Indiana: Indy 500 Race Car Engines Exempt from Sales Tax; Tires Are Not

All politics is local, as they say, and the same goes for sales tax exemptions. The Indiana Department of Revenue issued a circular (PDF) this month clarifying the sales tax treatment of Indy 500 racecar components:

Transactions involving the purchase, lease, or operation of a qualified part of a motor racing vehicle, described below, by professional racing teams are exempt from Indiana sales and use tax. This includes replacement and rebuilding and component parts of a racing vehicle. Tires and accessories are not eligible for the sales and use tax exemption if used in Indiana.

The circular goes on to define all these things. So enjoy your tax-free engines, but be ready to pay the state's 7 percent on the tires. (And those sound like expensive tires.)

Ideally, a sales tax should be levied on all goods and services sold at retail, and to prevent distortions and hidden taxes. If a sales tax is imposed on each of those transactions, the taxes cascade or "pyramid" on top of each other, resulting in taxes on top of taxes. So it's hard to see the economic distinction between engines and tires, as Indiana has here.