Indiana has issued a revenue ruling stating that equipment used in a climate-controlled clean room qualified for the state’s manufacturing exemption for sales and use tax. The company in question is constructing a manufacturing facility in Indiana and requested guidance from the state.
The company is a manufacturer and wholesaler of glass primary packaging – such as glass vials, pre-fillable syringes, cartridges for insulin pen injectors, etc. – for the pharmaceutical industry. Due to strict sterilization requirements, the products must be manufactured to be free of detectable contamination. As such, a clean room environment is required during the manufacturing process. The clean room equipment includes items such as chillers, air compressors, and cooling towers. Although the clean room equipment does not come into physical contact with the items being produced, it is essential to the production process and has an immediate effect on the items being produced. The clean room is also a separate and self-contained area used only for manufacturing which aided the state’s decision in approving an exemption for the equipment use within this clean room as solely being used for manufacturing.
The Department of Revenue (DOR) agreed with the company that the machinery and equipment incorporated into the clean room are an essential and integral part of the production process, are used directly in the production process, and are therefore exempt from sales tax. However, the DOR stated that flooring, ductwork, and other construction materials incorporated into real property would not be exempt, since they are not machinery, tools or equipment.
(Revenue Ruling #2022-06ST, Indiana Department of Revenue, April 12, 2023)