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 This document is effective as of its date of publication and remains in effect until the date it is superseded by the publication of another document in the Indiana Register.

I. Tax Administration – Penalties.

Authority: IC § 6-8.1-5-1(c); IC § 6-8.1-10-2.1; Indiana Dep't of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463 (Ind. 2012); 45 IAC 15-11-2.

Taxpayer protests the imposition of ten percent negligence penalties.

Taxpayer is an Indiana automobile dealership. The Indiana Department of Revenue ("Department") audited Taxpayer for tax years 2010, 2011, and 2012. The Department issued proposed assessments for base tax, ten percent negligence penalties, and interest for tax years 2010 and 2011. Taxpayer protests the imposition of the penalties. An administrative hearing was held, and the following Letter of Findings results. Additional facts will be provided as required.

I. Tax Administration – Penalties.

The Department issued proposed assessments for base tax, penalties, and interest for the tax years 2010 and 2011. Taxpayer protests the imposition of the penalties. All tax assessments are prima facie evidence that the Department's claim for the tax is valid, and the taxpayer bears the burden of proving that any assessment is incorrect. IC § 6-8.1-5-1(c); Indiana Dep't of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012). The issue before the Department is whether Taxpayer met its burden to prove the Department's assessment is incorrect.

A taxpayer who receives a proposed assessment after an audit "is subject to a penalty." IC § 6-8.1-10-2.1(a). The Department shall waive the penalty if the taxpayer demonstrates that the failure to pay the outstanding taxes "was due to reasonable cause and not due to willful neglect." IC § 6-8.1-10-2.1(d); see also 45 IAC 15-11-2. The taxpayer may demonstrate reasonable cause by showing affirmatively that it used "ordinary business care and prudence" in not paying the outstanding taxes. However, the taxpayer's ignorance of Indiana's tax laws does not constitute reasonable cause. Whether a taxpayer demonstrates reasonable cause for penalty purposes is a fact-sensitive question and determined on a case-by-case basis. 45 IAC 15-11-2(b) and (c).

In this case, Taxpayer has demonstrated that it had a reasonable cause for its failure to pay the proper amount of sales tax in 2010. However, Taxpayer has not demonstrated that it had reasonable cause for its failure to pay the proper amount of use tax in 2011. Therefore, the penalty imposed for tax year 2010 is waived, but the penalty imposed for tax year 2011 is not waived. Taxpayer's protest is sustained in part and denied in part.

Taxpayer's protest is sustained in part and denied in part. The penalty imposed for tax year 2010 is waived, but the penalty imposed for tax year 2011 is not waived.