Tax Times E-News
July 5, 2006

Indiana Use Tax Alert for the Construction Industry
Robert A. Romack, JD
 

Effective July 1, 2006, the "use tax is imposed on a person who: (1) manufactures, fabricates or assembles tangible personal property from materials either within or outside Indiana; and (2) uses, stores, distributes or consumes tangible personal property in Indiana." IC 6-2.5-3-2.  The amendment is in response to the Morton Buildings, Inc. v. Indiana Department of State Revenue, Cause No. 46T10-9812-TA-187, decision. The issue in the Morton case was whether the raw materials Morton purchased and used outside of Indiana to make building components, that were subsequently assembled into prefabricated buildings in Indiana, were subject to Indiana use tax. The Tax Court found that there were two conditions for the imposition of the use tax: 1) tangible personal property must be stored, used or consumed in Indiana; and 2) the tangible personal property must be acquired in a retail transaction. The Tax Court found that Morton used the tangible personal property (e.g., raw materials) outside of Indiana, and the building components that were "used" or "stored" in Indiana were not acquired in a retail transaction.

According to the Indiana Department of Revenue (Department), the above-referenced amendment was necessary to close the "loop-hole" at issue in the Morton case. Regardless of whether the aforementioned amendment accomplishes the Department's stated goal, there is some anecdotal evidence that the Department's interpretation may be more far-reaching. It is our understanding that auditors are attempting to impose use tax on the fabrication labor piece of lump-sum contracts for the improvement of real estate. Moreover, it is our understanding that the auditors are relying on the amended language of IC 6-2.5-3-2 as support for their position.

Based on conversations with representatives of the Department, it is our understanding that the Department is in the process of revising Information Bulletin #60 and that they will issue the revised information bulletin in July 2006.  We will keep you up to date as this progresses.

If you have any questions, please contact me at 317.472.2289 or send an email to me at bromack@somersetcpas.com.

Somerset CPAs, P.C.
3925 River Crossing Parkway • Third Floor • P.O. Box 40368
Indianapolis, Indiana 46240-0368    
317.472.2200 • 800.469.7206 • FAX 317.208.1200
www.somersetcpas.com

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