Taxpayer is an Indiana corporation engaged in the business of building and remodeling apartment complexes. Taxpayer bills its customers on a "lump sum" contract basis. After an audit, the Indiana Department of Revenue ("Department") determined that Taxpayer owed use tax and assessed interest for the tax years 2008 and 2009. Taxpayer purchased items for installation in the apartment complexes. The Department found that Taxpayer had neither paid sales tax at the time of purchase nor remitted use tax to the Department on these purchases. Taxpayer protests this imposition of use tax and interest. An administrative hearing was conducted, and this Letter of Findings results. Further facts will be provided as required.
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Taxpayer maintains that use tax is being imposed on an intercompany payment of $17,268.76, on p.5 of audit report. Taxpayer initially claimed that this amount was paid to a related entity of Taxpayer to reimburse the related entity for "furniture that was supposed to be for [Taxpayer]. The purchase was made with tax at Walmart as a retail sale." Subsequently, Taxpayer stated:
I am providing sales receipts via credit card statements for the items in the invoice from [related entity]....
The total of the items notated add up to less than [the] total of the invoice from [related entity]. The remaining balance was a service charge for decorating, labor for picking the items up, ordering them, and coordinating them. This fee is typical, if not less than competitors, for picking out the furniture, technology, and office furniture. It was also a service, with no sales tax applied.
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Based upon the documentation presented, Taxpayer and the related entity vendor engaged in a transaction for the transfer of tangible personal property that is subject to sales and/or use tax. The invoice presented by Taxpayer demonstrates that Taxpayer paid a single unitary amount of $17,268.76 for a list of various pieces of furniture. Thus, this invoice did not reflect that a "decorating service fee," or any other "service fee," was charged. Services that are performed as part of a retail "unitary transaction" are subject to sales and use tax. IC § 6-2.5-1-2(b). A retail "unitary transaction" is one in which items of personal property and services are furnished under a single order or agreement and for which a total combined charge or price is calculated. IC § 6-2.5-1-1(a). A unitary transaction includes all items of property and services for which a total combined selling price is computed irrespective of the fact that the cost of services, which would not otherwise be taxable, is included in the selling price. 45 IAC 2.2-1-1(a).
Given the totality of the circumstances, in the absence of other supporting documentation, the Department is not able to agree that Taxpayer met its burden of proving that the Department's assessment was wrong. Taxpayer's obligation to pay sales or use tax arose at the time of Taxpayer's purchase of the furniture from related entity vendor. Since Taxpayer did not pay sales tax on the invoice at the time of its purchase, use tax is properly imposed.
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The Department imposed use tax for the "materials portion" of a transaction (audit report p. 4, referenced as check no. 179, in the amount of $21,837.00) on which Taxpayer did not pay sales tax at the time of the retail transaction. Taxpayer asserts that the Department has assessed use tax on a transaction which represented only "labor" or "services charges." Taxpayer maintains that the transaction in question did not involve the transfer of any tangible personal property. Taxpayer states that the transaction in question represented an amount paid to the telephone company for it to move a telephone pole from the middle of an access road to the outside edge of the parking lot at one of Taxpayer's apartment complex construction sites.
As noted previously, the Department notes that the burden of proving a proposed assessment wrong rests with the person against whom the proposed assessment is made, as provided by IC § 6-8.1-5-1(c).
During the hearing, Taxpayer presented additional documentation to demonstrate the nature of the transaction in question. Based upon this additional documentation, Taxpayer has presented sufficient documentation to demonstrate that the transaction in question did not represent the transfer of tangible personal property, but represented "service charges" to move a telephone pole. Therefore, Taxpayer has provided sufficient evidence to establish that the transaction in question was not subject to sales and use tax.
