…
The Department does not deny that the LLC may have been formed for
a purpose other than avoiding the tax. However, in determining that Taxpayer
was entitled to rely on the representations of the Montana attorney to the
extent that Taxpayer did not knowingly commit fraud, the Department also
reasonably notes the attorney's own representations that the purpose of
establishing a Montana LLC is to "save a great deal of money on taxes and
licensing fees...."
Unfortunately, the Department is unable to accept the proposition
that Indiana residents may avoid paying sales and use tax on tangible personal
property simply by titling that property outside the state. In this particular case,
the Department is unable to agree that either the law, the facts presented by
Taxpayer, or simple common sense compel the conclusion that Taxpayer should not
be responsible for paying use tax on this vehicle.
Department has consistently determined as much. See Letter of
Findings 04-20100111 (March 29, 2010) 20100526 Ind. Reg. 045100324NRA; Letter of Findings 04-20100299
(July 28, 2010) 20100929 Ind. Reg. 045100591NRA; Letter of Findings 04-20100175 (August 23, 2010)
20101027 Ind. Reg. 045100650NRA.
Along with challenging the underlying assessment of sales/use tax
on the purchase of a vehicle, Taxpayer also challenges the assessment of the
fraud penalty which had the effect of doubling the underlying assessment.
…
However unlikely the legal contortions may have been, Taxpayer
apparently consulted the Montana attorney in good faith, paid that attorney to
establish a Montana LLC, and believed the attorney's explanation that
establishing the LLC would allow Taxpayer to avoid paying Indiana sales or use
tax. As such, it is not possible to establish – by "clear and convincing
evidence" – that Taxpayer possessed the requisite "degree of
knowledge" or scienter sufficient to sustain the imposition of the 100
percent penalty.
SUMMARY
The assessment of the fraud penalty is not justified and should be
abated. Taxpayer has not demonstrated that the purchase of the recreational
vehicle is not subject to Indiana use tax.
