Taxpayer, an Indiana company, is in the business of tobacco
distribution. Taxpayer purchases tobacco products other than cigarettes
("OTP") from various manufacturers or suppliers, which include
companies that are located outside of Indiana and are licensed by Indiana to
sell the OTP in Indiana. Taxpayer then sells the OTP it purchased to other
distributors, merchants, or retailers within and without the state of Indiana.
The Department assessed the OTP tax on the OTP which
Taxpayer purchased from the Supplier because Taxpayer failed to remit the OTP
tax to the Department.
The OTP tax is imposed on the distribution of OTP in
Indiana. IC § 6-7-2-7, in relevant part, states:
(a) A tax is imposed on the distribution of tobacco
products in Indiana at the rate of:
(1) twenty-four percent (24 [percent]) of the wholesale
price of tobacco products other than moist snuff; or
(2) for moist snuff, forty cents ($0.40) per ounce, and a
proportionate tax at the same rate on all fractional parts of an ounce. If the
tax calculated for a fractional part of an ounce carried to the third decimal
place results in the numeral in the third decimal place being greater than four
(4), the amount of the tax shall be rounded to the next additional cent.
(b) The distributor of the tobacco products is liable for
the tax imposed under subsection (a). The tax is imposed at the time the
distributor:
(1) brings or causes tobacco products to be brought into
Indiana for distribution;
(2) manufactures tobacco products in Indiana for
distribution; or
(3) transports tobacco products to retail dealers in Indiana
for resale by those retail dealers.
(Emphasis added).
"Distributor" is defined in IC § 6-7-2-2, which
states:
As used in this chapter,
"distributor" means a person who:
(1) manufactures, sells, barters, exchanges, or distributes
tobacco products in Indiana to retail dealers for the purpose of resale;
(2) purchases tobacco products directly from a manufacturer
of tobacco products; or
(3) purchases for resale tobacco products from a wholesaler,
jobber, or distributor outside of Indiana who is not a distributor holding a
license issued under this chapter. (Emphasis added).
IC § 6-7-2-5 also provides:
As used in this chapter, "tobacco product" means:
(1) any product made from tobacco, other than a cigarette
(as defined in IC
6-7-1-2), that is made for smoking, chewing, or both; or
(2) snuff, including moist snuff.
Accordingly, Indiana imposes the OTP tax on the distribution
of OTP in Indiana at a rate of 24 percent. A distributor becomes liable for the
OTP tax at the time the distributor engages in certain specific acts, which
include "bring[ing] or caus[ing] tobacco products to be brought into
Indiana for distribution."
At the hearing, Taxpayer referred to the Department's
Revenue Ruling 2009-07ST (Oct. 25, 2009), 20091125 Ind. Reg. 045090901NRA. In
Revenue Ruling 2009-07ST, the taxpayer/distributor of the OTP, which was
located in Indiana, serviced its customers/retail stores within and without
Indiana. The taxpayer/distributor purchased "untaxed" OTP directly
from various suppliers, including the out-of-state suppliers, which were
licensed to sell and distribute the OTP in Indiana. Thus, the
taxpayer/distributor brought or caused the OTP to be brought into Indiana for
distribution. However, the taxpayer/distributor subsequently distributed some
of the OTP to its out-of-state customers. As a result, the
taxpayer/distributor's distributions to out-of-state customers would not be
subject to the Indiana OTP tax. Thus, the Department determined that the
taxpayer/distributor was liable for the OTP tax because the
taxpayer/distributor possessed the information as to which OTP it purchased and
subsequently distributed were exempt from the Indiana OTP tax on the basis that
they were distributed to out-of-state customers/retail stores and thus
qualified as exempt sales.
In this instance, Taxpayer contended that it "was not a
distributor in its transactions" with the Supplier. Taxpayer believes that
it was a purchaser in the transactions with the Supplier. Taxpayer stated that
the OTP it purchased from the Supplier were delivered "Free on Board"
and all costs were covered by the Supplier. Taxpayer thus claimed that it was
not liable for the OTP tax on the OTP it purchased from the Supplier because
the Supplier "would technically be the first" wholesaler that brought
the OTP into Indiana for distribution.
Taxpayer is mistaken. IC § 6-7-2-2 provides a definition of
a "distributor," which applies throughout the chapter of IC § 6-7-2.
The plain language of IC § 6-7-2-2 does not impose a condition on the
definition of "distributor" for the purpose of the OTP tax on a
transaction by transaction basis. IC § 6-7-2-2 states that a
"distributor" includes a person who "sells" or
"distributes tobacco products in Indiana to retail dealers for the purpose
of resale." Taxpayer here stated that it "is in the business of
tobacco distribution, purchasing tobacco products from various manufacturers or
suppliers from within and without the State of Indiana and selling that tobacco
product to other distributors, merchants, or retailers within and without the
State of Indiana." Thus, Taxpayer falls squarely within the definition of
"distributor" because it sells and distributes the OTP in Indiana to
retail dealers for the purpose of resale. Thus, Taxpayer is an OTP distributor
and could be liable for the Indiana OTP tax when one of the statutory
circumstances outlined in IC § 6-7-2-7(b) is met.
