Merchandise Warehouse Co., Inc. v. Indiana Department of State Revenue, 87 N.E.3d 12

Merchandise Warehouse Co., Inc. (MWC) operates freezing/storage for third-party food producers (Depositors) and offers slow freezing and blast freezing (QFR system).
MWC began using an advanced Quick Freeze Refrigeration (QFR) blast-freezing system in 2011 that freezes pallets to 0°F in ~48 hours; slow freezing takes 5–12 days and is less controlled.
MWC paid sales tax on electricity and freezing equipment, then filed exemption applications/refund claims under Indiana’s industrial exemptions (equipment and consumption exemptions). The Department denied most refunds; it granted a partial (15%) refund for electricity only.
The Tax Court granted the Department summary judgment, holding MWC did not perform "direct production" (the final marketable transformation) and that a purchaser must use equipment/electricity in its own production process.
The Indiana Supreme Court granted review to decide (1) whether blast freezing by MWC constitutes direct production and (2) whether the exemptions require the purchaser to perform its own production process.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether MWC's blast freezing is "direct production" under industrial exemptions	MWC: blast freezing substantially transforms food into a distinct, marketable good and is an essential, integral production step	Department: MWC provides a service/warehousing; freezing does not culminate in production of new marketable goods	Held: Yes — blast freezing is direct production; it actively transforms product into the marketable good actually sold
Whether the exemption statutes require taxpayers to use equipment/electricity in their own production process	MWC: statutes require use in direct production but not that the purchaser perform its own production; purchaser need only be in the business of manufacturing/processing	Department: purchaser must use equipment/electricity as part of its own production, not as part of another taxpayer's process	Held: No — statutes do not require the purchaser to perform its own separate production process; use in direct production suffices

Indianapolis Fruit v. Ind. Dep’t. of State Revenue, 691 N.E.2d 1379 (Ind. Tax Ct. 1998) (held induced ripening by ethylene constituted production; distinguishing active transformation from passive storage)
General Motors Corp. v. Ind. Dep’t. of State Revenue, 578 N.E.2d 399 (Ind. Tax Ct. 1991) (production encompasses steps transforming work-in-process into a finished marketable product)
Ind. Dep’t. of Revenue v. Interstate Warehousing, 783 N.E.2d 248 (Ind. 2003) (rejected refund where storage/cooling did not substantially change stored goods into a transformed end product)
Ind. Dep’t. of State Revenue v. Cave Stone, 457 N.E.2d 520 (Ind. 1983) (exempt equipment must be essential and integral to transforming tangible personal property into a marketable product)
Ind. Waste Sys. of Ind., Inc. v. Ind. Dep’t. of State Revenue, 633 N.E.2d 359 (Ind. Tax Ct. 1994) (addressed prior statutory language and purchaser-use issues; distinguished on facts)