ATTORNEYS FOR PETITIONER:    ATTORNEYS FOR RESPONDENT:
BARTON T. SPRUNGER    STEVE CARTER    
MARK J. RICHARDS    ATTORNEY GENERAL OF INDIANA
ICE MILLER    Indianapolis, IN
Indianapolis, IN

     TED J. HOLADAY
    DEPUTY ATTORNEY GENERAL
    Indianapolis, IN

_____________________________________________________________________

    IN THE INDIANA TAX COURT _____________________________________________________________________

EDGCOMB METALS COMPANY,                                                   )
                                                                               )
    Petitioner,                                                                )
                                                                               )
    v.                                                                         )   Cause Nos. 49T10-9811-TA-143
                                                                               )                49T10-9710-TA-183
DEPARTMENT OF LOCAL                                                            )                49T10-9610-TA-135
GOVERNMENT FINANCE
                                                            
                                                 
                                                                      
                                      See footnote 
                          

_____________________________________________________________________

(Pet’r Br. at 7.) Because the “standard cut” pieces were stored in inventory as open stock, Edgcomb’s customers were often able to purchase these pieces for their immediate use, instead of having a piece of steel “custom cut” (for which there was an additional charge).
    When Edgcomb filed its 1995, 1996, and 1997 personal property tax returns, it claimed an exemption on the “standard cut” steel under Indiana Code § 6-1.1-10-29.3 on the grounds that it had merely been repackaged and was ready for transshipment out-of-state. After performing an audit, however, a hearing officer for the State Board determined that the “standard cut” steel had not been repackaged, but had been further processed to form a saleable good. Consequently, the hearing officer concluded that Edgcomb’s inventory of “standard cut” steel was not exempt under Indiana Code § 6-1.1-10-29.3. The State Board affirmed the hearing officer’s determination and denied the exemption for all three years. See footnote Edgcomb timely filed its notice of intent to appeal with this Court. Additional facts will be supplied as necessary.

is stored in an in-state warehouse for the purpose of transshipment to an out-of-state destination; and

is ready for transshipment without additional manufacturing or processing, except repackaging.

Ind. Code § 6-1.1-10-29.3 (emphasis added). The State Board does not dispute that Edgcomb’s “standard cut” steel is stored in an in-state warehouse for the purpose of transshipment to an out-of-state destination. Rather, the issue is whether Edgcomb’s cutting of steel into “standard cut” pieces constitutes more than “repackaging.”
    To resolve the issue, Indiana Code § 6-1.1-10-29.3 must first be read in context with the other interstate commerce exemptions: it stands as an alternative exemption for taxpayers unable to qualify for the “original package” exemptions provided in Indiana Code §§ 6-1.1-10-29(b)(1) See footnote and 6-1.1-10-30(a), (b), and (c). See footnote Although there are important differences among sections 29(b), 30(a), 30(b), and 30(c), they share the common requirement that the goods in question be stored in their original packages for the purpose of shipment or transshipment out of state. “Original package” refers to the container in which the goods are shipped to or placed in the storage facility. The regulations define “original package” as “the box, case, bale, skid, bundle, parcel, or aggregation thereof bound together and used by the seller, manufacturer, or packer of shipment.” Ind. Admin. Code tit. 50, § 4.2-12-5(d). The emphasis in these provisions is on the fact that the taxpayer has maintained the integrity of the original shipping boxes or cartons.
    Indiana Code § 6-1.1-10-29.3 “stands for the proposition, however, that all is not necessarily lost if the taxpayer opens the ‘original packages’ and transfers the goods to other containers.” Sony Music Entertainment, Inc. v. State Bd. of Tax Comm’rs, 681 N.E.2d 800, 803 (Ind. Tax Ct. 1997). Indeed, as this Court previously explained:
Where the goods are shipped into Indiana, the taxpayer may still enjoy an exemption for its property if it does no more than “repackage” the goods for transshipment out of state. Against the background of the “original package” exemptions, the term “repackage” clearly refers, not to packaging in the sense of combining different parts or components of a product for sale, but to repackaging in the sense of transferring to a different container for the purpose of transshipment. This is the meaning given in Webster’s second definition of the verb “package”: “to enclose in a package or protective covering . . . to put (a commodity) into a protective wrapper or container for shipment or storage.” Webster’s Third New International Dictionary[] 1618 (1981). This is the meaning intended by the legislature.

Id. (footnote deleted).

