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Taxpayer protests the imposition of use tax on five categories of transactions during the tax years 2009, 2010, and 2011. The Department determined that these transactions were subject to sales and use taxes. Taxpayer states that the five categories under protest are not subject to sales and use taxes for various reasons.
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The first category under protest is in regards to equipment which Taxpayer believes qualifies as exempt manufacturing equipment. Taxpayer states that the Department included the amount paid for a paint system used in Taxpayer's production line. The relevant statute is IC § 6-2.5-5-3(b), which states:
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, when a taxpayer uses machinery, tools, or equipment in the direct production, manufacture, fabrication, assembly, extraction, mining, processing, refining, or finishing of other tangible personal property, the purchased machinery, tools, or equipment is exempt from sales and use tax. In this case, Taxpayer has provided sufficient documentation to show that the paint line is directly used in the direct production of its goods. Taxpayer has met the burden imposed under IC § 6-8.1-5-1(c).
The second category under protest is a wastewater tank which is part of Taxpayer's paint line. The Department considered the wastewater tank to be a post-production piece of equipment which did not have a direct effect on the direct production of Taxpayer's goods. As part of the hearing process, Taxpayer provided documentation and analysis to show that the wastewater tank is an integral part of the exempt paint line. Therefore, the wastewater tank is also exempt under IC § 6-2.5-5-3(b).
The third category under protest concerns forklifts and related items. Taxpayer argues that the Department agreed to a thirty-eight percent taxable rate for forklifts and that the same rate should apply to battery chargers for the forklifts. Again, IC § 6-2.5-5-3(b) provides an exemption for machinery, tools, and equipment which is directly used in the direct production process. In this case, the battery chargers are not directly used in the direct production of Taxpayer's goods. The forklift batteries themselves would be subject to the same tax rate as the forklifts since they power the forklifts as they transport work-in-process, but the chargers only have a direct effect on the batteries, not on Taxpayer's goods. Taxpayer has not met the burden imposed by IC § 6-8.1-5-1(c).
The fourth category under protest concerns amounts which Taxpayer states were charged for installation services on four invoices. Taxpayer believes that these amounts are not subject to sales and use tax and that they should be removed from the Department's calculations of use tax due. Taxpayer provided copies of the four invoices in support of its position that the Department included delivery charges as amounts subject to sales tax.
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After review of the invoices in question, the Department is not convinced that the delivery and installation charges are not taxable. While two of the invoices include line items listing delivery and/or installation charges, those entries are included in the subtotal which Taxpayer's vendors charged as a total combined charge to Taxpayer. This constitutes a unitary transaction, as provided by IC § 6-2.5-1-1(a). The remaining invoices simply list a total amount charged, which on its face is a unitary transaction. Taxpayer has not met the burden imposed by IC § 6-8.1-5-1(c) for this category of items under protest.
The fifth category of items under protest is in regard to items which the Department considered to be rental of trailers. Taxpayer protests that what the Department considered to be trailer rentals was in fact only a description by Taxpayer's vendor listing the costs that went into providing transportation services. As described above, a unitary transaction is one which includes all items of personal property and services which are furnished under a single order or agreement and for which a total combined charge or price is calculated. However, upon review of the invoice in question, it is clear that no tangible personal property was furnished in this transaction. Therefore, only services were provided and as such were not subject to sales and use tax. Taxpayer has met its burden under IC § 6-8.1-5-1(c).
