Taxpayer operates a welding business as a sole proprietorship. The Indiana Department of Revenue ("Department") conducted a sales/use tax audit of Taxpayer for the 2010 and 2011 tax years. After the investigation, the Department determined that Taxpayer owed additional sales and use tax and assessed tax for the 2010 and 2011 tax years.
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For one of the items protested, Taxpayer's representative explained that there was an exemption certificate for one of Taxpayer's customers that had the incorrect customer name on it. Taxpayer asked that the Department adjust the audit assessment to reflect the fact that it was not required to collect sales tax from the customer represented by the exemption certificate.
Taxpayer is correct that under certain circumstances, a retail merchant such as Taxpayer is not required to collect sales tax. Under IC § 6-2.5-8-8(a), "A person . . . who makes a purchase in a transaction which is exempt from the state gross retail tax and use taxes, may issue an exemption certificate to the seller instead of paying the tax." Once the purchaser provides the exemption certificate, the retail merchant is under no obligation to collect sales tax on the transaction. IC § 6-2.5-8-8(a) states that, "A seller accepting a proper exemption certificate under this section has no duty to collect or remit the state gross retail or use tax on that purchase."
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Therefore, as provided by IC § 6-2.5-8-8(a), a vendor such as Taxpayer accepting a valid exemption certificate has no duty to collect or remit the state gross retail or use tax on a purchase. However, the certificate is not dated, and therefore it cannot be concluded that it is contemporaneous to the transactions at issue. As provided in 45 IAC 2.2-8-12 (f), an exemption certificate issued by a purchaser is not valid unless it is executed in the prescribed and approved form and unless all information requested on the form is completed. In the absence of valid exemption certificates, 45 IAC 2.2-8-12 (d) makes it clear that Taxpayer bears the burden of proving that sales tax was remitted to the State or that Taxpayer's customers did indeed use the diesel fuel for exempt purposes.
For a few of the other items protested, Taxpayer claims that the items are exempt because they were used by Taxpayer in repair work that Taxpayer did for the United States Navy or Army, or a military contractor, stating that all three of the organizations are tax exempt.
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Taxpayer provided the invoices showing purchases that it made, where sales tax was not paid; however, it has not provided evidence that it then sold the items to the United States government. Further, Taxpayer has not explained how a government contractor would be exempt from sales tax. In either case, without an exemption certificate, sales tax should have been collected, or, alternatively, Taxpayer should have provided invoices for the products sold and/or services rendered to these customers.
For the remaining items, Taxpayer claims that the items purchased were used to repair its customers' machines that were used in the customers' daily production; however, the manufacturing exemption found in IC § 6-2.5-5-3 applies to the purchaser "if the person acquiring that property acquires it for direct use in the direct production, manufacture, fabrication, assembly, extraction, mining, processing, refining, or finishing of other tangible personal property." The exemption does not extend to the seller, and without an exemption certificate, sales tax should have been collected.
Having not provided the necessary exemption certificates, or establishing that some other exemption applies to the purchases, Taxpayer has failed to meet its statutory responsibility of demonstrating that the proposed assessment is incorrect. IC § 6-8.1-5-1(c). Therefore, Taxpayer's protest regarding the assessment of additional sales and use tax is denied.
