Wednesday, April 9, 2014

Revenue Finds Taxpayer Failed to Maintain Sufficient Documents for Purposes of IFTA Taxes and IRP Fees

Excerpts of Revenue's Determination follow:

Taxpayer is an Indiana motor carrier. Taxpayer chose Indiana as its base jurisdiction for purposes of the International Fuel Tax Agreement ("IFTA") and the International Registration Plan ("IRP"). The Department of Revenue ("Department") conducted an IFTA and IRP audit, which resulted in the assessment of additional IFTA taxes and IRP fees. Taxpayer protested the proposed assessments.
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The Department conducted an audit and determined that Taxpayer owed additional IFTA fuel taxes for the years at issue. Taxpayer protests the Department's assessment of motor carrier fuel taxes pursuant to IFTA.
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Taxpayer operated trucks in Indiana. As such, it operated on Indiana highways and consumed motor fuel. Therefore, Taxpayer was subject to motor carrier fuel IFTA taxes. IC § 6-6-4.1-4(a).
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The Department conducted an audit and determined that Taxpayer owed additional IFTA fuel taxes for multiple tax years. The Department audited three tax years: 2009, 2010, and 2011. A sample quarter was chosen from each of these tax years: the first quarter of 2009; the second quarter of 2010; and the second quarter of 2011. However, because Taxpayer's records from 2010 were apparently destroyed, the fourth quarter of 2009 was chosen to replace the second quarter of 2010 as the jurisdiction mileage sample quarter. Section A530.100 of the IFTA Audit Manual provides that "[s]ample period(s) must be representative of the licensee's operations."

Taxpayer's recordkeeping was determined to be inadequate. The Department's auditor requested that Taxpayer provide mileage records, which Taxpayer was required to maintain under the IFTA Procedures Manual. While the Taxpayer did maintain some records, they did not contain accurate miles by jurisdiction, because the miles were not always recorded or were not recorded accurately on the trip sheets. Additionally, unit gallon figures for a vendor in the second quarter of 2011 were not provided; thus, the auditor determined that the vehicle fuel summaries were inadequate. Finally, vehicle mileage summaries were rated inadequate because unit jurisdiction mileage figures were not provided during the first quarter of 2009.

The Department utilized error factors for audited jurisdiction mileage, audited tax paid gallons, audited total gallons, and to determine the true liability. Taxpayer argues that the error factor used by the Department resulted in an unfair assessment. Taxpayer maintains that the reported mileage was based off of his GPS reports, and if the audited mileage was also based on his GPS reports, then he shouldn't have an error factor.

The Department's audit recommended that if Taxpayer continues to use the GPS system to report miles that he be able to retrieve the documentation necessary to support the miles reported. Taxpayer apparently did not have the documentation from the third-party GPS provider in order to back up his reported mileage. Taxpayer did not provide this information after the audit, either. Taxpayer has also not shown why the error factors were incorrect.
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It is Taxpayer's responsibility to maintain specific, detailed, and accurate information concerning its fuel purchases and jurisdiction miles. In the absence of complete source documentation, the Department's audit assessment is reasonable and supported by the law and the IFTA Audit Manual procedures. Therefore, Taxpayer has not "established by a fair preponderance of the evidence that the assessment is erroneous or excessive." IFTA Articles of Agreement, § R1210.300 (2013).
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Taxpayer protests the imposition of IRP fees for the tax year 2010. The IRP is a program for registering commercial vehicles that operate within member jurisdictions, including Indiana. The Indiana Code permits Indiana to join the IRP agreement ("the Plan") via IC § 6-6-4.1-14 and IC § 9-28-4-6.
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Taxpayer operated "units" in Indiana and other states, but Taxpayer selected Indiana as its base jurisdiction, pursuant to Article IV of the Plan (2013). In conjunction with the IFTA audit, the Department conducted an IRP audit under the terms of Articles XV and XVI of the Plan (2013) and the International Registration Plan Audit Procedures Manual.

The Department selected 2010 as the registration year to audit, but the fourth quarter of 2009 was chosen as a replacement since Taxpayer's records in the first and second quarter of 2010 were destroyed. The Department determined that taxpayer owed additional IRP fees based upon the same documentation that was provided to calculate the IFTA assessment. Taxpayer had estimated mileage in several jurisdictions where actual travel was not reported as actual miles on the IRP Schedule B, and therefore mileage was converted to actual miles by the Department's auditor. If the jurisdiction was not reported at all, the auditor assessed prior fees that were owed.

§ 1005 of the Plan (2013) provides that:

(a) The Base Jurisdiction shall require a Registrant to preserve all Operational Records on which the Registrant's application for apportioned registration is based for a period of 3 years following the close of the Registration year to which the application pertains and to make these records available for examination by the Base Jurisdiction at its request.
(b) Records may be kept on microfilm, microfiche, or other computerized or condensed record storage system acceptable to the Base Jurisdiction. (Emphasis added).

§ 1010 of the Plan (2013) goes on to provide that:

The Base Jurisdiction may impose an assessment on a Registrant that fails to maintain records in accordance with the APM or that fails to provide records within 30 calendar days of the issuance of a written request by the Base Jurisdiction. Such an assessment shall be based on the Base Jurisdiction's estimate of the Registrant's true liability as determined from evidence furnished by the Registrant or available to the Base Jurisdiction from its own or other sources.

Taxpayer argues that he overpaid the Department when he obtained his plates. Taxpayer overestimated the mileage when he applied for plates from the Department. However, Taxpayer does not explain how the audit's adjustments of the estimated mileage were incorrect. Taxpayer similarly does not sufficiently explain how the auditor's review of the information from the GPS reports was incorrect, or provide any additional evidence to dispute the auditor's findings. It is Taxpayer's responsibility to maintain specific, detailed, and accurate information concerning its fuel purchases and jurisdiction miles. In the absence of complete source documentation, the Department's audit assessment is reasonable and supported by the law, and the Plan, and the Plan's Audit Procedures Manual. The taxpayer bears the burden of proving that any assessment is incorrect, and Taxpayer has failed to meet that burden. IC § 6-8.1-5-1(c); Lafayette Square Amoco, Inc. v. Indiana Dep't of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007).