Taxpayer is an Indiana business in the medical industry. As the result of an audit, the Indiana Department of Revenue ("Department") determined that Taxpayer had not remitted the correct amount of use tax for the tax years 2008, 2009, and 2010. The Department therefore issued proposed assessments for use tax, ten percent negligence penalty, and interest. Taxpayer protests that some of the purchases listed as subject to use tax were not actually subject to use tax. Therefore, Taxpayer protests a portion of the use tax, penalty, and interest found in the proposed assessments.
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Taxpayer protests the imposition of use tax on certain purchases which the Department had determined were subject to use tax for the tax years 2008, 2009, and 2010. The Department based its determination on its review of Taxpayer's records for 2010. If there was no invoice for a particular transaction or if the invoice did not show sales tax paid at the point of purchase, the Department included that purchase as subject to use tax. The total of expensed purchases without sales tax applied was compared against all purchases to arrive at a sales and use tax error rate. That rate was then applied to all three years under audit. Capital asset purchases were separately and individually reviewed for sales and use tax compliance. Taxpayer protests that some of those purchases had either had sales tax paid at the point of purchase, or were not subject to Indiana use tax at all.
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Taxpayer protests that some of the transactions which the Department determined were subject to use tax were not subject to sales or use tax. Taxpayer states that some transactions had sales tax collected at the time of purchase and that some transactions were not subject to sales and use tax to begin with. Taxpayer provided a list of items which it believes were not subject to sales or use taxes on the basis that Taxpayer believes that some of the transactions were for services and not for the transfer of tangible personal property. Also, Taxpayer asserts that other transactions were for both services and tangible personal property and Taxpayer believes that use tax should only be charged for the portion of the transaction related to tangible personal property.
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Taxpayer did not provide documentation in support of its position that the transactions in question were not unitary transactions as defined by IC § 6-2.5-1-1. Neither did Taxpayer provide documentation which establishes that any of the transactions in question meet the four (4) requirements of the serviceman exemption found at 45 IAC 2.2-4-2 .
Taxpayer did provide some documentation in support of its position that either sales or use tax had already been paid on some items. Taxpayer provided several Kentucky certificates of title which list that Kentucky "usage tax" had been paid. Taxpayer believes that this shows that sales or use tax was already paid to another state and that Indiana use tax should not be applied.
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Kentucky has both a "usage tax" and a "use tax." The "usage tax" is a separate motor vehicle tax. Since it is not the equivalent of a sales or use tax and since there is no evidence that any sales or use tax was paid in Kentucky or Indiana, Indiana use tax was properly imposed on these transactions.
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Kentucky has both a "usage tax" and a "use tax." The "usage tax" is a separate motor vehicle tax. Since it is not the equivalent of a sales or use tax and since there is no evidence that any sales or use tax was paid in Kentucky or Indiana, Indiana use tax was properly imposed on these transactions.
Similarly, Taxpayer provided one Ohio certificate of title along with a Kentucky registration renewal notice. The notice states that a Kentucky motor vehicle tax rate of .45 percent was due on the vehicle in question. Since Kentucky's sales and use tax rates were six percent, it is clear that the motor vehicle tax listed on this document is not the Kentucky sales or use tax. Since there is no evidence that sales or use tax was paid anywhere, Indiana use tax was properly imposed on this transaction.
Next, Taxpayer provided a copy of an invoice from Schiferl System Resources. The invoice does not list sales tax on this transaction and so the Department determined that use tax was due. Taxpayer provided documentation establishing that no tangible personal property was transferred in this transaction and that services only were provided. Since services are not subject to sales or use tax, Taxpayer has met the burden imposed by IC § 6-8.1-5-1(c) regarding this transaction.
Next, Taxpayer provided documentation from Applestore, an online retailer. Taxpayer states that sales tax was collected at the time of sale and that use tax is not due on purchases from Applestore. After review, the Department agrees with Taxpayer. Taxpayer has met the burden imposed by IC § 6-8.1-5-1(c) regarding transactions with Applestore.
In conclusion, Taxpayer has met the burden of proving that Indiana use tax is not due on the transactions listed in the Department's use tax calculations for Schifrel System Resources and Applestore. Taxpayer has not met the burden of proving that any other transactions were not properly included as taxable in the Department's use tax calculations. The Shifrel System Resources and Applestore transactions will be removed and the use tax error rate will be recalculated and applied to all years at issue in a supplemental audit.
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In this case, Taxpayer incurred an assessment which the Department determined was due to negligence under 45 IAC 15-11-2 (b), and so was subject to a penalty under IC § 6-8.1-10-2.1(a). Taxpayer did not have a use tax accrual and remittance system in place at the time of the audit. Therefore, the negligence penalty was properly imposed. Again, the Department may not waive interest. However, since Taxpayer was partially sustained in Issue I above, penalty and interest will be recalculated after the Department's recalculation of base tax.
