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 This document is effective on its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.

I. Gross Retail Tax – Diesel Fuel Sales.

Authority: IC § 6-2.5-2-1; IC § 6-2.5-7-3(b); IC § 6-2.5-8-8; IC § 6-2.5-8-8(a); IC § 6-2.5-8-8(d); IC § 6-2.5-9-3; IC § 6-8.1-5-1(b), (c); Lafayette Square Amoco, Inc. v. Indiana Dep't of Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); 45 IAC 2.2-8-8(d); 45 IAC 2.2-8-12; 45 IAC 2.2-8-12(e); 45 IAC § 2.2-8-12(f).

Taxpayer argues that it was not required to collect sales tax from customers who purchased diesel fuel on the ground that the customers were engaged in interstate commerce.

II. Constitutional Due Process – Sales Tax Assessments.

Authority: U.S. Const. amend. V; U.S. Const. amend. XIV; IC § 6-8.1-5-1(c); Sales Tax Information Bulletin 15 (August 2009); John E. Nowak & Ronald D. Rotunda, Constitutional Law (5^th ed. 1995).

Taxpayer maintains that the sales tax assessment violates its constitutional due process rights.

III. Fraud Penalty.

Authority: IC § 6-8.1-10-4; 45 IAC 15-5-7; 45 IAC 15-11-4.

Taxpayer challenges the Department of Revenue's decision imposing a 100 percent fraud penalty stemming from Taxpayer's purported failure to collect tax on the sale of diesel fuel.

I. Gross Retail Tax – Diesel Fuel Sales.

Taxpayer sells diesel fuel maintaining four pumps which dispense diesel fuel without including sales tax in the price charged. These four pumps are marked "Trucks Only" and – according to the audit report – were "intended for exempt truck use only." The Department's audit reviewed transactions which occurred at these four pumps.

During the audit, Taxpayer was provided an opportunity to locate and provide customer exemption certificates. The report noted that "[T]axpayer did provide a large quantity of exemption certificates . . . ." However, the audit found that many of the certificates could not be accepted for the following reasons.

As authority for rejecting certain of the certificates, the audit cited to 45 IAC § 2.2-8-12(f) which states:

In addition, the audit cited to IC § 6-2.5-8-8(d) which provides:

For those transactions in which no properly prepared exemption certificate was provided, the audit assessed Taxpayer for the uncollected sales tax. However audit also determined that "[a]ll exemption certificates which were valid were accepted and those customers removed from the taxable sales."

The Department notes that all tax assessments are presumed to be accurate and the taxpayer bears the burden of proving that any assessment is incorrect. IC § 6-8.1-5-1(b), (c); Lafayette Square Amoco, Inc. v. Indiana Dep't of Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007).

Indiana imposes sales tax under IC § 6-2.5-2-1, which states:

Most relevant in this case, is that in the absence of valid exemption certificates, 45 IAC 2.2-8-8(d) makes it clear that Taxpayer bears the burden of proving that sales tax was remitted to the state or that Taxpayer's customers did indeed use the diesel fuel for exempt purpose.

IC § 6-2.5-7-3(c) specifically requires retail merchants who sell special fuel from metered pumps – such as Taxpayer and other diesel fuel vendors – to collect and retain exemption certificates from customers when those customers makes exempt purchases. In the absence of a properly executed exemption certificates, the sales are deemed taxable:

The language of IC § 6-2.5-7-3(b) is unequivocal in its requirement that Taxpayer collect exemption certificates for its exempt sales of special fuels such as diesel fuel.

IC § 6-2.5-8-8 contains provisions governing exempt transactions and the vendors responsibility to collect or pay the tax:

Under 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. As provided by 45 IAC 2.2-8-12(f), an exemption certificate issued by a purchaser is not valid unless it is executed in the prescribed and approved form and unless all information requested on the form is completed.

IC § 6-2.5-9-3 imposes individual personal financial responsibility and criminal liability on persons who failed to collect or remit sales tax.

However, Taxpayer argues that certain of its customers "have com-data, TCH, T-Check, EFS, or Fleet One cards" which these customers use at one of its four designated exempt diesel pumps. Taxpayer believes that use of one of these cards is sufficient to establish that the customer is engaged in interstate commerce and that the transactions are therefore presumptively exempt from sales tax because the customers possess a Department of Transportation ("DOT") number.

The Department finds no support for this argument; it is entirely possible that some of these card customers are exempt from sales tax and it is equally possible that some of these card customers are not exempt hence the requirement that customers provide the requisite exemption certificate. The nature of these cards makes them inherently unreliable for purposes of establishing the tax burden and they are not a substitute for properly completed exemption certificates.

The law on this issue is straightforward. Even if, as Taxpayer argues, the sales occur in interstate commerce, 45 IAC 2.2-8-12(e) requires that "proper records must be maintained to substantiate such sales." "Unless the exemption certificate is provided, the retail merchant shall collect the state gross retail tax prescribed in this section even if the transaction is exempt from taxation under IC 6-2.5-5." IC § 6-2.5-7-3(b).

Taxpayer failed to collect properly completed exemption certificates and is now responsible for the uncollected sales tax. Taxpayer has provided no coherent argument that it should not now be responsible for paying the tax as required under Indiana law.

Taxpayer's protest is denied.

