Tuesday, October 16, 2012

Revenue Finds Taxpayer Not Entitled to Manufacturing Exemption on Truck and Pump


Taxpayer is protesting the imposition of use tax on the purchase of a concrete pumping truck, line pump, as well as repairs and service parts for the truck and pump for the 2008, 2009, and 2010 tax years.

According to Taxpayer, it is hired by customers to pump concrete for use in mining infrastructure, other construction, and preset molds. Taxpayer's pump truck is kept in one location so that it is easily accessible to ready-mix concrete trucks. The ready-mix concrete trucks, hired by Taxpayer, pour concrete into Taxpayer's line pump, which pumps concrete through a pipeline to a specific destination. Taxpayer supplies both the concrete and the pumping equipment for the customer and charges the customer for both labor and materials.

Taxpayer argues that use tax should not be imposed because they qualify for the manufacturing exemption.

First, Taxpayer argues in its protest letter that "trucks not to be licensed for highway use and to be directly used in direct production of manufacturing, mining, refining or harvesting of agricultural commodities are specifically exempt from the imposition of the sales tax." Energy Supply, Inc. v. Indiana Dept. Of State Revenue, 549 N.E.2d 1110 (Ind. Tax Ct. 1990). However, Energy Supply does not discuss truck licensing. Instead, the case focuses on the distance trucks must travel from Energy Supply's two mines to the processing plant to determine if the trucks have an immediate link to the manufacturing process. Taxpayer has not explained beyond the quote above how Energy Supply relates to the present issue. Taxpayer does not begin work until Taxpayer has arrived at customer's location. Therefore, the distance the truck must travel is irrelevant to the determination of this issue.

Next, Taxpayer argues that because it performs some jobs at mines (where it is contracted to pour concrete for various mine infrastructure projects), its activities are part of a continuous mining operation and therefore the equipment it uses should be exempt. Taxpayer generally refers to Cave Stone and Amax presumably for this proposition. Indiana Dept. of Revenue v. Cave Stone, Inc., 457 N.E.2d 520 (Ind. 1983) and Indiana Dept. of Revenue v. Amax, Inc., 513 N.E.2d 1260 (Ind. Ct. App. 1987). Taxpayer however is incorrect. Taxpayer is not the mining company whose mining operations qualify for the exemption. Taxpayer's activities at the mines are not even part of the actual mining operation. Taxpayer is contracted to build part of the infrastructure of the mining operation, but is not involved in the actual mining process…

Finally, Taxpayer argues in its protest letter that "a taxpayer's qualification for this industrial exemption to sales and use taxes is not based on whether the activity is to be called manufacturing or processing or any other of the listed terms, but rather whether the activity was directly involved in creation of a product." Rotation Products. However, the issue in Rotation Products is whether the remanufacture of roller bearings is included in the manufacturing exemption. The court in Rotation Products, held that the repair and remanufacturing activity in this case was so extensive that it transformed the tangible personal property into a new product and thus constituted manufacturing. Taxpayer's brief explanation, quoted above, does not explain how its activities fit into the context of Rotation Products. Taxpayer does not itself mix the concrete and does not itself alter the concrete to create tangible personal property. Instead, Taxpayer purchases pre-mixed concrete which is poured into its concrete pump line by a third party and which Taxpayer then pumps into a designated location or item belonging to a customer.

Some of the language of Taxpayer's protest suggests that Taxpayer is relating itself to an industrial processor. However, Taxpayer does not fit the description of an industrial processor. Taxpayer buys pre-mixed concrete from a third party concrete producer, but Taxpayer does not return the concrete to the third party concrete producer. Instead, Taxpayer sells the concrete purchased from the third party concrete producer to the customer who hired Taxpayer to pump the concrete.

Taxpayer enters into contracts to pump concrete. Some contracts require Taxpayer to pump concrete into the infrastructure of mines and others require Taxpayer to pump concrete into preset molds. The customers may themselves be manufacturers and miners, but Taxpayer is a contractor.

Taxpayer is a contractor and is not exempt from tax in this instance. Taxpayer did not meet the burden to show exemption set in IC § 6-8.1-5-1(c). The imposition of use tax on Taxpayer's equipment, repairs, and service parts was proper.

http://www.in.gov/legislative/iac/20120926-IR-045120530NRA.xml.html