Taxpayer operates a mowing and landscaping business. Taxpayer was audited by the Indiana Department of Revenue (hereinafter "Department"). As a result of the audit, the Department issued Taxpayer proposed assessments for sales and use tax.
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Taxpayer's protest letter to the Department states:
[T]he examination had misidentified several contracts as time and material contracts when in fact they were lump-sum contracts where the taxpayer had properly paid the sales tax upon purchase of the materials included in the lump-sum contracts. Indiana Administrative Code 45 IAC 2.2-3-12 and Information Bulletin []60 defines a lump-sum contract as a contract in which all of the charges are quoted as a single price. In contrast, a time and material contract is defined as a contract in which all the charges for labor, construction materials, and other items are stated separately.
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The invoices provided have the mulch line highlighted, and the "Pricing Break Down" relates to mulch. Thus the issue in Taxpayer's protest is the mulch, with Taxpayer arguing that the mulch always includes a labor component.
Taxpayer has not established that it can invoke lump sum contract concepts regarding the mulch sales, since mulch is not permanently part of a structure. As IC § 6-2.5-4-9 states in relevant part:
(a) A person is a retail merchant making a retail transaction when the person sells tangible personal property which:
(1) is to be added to a structure or facility by the purchaser; and
(2) after its addition to the structure or facility, would become a part of the real estate on which the structure or facility is located. (Emphasis added).
The Department finds 45 IAC 2.2-4-1 to be applicable to Taxpayer's facts:
(a) Where ownership of tangible personal property is transferred for a consideration, it will be considered a transaction of a retail merchant constituting selling at retail unless the seller is not acting as a "retail merchant".
(b) All elements of consideration are included in gross retail income subject to tax. Elements of consideration include, but are not limited to:
(1) The price arrived at between purchaser and seller.
(2) Any additional bona fide charges added to or included in such price for preparation, fabrication, alteration, modification, finishing, completion, delivery, or other services performed in respect to or labor charges for work done with respect to such property prior to transfer.
(3) No deduction from gross receipts is permitted for services performed or work done on behalf of the seller prior to transfer of such property at retail. (Emphasis added).
Under IC § 6-8.1-5-1(c) the Department's proposed assessments are presumed to be correct. Taxpayer has not met its burden of proof. Taxpayer's billing method cannot be lump sum and time and materials simultaneously–in other words, Taxpayer cannot take a portion of an invoice (i.e., the mulch) and claim its billing method is different from the other items on the same invoice. Also, the Department finds that Taxpayer has not established that mulch becomes part of the real estate, and thus Taxpayer has not shown that "lump sum" concepts are applicable to its facts.
