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Indiana: Auto Shop Must Pay Sales Tax on Supplies

  • Oct 5, 2012 | Gail Cole

A recent Letter of Findings in Indiana explains that an S Corp is liable for sales or use tax on tangible personal property used in the course of service.

The S Corp in question is an auto shop, referred to as Taxpayer in 04-20120053.LOF. Taxpayer purchased supplies such as "masking paper, tape, oil dry, sandpaper, buffing pads, rags, and cleaning and detailing supplies used to repair and service motor vehicles." The Department of Revenue ruled that these supplies are not exempt from tax. Sales tax should have been paid on these supplies at the time of purchase, or use tax on the supplies after the purchase.

Taxpayer argued that sales or use tax was not due because "its fabrication, assembly, and finishing work constitute manufacturing activities."

Auto Shop Not a Manufacturer

There is an exemption under IC § 6-2.5-5-3 which states that:

"transactions involving manufacturing machinery, tools, and equipment are exempt from the state gross retail tax if the person acquiring that property acquires it for direct use in the direct production, manufacture, fabrication, assembly, extraction, mining, processing, refining, or finishing of other tangible personal property." 

However, 04-20120053.LOF underscores that "Taxpayer does not produce new items of tangible personal property through a manufacturing process." Rather, "Taxpayer used the shop supplies… ." Since sales tax was not paid at the time of purchase, use tax is due.

As always in these cases, the burden of proving a given assessment wrong lay with the taxpayer. (IC § 6-8.1-5-(c).)

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.