NOTICE: Under IC 4-22-7-7, this document is required to be published in the Indiana Register and is effective on its date of publication. It shall remain in effect until the date it is superseded or deleted by the publication of a new document in the Indiana Register. The publication of this document will provide the general public with information about the Department's official position concerning a specific issue.

Sales and Use Tax – Manufactured Residential Structures

A company ("Taxpayer") is seeking an opinion as to the taxability of its product with regard to Indiana sales and use tax. Specifically, Taxpayer seeks a ruling as to the taxability of the materials which Taxpayer purchases and incorporates into its product and the sales of its product both within Indiana and in other jurisdictions.

Authority: IC 6-2.5-2-1; IC 6-2.5-3-2(a); IC 6-2.5-3-4; IC 6-2.5-4-9; IC 6-2.5-5-6; IC 6-2.5-5-29(c); 45 IAC 2.2-3-7; 45 IAC 2.2-3-8; 45 IAC 2.2-3-9(d)(1); 45 IAC 2.2-3-9(e)(3).

Taxpayer provides the following facts regarding its request for a revenue ruling. Taxpayer, which is not currently located in Indiana, manufactures residential structures, some of the components for which are manufactured on Taxpayer's premises and then shipped to and assembled on a client's building site. In particular, Taxpayer explains his business operations thusly:

Taxpayer would like to expand its business operations to Indiana. However, Taxpayer first seeks a ruling as to the taxability of its product with regard to Indiana sales and use tax. Specifically, Taxpayer seeks a ruling as to the taxability of the materials which Taxpayer purchases and incorporates into its product and the sales of its product both within Indiana and in other jurisdictions.

In general, sales tax is imposed on retail transactions made in Indiana. IC 6-2.5-2-1. Correspondingly, IC 6-2.5-3-2(a) imposes use tax on the storage, use or consumption of tangible personal property in Indiana, if the property was acquired in a retail transaction, regardless of the location of that transaction. However, the storage, use, and consumption of tangible personal property in Indiana are exempt from the use tax if either the sales tax has already been paid on the acquisition of the property or the property was acquired in a transaction that is exempt from sales tax and the property is being used, stored, or consumed for the purpose for which it was exempted. IC 6-2.5-3-4.

Taxpayer's business operations represent two separate transactions that are potentially subject to Indiana sales and use tax: (1) Taxpayer's purchases of materials from a third party and (2) Taxpayer's clients' purchases of Taxpayer's product.

Regarding Taxpayer's purchases, IC 6-2.5-5-6 provides the following exemption from Indiana sales tax:

Taxpayer's purchases of materials that are incorporated into other tangible personal property that Taxpayer manufactures or produces for sale are exempt from Indiana sales tax. If the tangible personal property manufactured by Taxpayer is, in turn, sold to an end user in another state who does not use the item in Indiana, then it is also exempt from Indiana use tax.

The purchases of Taxpayer's product by its clients are somewhat different. Sales of Taxpayer's product that are delivered to and used by Taxpayer's clients in other states are not subject to Indiana sales or use tax. Tax in a destination state may still be applicable, but the sales would not be subject to Indiana sales or use tax. However, if Taxpayer sells its product to Indiana residents for use in this state, then those sales are subject to Indiana sales and use tax. Unless such purchasers present valid exemption certificates (which recognize a statutory exemption regarding such transactions), Taxpayer would be required to collect sales tax on such transactions.

While the sales of real property are generally not taxable, sales and use tax does apply to tangible personal property that is incorporated into and sold as part of real property. 45 IAC 2.2-3-8 states:

How sales and use tax are applied to construction contractors depends on the nature of the contract between the contractor and the purchaser. 45 IAC 2.2-3-9(e)(3) states that when a construction contractor, performing work pursuant to a lump-sum contract, acquires tangible personal property in an exempt transaction and subsequently converts the construction material into realty on land he does not own, he must remit use tax based on the purchase price of the materials. In a slightly different manner, 45 IAC 2.2-3-9(d)(1) states that when a construction contractor, performing work pursuant to a time and material contract, converts construction material into realty on land he does not own, he must collect sales tax based on the gross proceeds from the sale of the construction materials. Pursuant to the authority above, when the tangible personal property manufactured by Taxpayer is sold to Indiana residents for use in this state, then those sales are subject to Indiana sales and use tax. Unless purchasers present valid exemption certificates (which recognize a statutory exemption regarding such transactions), Taxpayer, operating pursuant to a lump-sum contract, would be required to remit use tax on the purchase price of the construction materials. If Taxpayer operates pursuant to a time and material contract, Taxpayer is required to collect sales tax on the gross proceeds from the sale of the construction materials.

Taxpayer's purchases of materials that are incorporated into other tangible personal property that Taxpayer manufactures or produces for sale are exempt from Indiana sales tax.

If the tangible personal property manufactured by Taxpayer is, in turn, sold to an end user in another state who does not use the item in Indiana, then it is also exempt from Indiana use tax.

If the tangible personal property manufactured by Taxpayer is sold to Indiana residents for use in this state, then those sales are subject to Indiana sales and use tax. Unless purchasers present valid exemption certificates (which recognize a statutory exemption regarding such transactions), Taxpayer, operating pursuant to a lump-sum contract, would be required to remit use tax on the purchase price of the construction materials incorporated into realty. If Taxpayer operates pursuant to a time and material contract, Taxpayer is required to collect sales tax on the gross proceeds from the sale of the construction materials.

This ruling is issued to the taxpayer requesting it on the assumption that the taxpayer's facts and circumstances as stated herein are correct. If the facts and circumstances given are not correct, or if they change, then the taxpayer requesting this ruling may not rely on it. However, other taxpayers with substantially identical factual situations may rely on this ruling for informational purposes in preparing returns and making tax decisions. If a taxpayer relies on this ruling and the Department discovers, upon examination, that the fact situation of the taxpayer is different in any material respect from the facts and circumstances given in this ruling, then the ruling will not afford the taxpayer any protection. It should be noted that subsequent to the publication of this ruling a change in statute, regulation, or case law could void the ruling. If this occurs, the ruling will not afford the taxpayer any protection.

Department of State Revenue