Tuesday, May 20, 2014

Revenue Finds Taxpayer Sufficiently Proved it Paid Taxes or Produced Tax Exemption Certificates on Transactions

Excerpts of Revenue's Determination follow:

Taxpayer is a multi-state company which operates an Indiana manufacturing facility. The Department of Revenue ("Department") conducted an audit review of Taxpayer's business records and tax returns. The audit resulted in the assessment of additional sales and use tax. Taxpayer disagreed with a portion of the assessment and submitted a protest to that effect.

Taxpayer has provided exemption certificates which purportedly relieve Taxpayer from responsibility for collecting sales tax on certain transactions for which the audit review otherwise assessed tax.

The assessments contained in the original audit review report are presumed correct. IC § 6-8.1-5-1(c) states that, "The notice of proposed assessment is prima facie evidence that the department's claim for the unpaid tax is valid." Once the assessment has been made, "The burden of proving that the proposed assessment is wrong rests with the person against whom the proposed assessment is made." Id.

Because taxpayer has belatedly provided exemption certificates relevant to a number of the challenged assessments, Taxpayer has met its burden of demonstrating that certain of the original sales tax assessments may be incorrect. Therefore, the Audit Division is respectfully requested to review the newly submitted exemption certificates and to make whatever adjustments as may be warranted.

Taxpayer argues it was not responsible for paying sales tax on or self-assessing use tax on items purchased pursuant to lump-sum contracts for improvements to the Taxpayer's realty.

The issue Taxpayer raises is addressed at 45 IAC 2.2-4-26(a):

A person making a contract for the improvement to real estate whereby the material becoming a part of the improvement and the labor are quoted as one price is liable for the payment of sales tax on the purchase price of all material so used.

In other words, the contractor is responsible and liable for the payment of sales tax in "lump sum" contracts for improvements to Taxpayer's realty.

The Department has defined what a "lump sum contract" means at Sales Tax Information Bulletin 60 (July 2006), 20060823 Ind. Reg. 045060287NRA. See also Sales Tax Information Bulletin 60 (April 2011), 20110427 Ind. Reg. 045110247NRA.

"Lump sum contract" is a contract in which all of charges are quoted as a single price. A construction contractor may furnish a breakdown of the charges for labor, materials and other items without changing the nature of the lump sum contract.

Sales Tax Information Bulletin 60 also explains the tax consequences of these forms of contracts.

If a construction contractor purchases construction materials pursuant to a lump sum contract, the construction contractor pays either: (1) sales tax at the time the construction materials are purchased, or (2) use tax at the time the construction materials are incorporated into real property if the contractor purchased or acquired the construction materials exempt from sales tax and the owner of the real property could not have purchased the materials exempt from sales tax.

Therefore, a lump sum contractor pays sales tax at the time it purchases materials necessary to fulfill those contracts unless the customer issues the contractor an exemption certificate. The documentation submitted by Taxpayer establishes that the following transactions were for lump sum contracts for improvements to realty.
Concrete Constructors $22,800.00 
A & S Service 7,500.00 
A & S Service 18,248.00 
A & S Service 31,900.00 
Burgett CCM 2,325.00

Taxpayer has met its burden under IC § 6-8.1-5-1(c) of demonstrating that it is not required to pay sales tax on the specific transactions with the three vendors listed above.

The Department's audit assessed tax on transactions for which no documentation was available at the time of the original audit.

Taxpayer maintains that it can provide documentation establishing that it paid sales tax at the time of its original purchase.
MacAllister Machine $ 331.39 
MacAllister Machine 807.54 
MacAllister Machine 1,043.78 
Airgas 443.69 
Menards 67.05 
Menards 147.55 
Menards 42.59 
Menards 58.78 
Menards 62.17 
Applied Tech 459.74 
Applied Tech 507.00 
Uline 85.42 
WW Grainger 1.27 
WW Grainger 30.10 
WW Grainger 32.64 
WW Grainger 43.64 
WW Grainger 46.23 
WW Grainger 51.71 
WW Grainger 70.09 
WW Grainger 127.59 
WW Grainger 160.34 
WW Grainger 160.34 
WW Grainger 290.19 
WW Grainger 16.29 
WW Grainger 46.78 
WW Grainger 62.66 
WW Grainger 76.86 
WW Grainger 86.79 
WW Grainger 89.87 
WW Grainger 164.90 
WW Grainger 179.96 
WW Grainger 226.99 
WW Grainger 274.62 
WW Grainger 300.90 
WW Grainger 490.06 

Taxpayer has met its burden under IC § 6-8.1-5-1(c) of establishing that it paid sales tax on the 35 transactions noted.