The Indiana Department of Revenue ("Department")
determined that Taxpayer had not paid sales tax on a horse that he acquired in
a "claiming" transaction that occurred at an Indiana racetrack. Given
that Taxpayer had not paid sales tax, the Department issued a proposed assessment
for use tax, interest, and penalty. Taxpayer filed a protest regarding the
proposed assessment.
...
Claiming races are a method of determining the price of a
horse, with the successful claimant taking title to the horse "at the time
the horse leaves the starting gate and is declared an official starter."
Taxpayer was the claimant of a horse that was raced in claiming races. The
Department assessed tax based upon the claiming amount paid by Taxpayer for the
horse.
...
The purchase of a horse is subject to Indiana's sales/use
tax, since horses are tangible personal property. IC § 6-2.5-1-27, which
defines tangible personal property, states:
"Tangible personal property" means personal property
that:
(1) can be seen, weighed, measured, felt, or touched; or
(2) is in any other manner perceptible to the senses.
The term includes electricity, water, gas, steam, and
prewritten computer software.
(Emphasis added).
The next issue is whether or not the purchase of the horse
was exempt in Indiana. IC § 6-2.5-5-1, an exemption statute, states:
Transactions involving animals, feed, seed, plants,
fertilizer, insecticides, fungicides, and other tangible personal property are
exempt from the state gross retail tax if:
(1) the person acquiring the property acquires it for his
direct use in the direct production of food and food ingredients or commodities
for sale or for further use in the production of food and food ingredients or
commodities for sale; and
(2) the person acquiring the property is occupationally
engaged in the production of food and food ingredients or commodities which he
sells for human or animal consumption or uses for further food and food
ingredient or commodity production.
...
In Taxpayer's case, the horse at issue was a race horse.
Thus the race horse does not come within the scope of sales tax exemption found
at IC § 6-2.5-5-1 (as noted above, for the exemption to apply the animal has to
be for the "direct use in the direct production of food....").
Taxpayer argues that the ownership of the horse can change
frequently. The resale exemption is stated in IC § 6-2.5-5-8(b) and states:
Transactions involving tangible personal property other than
a new motor vehicle are exempt from the state gross retail tax if the person
acquiring the property acquires it for resale, rental, or leasing in the
ordinary course of the person's business without changing the form of the
property.
To meet the requirements of this statute, Taxpayer must
acquire the horse for resale in his ordinary course of business. However,
Taxpayer does not purchase horses to simply resell them. The horses are bought
for racing purposes, not for resale in the ordinary course of Taxpayer's
business. Also, an owner that purchases a race horse by means of a claiming
race could decide not to race the horse again (in that potential scenario, the
horse would not be resold).
The Department also notes that the purchase of the horse by
means of a claiming race at an Indiana horse racing track does not meet the
requirements of a casual sale outlined in Sales Tax Information Bulletin 20,
(October 2009), 20091125 Ind. Reg. 045090898NRA. The horses are bought at the
horse track in a retail transaction, not at the residence of a prior horse
owner.
At the hearing, Taxpayer stated that he now understands why,
as a matter of law, horse claiming transactions should be subject to sales/use
tax, and pointed out that all surrounding states do subject these transactions
to sales tax. Taxpayer's complaint, however, is that for all the years since
horse racing came to Indiana, these transactions have not been subjected to
tax. Taxpayer states that it is, therefore, not fair for the Department to now
impose this tax, especially given that the overall price of the transaction is
raised without the claimant having been given notice of the full cost of the
transaction. The Department acknowledges Taxpayer's complaint, but points out
that the law is, in this instance, clear and that the claiming transaction is
properly subjected to tax.
In conclusion, Taxpayer purchased a race horse at a claiming
race; Taxpayer failed to pay sales tax at the time of purchase. Thus use tax
was properly assessed by the Department.
...
The Taxpayer also protested the imposition of the ten
percent negligence penalty pursuant to IC § 6-8.1-10-2.1. ...
Taxpayer has demonstrated that he met his burden to show
that he had reasonable cause not to pay sales tax, or remit use tax, on the
claiming transaction at issue.
