-IR- Database Guide
-IR- Database: Indiana Register


Letter of Findings Number: 04-20110413
Use Tax
For Tax Years 2009-2010

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 It shall remain in effect until the date it is superseded or deleted by the publication of a new document in the Indiana Register.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. Use Tax–Exemptions.
Authority: IC § 6-2.5-2-1; IC § 6-2.5-3-2; IC § 6-2.5-5-25; IC § 6-2.5-8-8; IC § 6-8.1-5-1; 45 IAC 2.2-3-4; 45 IAC 2.2-8-12; 45 IAC 2.2-3-12; 45 IAC 2.2-3-15.
Taxpayer protests the imposition of use tax on certain purchases.
Taxpayer is an Indiana corporation engaged in the construction business. Taxpayer works as a contractor, generally working on tax-exempt projects such as university and high school facilities. After an audit, the Indiana Department of Revenue ("Department") determined that Taxpayer owed additional use tax on various purchases for the tax years 2009 and 2010. The Department found that Taxpayer has made taxable purchases that did not become part of the improvement to real estate. Also, Taxpayer did not have valid exemption certificates on file with respect to the purchases. Taxpayer protests portions of the Department's assessment arguing that the purchases relating to some insulation projects were tax exempt. An administrative hearing was conducted and this Letter of Findings results. Further facts will be provided as required.
I. Use Tax–Exemptions.
Taxpayer protests the Department's assessment of use tax on the grounds that certain items qualify for an exemption from use tax.
Pursuant to IC § 6-8.1-5-1(c), all tax assessments are presumed to be accurate, and the taxpayer bears the burden of proving that an assessment is incorrect.
IC § 6-2.5-2-1 provides:
(a) An excise tax, known as the state gross retail tax, is imposed on retail transactions made in Indiana.
(b) The person who acquires property in a retail transaction is liable for the tax on the transaction and, except as otherwise provided in this chapter, shall pay the tax to the retail merchant as a separate added amount to the consideration in the transaction. The retail merchant shall collect the tax as agent for the state.
IC § 6-2.5-3-2 states, in relevant part:
(a) An excise tax, known as the use tax, is imposed on the storage, use, or consumption of tangible personal property in Indiana if the property was acquired in a retail transaction, regardless of the location of that transaction or of the retail merchant making that transaction
(c) The use tax is imposed on the addition of tangible personal property to a structure or facility, if, after its addition, the property becomes part of the real estate on which the structure or facility is located. However, the use tax does not apply to additions of tangible personal property described in this subsection, if:
(1) the state gross retail or use tax has been previously imposed on the sale or use of that property; or
(2) the ultimate purchaser or recipient of that property would have been exempt from the state gross retail and use taxes if that purchaser or recipient had directly purchased the property from the supplier for addition to the structure or facility.
45 IAC 2.2-3-4 provides:
Tangible personal property, purchased in Indiana, or elsewhere in a retail transaction, and stored, used, or otherwise consumed in Indiana is subject to Indiana use tax for such property, unless the Indiana state gross retail tax has been collected at the point of purchase.
Next, IC § 6-2.5-5-25 states:
(a) Transactions involving tangible personal property or service are exempt from the state gross retail tax, if the person acquiring the property or service:
(1) is an organization described in section 21(b)(1) of this chapter;
(2) primarily uses the property or service to carry on or to raise money to carry on its not-for-profit purpose; and
(3) is not an organization operated predominantly for social purposes.
(b) Transactions occurring after December 31, 1976, and involving tangible personal property or service are exempt from the state gross retail tax, if the person acquiring the property or service:
(1) is a fraternity, sorority, or student cooperative housing organization described in section 21(b)(1)(A) of this chapter; and
(2) uses the property or service to carry on its ordinary and usual activities and operations as a fraternity, sorority, or student cooperative housing organization.
(Emphasis added).
Pursuant to IC § 6-2.5-8-8:
(a) 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.
(b) The following are the only persons authorized to issue exemption certificates:
(1) retail merchants, wholesalers, and manufacturers, who are registered with the department under this chapter;
(2) organizations which are exempt from the state gross retail tax under IC 6-2.5-5-21, IC 6-2.5-5-25, or IC 6-2.5-5-26 and which are registered with the department under this chapter; and
(3) other persons who are exempt from the state gross retail tax with respect to any part of their purchases.