II. Constitutional Due Process – Sales Tax Assessments.

Taxpayer believes that his constitutional guarantee of due process was given short shrift by the Department during this audit. Taxpayer states that "[t]he Department's inconsistent, incoherent and erroneous guidance on the application of the statute violates the [T]axpayer's due process rights under the federal and state constitutions."

Both the Fifth and Fourteenth Amendments prohibit governmental actions which would deprive "any person of life, liberty or property without due process of law." U.S. Const. amend. V; U.S. Const. amend. XIV. "The essential guarantee of the due process clause is that of fairness. The procedure must be fundamentally fair to the individual in the resolution of the factual and legal basis for government actions which deprive him of life, liberty or property." John E. Nowak & Ronald D. Rotunda, Constitutional Law p. 561 (5^th ed. 1995).

Taxpayer argues that it was not provided the opportunity to examine the audit "workpapers." To the contrary, the Department concludes that during the pendency of the audit – which began February 2013 and concluded October 2013 – the audit provided Taxpayer and its representative at the time numerous opportunities to discuss the progress of the audit, to provide additional documentation as requested, to meet directly with the Department's representatives, to review the audit workpapers, and to ask any questions which Taxpayer's representatives might have. In addition, once the protest was filed, it was not the responsibility of the Department to supply Taxpayer with detailed information or to establish that the assessment was correct. Once assessed, it is Taxpayer's statutory responsibility to establish that the assessment was wrong. IC § 6-8.1-5-1(c).

Taxpayer also maintains that the Department has provided conflicting guidance concerning the exemption certificates it was required to obtain from its customers. Taxpayer states that it has been told on various occasions to accept the ST-105 and/or the ST-135 and that "the rules in effect for the prior audit were different from those in place for the years under audit, and it was the Department which grossly erred in the prior audit." (Emphasis added). Taxpayer cites as an example Sales Tax Information Bulletin 15 (August 2009), 20090930 Ind. Reg. 045090753NRA, which provides "Exemption certificate Form ST-105 is normally used to certify exempt use." According to Taxpayer, "Contrary to this rule, the Department has issued Form ST-105 which is a separate tax return/form to be used for these sales."

The Department's form ST-105 is designated as a "General Sales Tax Exemption Certificate" while the ST-135 is labeled as a "Sales and Use Tax Exemption Certificate" for "persons engaged in public transportation." Taxpayer correctly notes that it collected both forms ST-105 and forms ST-135. However, whatever confusion may have been caused by the publication of the two exemption certificates, the audit accepted both properly completed forms and specifically notes in the audit report that, "In the future the [T]axpayer needs to obtain the correct certificate which would be either the ST-135 or the ST-105 General Sales Tax Exemption which also has a public transportation exemption available." (Emphasis added).

The Department finds nothing "fundamentally unfair" about the audit and that throughout the process the Taxpayer was provided a full and fair opportunity to participate in and contribute to the audit. Further, the Department finds nothing inherently prejudicial or unfair about allowing the Taxpayer to provide either a properly completed form ST-103 or properly completed ST-135. Whatever confusion Taxpayer may have experienced does not rise to the level of a constitutional injury.

Taxpayer makes a more serious accusation. Taxpayer claims that the assessment of tax is based on racial bias because Taxpayer "is owned and operated by persons of color," that all the "Department's personnel involved are Caucasian," and because the Department's dealings with Taxpayer have "been very aggressive and vindictive."

The sale of diesel fuel and the requirement to collect sales tax or properly completed exemption certificates has no ethnic or racial component and there is nothing in the disputed assessment which suggests otherwise. On issues related to the imposition of state sales tax, the collection and retention of properly completed exemption certificates, and the sale of diesel fuel, Taxpayer has failed to identify any statements or action which suggest any racial or ethnic prejudice whatsoever.

Taxpayer's protest is denied.

III. Fraud Penalty.

Along with challenging the propriety of the underlying assessments, Taxpayer also challenges the decision by the Department to invoke the fraud penalty.

The fraud penalty is found at IC § 6-8.1-10-4, which states:

The rule is restated in the Department's regulation at 45 IAC 15-11-4 which states:

(Emphasis added).

Assuming for the moment that the proposed assessment of sales tax was correct, the issue is whether the assessment of the fraud penalty was also correct.

The Department concludes that: (1) Taxpayer misrepresented a "material fact" because it "did not truthfully and correctly report all information required by the Indiana Code and the department's regulations." (2) Taxpayer possessed the requisite "scienter" because it had the necessary "knowledge or previous knowledge of a state of facts." The pending audit assessment is now the second audit during which Taxpayer failed to collect sales tax on the sale of diesel fuel. This first audit was issued February 2010 and a supplemental audit was issued October 2011. This is now the second time in which Taxpayer's protest was heard and addressed after Taxpayer was specifically cautioned that it was required to either collect sales tax on the sale of diesel fuel or to obtain properly completed exemption certificates. (3) Taxpayer practiced deception when it represented as exempt those sales of diesel fuel which were clearly not exempt. For example, the blind acceptance of an exemption certificate purportedly signed by President Obama is a clear misrepresentation of a material fact. (4) The Department relied on Taxpayer's good faith and reasonable business practices in collecting sales tax on the sale of millions of dollars of diesel fuel. (5) The Department of Revenue – and more importantly, the citizens of this state – were "injured" because Taxpayer's multiple errors and omissions "caused the department not to have collected the money which properly belongs to the state of Indiana."

Taxpayer's protest of the fraud penalty is denied.

Taxpayer's protest is denied in its entirety.