Taxpayer is an Indiana resident and a sole proprietor doing business in Indiana. Taxpayer grows and sells hay to customers both in Indiana and outside of Indiana. Taxpayer also operates a trucking business. In addition to delivering goods for unrelated third parties, Taxpayer also uses his trucks to deliver bales of hay to his customers in various states.
In 2006, the Indiana Department of Revenue ("Department") conducted a sales/use tax audit of Taxpayer's business records for 2003 and 2004 tax years. Pursuant to the audit, the Department determined that Taxpayer failed to maintain adequate records for the sales of hay. The Department also found that Taxpayer failed to pay sales/use tax on purchases of tangible personal property which Taxpayer used for his business activities. As a result, the Department assessed Taxpayer additional sales and use tax, interest, and penalty based on the best information available ("BIA") at the time of the audit.
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The Department's audit assessed Taxpayer additional sales tax on his sales because Taxpayer did not maintain adequate records to show that he properly collected and remitted sales tax to the Department. Nor did Taxpayer collect and maintain properly executed exemption certificates provided by his customers, who claimed exemptions.
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At the administrative hearing, Taxpayer asserted that he was not responsible for collecting sales tax on the sales of hay because his customers were farmers who were exempt from sales tax. Taxpayer further stated that he is not required to acquire and maintain any records to support the above assertion because "no one is doing that."
Taxpayer is mistaken. Pursuant to 45 IAC 2.2-8-12(b), "Retail merchants are required to collect sales and use tax on each sale which constitutes a retail transaction unless the merchant can establish that the item purchased will be used for an exempt purpose."45 IAC 2.2-8-12(d) also cautions that, "[u]nless the seller receives a properly completed exemption certificate the merchant must prove that sales tax was collected and remitted to the state or that the purchaser actually used the item for an exempt purpose. It is, therefore, very important for the seller to obtain an exemption certificate in order to avoid the necessity for such proof." Thus, in the absence of the properly signed and properly executed exemption certificates, the Department's audit properly assessed sales tax on the otherwise taxable sales.
Additionally, Taxpayer was afforded ample opportunities to obtain the information, but he declined to contact his customers to obtain the signed and executed exemption certificates. Taxpayer is reminded that sales tax becomes due at the time of the transaction; either the purchaser is exempt at the time of the transaction or it is not exempt. If the purchaser claims an exemption, the exemption certificate should be obtained at the time the transaction occurs otherwise the burden of proving the transaction was exempt becomes measurably more difficult.
In short, 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. Taxpayer's protest of the imposition of the sales tax is denied.
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The Department's audit assessed additional use tax on Taxpayer's purchases, including supplies, cell phones, trailer, and fuel, which the Department determined Taxpayer was using for his business activities in a non-exempt manner but did not pay sales/use tax. Taxpayer, to the contrary, claimed that he is not responsible for the sales and use tax because the purchases were not subject to sales/use tax.
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At the hearing, Taxpayer claimed that he was not responsible for the use tax on the purchases. Taxpayer further stated that his business records were destroyed when he moved. Thus, Taxpayer could not and did not have any documentation to support his protest.
Taxpayer is reminded that the Department's proposed assessment is presumed to be correct and Taxpayer bears the burden to prove otherwise. Given the totality of the circumstances, in the absence of other supporting documentation, the Department is not able to agree that Taxpayer met his burden.
In short, Taxpayer's protest of the imposition of use tax is respectfully denied.
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The Department assessed interest on the tax liabilities. Taxpayer protested the imposition of interest.
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Pursuant to IC § 6-8.1-10-1(e), the Department does not have the authority to waive the interest.
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The Department's audit imposed a ten percent negligence penalty for the tax years in question. Taxpayer protests the imposition of penalty.
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In this instance, the Department's audit noted that Taxpayer failed to maintain adequate records as required by law. Additionally, during the legal protest process, Taxpayer did not provide any documentation to affirmatively establish that his "failure to file a return, pay the full amount of tax due, timely remit tax held in trust, or pay a deficiency was due to reasonable cause and not due to negligence." As mentioned above, "[i]gnorance of the listed tax laws, rules and/or regulations is treated as negligence. Further, failure to read and follow instructions provided by the department is treated as negligence."
In short, Taxpayer's protest of the imposition of negligence penalty is denied.
