A taxpayer’s motion of summary judgement against the Minnesota Commissioner of Revenue’s denial of its refund claim for Minnesota sales tax paid for natural gas and electricity used to operate a burn-off oven was granted. The taxpayer’s customers manufacture or produce tangible personal property to be sold at retail. As part of their production processes, the customers use metal hooks, racks, and fixtures to support parts that must be powder coated. The hooks, racks, and fixtures are production equipment. Powder coating accumulates on this equipment, which must then be cleaned in order to be reused in the production process. The customers hire the taxpayer, which operates a burn-off oven that removes the accumulated powder coating, thereby allowing its customers to reuse the cleaned equipment in their production processes.
The Commissioner had determined that the natural gas and electricity used to operate the burn-off oven were not exempt as materials consumed in the production of tangible personal property. At issue in this case is Minnesota’s “industrial production” exemption, which states that “Materials stored, used, or consumed in industrial production of tangible personal property intended to be sold ultimately at retail, are exempt, whether or not the item so used becomes an ingredient or constituent part of the property produced.” The taxpayer argued that the natural gas and electricity it used to operate the burn-off over are exempt under the industrial production exemption. The Commissioner had denied the taxpayer’s refund claim based on Minnesota tax law, which provides that “Industrial production does not include painting, cleaning, repairing or similar processing of property except as part of the original manufacturing process.” (emphasis added).
The Minnesota Tax Court disagreed with the Commissioner’s interpretation of the law. The Court found that the taxpayer is cleaning production equipment, not property. Since the tax law at hand deals with property rather than with machinery and equipment, it is not applicable in this case. The Commissioner had offered no additional arguments for denying the taxpayer the “industrial production” exemption. As such, the taxpayer’s motion of summary judgement was granted. (Inthermo, Inc. v. Commissioner of Revenue, Minnesota Tax Court, No. 9143-R, September 10, 2019, released September 2019)