Excerpts of Revenue’s Determination follow:
Taxpayer is an individual. Taxpayer
operated a sole proprietorship with multiple Indiana locations. The Indiana
Department of Revenue ("Department") audited Taxpayer and determined
that Taxpayer underreported his sales from the business. The Department
assessed additional Indiana sales tax and Indiana individual income tax based
on the underreported receipts.
…
Taxpayer protests the imposition of
individual income tax and sales tax for 2009 and 2010. In particular, Taxpayer
asserts that the Department overstated his receipts from the sale of tangible
personal property for the years in question. The issue is whether the
Department's audit overstated Taxpayer's receipts.
IC § 6-8.1-5-1 states in relevant
part "The notice of proposed assessment is prima facie evidence that the
department's claim for the unpaid tax is valid. The burden of proving that the
proposed assessment is wrong rests with the person against whom the proposed
assessment is made."
The Department's audit adjusted
Taxpayer's receipts from the sale of tangible personal property. First, the
Department determined Taxpayer's cost of goods sold–the price at which Taxpayer
purchased the property. Second, the Department multiplied the cost of goods
sold by two to determine the amount of total sales. Third, the Department
subtracted the receipts from wholesale sales from the total sales to determine
the taxable sales for sales tax purposes.
Taxpayer asserts that the audit
overstated the amount of sales by imputing the same markup to property
ultimately sold as wholesale sales as to the property sold at retail. Taxpayer
argues that the more accurate method is to break out wholesale sales and the
cost of property sold as part of the wholesale sales, then determine the amount
of retail sales separately.
Taxpayer provided invoices with
regard to its purchase orders and with regard to the wholesale sales made by
Taxpayer to third parties. Taxpayer has provided sufficient information to
conclude that its wholesale sales were sold at a lower profit margin than the
Department's audit stated. Accordingly, Taxpayer's protest is sustained with
regard to its contention regarding wholesale sales of all-terrain vehicles
(ATV) and fireworks. However, it is important to note that Taxpayer provided
the actual invoices and traced the cost of goods sold from the purchase of the
item to the wholesale sale of the same item. Upon supplemental audit, the
multiplier used in the Department's audit for all sales shall be applied to the
portion of cost of goods sold at retail (i.e., total cost of goods sold minus wholesale
cost of goods sold) to determine the revised retail sales for ATV and firework
sales.
