DEPARTMENT OF STATE REVENUE

04-20060487.LOF

Letter of Findings Number: 06-0487

Sales and Use Tax

For the Tax Period 2001 - 2005

ISSUES

The Taxpayer protests the assessment of sales tax.

The Taxpayer protests the imposition of the ten percent penalty.

STATEMENT OF FACTS

The Taxpayer operates a livestock supply business. The Indiana Department of Revenue, hereinafter referred to as the "Department," assessed additional sales tax, use tax, interest, and penalty for the tax period 2001-2005. The Taxpayer protested the assessment of sales tax and penalty. A hearing was held and this Letter of Findings results.

DISCUSSION

The Taxpayer sold supplies to be used by customers in livestock shows. The Taxpayer did not collect sales tax or valid exemption certificates on many of the sales. The Department assessed sales tax on these sales. The Taxpayer protested these assessments.

All tax assessments are presumed to be valid. IC § 6-8.1-5-1(b). The Taxpayer bears the burden of proving that any assessment is incorrect. Id.

IC § 6-2.5-2-1(a) imposes sales tax on retail transactions made in Indiana. A "retail transaction" is defined at IC § 6-2.5-1-2 as "selling at retail" as defined at IC § 6-2.5-4-1, or the transfer of tangible personal property for consideration in the retail merchant's regular course of business. There are statutory exemptions for several types of transactions.

IC § 6-2.5-8-8(a) provides for exemption certificates from sales tax in pertinent part as follows:

A person, authorized under subsection (b), who makes a purchase in a transaction which is exempt from the state gross retail and use taxes, may issue an exemption certificate to the seller instead of paying the tax. The person shall issue the certificate on forms and in the manner prescribed by the department. 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.

45 IAC 2.2-8-12(d) clarifies the law concerning exemption certificates in pertinent part as follows:

Unless the seller receives a properly completed exemption certificate the merchant must prove that sales tax was collected and remitted to the state or that the purchaser actually used the item for an exempt purpose. It is, therefore, very important to the seller to obtain an exemption certificate in order to avoid the necessity for such proof....

Pursuant to the statute and explanatory regulation, the production of a valid exemption certificate exempts the merchant from the duty of collecting and remitting sales tax. Without a valid exemption certificate, the burden shifts back to the merchant to prove that the sales were not actually subject to sales tax. The taxpayer provided valid exemption certificates for several of the transactions on which the Department assessed sales tax. The Taxpayer had no duty to collect and remit sales tax on these transactions.

FINDING

The Taxpayer's protest is sustained as to the transactions for which the Taxpayer provided exemption certificates. The Taxpayer's protest to the remaining assessments of sales tax is respectfully denied.

DISCUSSION

The Taxpayer protests the imposition of the ten percent negligence penalty pursuant to IC § 6-8.1-10-2.1. Indiana Regulation 45 IAC 15-11-2(b) clarifies the standard for the imposition of the negligence penalty as follows:

Negligence, on behalf of a taxpayer is defined as the failure to use such reasonable care, caution, or diligence as would be expected of an ordinary reasonable taxpayer. Negligence would result from a taxpayer's carelessness, thoughtlessness, disregard or inattention to duties placed upon the taxpayer by the Indiana Code or department regulations. Ignorance of the listed tax laws, rules and/or regulations is treated as negligence. Further, failure to read and follow instructions provided by the department is treated as negligence. Negligence shall be determined on a case by case basis according to the facts and circumstances of each taxpayer.

The standard for waiving the negligence penalty is given at 45 IAC 15-11-2(c) as follows:

The department shall waive the negligence penalty imposed under IC 6-8.1-10-1 if the taxpayer affirmatively establishes that the failure to file a return, pay the full amount of tax due, timely remit tax held in trust, or pay a deficiency was due to reasonable cause and not due to negligence. In order to establish reasonable cause, the taxpayer must demonstrate that it exercised ordinary business care and prudence in carrying out or failing to carry out a duty giving rise to the penalty imposed under this section. Factors which may be considered in determining reasonable cause include, but are not limited to:

(1) the nature of the tax involved;

(2) judicial precedents set by Indiana courts;

(3) judicial precedents established in jurisdictions outside Indiana;

(4) published department instructions, information bulletins, letters of findings, rulings, letters of advice, etc;

(5) previous audits or letters of findings concerning the issue and taxpayer involved in the penalty assessment.

Reasonable cause is a fact sensitive question and thus will be dealt with according to the particular facts and circumstances of each case.

The Taxpayer provided substantial documentation to indicate that its failure to pay the assessed sales tax was due to reasonable cause rather than negligence.

FINDING

The Taxpayer's protest to the imposition of the penalty is sustained.

DIN: 20071031-IR-045070698NRA

Composed: May 07,2024 3:57:40AM EDT

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