Tuesday, April 22, 2014

Revenue Finds Fuel not "Separately Bargained for" in Purchase of Equipment and Therefore Purchases did not Qualify for Resale Exemption

Excerpts of Revenue's Determinaton follow:

Taxpayer is a dealer of agricultural equipment with multiple locations in Indiana. As the result of an audit, the Indiana Department of Revenue ("Department") determined that Taxpayer had not collected and remitted the proper amount of Indiana sales tax as a retail merchant for the tax years 2011 and 2012. The Department therefore issued proposed assessments for sales and use tax, and interest, for these tax years.

Taxpayer protests a portion of the Department's proposed assessments of sales tax for the years 2011 and 2012. Taxpayer raises three specific issues:

(1) Assessment of sales tax on sales transactions made exempt from sales tax by valid exemption certificates.
(2) Assessment of use tax on purchases of gasoline and diesel fuel purchased for resale and placed into the fuel supply tanks of new and used agricultural equipment.
(3) Assessment of use tax on television, newspaper, and internet advertising campaigns.

... The Department assessed sales taxes on Taxpayer's sales of equipment. During the protest, Taxpayer presented ST-105 Exemption Certificates for two sales.

IC 6-2.5-8-8(a) describes sales tax exemption certificates:

A person, authorized under subsection (b), who makes a purchase in a transaction which is exempt from the state gross retail and use taxes, may issue an exemption certificate to the seller instead of paying the tax. The person shall issue the certificate on forms and in the manner prescribed by the department. A seller accepting a proper exemption certificate under this section has no duty to collect or remit the state gross retail or use tax on that purchase.

The corresponding regulation reads as follows: "An exemption certificate issued by a purchaser shall not be valid unless it is executed in the prescribed and approved form and unless all information requested on such form is completed." 45 IAC 2.2-8-12(f).

Exercising its statutory authority, the Department created Form ST-105, Indiana General Sales Tax Exemption Certificate. Pertinently, Form ST-105 requires the issuer to provide the following information: name, address, date, account number, description of the property being purchased, basis for exemption, and a signature certifying that the property will be used for an exempt purpose.

Because Taxpayer presented two valid ST-105 Exemption Certificates, Taxpayer's protest is sustained on this issue with respect to sales to those two customers.

As part of its business, Taxpayer purchased diesel and gasoline to place in tractors and other equipment, which were then sold to customers. Taxpayer provides additional fuel to satisfy its customers' expectations, and to ensure that the equipment can be unloaded and tested at the customers' location. Taxpayer does not, however, separately bargain with its customers for the additional fuel. In other words, Taxpayer does not charge its customers a higher or lower price based on the amount of fuel that Taxpayer places into the equipment.

Taxpayer asserts that it should not have to pay sales or use taxes on fuel that it places into equipment that is sold to customers. Taxpayer argues that the fuel should be subject to the resale exemption because, in Taxpayer's view, the fuel is part of the tangible personal property transferred to its customers. See IC 6-2.5-5-8.

Taxpayer, however, is ineligible for the resale exemption because Taxpayer did not separately bargain with its customers for the price of the fuel. See Brambles Industries, Inc. v. Indiana Dep't of State Revenue, 892 N.E.2d 1287 (Ind. Tax Ct. 2008) . In Brambles, a manufacturer sought the "resale exemption" for pallets by maintaining that "the price of pallet was incorporated into the price of their products." ...

For these reasons, the fuel does not qualify for the resale exemption. Taxpayer is not selling the fuel because there is neither a separate itemized consideration nor separate bargaining for the fuel. Since Taxpayer did not pay sales tax at the time of the purchase of the fuel, use tax is properly imposed. As a result, Taxpayer has not met its burden to prove the proposed assessment wrong, as provided by IC 6-8.1-5-1(c).

Accordingly, Taxpayer's protest is denied with respect to this issue.

Taxpayer paid for television, newspaper, and internet marketing. During the audit, the Department assessed use tax on these purchases. During the protest, however, Taxpayer provided invoices establishing that it purchased advertising services, rather than tangible personal property. Intangible advertising services are not subject to sales or use tax.

Accordingly, Taxpayer's protest is sustained with respect to this issue.