Taxpayer is an Indiana business which operates two
convenience stores which also sell gasoline. As the result of three
simultaneous audits covering the tax years 2008, 2009, and 2010, the Indiana
Department of Revenue ("Department") determined that Taxpayer had not
reported the correct amount of sales and use tax, withholding tax, and income
tax. The Department therefore issued proposed assessments for sales, use,
withholding, and income taxes.
…
At the hearing, Taxpayer stated that the Department did not
take certain factors into consideration when calculating the amount of sales
and use tax due. Those factors included: theft, spoilage, and expired products.
The Department requested additional documentation and analysis to support this
position.
After review of the materials submitted by Taxpayer in
support of its protest, the Department finds that these materials are not
sufficient to establish Taxpayer's position. When reviewing sales tax
compliance, the Department naturally looks to a retail merchant's sales
documents. In this case, Taxpayer was unable to supply sales documents at both
the audit and protest level. Instead, Taxpayer was only able to supply
incomplete documentation of some thefts, some hand-written accounts of expired
product, and some of Taxpayer's own calculations of how it arrived at the
conclusion that it should be entitled to a nineteen percent reduction of the
Department's sales calculations.
Taxpayer's documentation is incomplete and is not related to
sales at the stores. Taxpayer has not established that the proposed assessments
are wrong. Taxpayer has not met the burden imposed under IC § 6-8.1-5-1(c).
…
Taxpayer protests the imposition of withholding tax for the
tax years 2008-10. The Department based its proposed assessments on the grounds
that the W-2 and WH-3 forms provided by Taxpayer did not include sufficient
employees and hours to operate two convenience stores which were each open
twenty-four hours a day. The Department also noted that Taxpayer did not issue
any 1099 miscellaneous forms showing non-employee compensation. The Department
consulted a well-known data source known as "Bizstats.com" to
determine the average number of employees and the number of hours worked by those
employees for two convenience stores of this type which were open twenty-four
hours a day. After finding those numbers, the Department recalculated the
amount which Taxpayer should have withheld and subtracted the amount which
Taxpayer was able to verify it actually withheld. What was left was considered
as the amount under-withheld by Taxpayer.
…
Taxpayer protests that the Department erred in not
considering that Taxpayer is a subchapter S corporation and that all profit and
losses flow through to the business owners. Taxpayer also states that the major
problem is that it cannot re-issue W-2s for the years at issue. Taxpayer does
not make any reference to any statute, regulation, or court case which explains
why this is relevant. Taxpayer has not met the burden imposed by IC§
6-8.1-5-1(c) of proving the proposed assessments wrong.
…
Taxpayer protests the imposition of individual income tax on
the owners of the S corporation which owned the two convenience stores operated
by Taxpayer. Taxpayer states that the Department did not take into account
three expense items which were managed by a landlord and that those amounts did
not flow through the business checking account. Taxpayer provided documentation
in support of this position.
…
Subchapter S corporation shareholders are taxed on their
distributive shares of income at the individual income tax rate. The character
of the income (as capital gains or ordinary income) also passes through to the
shareholders.
Although Subchapter S corporations are generally not subject
to adjusted gross income tax, they are subject to use tax and intangibles tax,
and must report and pay such tax at the time the annual return is filed.
Subchapter S corporations must also withhold adjusted gross income tax on any nonresident
shareholder's share of corporate income.
Regarding the Department's audit of Taxpayer, Taxpayer
states that the Department did not take into account such factors as: rents,
repairs, and merchant credit card fees. Taxpayer also states that the Department
did not allow a credit for amounts paid to the Indiana lottery to pay for
lottery tickets which were stolen by a night employee. After a review of the
audit report, the Department finds that the audit did in fact deduct rents as
claimed on Taxpayer's income tax returns for the relevant years. The fact that
Taxpayer had a lease agreement for more than it reported in rental payments is
not convincing. Taxpayer has not provided any documentation to establish that
it actually paid the amounts on the lease. In the absence of any contradicting
documentation, it is reasonable for the Department to use the amounts which
Taxpayer itself reported on its own returns. Taxpayer has not met the burden
imposed by IC § 6-8.1-5-1(c) of proving the proposed assessments wrong.
Next, Taxpayer states that the landlord charged it for
repairs to the facilities at the two convenience stores in question. Taxpayer
provided no documentation to establish that it paid such charges. Taxpayer has
not met the burden imposed by IC § 6-8.1-5-1(c) of proving the proposed
assessments wrong.
Next, Taxpayer states that the landlord kept a certain
percentage of merchant credit card fees and that those amounts should be
removed from the Department's taxable income calculations. After a review of
the documentation submitted by Taxpayer, the Department is unable to agree with
Taxpayer's conclusion. While there is a list of credit card fees, it is not
clear to whom they are attributable. In the absence of fully explanatory
documentation and analysis, the Department finds that Taxpayer has not met the
burden imposed by IC § 6-8.1-5-1(c) of proving the proposed assessments wrong.
Finally, Taxpayer protests that the Department should remove
certain amounts paid to the Indiana Lottery. Taxpayer states that these amounts
were payments to the Lottery for lottery tickets which were stolen by a night
employee. A review of the documentation submitted does show payments to the
Indiana Lottery. What the documentation does not show is why those payments
were made. Taxpayer states that, due to security camera issues, the county
prosecutor did not press charges against the employee in question; therefore
there is no record to show that the tickets were stolen. In the absence of any
verifying or explanatory documentation, Taxpayer has not met the burden imposed
by IC § 6-8.1-5-1(c) of proving the proposed assessments wrong.
In conclusion, Taxpayer has not provided sufficient
documentation to establish any of its points of protest. Taxpayer invites the
Department to reduce the income tax calculations without verification. The
Department declines this invitation. Also, the Department reiterates that the
audit investigation only addresses the income tax calculations for Taxpayer.
Neither the investigation nor this Letter of Findings addresses the S
corporation's shareholders or their individual income taxes. Those liabilities,
if any, must be addressed on a separate basis.
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