Taxpayer is an Indiana manufacturer of various industrial coating products such as liquid paints, powder coatings and vacuum metalizing products. The Indiana Department of Revenue (the "Department") conducted a sales and use tax audit of Taxpayer's three Indiana locations for the tax years 2008 through 2011. As a result of the Department's audits, Taxpayer was assessed additional use tax, penalty, and interest for the years at issue. The Department's audit covered individual location accounts as well as the consolidated account (thus the multiple docket numbers referenced in this Letter of Findings).
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Taxpayer protests the imposition of the negligence penalties assessed pursuant to the Department's sales and use tax audit of Taxpayer for the periods 2008 through 2011. Taxpayer states that it was not willfully neglectful of its sales and use tax obligations as evidenced by the audits. Taxpayer therefore asks that the Department abate the assessed negligence penalties.
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Indiana law requires Taxpayer to demonstrate that it had reasonable cause for not paying sales tax or self-assessing and remitting the use tax due. In order to establish reasonable cause, Taxpayer must demonstrate that it exercised "ordinary business care and prudence" in conducting the duties from which the additional tax and penalty arose. 45 IAC 15-11-2 (c).
Taxpayer argues that it did not demonstrate willful neglect in its treatment of the taxability of certain items as these items could reasonably have been assumed to be part of the production process.
This is not Taxpayer's first sales and use tax audit. While some of the non-production items on which Taxpayer was assessed use tax could reasonably have been assumed to be part of the production process, there were also other items which were clearly not part of the production process. Given that this is not Taxpayer's first sales and use tax audit, Taxpayer has not made an affirmative showing of reasonable cause for the manner in which it evaluated the taxability of the protested items. Therefore, the Department finds that Taxpayer has not made an affirmative showing of reasonable cause for not remitting use tax for the tax years 2008 through 2011 and therefore the negligence penalties will not be abated.
