The Indiana Supreme Court recently ruled that the state manufacturing exemption applies to equipment and electricity used to blast freeze food products.
The taxpayer operated a freezing and storage facility that provided slow and blast freezing services. Blast freezing extends the shelf life of frozen foods through a rapid freezing process. Slow freezing takes longer and results in lower food quality and shorter shelf life.
Indiana exempts equipment and electricity used in the direct production of tangible personal property. Indiana interprets "direct production" to include activities that are essential and integral to producing a distinct marketable product.
The court determined that equipment and electricity used to blast freeze food were exempt because they were essential and integral to the production of "blast-frozen food." The court determined that slow freezing is simply a means of storage, so equipment used in slow freezing did not qualify for the exemption.