The Indiana Department of Revenue ("DOR") recently released a letter of findings that held that a taxpayer was an exempt industrial processor when it refurbished stadium seating so stadiums and teams could sell the seats.
The taxpayer refurbished stadium seats. The refurbishing process included disassembling the seats at the stadium, shipping the seats to the taxpayer's location, removing paint from the metal parts, abating any lead paint, attaching standard chair legs, and repainting, reassembling, boxing, and shipping the seat. The taxpayer acquired the seats and refurbished them, but the stadiums and teams retained ownership of the seats for a set period of time. The stadiums and teams sold the seats, and the taxpayer shipped them to customers. After the set period of time had expired, the taxpayer received ownership of the remaining refurbished seats, and the taxpayer directly sold those refurbished seats to customers. Indiana had assessed tax on the taxpayer's purchase of equipment used to refurbish seats. Indiana argued that the taxpayer was not an "industrial processor" for the seats that the stadiums and teams sold. The taxpayer disagreed.
Indiana exempts sales of equipment directly used in the purchaser's direct production of tangible personal property. This exemption extends to sales to "industrial processors." An "industrial processor" (1) acquires tangible personal property owned by another, (2) provides industrial processing or servicing on the property, and (3) transfers the property back to the owner to be sold by that owner. To determine whether a taxpayer provides "industrial processing," Indiana looks at (1) the kind of work done to the existing property and the physical changes to the property, (2) how much more valuable the property is after the work is done, (3) how much more functional the property is after the work is done, and (4) whether the work done was a normal part of the lifecycle of the property.
The taxpayer was an industrial processor. The DOR determined that (1) the seats underwent a substantial change, (2) the refurbished seats were much more valuable than they were when first removed from the stadium, (3) the seats were much more functional with the addition of standard legs, and (4) the transformation of stadium seat for commercial use to individual seat for individual consumer use was not within the expected lifecycle of the property. The taxpayer was therefore an industrial processor and could purchase equipment directly used to refurbish the seats free from tax.