An Indiana-based processor and wholesaler of fruits and vegetables was not entitled to the state’s sales tax exemption on utility purchases since the utilities were used in processes that took place outside the production process and were not essential and integral to the production process. Per Indiana tax law, purchases of materials to be directly consumed in the process of producing tangible personal property (TPP) are exempt if the materials are directly used in the production process, which is to say that they have an immediate effect upon the commodities being produced. Property has an immediate effect on the commodities being produced if it is an essential and integral part of an integrated process which produces TPP. The taxpayer argued that its purchases of gas and water through certain meters were exempt since the gas and water were “predominately utilized … in production.” Specifically, the utilities were used in processes for cooking food or sanitizing the products and production processes. The taxpayer’s production lines generally ran from 6:00 a.m. to 7:00 p.m. The bulk of the sanitation process took place between 7:00 p.m. and 6:00 a.m., when the production process was halted. The taxpayer argued that the sanitation process is part of the integrated production process since it is a required part of the process to produce a marketable product. The taxpayer also pointed out that sanitization using hot water and chemicals is required for the production of processed fruits and vegetables as well as cooked and processed food products pursuant to FDA regulations. The Indiana Department of Revenue found that the meters at issue in this case were used outside of the production process and are not an essential and integral part of the production process. While cleaning and sanitization may be considered essential for food manufacturing, its required use by practical necessity or FDA regulations does not itself mean that the related TPP have an immediate effect upon the article being produced. Merely complying with a government regulation is not the determining factor in whether or not TPP is exempt. Accordingly, the meters at issue are not exempt from Indiana sales and use tax. (Final Order Denying Refund No. 04-20181629R, Indiana Department of Revenue, March 29, 2019, released June 2019)