Revenue Finds "Holding Tank" Where Emulsifier Added Part of Manufacturing Process and Therefore Exempt from Sales Tax

Taxpayer purchased storage tanks. For purposes of this Letter of Findings, this first set of tanks is hereinafter referred to as "Holding Tanks." The Holding Tanks store Taxpayer's asphalt product received upon delivery by truck from Taxpayer's suppliers. The Holding Tanks are heated to maintain the raw product's desired viscosity. While in the Holding Tanks, Taxpayer adds an emulsifier to the product. The emulsifier makes it possible to add water to the product and for this water to fully combine with the product.  After the emulsifier is added, the product is transferred to a "mixing tank." Taxpayer then adds clay and heated water. Afterwards, the product is transferred to a third tank where it is ready to be sold to Taxpayer's customers.
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In Taxpayer's process of producing customer-ready asphalt products, Taxpayer adds an emulsifier to the raw tar or asphalt contained in the "Holding Tanks." The emulsifier acts upon this raw product in such a way as to allow Taxpayer to combine water with the raw product. In this case, the addition of the emulsifier constitutes the "first operation or activity constituting part of the [Taxpayer's] integrated production process...." 45 IAC 2.2-5-8(d). The addition of the emulsifier has "an immediate effect on the article being produced." 45 IAC 2.2-5-8(c).

Taxpayer has met its burden of demonstrating that in Taxpayer's particular manufacturing process, with the particular items of equipment involved, and consider the particular product manufactured, Taxpayer acquired the "Holding Tanks" "for direct use in the direct production, manufacture, fabrication, assembly, extraction, mining, processing, refining, or finishing of other tangible personal property." IC § 6-2.5-5-3(b) See also 45 IAC 2.2-5-8(e)(3) ("Storage facilities or containers for materials or items currently undergoing production during the production are deemed temporary storage facilities and containers and are not subject to tax.")

http://www.in.gov/legislative/iac/20120530-IR-045120234NRA.xml.html