Current through September 18, 2024
Authority: IC 6-8.1-3-3
Affected: IC 6-2.5
Sec. 9.
(a) In
general, all purchases of tangible personal property by persons engaged in
extraction or mining are taxable. The exemption provided in this regulation
[45 IAC 2.2] extends only to manufacturing machinery, tools,
and equipment directly used in mining or extraction. It does not apply to
materials consumed in mining or extraction.
(b) The state gross retail tax shall not
apply to sales of manufacturing machinery, tools, and equipment which are to be
directly used by the purchaser in extraction or mining.
(c) Manufacturing machinery, tools, and
equipment to be directly used by the purchaser in the extraction or mining
process are exempt from tax provided that such machinery, tools and equipment
are directly used in the production process; i.e., they have an immediate
effect on the item being produced by mining or extraction. Property has an
immediate effect on the article being produced if it is an essential and
integral part of an integrated process which produces tangible personal
property.
-EXAMPLES-
(1)
Crushed stone is produced in a mining, production, and processing operation
that begins with stripping overburden from an area to be mined, continues with
the extraction and crushing of the stone, and ends with the stockpiling of the
stone, which allows moisture to drain and evaporate from the washed stone,
thereby reducing moisture levels to a standard more generally acceptable to
stone purchasers. Because of the functional interrelationship of the various
steps and the flow of the work-in-process, the total process comprised by these
activities is integrated.
(2) Coal
is produced in a surface mining operation that begins with the clearing of
surface obstacles and overburden from the land above the coal deposit to be
mined, continues with the removal of waste material and with the extraction of
the coal, continues further with the transportation from the coal seam to the
processing facility, continues further with the refilling and grading of the
mined area with overburden and waste material from a subsequently mined area,
continues further with the cleaning of the coal, and ends with the stockpiling
of the coal to allow moisture to drain and evaporate from the washed coal,
thereby reducing moisture levels to a standard more generally acceptable to
coal purchasers. Because of the functional interrelationship of the various
steps and the flow of the work-in-process, the total process comprised of such
activities is integrated. The following items are exempt:
(A) Equipment used to modify the energy
purchased for the surface mining process if the equipment is used to modify the
energy for use by exempt equipment;
(B) Pumps and hose used to remove water or to
divert water from the active pit area;
(3) "Coal is produced in an underground
mining operation that begins with the boring of a shaft from the surface to the
coal deposit to be mined, continues with the removal of waste material and the
extraction of coal, continues further with transportation from the coal seam to
the processing facility, continues further with the installation of roof
supports and the coating of walls with rock dust to prevent mine explosion and
collapse, continues further with cleaning of coal, and ends with the
stockpiling of coal to allow moisture to drain and evaporate from the washed
coal, thereby reducing moisture levels to a standard more generally acceptable
to coal purchasers. Because of the functional interrelationship of the various
steps and the flow of the work in process, the total process comprised of such
activities is integrated." The following are exempt:
(A) Continuous miners used to bore the shaft,
cut the coal, and load it into shuttle cars.
(B) Shuttle cars used to transport the coal
from the continuous miner to the feeder breaker at the end of a conveyor belt
or other off-highway transportation system.
(C) The feeder breaker which breaks the large
lumps of coal and feeds the coal onto the conveyor belt which carries the coal
outside the mine where it is stockpiled or transported to the processing
facility.
(D) Electrical cable
supplying electricity to exempt production equipment in the underground mine as
part of an electrical distribution system.
(E) Equipment used to modify the energy
purchased for the underground mining process if the equipment is used to modify
the energy for use by exempt equipment.
(F) Pumps and hose used to remove water from
the underground mine.
(4) The following types of equipment
constitute essential and integral parts of the integrated production process
and are, therefore, exempt. The fact that such equipment may not touch the
work-in-process or, by itself, cause a change in the product is not
determinative.
(A) A drag line used to remove
overburden and other waste materials from the pit to be mined.
(B) Earth-moving equipment used to dig a
ditch to divert a stream crossing the area to be mined.
(C) Electrical cable supplying electricity to
exempt production equipment in the field as part of an electrical distribution
system.
(D) Dozers used in
refilling and covering over a previously mined pit with the overburden removed
from the next pit being mined.
(E)
Equipment used in a coal wash plant to clean the coal prior to sale to
customers.
(F) Equipment used to
blend different grades of coal together so that the final product meets
customer specifications regarding quality and sulfur content.
(5) Because of the lack of an
essential and integral relationship with the integrated production process in
Example (2), the following types of equipment are not exempt:
(A) Earth-moving equipment used to construct
a parking lot next to the mining area and to construct a road leading from the
parking lot to the main highway.
(B) Vehicles used to transport workers to and
from the mining area.
(C) Pickup
trucks used by supervisors in overseeing and directing the mining
operations.
(d) Pre-production and post-production
activities. "Direct use in the extraction and mining process" begins at the
point of the first operation or activity constituting part of the integrated
production process." Utilization by the purchaser in extraction or mining
begins with the first drilling of the shaft or well or the first removal of
overburden in surface mining or quarrying. It ends when the item being mined or
extracted has been physically removed from the mine, well, or quarry.
