Revenue Finds Sales Tax Due on Purchases made under Invalid Exemption Certificate

Taxpayer is an Indiana retail merchant. As the result of an audit, the Indiana Department of Revenue ("Department") determined that Taxpayer had not collected sales tax on some sales it made in its role as a retail merchant and that Taxpayer had not paid sales tax as a customer on some purchases it made during the tax years 2008 through 2010…  Taxpayer protests the Department's assessment of sales tax on sales to two of Taxpayer's customers on the grounds that those customers had provided exemption certificates. Taxpayer provided copies of the exemption certificates for the two customers.
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As provided by IC § 6-2.5-8-8(a), a seller accepting a valid exemption certificate has no duty to collect or remit the state gross retail or use tax on a purchase. A review of the two exemption certificates at issue shows that one is valid and one is not. Despite the fact that the valid exemption certificate is dated from 1996, it does have the required information on it. The invalid exemption certificate is not only missing required information such as an Indiana or Federal taxpayer identification number; it is not an Indiana exemption certificate. It is an exemption certificate for a neighboring state. The Department cannot accept this exemption certificate as valid for exemption from Indiana sales tax.

In conclusion, Taxpayer has met the burden of proving the proposed assessment of sales tax incorrect regarding Taxpayer's sales to the customer with the valid exemption certificate, as required by IC § 6-8.1-5-1(c). Taxpayer has not met the burden of proving the proposed assessment of sales tax regarding Taxpayer's sales to the customer with the non-Indiana exemption certificate. The Department will conduct a supplemental audit to remove the sales to the customer with the valid exemption certificate.

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In this case, Taxpayer incurred an assessment which the Department determined was due to negligence under 45 IAC 15-11-2(b), and so was subject to a penalty under IC § 6-8.1-10-2.1(a). After review of the circumstances in this case, Taxpayer has established that the assessment arose due to reasonable cause and not due to negligence, as required by 45 IAC 15-11-2(c).

 
http://www.in.gov/legislative/iac/20120627-IR-045120367NRA.xml.html