The Indiana Department of Revenue ("Department") recently released a letter of findings determining that a manufacturer owed tax on its purchases of mist coolant.
The taxpayer manufactured and installed floating dock systems, boat lifts, and similar items. To make posts for docks, the taxpayer used a horizontal drill. The taxpayer purchased an air powered mist coolant to keep this drill cool.
Indiana exempts sales of machinery, tools, and equipment used directly in manufacturing tangible personal property. An item is used directly in manufacturing if it has an immediate effect on the article being produced.
The Department held that the coolant did not qualify for this exemption. The taxpayer did not provide any evidence that the coolant had an immediate effect on the dock post being made. The taxpayer only showed that the coolant affected the drill. The taxpayer therefore owed tax on its purchase of the coolant.