Taxpayer is a partnership which owns and operates a restaurant/bar in Indiana. In 2011, the Indiana Department of Revenue ("Department") conducted a sales/use tax audit of Taxpayer. Pursuant to the audit, the Department determined that Taxpayer failed to pay sales tax or self-assess use tax on tangible personal property it purchased and used in the course of its business activities, including capital assets in Taxpayer's depreciation schedule. The audit concluded that Taxpayer did not maintain proper records showing that sales tax was paid on these purchases. As a result, the Department assessed additional use tax and interest.
…
A. US Bar Remodel.
The Department's audit assessed Taxpayer use tax on "US Bar Remodel" in the amount of "$13,438" because Taxpayer failed to provide documentation to show that the sales/use taxes were paid.
Taxpayer claimed that the line item of "US Bar Remodel" in the amount of "$13,438" consists of seventeen (17) transactions and most of the transactions were payments for "Labor." Thus, Taxpayer asserted that it was not responsible for the sales/use tax because "Labor" is not subject to sales/use tax. Taxpayer also maintained that it was not responsible for the use tax on transactions involving materials used by its contractors because the contractors paid the sales tax. To support its protest, Taxpayer referred to the Workpaper, listing the break-down of the seventeen (17) names of individuals/companies in this category. Taxpayer also pointed to the copies of invoices/statements to support its protest.
Upon reviewing Taxpayer's documentation, the Department is not able to agree. First, Taxpayer's Workpaper listed seventeen (17) transactions/payments in this category but it only provided fifteen (15) statements/invoices. Thus, the total amount claimed in this category could not be substantiated and verified. Also, upon further review of the invoices/statements, several statements/invoices showed that the charge for labor and the charge for materials were not separate. Those transactions thus are considered as unitary transactions and the total amount of each of those transactions are taxable under IC § 6-2.5-1-1(a) and 45 IAC 2.2-1-1(a). Additionally, the Department's audit summary listed that Taxpayer purchased "US Bar Remodel" on July 1, 2010; however, none of the 15 statements/invoices were dated July 1, 2010. Rather, the 15 transactions/payments were dated variously after July, 2010 (from August 2, 2010 through December 30, 2010).
Thus, given the totality of the circumstances, in the absence of other supporting documentation, the Department is not able to agree that Taxpayer has met its burden demonstrating that the Department's assessment is incorrect.
B. Kitchen Equipment.
The Department's audit assessed Taxpayer use tax on "Kitchen Equipment" in the amount of "$11,438" because Taxpayer failed to provide documentation to show that the sales/use taxes were paid. Taxpayer, to the contrary, stated that it paid sales tax to the supplier at the time of the purchases. Taxpayer provided three (3) copies of the invoices to support its protest.
Upon reviewing Taxpayer's documentation, the Department is prepared to agree that Taxpayer's documentation is sufficient to demonstrate that it purchased kitchen equipment from the same vendor to which it paid sales tax at the time of its purchases. Thus, Taxpayer is not responsible for the use tax pursuant to IC § 6-2.5-3-4 and 45 IAC 2.2-3-14.
C. Improvements.
The Department's audit assessed Taxpayer use tax on "Improvements" in the amount of "$31,176" because Taxpayer failed to provide documentation to show that the sales/use taxes were paid. Similar to the explanation provided in Category A, Taxpayer claimed that it was not responsible for some sales/use tax for the same reasons.
Upon reviewing Taxpayer's documentation, the Department is not able to agree. First, Taxpayer's Workpaper simply stated that there was "no detail general journal entry" to account for a transaction in the amount of "$3,886.69." Similar to Category A, Category C of Taxpayer's Workpaper also consists of various transactions/payments with different vendors on various dates which cannot be substantiated or verified. Specifically, Taxpayer claimed a depreciation deduction concerning the capital asset purchase for "$31,176" but it could not reconcile its records. Given the totality of the circumstances, in the absence of other supporting documentation, the Department is not able to agree that Taxpayer has met its burden demonstrating that the Department's assessment is not correct.
C. TV.
The Department's audit assessed Taxpayer use tax on "TV-XXX," in the amount of "$1,188" because Taxpayer did not have documentation to show that sales/use tax was paid at the time of the purchase.
Taxpayer's Workpaper stated that this "$1,188" purchase consists of two (2) payments: (1) $962.99 for a television, including sales tax, and (2) $225 was a payment to an individual for installing the television. Taxpayer maintained that since Taxpayer paid the sales tax on the television purchase and the $225 payment was paid for a non-taxable service, the Department's audit erroneously assessed sales/use tax on "TV- XXX."
Upon reviewing Taxpayer's documentation, however, the Department is not able to agree. The Department has no doubt that Taxpayer purchased a television for $962.99 which included sales tax. That receipt, however, can only support the fact that Taxpayer purchased a television for $962.99 and paid the sales tax on that purchase; that receipt alone is not sufficient to support the claimed "$1,188" purchase. Thus, given the totality of the circumstances, in the absence of other supporting documentation, the Department is not able to agree that Taxpayer has met its burden demonstrating that the Department's assessment is not correct.
E. TV & Wall Mount.
The Department's audit assessed Taxpayer use tax on "TV & Wall Mount XXX" in the amount of "$2,732" because Taxpayer did not have records showing that sales/use tax was paid at the time of the purchase.
