The Indiana Department of Revenue ("Department") recently released a letter of findings stating that labels for cases of shelf-stable meals were taxable.
The taxpayer made shelf-stable meals, including meals-ready-to-eat and unit group rations. Most of the taxpayer's sales were to government and to non-profit organizations. The taxpayer's contract with the government required the taxpayer to apply RFID (Radio Frequency Identification) labels to each carton of meals. The taxpayer bought labels for the cartons and argued that these purchases were exempt.
Indiana exempts sales of materials that become a material or an integral part of tangible personal property manufactured for sale. To be exempt, the materials must be physically incorporated into and become a component of the finished product.
The Department held that these labels were not physically incorporated into the finished product. The meals were the finished product, and the labels were not part of the meals themselves. The labels were therefore taxable.