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-IR- Database: Indiana Register


Letter of Findings Number: 04-20110147P
Tax Administration
For Tax Year 2007-09

NOTICE: Under IC § 4-22-7-7, this document is required to be published in the Indiana Register and is effective on its date of publication. It shall remain in effect until the date it is superseded or deleted by the publication of a new document in the Indiana Register. The publication of this document will provide the general public with information about the Department's official position concerning a specific issue.
I. Tax Administration–Penalty.
Authority: IC § 6-8.1-10-2.1; 45 IAC 15-11-2.
Taxpayer protests the imposition of a ten percent penalty.
Taxpayer is an Indiana corporation. As the result of an audit, the Indiana Department of Revenue ("Department") determined that Taxpayer had not paid sales tax on purchases which were subject to sales tax. The Department therefore issued proposed assessments for Indiana use tax, ten percent negligence penalties, and interest for the tax years 2007, 2008, and 2009. Taxpayer protested the imposition of some of the use tax and all of the negligence penalties. Prior to the administrative hearing, Taxpayer and the Department were able to resolve most of the use tax items and Taxpayer is now only protesting the imposition of penalties. An administrative hearing was held and this letter of findings results. Further facts will be supplied as required.
I. Tax Administration–Penalty.
The Department issued proposed assessment for penalties on underpayment of sales and/or use tax for the tax years 2007-09. Taxpayer protests the imposition of penalties and requests a waiver of that penalty. Taxpayer states that the materials it purchases for its business must be ordered from several states outside of Indiana. Between the various taxing regimes of the different states and the invoicing methods of its vendors, Taxpayer believes that it acted reasonably in its efforts to comply with Indiana's sales/use tax requirements. Taxpayer provided substantial documentation and analysis in support of its position.
The Department refers to IC § 6-8.1-10-2.1, which states in relevant parts:
If a person:
. . .
(3) incurs, upon examination by the department, a deficiency that is due to negligence;. . .
the person is subject to a penalty.
(d) If a person subject to the penalty imposed under this section can show that the failure to file a return, pay the full amount of tax shown on the person's return, timely remit tax held in trust, or pay the deficiency determined by the department was due to reasonable cause and not due to willful neglect, the department shall waive the penalty.
(Emphasis added).
Next, the Department refers to 45 IAC 15-11-2(b), which states:
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.
(Emphasis added).
Finally, 45 IAC 15-11-2(c) provides in pertinent part:
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.
(Emphasis added).
In this case, Taxpayer failed to pay Indiana use tax on several purchases upon which no sales tax was paid in any state. The Department considered this to constitute negligence and so imposed penalties under IC § 6-8.1-10-2.1(a). Taxpayer has affirmatively established that it acted reasonably in its efforts to comply with Indiana's sales and use tax requirements, as required by 45 IAC 15-11-2(c). The negligence penalties will be waived.
Taxpayer's protest is sustained.

Posted: 11/30/2011 by Legislative Services Agency

DIN: 20111130-IR-045110700NRA
Composed: Apr 26,2018 3:32:02PM EDT
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