NOTICE: IC § 6-8.1-3-3.5 and IC § 4-22-7-7 require the publication of this document in the Indiana Register. This document provides the general public with information about the Department's official position concerning a specific set of facts and issues. This document is effective as of its date of publication and remains in effect until the date it is suspended by the publication of another document in the Indiana Register.

I. Use Tax – "Like-Kind Exchange."

Authority: IC § 6-2.5-1-6; IC § 6-2.5-2-1; IC § 6-2.5-3-2; IC § 6-8.1-5-1; 45 IAC 2.2-3-4; 45 IAC 2.2-1-1; Sales Tax Information Bulletin 28S (December 2009) and (September 2011).

Taxpayer protests the imposition of use tax on a "like-kind exchange."

II. Use Tax – Materials Used in Landfill "Cell" Construction.

Authority: IC § 6-2.5-4-9; IC § 6-8.1-5-1; 45 IAC 2.2-3-9; 45 IAC 2.2-3-8.

Taxpayer protests the imposition of use tax on "cell" construction materials.

Taxpayer is an Indiana landfill. The Indiana Department of Revenue ("Department") audited Taxpayer for sales and use tax compliance for the years 2010 and 2011. As the result of the audit, the Department assessed Taxpayer additional use tax and related interest on certain items it had purchased without paying sales tax at the point of purchase. Taxpayer protested some of the items on which the Department assessed use tax on the basis that items were either exempt from tax or the tax had already been paid. An administrative hearing was held, and this Letter of Findings results. Further facts will be supplied as necessary.

I. Use Tax – "Like-Kind Exchange."

In 2011, Taxpayer purchased a CAT 740 articulated dump truck for a combination of a cash down payment and an equipment trade. After reviewing the three pieces of equipment traded in for the purchase of the "articulated dump truck," (a CAT grinder and two CAT 627s) the Department's auditor denied the deduction for the trade-ins "due to the fact that it was not a like- kind exchange." Taxpayer agreed that one of the three items, the CAT grinder, did not qualify for the "like-kind" exchange, but disagreed with the Department's treatment of the two CAT 627s. The Department's Audit Summary stated that "the [T]axpayer traded in scrappers and road graders on the purchase of a dump truck" and "[n]either a road grader nor a scraper qualifies as a dump truck" and cited to IC § 6-2.5-1-6 and 45 IAC 2.2-3-20 in support of its finding.

Taxpayer protests that the equipment it traded in as part of its purchase of the CAT 740 qualifies as a "like-kind exchange" and is therefore exempt from sales tax and use. The Department notes that the burden of proving a proposed assessment wrong rests with the person against whom the proposed assessments are made, as provided by IC § 6-8.1-5-1(c).

The sales tax is imposed by IC § 6-2.5-2-1, which states:

The use tax is imposed under IC § 6-2.5-3-2(a), which states:

Also, 45 IAC 2.2-3-4 provides:

Therefore, when tangible personal property is acquired in a retail transaction and is stored, used, or consumed in Indiana, Indiana use tax is due if sales tax has not been paid at the point of purchase. The Department determined that Taxpayer had not paid sales tax on the portion of the full price of the CAT 740 because an amount was deducted from the sale price based on the value of the two CAT 627s, therefore the Department imposed Indiana use tax on that amount.

Also of relevance is IC § 6-2.5-1-6, which provides:

(Emphasis added).

Taxpayer argues that the exchange should be considered a "like-kind exchange and therefore deductible from the taxable sales price," because "both assets are motorized vehicles used to transport dirt during the operation of the landfill." At the hearing Taxpayer elaborated that both types of vehicles have similar large rubber tires (presumably indicating the function of the vehicles), are of articulated construction (which Taxpayer explained means they pivot independently off the bed) and are used to move dirt at the landfill. According to Taxpayer the CAT 627 scrapers have a pan that drops down to scrape the dirt and the CAT 740 is loaded with an excavator.

Sales Tax Information Bulletin 28S (December 2009), 20100127 Ind. Reg. 045100029NRA), and Sales Tax Information Bulletin 28S (September 28, 2011), 20110928 Ind. Reg. 045110549NRA, the versions of the Information Bulletin 28S in effect during the audit years, provided that:

As the regulation states and the Information Bulletin elaborates, the property must be "of the same kind or character." For instance, as the Information Bulletin quoted above illustrates, a non-motorized trailer does not qualify for a "like-kind exchange" with a motorized vehicle. In this instance, Taxpayer has met its burden to show that the CAT 627s qualify for "like-kind" exchange with the CAT 740 because both these types of vehicles were used for similar purposes at Taxpayer's landfill. Landfill industry literature points to the fact that in recent years "articulated dump trucks" have replaced "scrapers" to perform similar functions (name of website, http://www.mswmanagement.com/ MSW/Articles/3751.aspx?format=2, last accessed April 16, 2014). For purposes of the "like-kind exchange" deduction in the taxable retail price of an item, the item does not have to be exactly the same as the item being traded-in, as long as the item being replaced and the item being traded in are generally of the same kind or character.

Based on the above, Taxpayer has met its burden to show that the Department's imposition of use tax on the exchange of the CAT 627s for the CAT 740 was incorrect.

Taxpayer's protest to the imposition of sales tax on the "like-kind exchange" is sustained.

II. Use Tax – Materials Used in Landfill "Cell" Construction.

The Department's audit assessed use tax on materials used to build a "cell" at Taxpayer's landfill. According to the Department's Audit Summary, "cells" are the areas that landfills build for the disposal of trash. Materials used in the construction of Taxpayer's "cell" included Geotextile liners, pipes, pumps, discharge kits, etc. The Department's Audit determined Taxpayer did not remit sales tax or use tax on these items and therefore assessed use tax based on the retail price of the items. During the audit, Taxpayer stated that these items were purchased pursuant to a lump-sum contract and that the contractor had presumably already paid sales tax on the items when the contractor purchased them for Taxpayer's cell construction project. Taxpayer therefore protested the assessment of use tax on construction materials consumed in a lump-sum contract by its subcontractor.

According to the Department's Audit Summary:

As a threshold issue, although a statute that imposes a tax is strictly construed against the State, all tax assessments are prima facie evidence that the Department's claim for the unpaid tax is valid and the taxpayer bears the burden of proving that any assessment is incorrect. IC § 6-8.1-5-1(c).

Pursuant to IC § 6-2.5-4-9(a):

(Emphasis added).

Taxpayer asserts that it hired a subcontractor to perform its construction work on a lump-sum basis. Taxpayer mentions that the contractor purchased the construction materials from a vendor to incorporate into real property as part of the lump-sum contract. The invoices Taxpayer presented during the audit and again at the hearing list charges for materials and labor separately. There is no indication on those invoices that sales tax was charged to Taxpayer by the contractor/vendor. Taxpayer did not provide any additional documentation showing that the contractor paid sales tax itself on those items or showing that the contractor remitted use tax to the Department on those items.

Therefore, Taxpayer has not provided sufficient evidence to establish that the construction materials it purchased were not subject to sales and use tax. Taxpayer has not met the burden imposed by IC § 6-8.1-5-1(c).

Taxpayer's protest is respectfully denied.

Taxpayer's protest of the imposition of use tax is sustained in part and denied in part. Taxpayer's protest of the imposition of use tax on the "like-kind" exchange of the two CAT 627s is sustained in part as detailed in Issue I. Taxpayer's protest to the imposition of use tax on the materials used in the construction of its "cell" is denied as detailed in Issue II.