IDOR agreed that groundwater testing services and cooling towers were not subject to Indiana sales tax

On December 26, 2018, the Indiana Department of Revenue, in Letter of Findings No. 04-20171229, sustained Manufacturer’s protest against the assessments of sales tax against environmental monitoring services and cooling towers for the 2010 – 2-12 tax years. Manufacturer challenged the assessment of sales tax for charges by a vendor for collecting groundwater samples from Manufacturer’s wells, which the vendor later analyzed at the vendor’s lab. The Department agreed that no sales tax was due, explaining “that no tangible personal property (TPP) was acquired in a retail transaction since it was [Manufacturer’s] own water that was being tested.”

Manufacturer produced acid, and it had to cool acid “to limit the corrosion rate to the internal equipment.” It explained the process in detail:

The manufacturing process begins with reclaimed acid from refineries in liquid form as raw materials. The raw materials then go through the furnace and boiler stations to be cleaned by a WET Acid precipitator. Next, the materials go through the main blower and a series of additional production processing stations. During these stations, oxygen molecules are introduced into the process. This process causes a chemical reaction which causes the product heat to go up. To control the heat process, the acids must go through tube coolers throughout the production process. Tube coolers are tubes inside a direct contact water cooler. The cooling towers are used to control the temperature of the water which in turn, regulates the temperature of the acid being produced.

The Department noted that its regulation 45 IAC 2.2-5-8(c) under “Examples” states in part: “Cooling towers . . . used to cool, circulate, and supply water employed to control the temperature of exempt furnaces and exempt machines” are exempt from sales tax because they are “essential and integral parts of the integrated production process.”  The Department ruled, “[Manufacturer] . . . established that cooling towers were an exempt part of its manufacturing process.”

The Department’s ruling can be found here.

Image by danielemusella.