ICI Successful in Preserving Critical Sales Tax Exemption

Construction safety equipment and materials purchase transactions remain tax exempt with the passage of the 2021 Senate Enrolled Act (SEA) 383 which became effective on July 1. ICI worked with Indiana Department of Revenue (DOR) leadership during 2020 which laid the ground work for an opportunity to propose an amendment to Indiana Code during the 2021 Indiana legislative session. SEA 383 created a statutory exemption (IN Code 6-2.5-5-55) for Indiana state sales tax for purchases of safety related equipment and materials purchased for public works construction contracts.

Previously, exemption language was solely published in the DOR’s Information Bulletin #60 up until 2017. The DOR published a revised IB #60 on July 28, 2021. The exemption applies to purchases of equipment such as barrels, barricades, temporary signs, temporary erosion control and drainage materials, but does not apply to purchases of personal protective equipment such as gloves, face masks and high visibility clothing.

Please contact Dan Osborn with general questions about this topic. Consult with a ICI member tax or legal professional for technical assistance and advice.

Indiana Sales and Use Tax Update: Asphalt Pavers

ICI and member accounting firms are working to reverse a recent Indiana Department of Revenue (IDOR) finding that potentially removes sales tax exemption for asphalt pavers, parts and fuel transactions. It’s a complex issue that isn’t finalized, but ICI is giving you a heads up. Here’s Crowe Horwath LLP’s take on the issue. Contact your accountant with specific questions.

By Brian D. Myers, CPA, and Trevor J. Smith, Crowe Horwath LLP

The Indiana Department of Revenue (DOR) issued Letter of Findings (LOF) No. 04-20140555 on Aug. 31, 2016, for the application of Indiana sales and use tax on asphalt paver equipment. The taxpayer in question operated a paving business in Indiana and purchased items for its paver equipment for which no Indiana sales or use tax was paid. The DOR previously conducted an audit for the periods covering 2010 through 2012, and initially assessed the taxpayer on these purchases.

The taxpayer protested the assessments, stating the purchases should qualify for the manufacturing machinery exemption under Indiana Code (I.C.) Section 6-2.5-5-3(b). Additionally, the taxpayer referenced Indiana Sales Tax Information Bulletin No. 60 (April 2011), which states “Asphalt manufacturers are entitled to a manufacturing exemption for sales and use taxes (under I.C. 6-2.5-5) for the asphalt plant and pavers, including repair parts and fuel for the respective equipment.” The DOR concluded that the purchases related to the asphalt paver equipment would be considered exempt for the audit period based on the guidance provided in Information Bulletin No. 60 (IB60).

However, the department went on to say that under 45 Indiana Administrative Code 2.2-4-26(e), asphalt pavers are not exempt because they are machinery used to make improvements to realty and do not become part of the improvement to realty. Therefore, as of the date of the LOF (Aug. 31, 2016), asphalt paver equipment including repair parts and fuel for the equipment is subject to Indiana sales and use taxes.

The LOF states that taxpayers cannot rely on IB60 for purchases made after the LOF was published. The DOR is revising IB60, however the publication date for the revisions is unknown at this time.

Not addressed in the LOF, but worth noting, is the taxability treatment of dump trucks used to transport hot mix asphalt. The exemption for dump trucks referenced in IB60 appear to follow the DOR’s position on asphalt pavers, however the issue has not been specifically ruled on as of yet. Therefore, the taxability of dump trucks used to transport hot mix asphalt remains uncertain.

Brian Myers
Managing Director
Crowe Horwath LLP
+1 317 208 2478

Trevor Smith
Crowe Horwath LLP
+1 317 677 1934