Taxpayer maintains that since the "chip dryer" removes the foreign materials from the aluminum, it changes the product and is exempt.
As provided above, the court found that the "focus of analysis should be whether the equipment is an 'integral part of manufacturing and operates directly on the product during production.'" Cave Stone, 457 N.E.2d at 525. While the "chip dryers" may make purification of recycled aluminum more efficient, it is not equipment that has an immediate effect on the manufactured ingot. The "chip dryers" ready a raw material, recycled aluminum, for the manufacturing process. Thus, the "chip dryer" is a separate system both distinct and removed from the actual manufacturing of the aluminum ingot. The "chip dryers" simply function to treat the recycled aluminum before the aluminum enters into the manufacturing process. Accordingly, the processing of the recycled aluminum is a preproduction activity and does not fall under the exemption.
However, Taxpayer's purchases of the "chip dryers" were required by the Indiana Department of Environmental Management ("IDEM"). The "chip dryers" are listed as some of the equipment that IDEM required Taxpayer to purchase before Taxpayer could receive a "Title V Environmental Permit" from the Environmental Protection Agency under Title V of the Clean Air Act. See Clean Air Act, 42 U.S.C. § 7401, et seq. (2007) & 40 CFR § 70.1, et seq. (2007). Since the "environmental control equipment" was required by IDEM, the repair and replacement parts purchased for this equipment are exempt under the "environmental exemption" as defined in IC § 6-2.5-5-30.
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While Taxpayer has not provided sufficient documentation to support its assertion that the "chip dryers" qualify for the "manufacturing equipment exemption," Taxpayer has provided sufficient documentation to establish that the "chip dryers" were purchased to comply with an environmental quality standard and are exempt from sales and use tax under the "environmental exemption" as defined in IC § 6-2.5-5-30. Therefore, the purchase of repair and replacement parts for the "chip dryers" would qualify for this exemption as well.
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The Department found that use tax was due on the purchases of hydrated lime, sodium chloride, and titanium dioxide that Taxpayer had made without paying sales tax. …
During the hearing, the Taxpayer presented the permit report issued by IDEM. The hydrated lime was specifically listed as necessary for use with two "reverberatory furnaces" that IDEM required Taxpayer to purchase. Therefore, Taxpayer has provided sufficient documentation to support its assertion that the hydrated lime was purchased to comply with an environmental quality standard and are exempt from sales and use tax under the "environmental exemption" as defined in IC § 6-2.5-5-30.
However, neither the sodium chloride nor the titanium dioxide were as required by IDEM. Therefore, Taxpayer has failed to provide sufficient documentation to support its assertion that the sodium chloride and the titanium dioxide were purchased to comply with an environmental quality standard.
