Taxpayer, a sole proprietorship, operates an auto repair business where Taxpayer repairs, rebuilds, and restores vehicles that are owned by Taxpayer's customers. Taxpayer also is a retailer of used vehicles.
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Taxpayer argues that the Department has assessed sales tax on seven transactions that are not subject to Indiana sales tax. Taxpayer states that for these transactions "the customers' vehicles were picked up by the taxpayer out-of-state, [taxpayer] performed repairs [to the vehicles] in Indiana, and then the taxpayer delivered back the vehicles to its customers out-of-state." Thus, Taxpayer maintains these repair transactions are not sourced to Indiana, but are sourced to the states where the out-of-state delivery occurred.
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The question of whether a customer "has exercised the right to ownership" is the test for the imposition of use tax. See IC § 6-2.5-3-2(a) (imposing the use tax "on the storage, use, or consumption of tangible personal property in Indiana.") See IC § 6-2.5-3-1(a) (defining "use" as "the exercise of any right or power of ownership over tangible personal property.") However, this situation is not the Department assessing use tax on the purchaser, but is the Department assessing sales tax on the retail merchant. This question of whether a customer "has exercised the right to ownership" is not the appropriate consideration for requiring a retail merchant to collect and remit Indiana sales tax for a sales transaction.
The general sourcing statute for retail merchants to determine if the retail merchant's transaction is subject to Indiana sales tax is found at IC § 6-2.5-13-1. If, pursuant to IC § 6-2.5-13-1, the sale is sourced to Indiana, the retail merchant must collect and subsequently remit sales tax at the time of the sale based on the gross retail income received by the retail merchant, unless the purchaser presents the retail merchant with an exemption certificate. For the transactions in question, a transaction where "the product is not received by the purchaser at a business location of the seller," the retail merchant is to source the sale of its product "to the location where receipt by the purchaser... occurs." IC § 6-2.5-13-1(d)(2). "Receipt" is defined as "taking possession of tangible personal property [or] making first use of services... whichever comes first." IC § 6-2.5-13-1(a). Thus, these repairs transactions that include the sales of repair parts will be sourced to the location where "the purchaser" either first "takes possession of the tangible personal property" or first "makes use of the services." The statute focus is on the "purchaser" and not on the retail merchant.
For these type transactions–where the out-of-state customer's property is imported into Indiana by the retail merchant, is repaired by retail merchant, and is delivered by the retail merchant to the out-of-state customer–the purchaser neither first "takes possession of the tangible personal property" nor first "makes use of the services" until the property is delivered to and accepted by the customer. If this property is delivered to and accepted by the purchaser at a place outside of Indiana, then the sales transaction, for purposes of sales tax, is sourced to the state of delivery.
Taxpayer protested the assessment of sales tax on seven transactions that it asserts represent these type of transactions where the repaired property was delivered to the out-of-state customer at a location outside of Indiana. During the course of the protest, Taxpayer submitted additional documentation, for three of the transactions, to show that the repaired property was delivered to the out-of-state customer at a location outside of Indiana. The Department is prepared to accept this documentation, for this one time only, for the following transactions:
9/17/2008 transaction, audit report p. 5, in the amount of $9,394.00;
8/17/2009 transaction, audit report p. 6, in the amount of $800;
2/1/2009 transaction, audit report p. 6, in the amount of $51,867.00.
However, Taxpayer is on notice that this documentation may not suffice for future transactions and more detailed records need to be retained for any of these type of transactions to be sourced to the out-of-state delivery locations in the future. Additionally, Taxpayer's protest, as to the other four transactions in question, for which additional delivery documentation was not presented, is denied.
