Equipment Used to Grind and Calibrate Work Rolls Exempt in Indiana

Wednesday, May 21st, 2014


The Indiana Tax Court recently ruled that a taxpayer could purchase exempt the equipment it used to grind and calibrate work rolls.

The taxpayer ground and calibrated work rolls. These work rolls were used in steel, aluminum, and paper mills. The work rolls functioned like giant rolling pins to create the correct thickness, surface, flatness, and luster of sheets of paper or metal. When a mill bought a new work roll, the roll was blank and needed to be ground and calibrated before the mill could use it. Mills would also take old work rolls to the taxpayer to have them refurbished for a new use.

Indiana exempts sales of manufacturing machinery, tools, and equipment. These items must be directly used in the production of tangible personal property. If the equipment is used to repair an existing good rather than to create a new good, this exemption does not apply.

The only question in this case was whether grinding and calibrating the work rolls produced a new good. The Tax Court determined that it did produce a new good. First, the court determined that the work done to the roll was substantial and complex, creating a new tool, capable of being used in different ways from the original roll. Second, the grinding and calibration added significant value to the work roll. Third, the work done to a roll (new or old) created a product that performed as well or better than a brand new work roll. Fourth, the work was not merely routine maintenance. These facts all showed that the taxpayer produced a new good by grinding and calibrating work rolls. Because the taxpayer produced a new good, the equipment used to grind and calibrate rolls was exempt as manufacturing equipment.

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