The Indiana Department of Revenue ("Department")
determined that Taxpayer should have paid sales tax on a horse acquired in a
transaction which took place in Indiana. The Department issued a proposed
assessment of use tax. Taxpayer disagreed with the assessment and submitted a
protest to that effect.
...
The Department concluded that Taxpayer had "paid for
and obtained tangible personal property in Indiana upon which tax [had] not
been paid." Taxpayer disagrees concluding that the tangible personal
property – a race horse – was exempt under the relevant portions of Indiana
law.
...
As authority for the decision subjecting Taxpayer to use
tax, the Department pointed to 45 IAC
2.2. That portion of the administrative code contains various provisions
the most general and apparently relevant is found at 45 IAC
2.2-3-4 which states:
Tangible personal property, purchased in Indiana, or
elsewhere in a retail transaction, and stored, used, or otherwise consumed in
Indiana is subject to Indiana use tax for such property, unless the Indiana
state gross retail tax has been collected at the point of purchase.
Taxpayer acquired the horse as a result of a "claiming
race." The question of whether horses acquired in a claiming race are
subject to sales/use tax is addressed in Letter of Findings 04-20120179 (July
25, 2012), 20120926 Ind. Reg. 045120535NRA. In that Letter of Findings, the
Department determined the race horses purchased and acquired in a
"claiming race" constituted retail transactions "involving
tangible personal property" and were subject to Indiana's sales/use tax.
Because Taxpayer does not raise the "claiming
race" issue anew, it need not be addressed here. Instead Taxpayer argues
that the acquisition of the race horse was exempt on the ground that "any
[and] all items involved with agriculture and the breeding and racing of
horses" is exempt.
IC § 6-2.5-5-1 provides a sales tax exemption for animals,
equipment, and supplies purchased for "agricultural purposes."
Transactions involving animals, feed, seed, plants,
fertilizer, insecticides, fungicides, and other tangible personal property are
exempt from the state gross retail tax if:
(1) the person acquiring the property acquires it for his
direct use in the direct production of food and food ingredients or commodities
for sale or for further use in the production of food and food ingredients or
commodities for sale; and
(2) the person acquiring the property is occupationally
engaged in the production of food and food ingredients or commodities which he
sells for human or animal consumption or uses for further food and food
ingredient or commodity production.
(3) the machinery or equipment is designed for use in
gathering, moving, or spreading animal waste.
However Taxpayer has not provided information establishing
that it is in the business of producing "food," "food
ingredients," or food "commodities" such that Taxpayer would be
entitled to the exemption.
Additionally, 45 IAC
2.2-5-5 notes:
(a) The raising of saddle horses, harness horses, ponies,
donkeys, or any other similar animals not used directly in direct agricultural
production does not qualify as agricultural production for "human
consumption" under the gross retail sales and use tax act. Consequently,
the purchase of supplies, food, materials, and equipment used in raising or
maintaining such animals are subject to the sales tax unless the items are
directly used or consumed in the production of such animals for resale in the
regular course of the purchaser's business.
(b) The purchase of any of the above animals is subject to
the sales tax unless the purchaser is a registered retail merchant and is
buying such animal for resale in the regular course of his business.
(Emphasis added).
In Taxpayer's case, the animal at issue was Taxpayer's race
horse. Thus the race horse does not come within the scope of the sales tax
exemption found at IC § 6-2.5-5-1 because the exemption requires that animals
must be used for the "direct use in the direct production of food...."
Taxpayer acquired "tangible personal property" in
a retail transaction; the agricultural exemption Taxpayer cites is
inapplicable. Therefore, the Department correctly assessed use tax on the
acquisition of the race horse.
