Thursday, June 19, 2014

Revenue Finds Mailers Subject to Use Tax

Excerpts of Revenue's Determination follow:

Taxpayer is a corporation. Taxpayer contracted with two vendors ("Vendor 1" and "Vendor 2") to print and distribute discount coupons and promotional materials ("mailers") in zip codes with close proximity to Taxpayer's physical location. All mailers were sent to Indiana addresses. Taxpayer did not pay sales or use tax on the purchase price of the mailers. The Indiana Department of Revenue ("Department") audited Taxpayer and proposed an assessment of base tax and interest on the purchase price of the mailers.

Taxpayer protests the proposed assessment of use tax on the purchase price of the mailers. Taxpayer's protest letter states:

I am writing this letter to protest the sales tax the department is collecting for the services purchased from [Vendor 1] and [Vendor 2]. The sellers did not charge sales tax to [Taxpayer] and has never collected from other clients. [sic] All the advertisers we have dealt with has [sic] never collected for sales tax for this type advertising. We feel this has been an issue that has not been addressed by the department. I am enclosing a letter I received [from Vendor 2] on where they stand on this issue.

With its protest letter, Taxpayer provided a letter it received on Vendor 2 letterhead dated June 3, 2013 ("June 3rd letter"). The letterhead does not include contact information for Vendor 2. The letter does not contain a signature block, and it is unsigned. Taxpayer provided a copy of an invoice from a vendor showing the purchase of 20,000 mailers and stated at the hearing that this invoice was representative of the Taxpayer's transactions regarding the mailers at issue. After the administrative hearing, Taxpayer provided additional information including two affidavits, a copy of the audit report, copies of two court decisions, and a copy of a Department Letter of Finding dated in 1996.

The two affidavits include legal conclusions and statements which admit to being outside the affiant's personal knowledge. They also reiterate, nearly word for word, the contents of the June 3rd letter. Taxpayer has not provided original documents which support the statements made in the affidavits, and the Department can give little weight to the unsupported assertions therein. Taxpayer has not explained how the court decisions or the Letter of Finding dated 1996 support its argument in this case. Additionally, Letters of Finding more than six years old are deemed null and void and no longer of any effect. Tax Policy Directive 9 (December 1995).

The audit report concluded that the transactions at issue were unitary transactions subject to Indiana use tax. Taxpayer has not shown that this is an incorrect conclusion. In fact, Taxpayer provided documentation showing just the opposite. A review of the invoice provided by Taxpayer shows that the layout, proof, printing, insertion, internet placement, addressing, postage, envelopes, and distribution of the mailers were all included in one price. The invoice did not itemize the cost of each item of tangible personal property as separate from the services provided. Instead, one value was given for the combined order of tangible personal property and services. All of Taxpayer's retail transactions like this are "unitary" within the meaning of IC § 6-2.5-1-1(a). All the Taxpayer's unitary transactions involving tangible personal property which was used in Indiana (i.e. mailed to Indiana addresses) are subject to use tax.

Additionally, Taxpayer argues that the vendors have never collected sales tax on the purchase price of mailers. However, the vendors' failure to collect sales tax does not relieve Taxpayer from personal liability for the tax due. IC § 6-2.5-2-1(b); IC § 6-2.5-3-6(b).

Taxpayer has not met its burden to show that the Department's proposed assessment of use tax on the purchase of mailers is incorrect. Taxpayer's protest is respectfully denied.