Taxpayer, an Indiana company, offers 24-hour emergency care and also specialized diagnostics and surgical procedures for animals. Taxpayer, however, does not offer routine veterinary care.
In April 2013, the Indiana Department of Revenue ("Department") audited Taxpayer's business records for the tax years 2010 and 2011. Pursuant to the audit, the Department determined that Taxpayer purchased certain tangible personal property to be used in the course of its business without paying sales tax or self-assessing use tax. As a result, the Department assessed additional use tax and interest. Nonetheless, the Department's audit waived the negligence penalty.
The Department's audit assessed use tax on tangible personal property, including "magnet postcards," "business cards," "brochures," "frisbees," "invitations and envelopes," "folders," "[T-]shirts", and "x-mas tree connect," "syringe set," "test kits," "sealing caps," "shoe covers," "gloves," "tongue[s]," "needles," and "bandages," which Taxpayer purchased and used for its veterinary care business. Taxpayer, to the contrary, claimed that it was not responsible for the sales/use tax.
Taxpayer claimed that it was not responsible for the sales/use tax on items that it purchased from Vendor A, including magnet postcards, business cards, brochures, Frisbees, invitations and envelopes, folders, and T shirts.
Upon review, however, Taxpayer's reliance on Information Bulletin 14 and Information Bulletin 54 is misplaced. First, when an agent purchases tangible personal property in behalf of its client, the principal, the agent should pay the sales tax and only recoup the same amount from its client. Taxpayer's documentation demonstrated otherwise. Taxpayer's documentation showed that it paid Vendor A for various items, which the tangible personal property was ultimately transferred to Taxpayer or Taxpayer's designated recipients. When Vendor A engaged in the third party printers to produce the tangible personal property that contained Taxpayer's information or logo, the third party printers billed Vendor A. However, Taxpayer's documentation further showed that Vendor A charged Taxpayer additional mark-ups in addition to its incurred costs as opposed to mere reimbursement when it billed Taxpayer. Therefore, in this instance, Vendor A was a retail merchant who transferred tangible personal property to Taxpayer for a consideration. Thus, pursuant to the above mentioned statutes and regulations, Taxpayer's purchases were subject to sales/use tax. Since Taxpayer did not pay sales tax, use tax is properly imposed.
Taxpayer also erred in arguing that Vendor A was responsible for the tax because Vendor A was the customer who engaged the mass mailing companies and printers. In this instance, Vendor A was not audited and its business records were not being examined. Thus, whether Vendor A was responsible for the sales/use tax on items it purchased is irrelevant and beyond the scope of Taxpayer's protest.
In short, Vendor A was a retail merchant when it charged Taxpayer mark-ups on the tangible personal property it transferred to Taxpayer for consideration. Taxpayer's purchases were subject to sales/use tax. Since Taxpayer did not pay sales tax, use tax is properly imposed.
Taxpayer claimed that it was not responsible for the sales/use tax on various supplies, including "[c]atheters, syringes, IV lines, infusion tubes, blood bags, cross match kits," and "food" that it purchased from several vendors at issue because its purchases were exempt.
Taxpayer, in this instance, asserted that it "is an emergency referral veterinary hospital; [and does] not normally examine healthy animals for routine services." Thus, Taxpayer claimed that "all medications are a medical necessity, including but not limited to food, blood and medications." Referencing the Department's Revenue Ruling ST 98-07 (July 24, 1998), Taxpayer further argued that it was not responsible for the sales/use tax on its purchases of "[c]atheters, syringes, IV lines, infusion tubes, blood bags, cross match kits, etc. [because] all [of them were used to] either administer or contain prescription, medication, blood, plasma, etc."
Upon review, however, the Department is not able to agree. Taxpayer referenced Revenue Ruling ST 98-07, which was published in 1998–more than a decade ago, and is not applicable in this case. First, in 2003, the Indiana General Assembly amended IC § 6-2.5-5-19, which only exempts "drugs, insulin, oxygen, blood, and blood plasma" when the licensed practitioner "buys the items for: (A) direct consumption in his practice; or (B) resale to a patient that the practitioner is treating, in the case of sales of legend or nonlegend drugs."IC 6-2.5-5-19 (f). The legislators chose not to exempt tangible personal property, such as "catheters, syringes, IV lines, infusion tubes, blood bags, cross match kits" used by licensed practitioners. Second, the Department updated the same Information Bulletin 48A in February 2010, replacing the September 1989 version. Thus, Taxpayer's reliance on the 1998 ruling is misplaced.
There is no dispute as to whether Taxpayer is a licensed practitioner that provides medical treatments to patients. However, "all purchases of tangible personal property by a licensed practitioner are subject to sales tax," unless the items meet the definitions of the "certain drugs, vaccines, insulin, oxygen, blood, or blood plasma." Information Bulletin 48A. As mentioned earlier, a statute which provides a tax exemption is strictly construed against the taxpayer. RCA Corp., 310 N.E.2d at 97. "[W]here such an exemption is claimed, the party claiming the same must show a case, by sufficient evidence, which is clearly within the exact letter of the law." Id. at 101 (internal citations omitted). Thus, Taxpayer's purchases of medical supplies, including catheters, syringes, IV lines, infusion tubes, blood bags, cross match kits, were not exempt. Since sales tax was not paid at the time of the purchases, use tax is properly imposed.
Taxpayer claimed that it purchased "food" from two (2) veterinary suppliers, Vendor C and Vendor W, and should be removed from the audit assessment because the Department's field auditor agreed that those purchases qualified for "[p]rescription diets, including those diets necessary to correct or alleviate a particular medical condition, are not taxable," under Information Bulletin 48A. Nonetheless, in the process of finalizing the audit report, Taxpayer asserted that some purchases were overlooked and remained in the audit, resulting in additional tax on the items at issue.
After a review of the Department's audit report, it is clear that the Department did not assess tax on Taxpayer's purchases from Vendor C. Thus, the issue is moot. As to Taxpayer's purchases from Vendor W, the Department's Audit Division is instructed to remove from the assessment any purchases that qualify for prescription diet, if any.
In short, Taxpayer's purchases from Vendor A and its purchases of medical supplies from various vendors were not exempt. Since Taxpayer did not pay sales tax at the time of its purchases, use tax is properly imposed. As to Taxpayer's purchases from Vender W, the Department's Audit Division is instructed to remove from the assessment any purchases that qualify for prescription diet, if any.
