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The Department found that Taxpayer purchased horses at Indiana racetracks by means of "claiming" transactions. 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 horses that were raced in claiming races. The Department assessed tax based upon the claiming amounts paid by Taxpayer for the horses. (See also 71 IAC 6.5-1-1 ; 71 IAC 6.5-1-2 ; and 71 IAC 6.5-1-4 for further references to "claiming").
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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. An exemption from use tax is granted for transactions where the sales tax was paid at the time of purchase pursuant to IC § 6-2.5-3-4. There are also additional exemptions from sales tax and use tax. IC § 6-2.5-5 et seq.
The Department found that Taxpayer had acquired the horses at issue without paying sales tax at the time they were "claimed," and assessed use tax on the transactions.
Taxpayer does not, in this protest, contest the taxability of the acquisition of horses in "claiming" transactions. Taxpayer, however, does argue that there is a reason the acquisition of the horses should be exempt from sales and use tax. Specifically, Taxpayer states that the horses he acquired in "claiming" transactions are an integral part of his corn and soy farming operation and therefore qualify for the agricultural exemption. Taxpayer argues that the horses he acquired in the "claiming" transactions are integral and essential to his farming operation because the profuse amount of manure generated by the horses is used to fertilize the crops in Taxpayer's farming operation. Taxpayer further explains that the horses are stabled at his farm and only leave the farm when raced. Taxpayer states that the fertilizer is harvested several times a week to be spread on the land.
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Taxpayer is not purchasing these horses for resale in the regular course of his agricultural business.
The horses at issue were acquired in "claiming" transactions at the race tracks as race horses. The use of the horses' biological byproduct – manure – though important to Taxpayer's agricultural production process, does not meet the requirement that the horses be used directly in the direct agricultural process required by Indiana law and is furthermore incidental to the purchase of the horses as race horses. Thus the subject horses do not come within the scope of the sales and use tax exemption found at IC § 6-2.5-5-1.
