Taxpayer is an Indiana contractor that specializes in installing insulation for industrial, commercial, and institutional customers. In performing the insulation contracts, Taxpayer charges its customers on a lump-sum basis.
In 2011, the Indiana Department of Revenue ("Department") conducted a sales/use tax audit of Taxpayer's business records for tax years 2008, 2009, and 2010 ("Tax Years at issue"). The Department and Taxpayer agreed to utilize a sample selected from Taxpayer's 2010 records and a projection method to perform the audit on use tax for the Tax Years at issue.
Pursuant to the audit, the Department concluded that Taxpayer did not pay sales tax or self-assess use tax on certain tangible personal property which Taxpayer used in its business activities. Specifically, the Department determined that Taxpayer did not pay the sales/use tax on the materials it used to perform the "lump-sum" contracts, nor did Taxpayer obtain the properly executed exemption certificates from the customers who claimed the sales/use tax exemptions. The Department's audit thus assessed additional use tax and statutory interest on those purchases of tangible personal property.
Taxpayer protested the assessment and provided additional documentation to support its protest. An administrative hearing was held. This Letter of Findings ensues. Additional facts will be provided as necessary.
The Department's audit determined that Taxpayer charged its customers on a lump-sum basis; however, the Department found that, for tax year 2010, Taxpayer failed to pay sales/use tax on materials which it used in performing the insulation contracts. Taxpayer claimed that it was not responsible for paying sales/use tax because these customers claimed that they were exempt from sales/use tax. Thus, Taxpayer believes that the Department's assessments were overstated.
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In this instance, the Department's audit noted that Taxpayer charged its customers pursuant to lump-sum contracts but did not pay sales tax or self-assess use tax on the materials it used to perform the lump-sum contracts. Taxpayer presented some exemption certificates to the Department at the time of the audit. However, the audit determined that some exemption certificates were not properly executed. As a result, the Department's audit properly assessed use tax on those deemed taxable purchases accordingly.
At the hearing, Taxpayer again asserted that it was not responsible for sales/use tax because its customers were exempt. Taxpayer submitted additional documentation including copies of invoices and the customers' exemption certificates to support its protest. Upon reviewing Taxpayer's documentation, some of the exemption certificates were properly executed and, thus, the purchases should be exempt.
Taxpayer's documentation, however, also demonstrated that some of its customers did not have exemption certificates or that the exemption certificates were not properly executed. For example, some of the general exemption certificates were executed after the audit was concluded and Taxpayer did not provide the properly executed special exemption certificates, AD-70 forms. Also, some of the exemption certificates provided by Taxpayer stated different entities which were not the ultimate customers who claimed the exemptions. As a result, the Department is not able to agree that Taxpayer provided sufficient documentation to demonstrate that those customers were exempt and thus Taxpayer's purchases remain taxable.
Taxpayer is reminded that sales/use tax becomes due at the time of purchase. If its customer claims an exemption, the exemption certificate should be obtained at the time the transaction occurs; otherwise, the burden of proving the transaction was exempt falls on Taxpayer and ultimately becomes measurably more difficult.
In short, Taxpayer's protest is sustained in part and denied in part. Taxpayer's documentation demonstrated that some of its purchases should be exempt because its customers provided properly executed exemption certificates. The Department will recalculate Taxpayer's tax liability in a supplemental audit.
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The Department assessed interest on the tax liabilities. Taxpayer protests this imposition of interest.
IC § 6-8.1-10-1(a) provides, as follows:
If a person fails to file a return for any of the listed taxes, fails to pay the full amount of tax shown on the person's return by the due date for the return or the payment, or incurs a deficiency upon a determination by the department, the person is subject to interest on the nonpayment.
Pursuant to IC § 6-8.1-10-1(e), the Department does not have the authority to waive the interest.
Therefore, Taxpayer's protest is denied.
Therefore, Taxpayer's protest is denied.
