Tuesday, July 29, 2014

Revenue Waives Penalty Where Taxpayer had "Reasonable Cause" for Failing to Pay Sales Tax in One Year, but Declines to Waive Penalty for Following Year

Excerpts of Revenue's Determination follow:

Taxpayer is an Indiana automobile dealership. The Indiana Department of Revenue ("Department") audited Taxpayer for tax years 2010, 2011, and 2012. The Department issued proposed assessments for base tax, ten percent negligence penalties, and interest for tax years 2010 and 2011. Taxpayer protests the imposition of the penalties.

A taxpayer who receives a proposed assessment after an audit "is subject to a penalty." IC § 6-8.1-10-2.1(a). The Department shall waive the penalty if the taxpayer demonstrates that the failure to pay the outstanding taxes "was due to reasonable cause and not due to willful neglect." IC § 6-8.1-10-2.1(d); see also 45 IAC 15-11-2. The taxpayer may demonstrate reasonable cause by showing affirmatively that it used "ordinary business care and prudence" in not paying the outstanding taxes. However, the taxpayer's ignorance of Indiana's tax laws does not constitute reasonable cause. Whether a taxpayer demonstrates reasonable cause for penalty purposes is a fact-sensitive question and determined on a case-by-case basis. 45 IAC 15-11-2(b) and (c).

In this case, Taxpayer has demonstrated that it had a reasonable cause for its failure to pay the proper amount of sales tax in 2010. However, Taxpayer has not demonstrated that it had reasonable cause for its failure to pay the proper amount of use tax in 2011. Therefore, the penalty imposed for tax year 2010 is waived, but the penalty imposed for tax year 2011 is not waived. Taxpayer's protest is sustained in part and denied in part.