…
Taxpayer protests that the two items in question, a shredder
and a conveyor, are used in its alternative fuel manufacturing process. As
described in both the audit report and in Taxpayer's protest letter, Taxpayer
takes shredded paper goods and blends in other shredded items such as rubber
and plastics to form an alternative fuel which it sells to a cement
manufacturer. The cement manufacturer burns this blend of shredded items in its
production process.
IC § 6-2.5-5-3(b) provides:
Except as provided in subsection (c), transactions involving
manufacturing machinery, tools, and equipment are exempt from the state gross
retail tax if the person acquiring that property acquires it for direct use in
the direct production, manufacture, fabrication, assembly, extraction, mining,
processing, refining, or finishing of other tangible personal property.
Therefore, tangible personal property must be directly used
in the direct production of other tangible personal property in order to
qualify for the exemption found in IC § 6-2.5-5-3(b). Taxpayer's protest letter
and the audit report both state that Taxpayer's customer needs the shredded
materials to burn at 11,000 BTUs. Taxpayer believes that the shredding and
blending of the various materials to meet this level constitute
"manufacturing" and that the equipment used to perform this process
qualify for the manufacturing exemption.
…
The Department does not agree that Taxpayer's process
results in a substantial change to the tangible personal property. The end
product is not substantially different from the component materials, as the
court in Interstate Warehousing stated is required. As explained above, the
burden of proving a proposed assessment wrong rests with the person against
whom the proposed assessment is made. In this case, Taxpayer has not
established that the shredder and conveyor meet the requirements of the
manufacturing exemption, and so Taxpayer has not met the burden of proving the
proposed assessments wrong.