Taxpayer claimed that the Supplier was liable for the tax
because the Supplier "first" brought or caused the OTP to be brought
into Indiana for distribution. The Department does not agree. As mentioned
above, Indiana imposes the OTP tax on the distribution of OTP in Indiana. IC §
6-7-2-7(a). One of the instances when the OTP tax is imposed is at the time the
distributor "brings or causes tobacco products to be brought into Indiana
for distribution." IC § 6-7-2-7(b)(1). By using the word "or" in
the same clause, IC § 6-7-2-7(b)(1) clearly applies to the circumstance when a
distributor does not bring in, but rather "causes tobacco products to be
brought into Indiana for distribution." The statute does not impose the
OTP tax liability based on who is the first nor does the statute concern the
agreement between the supplier and the purchaser. Thus, Taxpayer's arguments
that the Supplier was the first wholesaler which brought the OTP into Indiana
or the OTP were sold "Free on Board" are irrelevant.
In this instance, Taxpayer's supporting documentation
demonstrated that Taxpayer, as an Indiana licensed distributor,
"prepaid" the Supplier for the OTP delivered to Taxpayer's Indiana
facility. Taxpayer's purchase orders/payments certainly caused the OTP "to
be brought into Indiana for distribution." Without Taxpayer's
orders/payments of the OTP, Supplier would have no reasons to deliver the OTP
to Taxpayer's facility in Indiana. In short, Taxpayer caused the OTP to be
brought into Indiana for distribution and it was liable for the OTP tax
pursuant to IC § 6-7-2-2 and IC § 6-7-2-7.
Additionally, Taxpayer claimed that it is not like the
taxpayer/distributor in Revenue Ruling 2000-07ST. Taxpayer, however, is an OTP
distributor which purchased the "untaxed" OTP directly from the
out-of-state Supplier. Taxpayer distributed the OTP within and without Indiana.
Since Taxpayer purchased the "untaxed" OTP and subsequently distributed
some of the OTP to out-state-customers, Taxpayer actually possessed the
necessary information as to the exempt interstate sales. Thus, Taxpayer was in
a better position than the Supplier to accurately remit the OTP tax.
Alternatively, Taxpayer asserted that the statute is
ambiguous, and that it relied on e-mail advice from the Department's auditor,
which stated that Taxpayer is not liable for the OTP tax on the OTP it
purchased from the Supplier.
45 IAC
15-3-2 outlines a procedure for a taxpayer to obtain a ruling from the
Department and addressed the implications of oral opinions or advice rendered
by Department agents. Pursuant to 45 IAC
15-3-2 (d)(1), a taxpayer could apply for a ruling by submitting a written
request for ruling to a division administrator which explains the specific
facts of a situation and rulings will only be issued based upon written
requests. 45
IAC 15-3-2(e), in relevant part, states:
Oral opinions or advice will not be binding upon the
department. However, taxpayers may inquire as to whether or not the department
will make a ruling or determination based on the facts presented by the
taxpayer. If the taxpayer wishes a ruling by the department, the formal request
must be in writing. A taxpayer may also orally receive technical assistance
from the department in preparation of returns. However this advice is advisory
only and is not binding in the latter examination of returns.
Based upon general inquiries and correspondence, the
department often issues written letters of advice. Such letters are advisory in
nature only and merely technical assistance tools for the taxpayer. Strictly
informational type letters are not to be considered rulings by the department
and will not be binding. (Emphasis
added).
Under 45 IAC
15-3-2(d)(i), Taxpayer had a forum to seek a binding Department ruling, but
it never sought a ruling. Rather, Taxpayer's accountant sent an e-mail to one
of the Department's auditors inquiring whether an out-of-state licensed
wholesaler was responsible to "file" the Indiana OTP tax return,
TP-906 form. An auditor's e-mail responses, similar to written letters of
advice, are "merely technical assistance tools" for Taxpayer and
"are not to be considered rulings by the department and will not be
binding" pursuant to the above mentioned regulation.
In short, Taxpayer is a distributor under IC § 6-7-2-2.
Pursuant to IC § 6-7-2-7(b)(1), the OTP tax is imposed at the time the
distributer "brings or causes tobacco products to be brought in to Indiana
for distribution." IC § 6-7-2-7(b)(1) does not impose the OTP tax on the
distributor on a transaction by transaction basis nor does it impose the tax on
the distributor which first brings the OTP into Indiana for distribution.
Rather, IC § 6-7-2-7(b)(1), by using "or," clearly imposes the OTP
tax on the distributor which causes the OTP to be brought into Indiana for
distribution. Taxpayer's documentation demonstrated that it is an OTP
distributor that caused the OTP to be brought into Indiana for distribution.
Therefore, Taxpayer is liable for the OTP tax.
...
In this instance, Taxpayer has demonstrated reasonable cause
and therefore the Department will waive the penalty. Taxpayer's protest of the
imposition of negligence penalty is sustained.
