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KSM Blog | Katz, Sapper & Miller CPA

Seven Percent Off Your Next Purchase: Indiana’s Sales Tax Exemption for Restaurants

Posted 12:17 AM by

Are you paying more sales tax than you need to be paying? Unlike a majority of states, Indiana treats restaurants as manufacturers for purposes of the sales tax exemption for production. This can mean real savings of seven percent on purchases of equipment and utilities. In the competitive world of restaurant management, it is crucial to recognize where savings can be realized and how to go about claiming those savings.

The purchase of equipment that is “directly used in the direct production” of food is exempted under Indiana law. In order to qualify for the exemption, the equipment should act directly on the production of food (think fryers and ovens, not refrigerators or exhaust fans). This exemption can most easily be claimed by presenting your vendor with a completed exemption certificate (Form ST-105), although a refund claim can be submitted if you have previously paid sales tax on exempt equipment in error.

The utilities used in the direct production of food are also exempt. Using the above examples, the portion of the electricity used to power the fryers and ovens would be exempt but the portion used for the refrigerators and exhaust fans would be taxable. Typically a utility study is performed to determine what percentage of utilities are consumed in exempt production activities. This exemption is claimed by completing a special exemption application for utilities (Form ST-200). Generally, you should expect to receive an exemption equal to the pro rata percentage of exempt usage. However, if your exempt usage exceeds 50%, the utilities are deemed to be “predominantly used” in production and the exemption will extend to your entire utility bill.

Restaurants that are not currently benefiting from this exemption should consider performing a utility study. Filing a refund claim can result in an audit. Therefore, taxpayers need to be mindful of the actions they take in initiating a refund claim and ensure that adequate records are kept.

About the Author
Jim White is a member of Katz, Sapper & Miller’s Restaurant Services Group. Jim guides restaurant owner-operators through tax compliance issues and helps them plan strategies to minimize tax liabilities and maximize savings. Connect with him on LinkedIn.

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