Taxpayer operates three gas stations/convenience stores in Indiana. The Indiana Department of Revenue ("Department") conducted a sales and use tax audit of Taxpayer for the tax years 2009, 2010 and 2011. Pursuant to the audit, Taxpayer was assessed Indiana sales tax on taxable sales for which Taxpayer had neither collected nor remitted Indiana sales tax. Taxpayer protested the assessments arguing that some of the transactions were exempt from sales tax. A hearing was held and this Letter of Findings ensues addressing protests under two docket numbers. Docket number 04-20120463 addresses sales from January 2009 through April 2011 where Taxpayer filed returns for its sales tax activities under location 001. Docket number 04-20120465 addresses sales from May 2011 through December 2011 where Taxpayer filed returns for its sales tax activities under location 900.
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The Department's audit proposed an adjustment to assess Indiana sales tax on sales of diesel fuel for which Taxpayer did not have exemption certificates.
IC § 6-2.5-4-1(a)-(c) defines a "retail merchant" involved in "retail transactions," as follows:
(a) A person is a retail merchant making a retail transaction when he engages in selling at retail.
(b) A person is engaged in selling at retail when, in the ordinary course of his regularly conducted trade or business, he:
(1) acquires tangible personal property for the purpose of resale; and
(2) transfers that property to another person for consideration.
(c) For purposes of determining what constitutes selling at retail, it does not matter whether:
(1) the property is transferred in the same form as when it was acquired;
(2) the property is transferred alone or in conjunction with other property or services; or
(3) the property is transferred conditionally or otherwise.
Accordingly, a retail merchant performing retail transactions is a person who obtains and sells tangible personal property. Pursuant to IC § 6-2.5-2-1(a), retail transactions that are made in Indiana are subject to the state gross retail tax ("sales tax"). Moreover, "the retail merchant is required to collect the tax [due on the retail transaction] as [an] agent for the state." IC § 6-2.5-2-1(b). Furthermore, the retail merchant "has a duty to remit Indiana [sales] or use taxes... to the department, [to] hold those taxes in trust for the state, and is personally liable for the payment of those taxes, plus any penalties and interest attributable to those taxes, to the state." IC § 6-2.5-9-3(2).
Therefore, Taxpayer, as a retail merchant, has a duty to collect and remit sales tax on its sales of tangible personal property. When Taxpayer fails to collect and hold the taxes in trust for the state, Taxpayer is personally liable for the sales tax, interest, and penalties due to the state for those sales. The Department's audit determined that for the years at issue, Taxpayer did not have exemption certificates for 284 of the transactions Taxpayer claimed were exempt. The Department's auditor allowed Taxpayer time to acquire exemption certificates from its customers. Taxpayer was able to document most of the transactions at issue; however some of the 284 transactions remained undocumented and therefore the Department's audit assessed sales tax on those transactions.
Taxpayer protests that some of the sales upon which the Department considered sales tax to be due were actually exempt sales. After the hearing Taxpayer presented additional exemption certificates for some of the transactions on which the Department's audit assessed sales tax.
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As provided by IC § 6-2.5-8-8(a), a seller accepting a valid exemption certificate has no duty to collect or remit the state gross retail or use tax on a purchase. Taxpayer has now provided six additional exemption certificates relating to six transactions listed in the audit as taxable (highlighted on Taxpayer's attached copy of the audit summary). The Department will remove those purchases by those customers from the list of taxable sales and the amount of sales tax due will be recalculated accordingly.