Taxpayer's Workpaper stated that this "$2,732" purchase consists of five (5) payments, one of the payments of which was a television purchase (including sales tax) and the remaining four (4) payments were payments to two individuals who performed the installation. Taxpayer thus maintained that the Department's audit erroneously assessed sales/use tax on "TV & Wall Mount XXX" because it paid the sales tax on the television purchase and the remaining payments were paid for non-taxable services.
Upon reviewing Taxpayer's documentation, however, the Department is not able to agree. Similar to the discussion in Category D, the Department has no doubt that Taxpayer paid sales tax on its purchase of a television. That receipt alone, however, can only support the fact that Taxpayer purchased that television for $1,205.44, which included the sales tax. In the absence of other documentation, that receipt alone is not sufficient to support the claimed "$2,732" purchase. Thus, given the totality of the circumstances, in the absence of other supporting documentation, the Department is not able to agree that Taxpayer has met its burden demonstrating that the Department's assessment is not correct.
F. Sound System.
The Department's audit assessed Taxpayer use tax on "Sound System" in the amount of "$3,221" because Taxpayer did not provide any documentation showing that sales/use tax was paid at the time of the purchase.
Taxpayer claimed that this "$3,221" sound system consists of four (4) payments to contractors (individuals/companies) who installed the sound system for Taxpayer. Taxpayer did not dispute three out of the four payments were subject to sales/use tax. Rather, Taxpayer asserted that the forth payment in the amount of "$1,723.29" was made to a contractor who paid sales tax on the materials. Taxpayer thus maintained that it was not responsible for the use tax because the contractors paid the sales tax on the materials and "Labor" was not subject to sales/use tax.
Upon reviewing Taxpayer's documentation, the Department is not able to agree. First, similar to its explanation in Category A and C, Taxpayer's Workpaper listed four payments in this categories but it only provided one invoice in the amount of "$1,723.29." Thus, the total amount designated in this category cannot be substantiated and verified. Additionally, the Department's audit summary listed that Taxpayer purchased this line item on August 21, 2008; Taxpayer's documentation showed that the payment was made on October 13, 2008. Thus, given the totality of the circumstances, in the absence of other supporting documentation, the Department is not able to agree that Taxpayer has met its burden demonstrating that the Department's assessment is not correct.
G. Server Station.
The Department's audit assessed Taxpayer use tax on "Server Station" in the amount of "$10,421" because Taxpayer did not pay sales/use tax.
Taxpayer claimed that this "$10,421" purchase consists of five (5) payments. Taxpayer stated that, among the five payments, the first two payments were made to a vendor who worked on the server station and the vendor paid sales tax for the materials used at the time of the purchases. Taxpayer stated that the third and forth payments were two installment payments for purchases of tangible personal property which sales tax was paid at the time of the purchases. Taxpayer further stated that the fifth payment was paid to an individual contractor and it did not dispute the assessment on that transaction.
Upon reviewing Taxpayer's documentation, the Department is not able to agree. First, Taxpayer's Workpaper listed five payments in this category, but it only provided four invoices. Although Taxpayer did not dispute the fifth transaction, the total amount claimed in this category cannot be substantiated and verified without the documentation of the fifth transaction. Additionally, the Department's audit summary listed that Taxpayer purchased this line item on March 13, 2008, but the five payments in Taxpayer's Workpaper fell on multiple different dates. The discrepancies in this category cannot be reconciled based on the documentation provided. Thus, given the totality of the circumstances, in the absence of other supporting documentation, the Department is not able to agree that Taxpayer has met its burden demonstrating that the Department's assessment is not correct.
H. Other 2008 Asset Additions.
Taxpayer's Workpaper designated the Department's audit assessments on "Bar," "Flooring," "Alarm System," "Equipment," and "Leasehold Improvement" as "Other 2008 Asset Additions" in its protest. Taxpayer provided a summary, claiming that it was not responsible for some of the use tax because its contractors/vendors paid the sales tax on the materials used and/or certain payments were made for "Labor," which were not subject to sales/use tax.
Upon reviewing Taxpayer's documentation, the Department is not able to agree. Taxpayer is reminded that it is required to maintain adequate records so the Department can determine the proper amount of Taxpayer's tax liability. IC § 6-8.1-5-4(a). "The records... include all source documents necessary to determine the tax, including invoices, register tapes, receipts, and canceled checks." Id. Taxpayer's summary simply referred to check numbers, dates, memo of the checks, and amounts of the check payments. While the audit assessed Taxpayer use tax on "Bar," "Flooring," "Alarm System," "Equipment," and "Leasehold Improvement," Taxpayer's summary failed to explain and support the payments were for "Bar," "Flooring," "Alarm System," "Equipment," and "Leasehold Improvement." For example, the audit assessed use tax on "Bar" in the amount of "$10,155." Taxpayer's summary failed to explain which payments were made relating to "Bar" in the amount of "$10,155." Specifically, Taxpayer provided two (2) invoices to demonstrate the purported costs of modification for "Bar." However, the aggregate amount of these two invoices was $7,451.81, not the listed "$10,155." Thus, given the totality of the circumstances, in the absence of other supporting documentation, the Department is not able to agree that Taxpayer has met its burden demonstrating that the Department's assessment is not correct.
