Taxpayer is an Indiana qualified subchapter S corporation that primarily provides insect and pest eradication services for commercial and residential customers. As of 2007, Taxpayer also provides lawn treatment services for commercial and residential customers. The Department of Revenue ("Department") conducted an audit review of Taxpayer's business records which resulted in the assessment of sales/use tax.
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The Department assessed Taxpayer sales tax on its lawn care
services because Taxpayer had not collected and remitted sales tax when it
provided those services to its customers. Taxpayer protested the assessment of
sales tax on these transactions arguing that it was providing a service and had
already itself paid sales tax on the chemicals it used in providing its lawn
care services.
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The provision of lawn care services is subject to sales tax
as described in Sales Tax Information Bulletin 21 (May 2002), 25 Ind. Reg.
3939, as follows:
Sales by a Lawn Care Company
The relationship between a lawn care company and its customer
is contractual. The customer agrees to pay a set price and the company agrees
to apply the necessary chemicals to a lawn for its proper care and maintenance.
The chemical cannot be purchased separately from the company and applied by the
customer. A unitary transaction is the purchase of tangible personal property
and services under a single agreement for which a total combined charge is
calculated. A retail unitary transaction is a unitary transaction that is also
a retail transaction. A retail transaction means a transaction that constitutes
selling at retail. A lawn care application is a retail transaction because the
lawn care company acquires tangible personal property (chemicals) and transfers
them to its customers for consideration in the ordinary course of its regularly
conducted business.
The sales tax is imposed on the gross retail income received
in a retail unitary transaction. The gross retail income received includes the
price of the property transferred plus any bona fide charges made for
preparation, fabrication, alteration, modification, finishing, completion,
delivery, or other service performed in respect to the property before its
transfer. Because the chemicals are not transferred until they are applied to
the lawn, the application charges are included in the company's gross retail
income. Therefore, the entire contract price is subject to the Indiana sales
tax.
Purchases by a Lawn Care Company
The purchase of chemicals by a lawn care company to be later
furnished to a customer for lawn care treatment is a sale for resale and
therefore exempt from the Indiana sales tax.
The purchase of tangible personal property other than
chemicals for use in the lawn care business, such as chemical applicators,
sprayers, and transport vehicles, is subject to the Indiana sales/use taxes.
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Taxpayer protests that it thought it was providing a service
which was taxed similarly to its pest and insect eradication service. Taxpayer
stated that on that basis, it paid sales tax when it purchased chemicals for
its lawn care business and then did not charge its lawn care customers for the
chemicals when it provided its services.
Taxpayer states that it does not understand why pest control
and lawn care businesses are taxed differently. At the time of the audit,
Taxpayer was not registered for Indiana gross retail tax since pest control
businesses are not required to charge sales tax on their applications, but
instead are required to charge sales tax on the chemicals when purchased from
their vendors.
Lawn care companies, on the other hand, are required to
charge sales tax on each application in accordance with Sales Tax Information
Bulletin 21. Lawn care companies can purchase their chemicals exempt from sales
tax as they are purchased for resale to their customers. Taxpayer provided the
Department's auditor with sales tax invoices showing that it paid sales tax on
chemicals when Taxpayer purchased the chemicals from its vendors. The
Department's audit properly credited the sales tax paid by Taxpayer on these
purchases in making its assessment of additional tax owed.
Taxpayer has not shown that the Department's assessment is
incorrect.
