Thursday, April 17, 2014

Revenue Finds Taxpayer Failed to Timely Pay Retail Sales Tax; But Waived Penalty

Excerpts of Revenue's Determination follow:

Taxpayer, an out-of-state company, operates gasoline stations in Indiana. Taxpayer discovered that it had made an error in computing the amount of tax due to the Department. On or around December 10, 2012, Taxpayer amended the January through September 2012 Retail Sales Tax returns and paid the amount due. The Department recorded the amended returns and deposited the remittance. Thereafter the Department disallowed Taxpayer's collection allowance and assessed Taxpayer a ten percent penalty and interest.

Taxpayer protests the disallowance of the Retail Merchant's Collection Allowance. The relevant statute is IC 6-2.5-6-10(a), which states:

(a) In order to compensate retail merchants for collecting and timely remitting the state gross retail tax and the state use tax, every retail merchant, except a retail merchant referred to in subsection (c), is entitled to deduct and retain from the amount of those taxes otherwise required to be remitted under IC 6-2.5-7-5 or under this chapter, if timely remitted, a retail merchant's collection allowance.

Taxpayer amended the January through September 2012 Retail Sales Tax returns and paid the amount due on or around December 10, 2012. Taxpayer did not timely remit the state gross retail tax, as the amounts were due prior to December 2012.

Taxpayer protests the imposition of the ten percent negligence penalty on Taxpayer's failure to timely remit sales tax to the Department. The Department also notes that underIC 6-8.1-10-1(e) interest cannot be waived.

Taxpayer contends that the error in submitting the correct remittance was due to a software glitch. Specifically, Taxpayer stated,

"The retail accounting system was classifying the discounts as taxable when the discounts could either be taxable or non-taxable; therefore, the 'calculated' net taxable sales were lower than the 'collected' net sales for the sales tax calculation."

When Taxpayer discovered the error, it corrected the error by amending its returns and remitting the additional sales tax. Additionally, Taxpayer provided documentation that demonstrated that Taxpayer determined the cause for the miscalculations and fixed the error to ensure that the proper amount of sales tax is remitted on a going forward basis. Taxpayer has documented and verified that the error was due to a reasonable cause and it has taken proper action to prevent the same mistake from happening again. Taxpayer has made a strong case that the negligence penalty should be abated.