(c) The department may also allow a person to issue a blanket exemption certificate to cover exempt purchases over a stated period of time. The department may impose conditions on the use of the blanket exemption certificate and restrictions on the kind or category of purchases that are exempt.
(Emphasis added).
In addition, 45 IAC 2.2-8-12 provides:
(a) Exemption certificates may be issued [sic.] only by purchasers authorized to issue such certificates by the Department of Revenue. Retail merchants, manufacturers, wholesalers and others who must register with the Department of Revenue and who qualify to purchase exempt from tax under this Act [IC 6-2.5] may issue exemption certificates with respect to exempt transactions. All persons or entities not required to register with the Department as retail merchants, manufacturers, or wholesalers, and who are exempt under this Act [IC 6-2.5] with respect to all or a portion of their purchases are authorized to issue exemption certificates with respect to exempt transaction provided an exemption number has been assigned by the Department of Revenue, or provided that the Department of Revenue has specifically provided a form and manner for issuing exemption certificates without the need for assigning an exemption number.
(b) Retail merchants are required to collect the sales and use tax on each sale which constitutes a retail transaction unless the merchant can establish that the item purchased will be used by the purchaser for an exempt purpose.
(c) All retail sales of tangible personal property for delivery in the state of Indiana shall be presumed to be subject to sales or use tax until the contrary is established. The burden of proof is on the buyer and also on the seller unless the seller receives an exemption certificate.
(d) 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. The mere filing of a Registered Retail Merchant Certificate number is not sufficient to relieve the seller of the responsibility to collect the sales tax or prove exempt use by the buyer.
(e) No exemption certificates are required for sales in interstate commerce, however, proper records must be maintained to substantiate such sales.
(f) An exemption certificate issued by a purchaser shall not be valid unless it is executed in the prescribed and approved form and unless all information requested on such form is completed.
(g) An exemption certificate or other evidence supporting an exempt sale must be maintained by the seller for at least three (3) years after the due date of the tax return upon which such exempt transaction is reported.
(h) Exemption certificates may be reproduced provided no change is made in the wording or content.
(Emphasis added).
45 IAC 2.2-3-12 states in relevant part:
(a) Tangible personal property purchased to become a part of an improvement to real estate under a contract with an organization entitled to exemption is eligible for exemption when purchased by the contractor.
(b) In order to be exempt on such purchases, the contractor must be registered as a retail merchant, must obtain an exemption certificate from the exempt organization, and must issue an exemption certificate to his supplier.
(c) Utilities, machinery, tools, forms, supplies, equipment, or any other items used or consumed by the contractor and which do not become a part of the improvement to real estate are not exempt regardless of the exempt status of the person for whom the contract is performed.
(Emphasis added).
45 IAC 2.2-3-15 further provides:
If any person who issues an exemption certificate in respect to the state gross retail tax or use tax and thereafter makes any use of the tangible personal property covered by such certificate, or in any way consumes, stores, or sells such tangible personal property, where such use, consumption, storage or sale is in a manner which is not permitted by such exemption, such use, consumption, or storage shall become subject to the use tax (or such sale shall become subject to the gross retail tax), and such person shall become liable for the tax or gross retail tax due thereon.
As provided by IC § 6-2.5-8-8(a), a seller accepting a valid exemption certificate has no duty to collect or remit the state gross retail or use tax on a purchase. However, Taxpayer did not accept valid exemption certificates from the organizations in question. Taxpayer also purchased items, such as tools, office supplies, and blue prints that were used for the daily operation of the business. Even though Taxpayer asserts that most of Taxpayer's work is for exempt organizations, any purchases that do not become part of the improvement to real estate are not exempt regardless of the exempt status of the organization pursuant to 45 IAC 2.2-3-12(c). Furthermore, Taxpayer purchased construction materials exempt for which there was no valid exemption certificates on file. Since Taxpayer failed to provide any evidence to support its protest, the Department properly assessed use tax on the purchases.
Taxpayer's protest is respectfully denied.

Posted: 02/29/2012 by Legislative Services Agency

DIN: 20120229-IR-045120086NRA
Composed: Jun 23,2018 12:23:41PM EDT
A PDF version of this document.