Liner Carts Subject to Partial Manufacturing Exemption in Indiana

The purchase of liner carts by a plastic parts manufacturer was determined to be partially exempt from Indiana use tax since the carts were an integral part of an integrated manufacturing process. The taxpayer has a two-part manufacturing process: the plastic part is first manufactured then liners are pressed into the part. The taxpayer uses carts to get rolls of liner material from the warehouse, move them to the stamping machine and hold the rolls as they are fed into the stamping machine. Even though the liner carts do not transform the property being manufactured, they are essential and integral to an integrated process and are partially exempt from tax. When the carts are used to move liners to the production line, they are not used for an exempt purpose. But once the carts are placed in the production process, their use is exempt. Since the carts serve both exempt and non-exempt purposes, they are taxed at only 50%. Indiana provides an exemption under the manufacturing exemption that is equal to the exempt use of the time rather than following a predominate or exclusive use test.

The taxpayer additionally claimed that its purchase and use of label applicators was essential and integral to the production process and therefore exempt, because without the labels the products do not meet customer specifications. The label applicators do not qualify for the manufacturing exemption because they do not affect the products directly. The labels are not incorporated into the taxpayer’s product. Even though the labels are required by both the FDA and the taxpayer’s customers, that does not mean that the labels are an integral part of an integrated process. The labels are placed on shipping cartons, outside of the integrated production process, and are therefore not exempt.

The taxpayer’s purchase of cleaning supplies was determined to be essential and integral to the production of its products and therefore exempt. The taxpayer uses molds to create plastic parts. If the molds are not cleaned, the taxpayer is only able to produce a limited number of products. (Letter of Findings No. 04-20170108, Indiana Department of Revenue, March 28, 2018)

Posted on April 30, 2018