Taxpayer operates two gas stations/convenience stores ("Location One" and "Location Two") in Indiana. In 2012, the Indiana Department of Revenue ("Department") audited both locations.
Taxpayer only provided some documents concerning Location One. Upon reviewing Taxpayer's documents, the audit determined that Taxpayer failed to properly collect sales tax on its inside convenience store goods and gas sales at Location One. Based on the best information available at the time of the audit, the Department proceeded to impose additional sales tax. The audit also allowed Taxpayer the prepaid sales tax credit ("prepaid credit") it paid to its fuel supplier, a fuel distributor. For Location Two, in the absence of Taxpayer's records, the audit used the Location One's audit results to estimate the additional sales tax liability. However, Taxpayer did not provide any fuel purchase invoices to show the amount of the prepaid credit. As a result, the audit was not able to consider the amount allowable for deduction, which would have reduced the assessment of Location Two.
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The Department's audit imposed additional sales tax on the ground that Taxpayer failed to remit sales tax it collected on the gasoline/fuel it sold. Taxpayer, to the contrary, claimed that it did not have any obligation to collect and remit sales tax on the sales of gasoline.
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Taxpayer, as a retail merchant selling the gasoline, is responsible for collecting and remitting the sales tax on the sales of gasoline. Taxpayer is allowed the "prepaid credit" which it pays to its fuel supplier.
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Taxpayer, as a retail merchant selling the gasoline, is responsible for collecting and remitting the sales tax on the sales of gasoline. Taxpayer is allowed the "prepaid credit" which it pays to its fuel supplier.
During the audit, Taxpayer claimed that it was not responsible for collecting the sales tax on the sales of gasoline because it "lease[d] the pumps for commission." Taxpayer further asserted that it was not responsible for collecting the sales tax because it paid the sales tax to its fuel supplier. To support its protest, Taxpayer submitted several documents, including sample gasoline purchase invoices, a U.S. Oil Retailer Supply Agreement, a Personal Guaranty Agreement, an Electronic Funds Transfer Authorization Agreement, and a General Sales Tax Exemption Certificate (Form ST-105).
Taxpayer is mistaken. Upon review of Taxpayer's supporting documentation, first, all of above mentioned agreements Taxpayer submitted were executed on November 27, 2012. Therefore, those agreements are not relevant to this tax protest because the audit assessments addressed the 2010 and 2011 tax years, not the tax years following the execution of the agreements. Even if those agreements were relevant to this tax protest, those agreements failed to substantiate Taxpayer's assertion that it "lease[d] the pumps for commission." The agreements established (1) that Taxpayer agreed to purchase fuel from U.S. Oil, (2) that the responsible officer agreed to personally guarantee the payments, and (3) that Taxpayer's own purchases of gas are exempt. In fact, those documents clearly demonstrate that Taxpayer purchased the fuel for the purpose of reselling the fuel at its gas stations. Moreover, Taxpayer's sample invoices for the tax year 2010 demonstrate that Taxpayer paid the pre-paid sales tax to the fuel supplier. The audit also noted that Taxpayer claimed the fuel it purchased as "cost of goods sold" in its federal income tax returns. Thus, in the absence of other supporting documentation to show otherwise, Taxpayer presumably purchased the fuel and resold the fuel at its gas stations. Therefore, Taxpayer must collect and remit the sales tax to the State of Indiana.
As an alternative, Taxpayer asserted that the audit erroneously used "Average Pump Price" to compute the additional sales tax that should have been collected and remitted on the sales of the gasoline because the "Average Pump Price" was higher than the actual price. Taxpayer thus argued that the proposed assessments were overstated as a result.
The Department must respectfully disagree. IC § 6-8.1-5-4(a) provides:
Every person subject to a listed tax must keep books and records so that the department can determine the amount, if any, of the person's liability for that tax by reviewing those books and records. The records referred to in this subsection include all source documents necessary to determine the tax, including invoices, register tapes, receipts, and canceled checks. (Emphasis added).
IC § 6-8.1-5-1(b), in relevant part, further states "[i]f the department reasonably believes that a person has not reported the proper amount of tax due, the department shall make a proposed assessment of the amount of the unpaid tax on the basis of the best information available to the department. The amount of the assessment is considered a tax payment not made by the due date and is subject to IC 6-8.1-10 concerning the imposition of penalties and interest." (Emphasis added).
In this instance, Taxpayer not only failed to adequately maintain its books and records, but also failed to provide documentation to substantiate its above assertion. Thus, given the totality of the circumstances, in the absence of other supporting documentation, the Department is not able to agree that Taxpayer met its burden of proof to demonstrate that the proposed assessment is wrong.