(e) Equipment directly used in extraction or
mining: Manufacturing machinery, tools, and equipment used directly in the
mining or extraction process are taxable unless the machinery, tools, and
equipment have an immediate effect upon mining or extracting the product. The
fact that particular property may be considered essential to the conduct of the
business of mining because its use is required either by law or practical
necessity does not, of itself, mean that the property has an immediate effect
upon the mining or extracting of the product. Instead, in addition to being
essential for one of the above reason [sic.], the property
must also be an integral part of an integrated process.
(1) Examples of taxable machinery, tools, and
equipment: transportation equipment used to convey fuel, supplies, and repair
parts to coal mining equipment in the mine; field maintenance trucks used to
transport men and materials to places where needed; and equipment used to load
extracted and processed minerals from storage stockpiles to railroad
cars.
(2) Examples of exempt
machinery, tools, and equipment: digging and extracting equipment used in the
course of mining or extraction operations; machinery used to remove the
overburden in surface mining; blasting and dislodging equipment; waste
extraction and removal equipment and machinery used in the course of mining or
extraction operations; derricks, pumps, pump houses, drilling rigs used in the
production of oil and natural gas.
(f) Storage equipment. Tangible personal
property used in or for the purpose of storing raw materials or materials after
completion of the extraction or mining process is taxable.
(1) Temporary storage. Tangible personal
property used in or for the purpose of storing work-in-process or semi-finished
goods is not subject to tax if the work-in-process or semi-finished goods are
ultimately completely produced for resale and in fact resold.
(2) Storage containers for finished goods
after the completion of the extraction or mining process are subject to tax.
(A) Receiving tanks for natural gas, crude
oil, or brine are taxable.
(B)
Facilities for storing coal after extraction and processing from the mine are
taxable.
(3) Storage
facilities or containers for materials or items currently undergoing production
during the production process are deemed temporary storage facilities and
containers and are not subject to tax.
(g) Transportation equipment. Transportation
equipment used in mining or extraction is taxable unless it is directly used in
the mining or extraction process.
(1) Tangible
personal property used for moving raw materials to the plant prior to their
entrance into the production process is taxable.
(2) Tangible personal property used for
moving finished goods from the plant after manufacture is subject to
tax.
(3) Transportation equipment
used to transport work-in-process or semi-finished materials within the
extraction or mining process is not subject to tax.
(4) Transportation equipment used to
transport work-in-process, semi-finished, or finished goods between plants
which are not part of the same integrated production process is taxable.
-EXAMPLES-
(1) Haul
trucks, front-end loaders, and conveyors used to transport coal from a crusher
to a wash plant are exempt.
(2)
Haul trucks, front-end loaders, and conveyors used to transport coal from a
wash plant to a stockpile to allow moisture to drain and evaporate from the
washed stone, thereby reducing moisture levels to a standard more generally
acceptable to coal purchasers, are exempt.
(3) Front-end loaders, cranes, and equipment
used to load coal onto trucks, railroad cars, or barges for delivery to
customers are taxable.
(h) Maintenance and replacement.
(1) Machinery, tools, and equipment used in
the normal repair and maintenance of machinery and equipment used predominantly
in mining or extraction are subject to tax.
(2) Replacement parts, used to replace worn,
broken, inoperative, or missing parts or accessories on exempt machinery and
equipment, however, are exempt from tax.
(i) Testing and inspection.
(1) Machinery, tools, and equipment used to
test or inspect the mineral, oil, gas, stone, etc., being mined or extracted
are not taxable, as such machinery, tools, and equipment are directly used in
the mining or extraction process.
(2) Testing or inspection equipment used to
test or inspect machinery, tools, and equipment used in extraction or mining
(as distinguished from testing or inspecting the mineral, oil, gas, stone,
etc., being mined or extracted) is taxable.
(j) Managerial, sales, and other
non-operational activities. Machinery, tools, and equipment used in managerial,
sales, research and development, or other non-operational activities are not
directly used in the mining or extraction process and, therefore, are subject
to tax. The category includes, but is not limited to, tangible personal
property used in any of the following activities: management and
administration; selling and marketing; exhibition of mined or extracted
products; safety or fire prevention equipment which is not an essential and
integral part of the extraction or mining process; space heating; ventilation
and cooling equipment for general temperature control; illumination; heating
equipment for general temperature control; and shipping and loading.
(k) Definitions.
(1) Extraction means the removal of natural
resources, minerals, and mineral aggregates from the earth, pits, or
banks.
(2) Mining includes
commercial mining (both deep and surface mining), quarrying, gas and oil
drilling, and any other commercial extraction of natural resources, minerals,
and mineral aggregates from the earth. It also includes the extraction for
commercial purposes of coal, clay, crushed and graded stone, gravel, sand, oil,
natural gas, gypsum, slate, ore, and all materials and similar natural
resources and mineral aggregates.
(l) Energy equipment.
(1) Equipment used to modify energy purchased
from public utilities purchased for the production process is exempt if the
equipment is used to modify the utilities for use by exempt
equipment.
(2) Equipment used to
create energy that could otherwise be purchased exempt from a public utility
for use by exempt equipment is exempt.
(3) When any equipment qualifies as essential
and integral to the production process and also is used in an alternative
nonessential and/or non-integral manner, the exemption shall only apply to the
percentage of use of the equipment used in the exempt manner.
