Taxpayer is an Indiana retail merchant selling a variety of chemicals and related equipment. The Indiana Department of Revenue ("Department") conducted an audit review of Taxpayer's business records for the 2010 and 2011 tax years. As a result of that audit, the Department issued assessments of gross retail tax ("sales tax"), use tax, interest, and penalty. Taxpayer protested the sales tax and penalty assessments.
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Taxpayer provided a copy of an additional exemption certificate. Taxpayer indicates that this certificate was not considered during the original audit. However, the exemption certificate provided was signed and dated after the sales transaction(s) occurred. Thus, Taxpayer was asked to, and did provide a Form AD-70, which is the form that is allowed for a Taxpayer to demonstrate an exemption after the sales transaction has occurred.
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During the audit, Taxpayer was unable to provide exemption certificates for certain of its transactions where sales tax was not collected. The auditor was therefore unable to verify that those sales were exempt from the sales tax. The relevant regulation is45 IAC 2.2-8-12 (b) which states, "Retail merchants are required to collect sales and use tax on each sale which constitutes a retail transaction unless the merchant can establish that the item purchased will be used for an exempt purpose." The regulation cautions that, "Unless the seller receives a properly completed exemption certificate the merchant must prove that sales tax was collected and remitted to the state or that the purchaser actually used the item for an exempt purpose. It is, therefore, very important to the seller to obtain an exemption certificate in order to avoid the necessity for such proof." 45 IAC 2.2-8-12 (d).
There is no question that Taxpayer entered into retail transactions for which – absent an exemption – Taxpayer was required to collect sales tax. Taxpayer has belatedly supplied an exemption certificate and a Form AD-70 from one of its customers for certain of its sales. The audit division is requested to review the late-filed exemption certificate and Form AD-70 and to make whatever adjustments it deems appropriate. However, Taxpayer is reminded that sales tax becomes due at the time of the transaction; either the purchaser is exempt at the time of the transaction or it is not exempt. If the purchaser claims an exemption, the exemption certificate should be obtained at the time the transaction occurs; otherwise the burden of proving the transaction was exempt becomes measurably more difficult.
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Taxpayer protests the imposition of the ten percent negligence penalty pursuant to IC § 6-8.1-10-2.1. ...
In this case, Taxpayer incurred a deficiency 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 argues that it had reasonable cause for failing to collect and remit sales tax and for failing to pay use tax on its own purchases. Taxpayer states that he "set up his software to charge sales tax to his non-exempt customers. However, through a clerical error, the sales tax on the invoices did not calculate [and] [h]e did not notice [this]." Taxpayer also states that "when purchasing capital assets for which sales tax was not charged, he did not realize that he was not being charged sales tax and therefore did not include this on his sales tax return as use tax."
The Department finds that Taxpayer has not established that its failure to collect and remit sales tax or to pay sales or use tax on its own purchases was due to reasonable cause and not due to negligence, as required by 45 IAC 15-11-2 . Taxpayer's own statements provide that its inattention to both its sales invoices and its purchases invoices is what led to its failure to collect and/or pay the proper amount of tax. Inattention is negligence. Additionally, Taxpayer did not have a use tax accrual and remittance system in place. Accordingly, the negligence penalty was properly imposed.
