An Indiana Farmer raised calves for food consumption, and he produced hay on his property to feed the calves.  Farmer purchased gravel “as a base for round hay bale feeders, which are used in the feeding process for Taxpayer’s calves.”  He claimed that his purchases were exempt under Ind. Code § 6-2.5-5-1 as tangible personal property acquired for “direct use in the direct production of food and food ingredients.”  The Department’s regulation provides:

‘To be directly used by the farmer in the direct production of food or agricultural commodities’ requires that the property in question must have an immediate effect on the article being produced.  Property has an immediate effect on the article being produced if it is an essential and integral part of an integrated process which produces food or an agricultural commodity.

45 IAC 2.2-5-1(a).  Without question, Farmer was “engaged in the direct production of food or agricultural commodities.”  But the issue was whether the gravel was directly used in direct production of the calves.  It wasn’t, because the “gravel does not have an immediate effect on the raising of cattle.”  While the gravel may have been necessary “to protect the hay from moisture and mud and to keep the tractor from getting stuck,” Farmer’s use of the gravel was “merely tangential” to food production.  Accordingly, purchases of the gravel were not exempt from sales tax.  Letter of Findings No. 04-20130316 (2010 tax year) (posted Sept. 25, 2013)