Taxpayer owns farm land and
residential property which is leased to individual tenants. Taxpayer also rents
construction equipment to a related entity. The Indiana Department of Revenue
("Department") conducted a sales and use tax audit of Taxpayer for
the years 2008 through 2010. As a result of the audit Taxpayer was assessed
additional use tax and related interest. Taxpayer protested the assessments.
…
During the audit period Taxpayer
purchased a Caterpillar Multi Terrain Loader and a Komatsu Excavator that were
delivered to Taxpayer in Indiana. No sales or use tax was paid on these
purchases. Taxpayer states that both these items were purchased with the
intention of renting them to a related company ("Related"). According
to the Department's Audit Summary, Taxpayer did not provide the auditor
documentation to substantiate Taxpayer's claims related to these two items.
According to the Audit Summary:
The taxpayer stated that an
incorrect description of the loader appeared on the billing invoices to
[Related] and that they had forgotten to bill that company for rentals of the
excavator. In addition, they stated that the income from the excavator rentals
would be placed on the company's books in 2011, but the excavator sold in 2010.
In making the assessment, the audit
cited to 45 IAC 2.2-3-20 which states in part that all
purchases of tangible personal property which are delivered to the purchaser
for storage, use, or consumption in Indiana are subject to Indiana use tax. The
terrain loader was purchased in 2008 and the excavator was purchased in 2009
and they were both used in Indiana.
…
If Taxpayer bought the vehicles at
issue for the purpose of leasing them to Related, Taxpayer would not be
required to pay sales tax on the purchases of the vehicles because Taxpayer
would have bought the vehicles for resale/leasing which is exempt.
Taxpayer explains that the vehicles
in question were mistakenly capitalized on Related's books and as a result
Taxpayer failed to collect sales tax on the lease stream. Taxpayer does not
disagree that it should have collected sales tax on the lease stream. Taxpayer
states that the internal records of both Taxpayer and Related will be adjusted
to reflect the leasing arrangement and the collection of sales tax on the lease
stream.
For the purpose of this protest,
Taxpayer purchased the implicated vehicles without paying sales or use tax on
the purchases and use of these vehicles. Furthermore, Taxpayer did not provide
evidence of a leasing arrangement with Related. How Taxpayer adjusts its
business operations and records going forward – several years after the
equipment was purchased – is irrelevant to the years at issue.
The Department's audit correctly
assessed tax on the implicated transactions.
