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I. Sales Tax–Food Items.
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The first category is for items under the brand names
"Boost" and "Ensure." Taxpayer must demonstrate that they
are not "soda drinks," by showing that the drinks that contain
natural or artificial sweeteners, also contain milk or milk products, soy, rice
or similar milk substitutes, or more than 50 percent fruit or vegetable juice
by volume, as provided by IC § 6-2.5-1-26. After review of the information
supplied by Taxpayer, both Boost and Ensure contain filtered milk. Those two
items are therefore not soda drinks as defined by IC § 6-2.5-1-26 and are
exempt from sales tax as provided by IC § 6-2.5-5-20.
The second category under protest is an item by the brand name
"Coors Cutter." This item was included as taxable since it was
assumed to be an alcoholic beverage, which not a food item under IC §
6-2.5-1-20 and is therefore taxable under IC § 6-2.5-5-20(c).
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"Alcoholic beverages" means beverages that are suitable
for human consumption and contain one-half of one percent (0.5[percent]) or
more of alcohol by volume.
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Coors Cutter contained one half of one percent alcohol by volume.
Therefore, even though the product was marketed as "non-alcoholic",
it was defined as "alcoholic" by the SSUTA and was a taxable item.
II. Use Tax–Imposition.
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Taxpayer listed twenty-one categories of items it protested were
not subject to Indiana use tax. Of those categories, several were for items
which were delivered to Taxpayer's stores in states other than Indiana.
Taxpayer provided invoices to support its position that categories
2, 7, 13, 14, 15, 16, 17, 18, and 19 were deliveries to out-of-state locations.
Since the items in question were stored, used, or consumed outside Indiana, Indiana
use tax is not due on those purchases and those items will be removed from the
Department's calculations of use tax due.
Next, Taxpayer provided copies of invoices which show that
Taxpayer paid Indiana sales tax on certain items at the time of purchase.
Categories 6 and 10 concern such purchases. Since sales tax was paid at the
time of purchase, use tax is not due as provided by 45 IAC
2.2-3-4. Therefore, those items will be removed from the Department's
calculations of use tax due.
Next, Taxpayer provided copies of invoices from two of its vendors
in support of the position that those vendors were charging sales tax on sales
to Taxpayer. The invoices provided were not for the purchases included in the
sample used by the Department in its use tax sample and projection method.
Still, Taxpayer believes that the invoices provided show a pattern of sales tax
collection and that the Department should remove all purchases from these
vendors from its use tax calculations.
The Department cannot agree with this position. There is no
guarantee that the vendors in question charged sales tax on the purchases
listed in the sample population used in the use tax calculations. Taxpayer has
not met the burden of proving this portion of the proposed assessments wrong,
as required by IC §6-8.1-5-1(c), and the amounts listed in categories 4 and 12
will remain classified as taxable in the Department's use tax calculations.
Next, Taxpayer provided copies of invoices regarding charges from
some of its vendors referring to "travel charges" or "trip
charges." Taxpayer states that these charges were for the service of
trucking/hauling the tangible personal property which Taxpayer was purchasing
from the vendors. The Department considered the charges to be subject to sales
and use tax and refers to IC § 6-2.5-1-5(a), which provided (as in effect
during the audit period):
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Therefore, while the charges listed in categories 1 and 5 were not
directly for the purchase of tangible personal property, they were delivery
charges as defined by IC § 6-2.5-1-5(a)(5)(D) and are properly subject to Indiana
sales or use tax.
Next, Taxpayer protests the inclusion of purchases from a
particular vendor which produces over-the-counter medical items. Taxpayer
states that, since these are medical items and since Taxpayer is a business
which would not use medical items, the amounts it paid to that vendor should be
removed from the Department's use tax calculations. After review of the
materials submitted regarding this particular vendor, it is clear that these
were items for resale and not for Taxpayer's use. As such, all amounts listed
in Taxpayer's category 21 will be reclassified as non-taxable in the
Department's use tax calculations.
Next, Taxpayer protests the inclusion of transactions which
Taxpayer states were purely services without the transfer of tangible personal
property. Of the vendors included in this portion of Taxpayer's protest, one is
for a floor cleaning service which included a truck charge as discussed above.
While the truck charges are taxable if there is a transfer of tangible personal
property, here there was only a cleaning service with a de minimis transfer of
tangible personal property. Also, one invoice is a bank fee, which also does
not involve the transfer of tangible personal property. A third invoice is for
a service which pipes music into Taxpayer's stores. Again, there is no transfer
of tangible personal property involved with this vendor. Therefore, the amounts
paid under categories 8, 9, and 3 will be reclassified as non-taxable in the
Department's use tax calculations.
However, two other vendors included in this portion of Taxpayer's
protest did have transfers of tangible personal property involved in the
transactions at issue. One vendor was a painting service and the other was a parking
lot maintenance service. The invoices for the painting service list labor,
materials, and delivery charges on a single invoice.
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The invoices provided during the protest do not establish
Taxpayer's position. The invoices for the painting show that, for those
particular transactions, the amount of tangible personal property is less than
ten percent of the service charge. As discussed previously, these invoices are
not those listed in the sample population used by the Department in its use tax
calculations. Taxpayer wants the Department to consider the invoices it
provided as establishing a pattern which could be extended to the invoices
listed in the sample population. As discussed above, the Department cannot
agree with this method. All painting jobs are not identical and there is no
guarantee that the jobs listed in the sample population involved transfers of
less than ten percent of the service price, as required by 45 IAC
2.2-4-2(a).
The parking lot maintenance invoices do not break down costs at
all. There is only a single price listed for the transaction. Since the
invoices are for such activities as patching holes, it is reasonable for the
Department to assume that some transfer of tangible personal property takes
place. Taxpayer has not established that the amount charged for tangible
personal property is less than ten percent of the service charge, as required
by 45 IAC 2.2-4-2(a). Therefore, the amounts listed in
categories 11 and 20 will remain listed as taxable in the Department's use tax
calculations.
In conclusion, Taxpayer has met the burden imposed under IC §
6-8.1-5-1(c) regarding categories 2, 3, 6, 7, 8, 9, 10, 13, 14, 15, 16, 17, 18,
19, and 21. Taxpayer has not met the burden imposed under IC § 6-8.1-5-1(c)
regarding categories 1, 4, 5, 11, 12, and 20. A supplemental audit will
recalculate the use tax liabilities reflecting these findings.
III. Tax Administration–Negligence Penalty.
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After review of the circumstances in this case, Taxpayer has been
sustained on most items protested in Issue I above and a substantial portion of
the items listed in Issue II. Taxpayer has established that the assessment of
additional use tax on these remaining items arose due to reasonable cause and
not due to negligence, as required by 45 IAC 15-11-2(c).
