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 This document is effective on its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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. Utility Receipts Tax – Phone Cards and Prepaid Cell Phones.

Authority: IC § 6-2.3-1-4; IC § 6-2.3-1-13; IC § 6-2.3-1-14; IC § 6-2.3-2-1; IC § 6-2.3-3-2; IC § 6-2.5-1-22.4; IC § 6-8.1-5-1(c); Indiana Dep't of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463 (Ind. 2012); Lafayette Square Amoco, Inc. v. Indiana Dep't of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007).

Taxpayer argues that it is not subject to Utility Receipts Tax on the money it earns from selling phone cards and prepaid cell phones.

Taxpayer is an out-of-state telecommunications company that sells prepaid cell phones and prepaid phone cards. Taxpayer sells its prepaid wireless phones and prepaid phone cards at major retail stores.

The Indiana Department of Revenue ("Department") conducted an audit review of Taxpayer's business records and tax returns. The audit found that Taxpayer began doing business in 2004 but did not file a Utility Receipts Tax return until 2010.

The audit resulted in the assessment of additional Utility Receipts Tax. Taxpayer disagreed with the assessment and submitted a protest to that effect. An administrative hearing was conducted during which Taxpayer's representative explained the basis for the protest. This Letter of Findings results.

I. Utility Receipts Tax – Phone Cards and Prepaid Cell Phones.

Taxpayer argues that money received from the sale of phone cards and prepaid cell phones is not subject to Utility Receipts Tax ("URT"). Taxpayer maintains it is not providing taxable "telecommunication services." In addition, Taxpayer argues that the prepaid phone cards and phones "do not limit the customers' access to exclusively telecommunications services." Taxpayer explains that its "customers have access to non-telecommunication services such as internet and other data services." Taxpayer concludes that "[s]ince the customers can access more than telecommunication services, the services sold to [Taxpayer's] customers do not fit within the prepaid calling service definition."

Taxpayer believes that the sale of its phone cards and phones should be treated as the sale of tangible personal property and not the sale of telecommunication services.

As a threshold issue, it is the Taxpayer's responsibility to establish that the existing tax assessment is incorrect. As stated in IC § 6-8.1-5-1(c), "The notice of proposed assessment is prima facie evidence that the department's claim for the unpaid tax is valid. The burden of proving that the proposed assessment is wrong rests with the person against whom the proposed assessment is made." Indiana Dep't of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012); Lafayette Square Amoco, Inc. v. Indiana Dep't of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007).

The Department determined that Taxpayer had failed to include receipts from connection and disconnection charges as gross receipts subject to the URT. Taxpayer disagrees arguing that it is not selling taxable telecommunication services.

The URT is imposed by IC § 6-2.3-2-1, as follows:

"Gross receipts" for purposes of the Indiana's URT is defined at IC § 6-2.3-1-4 as follows:

Nonetheless, Taxpayer maintains that the URT – effective in Indiana as of January 1, 2003 – does not apply to the sale of prepaid phones and prepaid phone cards because the definition of "telecommunication services" was not clarified until January 1, 2008, with the adoption of IC § 6-2.5-1-22.4 which provides:

Based on its interpretation of IC § 6-2.5-1-22.4, Taxpayer concludes that "[i]t is not clear from the statues that prepaid calling services were treated as telecommunication services instead of tangible personal property until the adoption of the definition . . . beginning in 2008."

The Department must disagree with Taxpayer's contention because IC § 6-2.5-1-22.4 pertains to Indiana sales tax and not the URT.

The URT is imposed on the gross receipts a taxpayer receives from the sale of utility services. IC § 6-2.3-2-1. "Gross receipts" includes the gross receipts a "taxpayer receives in consideration from the sale of utility services . . . ." "Utility service" includes the furnishing of "[t]elecommuncation services." IC § 6-2.3-1-14. In turn, "telecommunication services" – for purposes of the URT is defined at IC § 6-2.3-1-13, which provides:

Therefore, since Taxpayer is in the business of selling prepaid phone cards and prepaid wireless phones, Taxpayer is in the business of selling telecommunication services consisting of the "transmission of messages or information." IC § 6-2.3-1-13.

Taxpayer raises an additional objection stating that its sale of services is not limited to ordinary phone service but that its customers may use the phones and phone cards for "texting" or for "accessing the Internet." However, it is not necessary to address the question of whether the price paid for "texting" or Internet service is subject to URT because Taxpayer cannot distinguish the amount of money it receives for providing ordinary phone service from the amount of money it receives for these services. IC § 6-2.3-3-2 specifically provides as follows:

Since Taxpayer is unable to distinguish different aspects of its revenue stream, it is not necessary to address the question of whether "texting" and "Internet access" are subject to the URT.

Taxpayer's protest is respectfully denied.