Previously, the Taxpayer used large ladders for this process, but for safety purposes, the Taxpayer purchased and began using the scissor lift. Again, during the audit, the auditor stated that the scissor lift was exempt but then left the full amount of the lift in the audit summary.
Finally, the Taxpayer argued that the scales should be exempt as they are used in the production process. In the Taxpayer’s business a trailer is not complete and can’t be considered complete in production until it is weighed. Determining the weight is the final step in the production process and is necessary to complete the required paperwork. Specifically noted, was that the Taxpayer cannot sell a trailer that does not have a VIN tag or title and those documents cannot be generated until the weight of the trailer is determined.
Upon review of the case, the Department stated that the Taxpayer was not liable for tax on the advertising materials it purchased because the Taxpayer produced an invoice showing that the items were purchased from a company in one state who shipped the items to another state that was not Indiana. As a result, the amounts assessed for these items were removed from the audit report.
However, neither the scissor lift nor the scales were exempt purchases. The scissor lift was not exempt manufacturing equipment because it was not directly used in the direct production process. The Department stated that the scissor lift had the same function as a ladder, and therefore did not have an immediate effect on the article being produced as required by 45 IAC 2.2-5-8(c).
As for the scales, the Department determined that they were used post-production and as a result, were taxable. Specifically noted was that although the Taxpayer must weigh the trailer to complete the final titling documents, at that point the trailer is already altered to its final completed form before it can be weighed. Therefore, the Taxpayer’s use of the scales does not meet the exemption requirements set forth in 45 IAC 2.2-5-8(d).
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