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[T]he fact that tangible personal property was incorporated into real property does not relieve a taxpayer of its obligation to pay sales or use tax. A contractor may convert tangible personal property into realty under a "lump sum contract" or under a "time and materials contract." Sales Tax Information Bulletin 60 (July 2006), 20060823 Ind. Reg. 045060287NRA, defines a "lump sum contract" as "a contract in which all of charges are quoted as a single price. A construction contractor may furnish a breakdown of the charges for labor, material and other items without changing the nature of the lump sum contract." A "time and materials contract" is defined as "a contract in which all charges for labor, construction materials and other items are separately stated." Id. Generally, in a lump sum contract between a taxpayer and its contractor, the contractor bears responsibility for paying the tax on the construction materials. In a time and materials contract between a taxpayer and its contractor, the contractor acts as a retail merchant and sales or use tax is due from the contractor's customers on the cost of the materials.
The Department's audit report contains several line items
from various transactions with the contractor in question. The Department's
audit report made notations where the information indicated the amount was for
materials only and subjected the amount to tax. The Department's audit report
made notations where the information indicated that the amount was for labor only
and did not subject the amount to tax. The Department's audit report also made
notations that described transactions that would not appear to be considered
improvements to realty and subjected those amounts to tax. Lastly, the
Department's audit report, on one occasion, made a notation stating that the
information indicated that that billing was under a lump sum contract and did
not subject that amount to tax.
Taxpayer asserts that the Department's determination, that
the materials only line item amounts are subject to tax, was not correct.
During the protest, Taxpayer's representative was asked to provide
documentation–i.e., invoices, contracts, and/or statements from the
contractor–establishing the nature of these transactions. However, Taxpayer's
representative did not provide any additional documentation for these
transactions. Since Taxpayer failed to provide documentation to support its
assertions, Taxpayer has failed to meet its burden to show that the assessment
was incorrect under IC § 6-8.1-5-1. Therefore, the Department finds no reason
to disagree with the audit's conclusion that these materials are subject to use
tax.
