United States

Indiana: Various Purchases Related to Constructing a Wind Farm, Including Property Used to Construct Foundations, Exempt from Tax

Mar 12, 2018
From KPMG TaxWatch

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In a recent revenue ruling, the Indiana Department of State Revenue addressed whether equipment purchased for use in constructing and operating a wind farm qualified for the state’s manufacturing exemption. The taxpayer, a developer, planned to build a wind farm and sell the electricity to a public utility. The farm would operate as an integrated system consisting of wind turbines, a “collection system” of transformers, cables and a substation, and monitoring and control equipment. Under Indiana law, manufacturing machinery, tools, and equipment used directly in manufacturing or processing tangible personal property, which includes electricity, are exempt from sales and use tax.   

The Department first ruled―consistent with earlier rulings―that the taxpayer’s acquisition of turbines and component parts qualified for the manufacturing exemption. Notably, the taxpayer also convinced the Department that the turbine foundations likewise qualified for the exemption. While standard foundations are not typically considered machinery or equipment and, once complete, are actually considered real property, as opposed to tangible personal property, the turbine foundations at issue housed grounding cables, collection cables, heavy copper grounding rings, and rods. All of these items housed in the foundations were critical components of the integrated power generation system. Thus, the Department concluded that the tangible personal property used to construct the turbine foundations were exempt from Indiana sales and use tax.

Next, the Department, overturning its prior position, ruled that the taxpayer’s “collection system” of transformers, collection cables, and a substation qualified for the sales tax exemption. In the Department’s view, the exemption applied because the electricity was not in its completed form until the transformers stepped up the voltage and conditioned it to the specifications of the purchasing public utility. Unlike the turbine foundation, however, the substation foundation was not exempt as it was a standard foundation that was not part of the integrated production activity. Finally, the Department ruled that the control and monitoring equipment assisted both production and grid operation activities, and therefore qualified for the exemption in proportion to the amount of time spent on production activities. For more information on Revenue Ruling 2017-09ST, please contact Dave Perry at 513-763-2402.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.