Taxpayer argues that the computer software it uses (and
other related items) is exempt under IC § 6-2.5-5-4 and 45 IAC 2.2-5-8(g)(7)
as tangible personal property acquired for the direct production of the designs
which it sells to its customers as part of the production of the actual mold,
tool, or die it produces for its customers.
Subsequent to the hearing and in order to support its
argument that it was selling the designs themselves, Taxpayer presented
documents from two different customers that set out mold design and building
specifications. These design/building specification documents contain language
that requires Taxpayer to present any "prints or tracings" of the
mold designs to the customer at the end of the production process. Thus,
Taxpayer argued that it not only manufactured molds for its customers, but that
the designs themselves were also a product it produced and sold to customers
and therefore the software used to create the designs, including license
renewals of the software and software updates, qualify for the "industrial
production" exemptions. In relying on 45 IAC 2.2-5-8(g)(7),
Taxpayer is essentially saying that unlike the example in the regulation (which
deals with computers that produce designs that are not sold as products and are
therefore not exempt), Taxpayer's computers produce designs that are sold and
therefore should be exempt.
Taxpayer's understanding of the "industrial
production" exemptions is overly broad. The design process Taxpayer
contends is subject to exemption falls into the pre-production phase of
Taxpayer's operations. Taxpayer is in the business of producing molds, tools
and dies for its customers, the design of the items is part of Taxpayer's
process that leads to the production activities. Taxpayer's design services are
akin to those services provided by an architect for example. Taxpayer's actual
design, like the architect's blueprint, is associated with a service Taxpayer
provides its customers in preparation for the actual production of the mold,
tool, or die. Furthermore, Taxpayer did not present evidence that shows that it
actually sells the designs themselves. For example, that it separately charges
for the designs. The fact that Taxpayer's customers request that Taxpayer
provide the design at the end of the production process, does not show that
Taxpayer actually sold the design.
Based on all of the above, Taxpayer's design software,
licenses, and maintenance agreements are not exempt.
http://www.in.gov/legislative/iac/20120425-IR-045120177NRA.xml.html
