DEPARTMENT OF STATE REVENUE

0420060276.LOF

Letter of Findings Number: 06-0276

Sales and Use Tax

For the Tax Period 2005

ISSUE

The taxpayer protests the assessments of use tax on two airplanes.

STATEMENT OF FACTS

The Taxpayer is a corporation which bought two airplanes in 2005. The Indiana Department of Revenue, hereinafter referred to as the "Department," assessed Indiana use tax, interest, and penalty. The Taxpayer protested the assessment of use tax. A hearing was held and this Letter of Findings results.

DISCUSSION

All tax assessments are presumed to be accurate. IC § 6-8.1-5-1(b). The Taxpayer bears the burden of proving that any assessment is incorrect. Id. Exemption statutes are to be strictly construed against the Taxpayer. Indiana Dept. of State Revenue v. Interstate Warehousing, 783 N.E. 2d 248 (Ind. 2003).

Indiana imposes a sales tax on the transfer of tangible personal property in a retail transaction. IC § 6-2.5-2-1. Indiana also imposes a complementary excise tax, the use tax, on tangible personal property purchased in a retail transaction and stored, used, or consumed in Indiana. IC § 6-2.5-3-2(a). Payment of sales tax at the time of purchase exempts the use of tangible personal property from the use tax. IC § 6-2.5-2(c)(1).

IC § 6-6-6.5-8(d) provides for the payment of sales or use tax on an airplane as follows:

A person shall pay the gross retail tax or use tax to the department on the earlier of:

(1) The time the aircraft is registered; or

(2) not later than thirty-one (31) days after the purchase date;

unless the person presents proof to the department that the gross retail tax or use tax has already been paid with respect to the purchase of the aircraft or proof that the taxes are inapplicable because of an exemption.

The Taxpayer contended that the use of the airplanes qualified for exemption so it did not pay the sales or use tax at the time of purchase. The Taxpayer based its claim for exemption on the following provisions of IC § 6-2.5-5-8 which state as follows:

The law concerning the exemption for rental to others is further explained at 45 IAC 2.2-5-15 as follows:

(a) The state gross retail tax shall not apply to sales of any tangible personal property to a purchaser who purchases the same for the purpose of reselling, renting or leasing, in the regular course of the purchaser's business, such tangible personal property in the form in which it is sold to such purchaser. [Emphasis added]

(b) General rule. Sales of tangible personal property for resale, renting or leasing are exempt from tax if all of the following conditions are satisfied:

(1) The tangible personal property is sold to a purchaser who purchases this property to resell, rent or lease it;

(2) The purchaser is occupationally engaged in reselling, renting or leasing such property in the regular course of his business; and

(3) The property is resold, rented or leased in the same form in which it was purchased.

(c) Application of general rule.

(1) The tangible personal property must be sold to a purchaser who makes the purchase with the intention of reselling, renting or leasing the property. This exemption does not apply to purchasers who intend to consume or use the property or add value to the property through the rendition of services or value to the property through the rendition of services or performance of work with respect to such property.

(2) The purchaser must be occupationally engaged in reselling, renting or leasing such property in the regular course of his business. Occasional sales and sales by servicemen in the course of rendering services shall be conclusive evidence that the purchaser is not occupationally engaged in reselling the purchased property in the regular course of his business.

(3) The property must be resold, rented or leased in the same form in which it was purchased.

The Taxpayer stated that it was in the business of renting the aircraft and therefore qualified for the sales and use tax rental exemptions on the airplanes. This exemption requires compliance with three elements. One of these requirements is that the Taxpayer must be engaged in the reselling, renting, or leasing of such property in its regular course of business. The Taxpayer rented each of the airplanes to related corporations. Both the Taxpayer and the related corporations had the same key people. Essentially, the key people rented the aircraft to themselves. The Department is unable to agree that this arrangement constitutes an arms length transaction.

The rental rates charged pursuant to the original 2005 leases were below the fair market rental rate of comparable airplanes available to the public. Also, the Taxpayer did not collect and remit any sales tax during 2005 and most of 2006. Rather, on October 19, 2006, the Taxpayer filed the sales tax returns and remitted the sales tax due for all of 2005 and through September 2006. The Department assumes that if the Taxpayer had run its operations as a rental business, it would have collected and remitted sales taxes in a regular and timely manner instead of waiting until the Department issued a Notice of Proposed Assessment for use tax. The Taxpayer's operation of the airplanes does not satisfy the requirement that the airplanes be rented in the regular course of the taxpayer's business. Based upon the evidence presented, the Department is unable to conclude that the Taxpayer was "occupationally engaged in reselling, renting or leasing such property in the regular course of his business." 45 IAC 2.2-5-15(b)(2).

FINDING

The taxpayer's protest to the assessment of use tax on its airplanes is respectfully denied.

DIN: 20070418-IR-045070221NRA

Composed: May 05,2024 10:24:44AM EDT

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