The Department of Revenue ("Department") conducted an audit of Taxpayer's business records.
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The Department's audit found that Taxpayer purchased certain items of tangible personal property without paying sales tax. The audit found that Taxpayer was a "marketing company" and that it did "not carry or transport persons and/or property for hire." The audit further found that although Taxpayer's Related Trucking Company did "qualify as a public transportation company, [Taxpayer] does not" because Taxpayer and Related Trucking Company were two separate business entities.
The audit concluded that Taxpayer "is not predominately engaged in providing public transportation [and] it would not be afforded the exemptions provided to companies that are engaged in public transportation."
Taxpayer disagrees on two grounds. First, Taxpayer argues that it meets the qualifications necessary to qualify as a public transportation entity. For example, Taxpayer points out that it is registered with the Department of Transportation, that it provides delivery services in conjunction with its Related Trucking Company, that it files a consolidated Indiana corporate tax return with its Related Trucking Company, that it should be treated as a "unitary group" with its Related Trucking Company, that it performs "the 'common' definition of transportation," and that it performs the important function of obtaining customers for its Related Trucking Company.
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Taxpayer states that it has established a combined integrated relationship with its Related Trucking Company and that Taxpayer and its related entity are entitled to claim the public transportation exemption permitted under IC § 6-2.5-5-27 because the two entities are collectively in the business of providing public transportation.
The Department must respectfully disagree. Taxpayer's parent company chose to separate its logistics and transportation functions into two, separate and distinct entities presumably for sound business reasons which provide both entities certain business advantages. However, as pointed out in Sales Tax Information Bulletin 12 (July 2010), 20100623 Ind. Reg. 045100390NRA, there are certain factors which are used to determine whether or not any specific entity is entitled to claim the exemption and that one of the "critical requirements" is that "[t]he transportation company must transport the persons or property of another." Taxpayer does not meet this particular requirement and although Taxpayer's function may be integral to the provision of the Related Trucking Company's business, Taxpayer itself is not entitled to claim the exemption.
Taxpayer makes a second, more specific requirement. If Taxpayer is not entitled to the exemption because it does not transport persons or property, certain specific sales transactions are exempt because Taxpayer acts as a pass-through purchasing entity on behalf of its Related Trucking Company.
Taxpayer points out that it purchases goods and supplies which are intended to be used by the Related Trucking Company. Taxpayer purchases the goods and supplies, pays for the goods and supplies, and then passes along to those costs to its Related Trucking Company which consumes the goods and supplies in providing public transportation services. As a consequence, Taxpayer believes it is entitled to a "pass-through" exemption originating from its Related Trucking Company.
Again, the Department must disagree. As noted above, IC § 6-2.5-2-1, imposes the tax on retail transactions made in Indiana unless an exemption is applicable. In other words, the tax is imposed on the retail transactions and not on the tangible personal property which is the subject of the transactions. In this case, the transactions consist of agreements or exchanges between Taxpayer and its vendors and not between the vendors and the Related Trucking Company. Taxpayer asks for an expansive view of both the statute imposing the tax and on the exemption statue which allows for an exception from the imposition. Taxpayer asks too much. Indiana law has long held that, "The statutes of this state relating to the assessment and collection of taxes are liberally construed in favor of the taxing powers. Fell v. West, 73 N.E. 719, 722 (Ind. App. 1905)" and that – as noted above – "tax exemptions are strictly construed in favor of taxation and against the exemption." Kimball Int'l Inc., 520 N.E.2d 456. Taxpayer's argument meets neither test and Taxpayer has not met the statutory burden of establishing that the assessment is "wrong." IC § 6-8.1-5-1(c).
