Petition for Review from the Indiana Tax Court, No.
49T10-1302-TA-09 The Honorable Martha Blood Wentworth, Judge
Attorneys for Petitioner Donald F. Foley Tony H. Abbott David
S. Klinestiver Foley & Abbott Indianapolis, Indiana
Attorney for Amici Curiae Global Cold Chain alliance &
Park 100 Foods, Inc. Bryan H. Babb Bose McKinney & Evans
LLP Indianapolis, Indiana
Attorneys for Respondent Curt is T. Hill, Jr. Indiana
Attorney General Evan W. Bartel Patricia C. McMath Deputy
Attorneys General Indianapolis, Indiana
submitted refund claims to the Department of State Revenue
for sales tax paid on blast freezing equipment and the
electricity used in operating said equipment. The Department
partially denied the refunds and the Tax Court affirmed,
holding that the Petitioner did not engage in "direct
production" and, therefore, could not qualify for
exemptions under the relevant statutes. We grant review and
and Procedural History
parties stipulated to the following facts. Merchandise
Warehouse Company, Inc., ("MWC") operates a
freezing and storage facility in Indianapolis, Indiana.
MWC's customers ("Depositors") prepare
perishable food products like meat, bread, vegetables, chili,
or soup at their facilities and then transport the products
to MWC for freezing and storage before releasing them to
their own customers or common carriers. MWC offers two
freezing options-slow or blast freezing-and Depositors may
contract for either freezing method for their products.
send their food products to MWC stacked on pallets. The food
arrives in varying temperatures. Upon arrival, MWC takes the
internal temperature of the food on each pallet.
Depositor designates a product for slow freezing, then MWC
places those pallets in the freezer storage area. Depending
upon various factors, slow freezing may take five to twelve
days. Slow freezing food products increases metabolic changes
that may negatively affect the food's quality and
Depositor designates a product for blast freezing, then MWC
places those pallets in its completely separate blast
freezing area in order to utilize its Quick Freeze
Refrigeration ("QFR") system. MWC began using the
QFR system for blast freezing in October 2011. From 2008 to
October 2011, MWC conducted blast freezing in the same
freezer storage area where it placed food products for slow
freezing. MWC then accomplished blast freezing by placing
large industrial fans next to the designated pallets of food.
This blast freezing process took four to six days to
that time, MWC has made a significant investment in its QFR
system to expedite the blast freezing process. MWC's new,
and greatly improved, QFR consists of 660 individual blast
cells, three pallet slots high. To blast freeze a product,
MWC places the pallet in one individual blast cell. The cell
forces air on multiple sides of the pallet through spacers
that separate each layer of food. The pallet remains in the
individual cell until MWC verifies the food has been frozen
to an internal temperature of zero degrees Fahrenheit. Using
this QFR system, MWC can blast freeze products in forty-eight
hours. Unlike slow freezing, blast freezing extends product
food product is blast frozen, MWC shrink wraps the pallets in
accordance with the Depositor's contract. The
shrink-wrapped, blast-frozen pallets are then placed in
storage racks in the freezer area where they may remain for
two to twenty-nine days, until the Depositor releases them.
MWC bills Depositors based on the freezing method required by
the contract and the storage space used.
and 2012, MWC filed two Forms ST-200 ("Utility Sales Tax
Exemption Applications") and three Forms GA-110L
("Claims for Refund") with the Indiana Department
of State Revenue ("the Department"), seeking
refunds for sales tax paid on electricity and equipment used
during the freezing process. Citing the industrial exemptions
found at Indiana Code sections 6-2.5-5-5.1(b) and 6-2.5-5-3,
MWC asserted the electricity and equipment it used during
blast freezing should be exempt from sales tax because
"[t]he freezing of the food constitutes the last stage
in the [food's] manufacturing process." The
Department denied MWC's refund claims, concluding that
MWC "does not manufacture tangible personal property for
sale but rather provides a service."
timely protested those denials, but after administrative
hearings in which MWC presented evidence and argument, the
Department denied the protest in part and sustained it in
part, pending a supplemental audit. Following the audit, the
Department granted MWC a 15% refund for the electricity
purchased and used during the freezing stages, but it denied
any refund for the freezing equipment.
filed a verified petition for judicial review in the Indiana
Tax Court, appealing the Department's determinations that
MWC did not use the specified electricity or equipment for
manufacturing or production. The Department moved for summary
judgment, arguing that MWC's relevant electricity and
equipment purchases did not qualify for exemptions under
Indiana Code sections 6-2.5-5-5.1(b) and 6-2.5-5-3 as a
matter of law. In response, pursuant to Indiana Trial Rule
56(B), MWC also requested summary judgment, arguing that the
same statutory language, as applied to these facts, entitled
it to the requested relief as a matter of law.
Court granted the Department summary judgment, finding that
MWC's "retail transactions were not exempt from
Indiana sales tax under Indiana Code [sections] 6-2.5-5-3 and
… 6-2.5-5-5.1." Merchandise Warehouse Co.,
Inc. v. Ind. Dep't. of State Revenue, 67 N.E.3d 666,
667 (Ind. Tax Ct. 2017). Specifically, the Court determined
that MWC's "freezing services do not culminate in
the production of new, distinct marketable goods.
Accordingly, its purchase of electricity and freezer
equipment do not qualify for the . . . [e]xemptions."
Id. at 671. The Tax Court went on to explain that a
"taxpayer who purchases the ...