The Minnesota Tax Court recently ruled that natural gas and electricity used to clean a taxpayer's production equipment was exempt under the industrial production exemption. The taxpayer owned a burn-off oven which it exclusively used to clean its customers' production equipment. The taxpayer's burn-off oven qualified as exempt manufacturing equipment.
Under the industrial production exemption, Minnesota exempts natural gas and electricity "used, or consumed in industrial production of tangible personal property intended to be sold ultimately at retail." However, the industrial production exemption excludes painting, cleaning, repairing, or similar processing of "property" unless it is part of the original manufacturing process. Using this exclusion, the Minnesota Department of Revenue argued that the natural gas and electricity did not qualify for the industrial production exemption because they were used in cleaning property.
The court determined that the natural gas and electricity qualified for the industrial production exemption because the use of the word "property" in the exclusion referred to tangible personal property being produced for sale. Therefore, the exclusion from the exemption did not apply to the natural gas and electricity because the taxpayer was cleaning manufacturing equipment, not property produced for sale. As a result, the natural gas and electricity were exempt.