Friday, September 6, 2013

Revenue Finds Taxpayer's Fuel Logs Insufficient to Prove Exemption

Taxpayer operates a combination gas station/convenience store. Taxpayer sells both gasoline and diesel fuel. The convenience store sells food, candy, newspapers, lottery tickets, tobacco products, and the like.

The Indiana Department of Revenue ("Department") conducted an audit review of Taxpayer's business records. The audit found that Taxpayer sold diesel fuel without charging sales tax. Taxpayer did not obtain exemption certificates from its customers.
In the absence of customer exemption certificates, the audit employed a projection to determine the amount of exempt diesel fuel sales. Taxpayer "agreed to project the sales tax liability for these issues" and signed an agreement (Form AD-10A) to that effect. The "projection computation" is described as follows:
Taxable Diesel Sales were discovered where sales tax was not charged or collected and a valid exemption certificate was not on file. Additional taxable [diesel] sales for the months reviewed were totaled and divided by the exempt diesel sales for the 3 months sampled as reported on the ST-103MP's. This resulted in an error percentage. The error percentage was then applied to the total exempt sales reported to arrive at the additional taxable diesel sales.
However, Taxpayer protested the results and explained that it maintained a complete list ("fuel log") of the trucking companies with which it had conducted diesel fuel business. The list contained the names of each purchasing company, the Department of Transportation ("DOT") number, the credit card type (Visa, Master Card, etc.) and the driver's signature. Taxpayer explains it made subsequent attempts to obtain tax exemption certificates from its customers, that its customers are upset about being asked for the exemption certificates, and that its disaffected customers are now purchasing diesel fuel from one of its various competitors. Taxpayer states that it is the only diesel fuel vendor which is being asked by the Department to obtain tax exemption certificates.
Taxpayer concludes:
The documents provided to the audit standing alone should have been sufficient proof that the sale[s] made to truckers for interstate commerce does qualify exempt sales for purposes of Sales and Use Tax
The language of IC § 6-2.5-7-3(b) is unequivocal in its requirement that Taxpayer collect exemption certificates for Taxpayer's exempt sales of diesel fuel.
However, Taxpayer believes its "Fuel Log" is an entirely satisfactory substitute for the missing exemption certificates. Taxpayer's "Fuel Log" is a record of transactions but does not establish which are exempt and which are not exempt. Taxpayer assumes that any vehicle which purchases diesel fuel is a public transportation company or agricultural business engaged in "interstate commerce" and presumptively entitled to the exemption.
The Department must disagree with Taxpayer's argument. The Department is unable to agree that every vehicle which consumes diesel fuel is exempt. Common experience would seem to indicate that certain diesel-powered vehicles are not engaged in "public transportation," agricultural activities, or engaged in another exempt activity. Moreover, the law is clear that vendors of special fuel are required to collect sales tax on each transaction in the absence of a valid exemption certificate and is then required to hold "the tax as agent for the state." IC § 6-2.5-2-1(b). (The retail merchant "holds . . . taxes in trust for the state and is personally liable for the payment of those taxes . . . ." IC § 6-2.5-9-3).
Having failed to meet its responsibility of obtaining the necessary exemption certificates, Taxpayer has failed to meet its statutory responsibility of demonstrating that the proposed assessment is "wrong." IC § 6-8.1-5-1(c). Therefore, Taxpayer is now "personally liable" for the uncollected taxes.