Taxpayer is an Indiana retailer that sells several products including tractors and tractor attachments. The Indiana Department of Revenue ("Department") conducted income, withholding and sales and use tax audits of Taxpayer for the years 2008, 2009, and 2010. The sales and use tax audit, which was conducted on a sample and projection basis with Taxpayer's agreement, resulted in the assessment of additional sales and use tax, and interest. The use tax audit examined all of the 2010 purchase invoices and projected those results to the other audited years. Taxpayer protested the use tax assessments on its purchases of: (1) key rings, which Taxpayer argues constitute a "cost of sale" and (2) computer discs that contain parts catalogs ("Parts Catalog CDs" or "CDs"), which Taxpayer argues are a non-taxable service. Taxpayer also protests the assessment of use tax on a vehicle repair transaction.
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Taxpayer protests the Department's assessment of use tax on
its purchase of computer discs from a vendor, ARI, that contain catalogs of
parts ("Parts Catalog CDs" or "CDs") that Taxpayer uses in
providing its vehicle repair services. Taxpayer argues that it is purchasing a
non-taxable service and not taxable tangible personal property, therefore its
purchase of the CD's should not be subject to sales or use tax.
According to ARI, its Parts Catalog CD is a parts lookup
product that provides its customers, such as Taxpayer, with current, accurate
information relating to parts from close to one hundred manufacturers. The
parts information includes descriptions of the parts, code numbers, prices,
etc. Information about new parts is added on a regular basis and the
information relating to these parts changes frequently requiring regular
updates of the Parts Catalog CDs. Taxpayer receives updated CDs on an almost monthly
basis, which it uploads into the existing database. Taxpayer explains that
without the compilation that ARI provides, Taxpayer would have to acquire this
information directly from each of the manufacturers, and either maintain paper
records or create its own database and regularly upload updates into their own
database. According to ARI's webpage, ARI provides other products including a
web-based version of the Parts Catalog CDs Taxpayer purchases.
Taxpayer does not gain exclusive use and right of control of
the information compiled by ARI. Also ARI does not collect specific and
customized information for Taxpayer.
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The vendor-repository, ARI, compiled the information on the
parts, put that information on CDs and sold the CDs in the same form as they
were produced. Taxpayer did not contract with the vendor to perform and provide
a service, such as collecting specific and customized information or compiling
Taxpayer's information. Instead, Taxpayer purchased the completed products, the
CDs. The CDs consist of information "compiled by a computer [and] sold or
reproduced for sale in substantially the same form as it is so
produced...." Therefore, CDs constitute "tangible personal property"
obtained in a retail transaction and are, therefore, taxable.
Since Taxpayer did not pay sales tax at the time of the
purchase of the CDs, use tax is properly imposed.
Taxpayer protests the assessment of use tax on its purchase
of key rings. Taxpayer purchased the key rings to replace the "cheap"
ones provided by the manufacturers of the equipment Taxpayer sells. Taxpayer
argues that the key rings it purchases are therefore a "cost of
sale." Taxpayer states that the key rings are not used for promotional purposes.
Taxpayer, upon request, provided a sample key ring. The plastic key ring
Taxpayer provided has its name, address, and phone number printed on it.
Taxpayer did not provide any legal authority for its
"cost of sale" argument. The Indiana sales and use tax code does
contain an exemption for items purchased for resale.
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In the instant case, Taxpayer is not selling the key rings
themselves because there is no itemized consideration for the key rings, nor is
there separate bargaining for them.
Neither are the key rings a material part of the items
Taxpayer sells. See Miles, Inc. v. Indiana Dep't of State Revenue, 659 N.E. 2d
1158, 1164 (Ind. Tax Ct. 1995) (explaining that while each chemical or
ingredient in the Alka-Seltzer is a "material part" of or essential
to the product, the coupons that are inserted into the packaging are not a
"material part" of or essential to the product because the coupons do
not impact the product's effectiveness and have an undertaking that is vastly
different from the products "task of alleviating physical maladies.")
Based on the above, the purchase and use of the key rings
does not qualify for exemption from sales or use tax. Since Taxpayer did not
pay sales tax at the time of the purchase of the key rings, use tax is properly
imposed.
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Taxpayer protested the Department's assessment of use tax on
the entire amount of a vehicle repair transaction. The Department found, in
reviewing Taxpayer's statements, that Taxpayer had not paid sales tax on a
vehicle repair transaction worth $2,370.45 which the Department assumed
included repair parts. In the absence of the actual invoice detailing the costs
of labor and parts, the Department assessed use tax on the cost of the entire
transaction.
Before the hearing, Taxpayer provided a copy of the missing
invoice which demonstrated that charges for labor and parts were separately
stated on the invoice. Taxpayer is correct that the labor charges, as service
charges, are not subject to sales or use tax.
The invoice Taxpayer presented includes a "SALES TAX OR
TAX ID" line with a zero dollars entry. The invoice also includes a
"total due" line that states: "TOTAL DUE (includes Tax plus Shop
Supplies)" with the amount of $2,370.45. Pursuant to IC § 6-2.5-2-1(b),
sales tax must be stated separately. The fact that the invoice form states that
the total amount due includes sales tax does not qualify as a separate
statement of the sales tax due. As a matter of fact, the invoice's "sales
tax" line shows zero dollars. Taxpayer, therefore, cannot be presumed to
have paid any sales tax on this transaction.
Having not paid sales tax on the tangible personal property
conveyed in the transaction, Taxpayer owes sales tax on those parts. This
amount is $2,370.45, the total due, minus the cost of labor, which the invoice
shows as $646. A supplemental review by audit will adjust the amount of tax due
for this transaction accordingly.
