Pursuant to [an] audit, the Department determined that
Taxpayer did not pay sales tax on certain purchases of tangible personal
property, including, but not limited to, natural gas, water, packaging
supplies, and labeling materials.
…
Taxpayer explained that it purchased natural gas and water
from a supplier ("Vendor") – a company which previously owned the
facility where Taxpayer operates. … Taxpayer
asserted that Vendor was a party in [a] case, in which the Indiana Utility
Regulatory Commission determined that Vendor is a public utility pursuant to IC
§ 8-1-2-87.5.
…
Taxpayer's reliance is misplaced. Whether Vendor is a person
engaged in transportation of gas and subject to Title 8 of the Indiana Code,
Utilities and Transportation, is beyond the scope of this tax protest.
Specifically, 45 IAC 2.2-4-11(d) and Information Bulletin 55
explain, in relevant part, that "public utilities" means any organization
which is engaged in the furnishing or selling of natural gas or water, and
"having the right of eminent domain or subject to government regulation in
connection with the furnishing of public utility services."
…
Additionally, IC § 6-2.5-4-5(c)(3) is only applicable when a
purchaser uses the utilities "in manufacturing, mining, production,
refining, oil extraction, mineral extraction, irrigation, agriculture, or
horticulture." Specifically, Information Bulletin 55 explains that "[t]o
qualify for the exemption, the listed utility must be consumed as an essential
and integral part of an integrated process which produces tangible personal
property" and "[t]his exclusion does not apply to utilities used in
processing another's product." Taxpayer, an industrial processor, applies
coating materials to the customer-owned coils. Thus, the Department must
respectfully decline Taxpayer's invitation to apply IC § 6-2.5-4-5(c)(3).
…
The Department's audit [also] assessed Taxpayer additional
use tax on the purchases of packaging supplies for which Taxpayer did not pay
sales tax at the time of its purchases.
…
IC § 6-2.5-5-9(d) states:
Sales of wrapping material and empty containers are exempt from the
state gross retail tax if the person
acquiring the material or containers acquires them for use as nonreturnable
packages for selling the contents that he adds.
45 IAC 2.2-5-16[(d)(1)] explains: To
qualify for this exemption, nonreturnable wrapping materials and empty
containers must be used by the purchaser in the following way: (A) The purchaser must add contents to the
containers purchased; and (B)
The purchaser must sell the contents added.
...
In this instance, Taxpayer acquired the steel and aluminum
coils owned by its customers; Taxpayer provided industrial processing or
servicing, including applying coatings on its customers' steel and aluminum
coils; and Taxpayer transferred the steel and aluminum coils back to its customers
to be sold by its customers. Thus, Taxpayer is an industrial processor pursuant
to 45 IAC 2.2-5-10(a) and IC § 6-2.5-4-2(c). The
statute specifically excludes an industrial processor from being considered as
a retail merchant making a retail transaction when the three statutory
requirements are met. Thus, the Department is not able to agree that
"Taxpayer sells coatings which it applies to steel and aluminum coils on behalf
of its customers."
In short, Taxpayer's purchases of packaging supplies were
taxable. Since Taxpayer did not pay sales tax at the time of its purchases, use
tax is properly imposed.
The Department's audit assessed use tax on Taxpayer's
purchases of labeling materials, including items used for bar coding, paper for
invoicing and packing slip information, and adhesive plastic folders used to
hold the items mentioned.
45 IAC 2.2-5-10[(j)], in relevant part,
states: Machinery, tools, and equipment
used in managerial sales, research and development or other nonoperational
activities are not directly used in processing or refining and, therefore, are
subject to tax. This category includes, but is not limited to machinery, tools,
and equipment used in any of the following activities: management and administration; selling and marketing; exhibition of manufactured or processed
products; safety or fire prevention, equipment which is not essential
and integral to the production process; space heating; ventilation and cooling
for general temperature control; illumination; heating equipment for general
temperature control; and shipping
and loading.
…
While the labeling materials may be considered essential to
the conduct of Taxpayer's business because their use is required by practical
necessity, but they do not have an immediate effect upon the tangible personal
property being processed. The labeling materials thus were used for managerial purpose,
i.e., inventory control, and/or other nonoperative activities, i.e., shipping.
Therefore, the Department is not able to agree that Taxpayer is entitled to an
exemption on its purchases of the labeling materials.
Since Taxpayer did not pay sales tax at the time of its purchases, use tax is properly imposed.
http://www.in.gov/legislative/iac/20120229-IR-045120085NRA.xml.pdf
