Tuesday, January 7, 2014

Department Holds that Taxpayer Failed to Produce Sufficient Documentation to Support Claim Sales Tax Not Owed in Vehicle Sales

Excerpts of Revenue's Determination follow:

Taxpayer is an Indiana automobile dealership that sells used cars. In late 2012 through early 2013, the Indiana Department of Revenue ("Department") conducted a sales/use tax audit of Taxpayer's business records for 2010 and 2011 tax years. The Department found that Taxpayer failed to maintain adequate business records. Based on the best information available at the time of the audit, the Department determined that Taxpayer had additional taxable sales for the tax year 2011 for which it did not collect and remit sales tax to the Department. The Department's audit also determined that Taxpayer did not pay sales tax or self assess and remit use tax on certain purchases of tangible personal property, which Taxpayer used for its business.
The Department's audit determined that Taxpayer failed to collect sales tax on tangible personal property, which it sold to its customers during 2011. Taxpayer, at the hearing, claimed that it was not responsible for the sales tax. However, it should be noted that Taxpayer did not provide any supporting documentation after the hearing.

IC § 6-8.1-5-1(b), in relevant part, 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. The department shall send the person a notice of the proposed assessment through the United States mail." (Emphasis added).
IC § 6-8.1-5-4(a) further 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).
At the hearing, Taxpayer stated that, as a used car dealer, it often searched for potential used cars to buy from various individuals. Taxpayer further explained that those sales often required cash payments, and thus it would withdraw money from its bank the day prior to the scheduled dates to examine those cars. Taxpayer asserted that when it determined that it could not purchase those cars after examining the cars, it deposited the money back into its bank account. However, the Department's audit erroneously concluded that those deposits were additional taxable sales. To support its protest, Taxpayer submitted copies of its March, April, and June 2011 bank statements.
Upon review, however, Taxpayer's documentation did not support its assertion. Taxpayer's documentation demonstrated that the amount it withdrew from the account and the amount that it claimed it deposited back into its account did not match. 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 it was not responsible for collecting the sales tax for those additional taxable sales.
In short, Taxpayer's protest is denied.