Taxpayer is an Indiana company in the
business of marketing, advertising, and event planning. The Indiana Department
of Revenue ("Department") conducted a sales/use tax audit of Taxpayer
for 2008, 2009, and 2010 tax years and issued proposed assessments for
additional amounts of sales tax, use tax, and interest. The Department determined
that Taxpayer failed to collect and remit sales tax when Taxpayer transferred
tangible personal property to its customers with a mark-up included above what
Taxpayer paid for the property when it was procured. Taxpayer was also billed
for the tax year 2011 after the audit was concluded. Since the 2011 assessment
is based on the conclusions of the audit, the 2011 assessment is also included
in this protest.
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Taxpayer has not registered with the
Department as a retail merchant. Taxpayer argues that it is a service provider,
and not a retail merchant. Taxpayer purchases items for its clients, and it
pays sales tax on the purchase of the items. Taxpayer's invoices to its
customers sometimes include separately stated charges for products and
services; in other instances, the products and services are listed as one
charge. In either case, when Taxpayer invoiced its clients for the products,
the amount Taxpayer charged its clients for tangible personal property was
greater than what Taxpayer paid for the tangible personal property. Taxpayer
did not collect sales tax on the charges for the tangible personal property.
Taxpayer maintains that additional amount charged is a "procurement
fee," meaning that this is a service charge for the work that Taxpayer put
into researching the best priced items for its client, the time it took to
purchase and possibly picking up the item, and so on. The Department disagreed,
and determined that this was simply "markup."
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Taxpayer argues that tax should not
be charged on the "procurement fee," because this is a service, and
not a "markup." One could make the argument that the additional
amount added to the purchase price is to cover the costs of procurement, but
that would still fit the definition of "markup" ("An amount
added to a cost price in calculating a selling price, esp. an amount that takes
in to account overhead and profit." Webster's II New Riverside University
Dictionary 728 (1st ed. 1988)). Even if the markup were a service, as mentioned
above, a service provided prior to transfer of the property is subject to sales
tax. Further, this "service" is also included on the invoice as one
unitary transaction with property with which it is associated. Again, as
mentioned above, when services are part of a retail unitary transaction, the
service is subject to sales tax. IC § 6-2.5-1-2.
...
In the case at hand, if Taxpayer had
been a registered retail merchant, it would not have had to pay sales tax on
items that it would be reselling to Taxpayer's customers (see 45 IAC 2.2-8-12). Nevertheless, Taxpayer would then
have to charge and collect sales tax when it resold the items on the full
amount charged, including the markup or "procurement fee."
...
In summary, Taxpayer has failed to
meet its burden of proof to show that the audit's assessments are incorrect.
Taxpayer is a retail merchant and must register with the Department as a retail
merchant. It may then purchase tangible personal property without paying sales
tax using the exemption certificate it obtains from the Department. When the
tangible personal property is sold to its customers, Taxpayer must collect
sales tax on the tangible personal property and services performed prior to
transfer of the property, regardless of whether the amounts for the property
and services are separately stated. Taxpayer must also collect sales tax on the
markup it includes in the transfer price of the property. Taxpayer provided two
examples of invoices from 2012, and while Taxpayer has apparently started to
charge sales tax on the markup, it appears Taxpayer is also still paying sales
to its vendors when it purchases items for resale.
