DEPARTMENT OF STATE REVENUE

04-20070161P.LOF

Letter of Findings Number: 07-0161P

Sales and Use Tax-Penalty

For the Years 2003-2005

ISSUE

Taxpayer protests the imposition of the ten percent negligence penalty.

STATEMENT OF FACTS

Taxpayer is a corporation doing business in Indiana. The Indiana Department of Revenue ("Department") audited Taxpayer for sales and use tax. As a result of the audit, the Department assessed additional tax, interest, and penalty. Taxpayer protested only the penalty.

The Department sent a letter to Taxpayer stating that Taxpayer could request a hearing by replying to the letter within twenty (20) days of the letter. Taxpayer did not reply to the Department's letter. Due to Taxpayer's failure to reply, this Letter of Findings is written based on the information in Taxpayer's protest file and other Department records relating to Taxpayer.

DISCUSSION

Taxpayer protests the imposition of the ten percent negligence penalty on Taxpayer's failure to self-assess use tax on a portion of its purchases.

Penalty waiver is permitted if the taxpayer shows that the failure to pay the full amount of the tax was due to reasonable cause and not due to willful neglect. IC § 6-8.1-10-2.1. The Indiana Administrative Code, 45 IAC 15-11-2 further provides:

(b) "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.

(c) 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.

Taxpayer raised various issues of what it maintained were not entirely clear legally. For instance, Taxpayer raised arguments regarding the taxability of software maintenance agreements, a fee denominated as a "royalty fee" for the use of certain entertainment themes that the Department determined was a lease of tangible personal property, and on the sale of food to employees. Taxpayer further argues that it otherwise acted with reasonable care on other issues which, coupled with what Taxpayer considers to be legally arguable issues, should permit the Department to waive the penalty assessment.

Taxpayer had been audited previously on many of the same issues upon which the Department assessed tax. Based on the prior audit assessment, Taxpayer did not act with reasonable care for the years in question. Therefore, Taxpayer's protest is denied.

FINDING

Taxpayer's protest is denied.

DIN: 20080702-IR-045080489NRA

Composed: May 03,2024 5:09:19PM EDT

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