Wednesday, January 8, 2014

Revenue Finds Taxpayer Responsible for Taxes on Contract Despite Argument Contractor was Responsible

Excerpts of Revenue's Determination follow:

Taxpayer is an out-of-state business which installs voice and data equipment. Taxpayer contracted with the owner of a hotel for the installation of equipment pursuant to a time-and-materials contract.

Taxpayer installed data and telephone equipment for an Indiana customer. The Department's audit found that Taxpayer should have collected sales tax from the customer because the equipment was installed pursuant to a time-and-materials contract.
Taxpayer disagrees stating that it was told that the customer's prime contractor – not Taxpayer –either paid or was responsible for paying the tax.
The audit assessed sales tax on what it categorized as "time and material" contracts pursuant to 45 IAC 2.2-4-22.
45 IAC 2.2-4-22(d) provides in part:
Disposition subject to the state gross retail tax. A contractor-retail merchant has the responsibility to collect the state gross retail tax and to remit such tax to the Department of Revenue whenever he disposes of any construction material in the following manner:
(1) Time and material contract. He converts the construction material into realty on land he does not own and states separately the cost for the construction materials and the cost for the labor and other charges (only the gross proceeds from the sale of the construction material are subject to tax);
As explained in Sales Tax Information Bulletin 60 (July 2006) (20060823 Ind. Reg. 045060287 NRA), "If a construction contractor purchases construction materials pursuant to a time and material contract, the construction contractor is a retail merchant and may purchase the construction material exempt from sales tax but must collect sales tax on the resale of the construction material and remit the sales tax."
Nonetheless, Taxpayer maintains it was relieved of paying or collecting the tax because it had been told that the customer's prime contractor – and not Taxpayer as the sub-contractor – was responsible for the tax. In addition, Taxpayer argues that the Department's audit had confirmed this argument and that the first draft of the "Audit Summary" did not assess Taxpayer the tax which is the subject of this protest.
At the outset it should be noted that it is the Taxpayer's responsibility to establish that the existing tax assessment is incorrect. As stated in IC § 6-8.1-5-1(c), "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." Indiana Dep't of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012); Lafayette Square Amoco, Inc. v. Indiana Dep't of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007).
Despite Taxpayer's argument to the contrary, 45 IAC 2.2-4-22(d) plainly places responsibility on the Taxpayer to "collect the state gross retail tax and to remit such tax to the Department of Revenue . . . ."
The Department does not question Taxpayer's apparent good faith belief that the prime contractor would pay the tax, but the law places responsibility for this tax squarely on Taxpayer.
Taxpayer has not met its burden of establishing the assessment was wrong.