Case law also supports this reading of the statute. In Monarch Steel, this Court explained that securing an interstate commerce exemption most often hinges on the distinction between “manufacturing or processing” on the one hand and “packaging” or “repackaging” on the other. Monarch Steel, 611 N.E.2d at 713-714. In that case, the taxpayer, engaged in the business of buying and selling large quantities of steel, was claiming an interstate commerce exemption for its inventory. Id. at 710. In some instances, Monarch made no changes to the steel before shipping it out of state. Id. In other instances, it cut the steel into smaller pieces to facilitate shipment. Id. In still other instances, it cut the steel pursuant to customer specifications. Id. This Court held that “the question turns on whether Monarch cut[] a piece of steel to prepare a product to sell to a customer, or to prepare an already completed product for shipment or storage,” id. at 714, explaining:
[u]nder the interstate commerce exemptions, processing is concerned with the alteration of an article’s state or form. Packaging, on the other hand, is concerned with transit and storage. Processing, then, refers to the preparation of a final saleable product, while packaging presumes a final saleable product already exists, and all that remains is to prepare it for shipping or storage.

Id. (citations and footnotes omitted). On the facts presented, the Court held that Monarch “processed” the steel when it cut the steel “to satisfy a customer’s order, that is, to create a final saleable product,” but that Monarch “packaged” the steel when it cut the steel “simply and solely to facilitate shipment or storage[.]” Id.
In applying the Sony/Monarch Steel standard to the facts of this case, Edgcomb did nothing more than repackage its steel to facilitate storage and shipment. As Edgcomb explains:
[We] purchase[] sheet steel from mills in bulk, which is shipped to [us] in an “original package” consisting of a coil encircled by a band. [We] unpackage[] the sheet steel by unwinding it from the coil and leveling it. After it is leveled it is identical in form and composition to its form and composition at the mill . . . .

[We] then cut[] the sheet steel into manageable, standard sized sheets for ease of storage and shipment and store[] the sheets on shelving until they are pulled, packaged, and shipped. The cutting, of course, is no different in purpose or effect than any distribution center’s activity in breaking down product received in bulk into smaller quantities for purposes of shipment to customers.

[We] do[] not “combine” the sheet steel with other property as a component to make a different “final saleable product.” The sheet steel is [the] commodity, which is not changed in form or substance . . . in any way other than cut into standard sized sheets for ease of storage and shipment. It is not cut to customer specifications, it is placed in open inventory. When ordered, it is pulled, put into a new package, and shipped to the customer.

(Pet’r Br. at 15-16, footnote omitted.) In other words, Edgcomb cuts the steel into standard-sized pieces to facilitate storage and handling.
Nevertheless, the State Board argues otherwise. First, it contends that Edgcomb’s leveling of the steel alters the steel’s form. Second, the State Board argues that a “standard cut” piece of steel, in and of itself, constitutes a final saleable product. Specifically, the State Board argues:
Edgcomb makes products that its customers will buy, regardless of whether it makes the product for a special, specific customer order, or it makes standard products in anticipation of what customers will order in the future. To make its products, Edgcomb changes the form of the material. It is not merely breaking large quantities into small quantities. Both the Custom Cut Steel and the Standard Cut Steel must be leveled and cut in order to be prepared for market or to be rendered in a condition for sale. This process of leveling and cutting is done in order to produce a product in a condition required by customers.

(Resp’t Br. at 11.) The State Board’s argument is nothing more than smoke and mirrors.
First, when Edgcomb purchases sheet steel from the mills, the sheets are approximately 100 feet long. Too cumbersome to transport in that fashion, the mills wrap the sheet steel on large coils and fasten with metal bands. These coils constitute the “original packages.” Edgcomb’s process of rolling the steel off the coil and through the leveler is the equivalent of unpacking the steel from its original package. See Monarch Steel, 611 N.E.2d at 714. Cutting the steel in basic “standard cut” pieces is nothing more than breaking large quantities into small quantities – repackaging. Id. This repackaging is not done pursuant to customer specifications or request, but merely to increase storage capacity in Edgcomb’s warehouse as well as to allow easier shipping and handling. Indeed, pieces of flat sheet steel require less floor space than steel wrapped on huge coils.
Second, the State Board’s claim that the “standard cut” piece of steel constitutes a final saleable product misses the mark. The sheet steel is the final saleable product. It has always been the final saleable product. It just happens that some customers are able to utilize pieces of “standard cut” steel for their purposes when they place their orders. It was no different in the Monarch case.

Ind. Code § 6-1.1-10-29(b)(1).

Ind. Code § 6-1.1-10-30.