Taxpayer is incorporated in the state of Indiana as a
not-for-profit corporation and is recognized by the IRS as a Section 501(c)(7)
tax exempt organization. Taxpayer promotes racing among youth and young adults
by providing a racing facility. According to information provided to the
Indiana Department of Revenue ("Department") Taxpayer provides an
entertaining atmosphere for members, their families and guests by holding races
and keeping its facilities maintained.
Pursuant to an audit by the Department, it was determined
that Taxpayer had purchased items of tangible personal property, including, but
not limited to, radio batteries, a rechargeable transponder, drainage tile,
trophies, jackets, and tee shirts during the audit periods of 2008, 2009, and
2010, but had not paid sales tax on the purchase of those items. The Department
therefore issued proposed assessments for sales and use tax and interest for
the purchased items. Taxpayer asserts that it is a not-for-profit organization
whose purchase of the items qualifies for exemption under 45 IAC
2.2-5-55. Taxpayer maintains that it believes the majority of the items on
which tax was assessed enables it to fulfill its mission by providing a safe
controlled racing environment, and that the community as a whole benefits
because non-member racers compete in taxpayer's racing facility.
...
Although Taxpayer argues that the purchase of the above
listed items qualify for exemption under IC § 6-2.5-5-25, Taxpayer is a social
organization and therefore the sale and use of the above listed items are not
exempt from sales and use tax.
Taxpayer is recognized by the IRS as a Section 501(c)(7) tax
exempt organization. I.R.C. § 501 (c)(7) provides for tax exemption for
"Clubs organized for pleasure, recreation and other nonprofitable
purposes..." Taxpayer in its protest states that the organization
"provide[s] a facility for [racers] to compete and participate in
fulfilling the mission of giving these individuals a safe place to race and
learn how to compete in a safe and controlled environment." Under IC §
6-2.5-5-25, a taxpayer's transactions involving tangible personal property or
service are exempt from the state gross retail tax, if the person acquiring the
property or service is not an organization operated predominantly for social
purposes. 45
IAC 2.2-5-55(e) states that a social organization "will be deemed to
exist for predominantly social purposes if more than fifty percent (50
[percent]) of its expenditures are for, or related to, social activities."
Social activities include the following: (1) food and beverage services; (2)
furnishing of sleeping rooms; (3) club rooms; (4) lounges; (5) recreational
activities; (6) any other social activities. The Taxpayer provides no evidence
to demonstrate that it predominantly operates for other than recreational
actives [sic]. Because the majority of the activities for which Taxpayer claimed its
tax exempt status are recreational, Taxpayer as a not-for-profit entity is
classified as an organization operated predominantly for social purposes.
Therefore under IC § 6-2.5-5-25(a)(3), Taxpayer would not be permitted to claim
tax exemption from sales and use tax.
