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 This document is effective on its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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

Authority: IC § 6-2.5-2-1; IC § 6-2.5-7-3; IC § 6-2.5-8-8; IC § 6-2.5-9-3; IC § 6-8.1-5-1; Lafayette Square Amoco, Inc. v. Indiana Dep't of Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); Indiana Dep't of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463 (Ind. 2012); Scopelite v. Indiana Dep't of Local Gov't Fin., 939 N.E.2d 1138 (Ind. Tax Ct. 2010); Wendt LLP v. Indiana Dep't of State Revenue, 977 N.E.2d 480 (Ind. Tax Ct. 2012); Indiana Dep't of State Rev. v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); 45 IAC 2.2-8-12; Letter of Findings 04-20140025 (May 29, 2014).

Taxpayer protests the assessments of additional sales tax on sales of diesel fuel.

II. Tax Administration - Fraud Penalty.

Authority: IC § 6-8.1-5-1; IC § 6-8.1-10-4; Lafayette Square Amoco, Inc. v. Indiana Dep't of Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); Indiana Dep't of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463 (Ind. 2012); Scopelite v. Indiana Dep't of Local Gov't Fin., 939 N.E.2d 1138 (Ind. Tax Ct. 2010); Wendt LLP v. Indiana Dep't of State Revenue, 977 N.E.2d 480 (Ind. Tax Ct. 2012); Miller Brewing v. Indiana Dept. of State Revenue, 903 N.E. 2d 64 (Ind. 2009); 45 IAC 15-5-7; 45 IAC 15-11-4; Letter of Findings 04-20140025 (May 29, 2014).

Taxpayer challenges the imposition of a 100 percent fraud penalty.

Taxpayer operates a 24/7 truck stop in Indiana. In addition to a full service restaurant, Taxpayer sells tangible personal property, such as groceries, truck supplies, snacks, drinks, gasoline, and diesel fuel (i.e., special fuel).

In late 2013, the Indiana Department of Revenue ("Department") conducted a sales/use tax audit of Taxpayer's business records for the tax years 2010, 2011, and 2012 ("Tax Years at Issue"). Due to the volume of Taxpayer's business records, both Taxpayer and the Department agreed to use a block sample to determine the sales tax liability of Taxpayer's sales on the diesel fuel. The Department found that Taxpayer neither collected sales tax nor obtained valid exemption certificates on various sales of the diesel fuel. The Department allowed Taxpayer additional time to obtain valid exemption certificates during the audit. Taxpayer subsequently submitted various exemption certificates, ST-135 forms (hereinafter "Exemption Certificates at Issue"; it also should be noted that the ST-135 form has been superseded), to support its claim that the sales of the diesel fuel were exempt from the sales tax. After reviewing the Exemption Certificates at Issue, the auditor accepted some of the Exemption Certificates at Issue, but rejected the remainders. The Exemption Certificates at Issue were rejected due to:

• Missing address information - almost none of the certificates contained the complete address information for the customer seeking exemption.

• Missing signatures - several [certificates] contained no signature.

• Invalid signatures

• Illegible certificates - certificates with information that was impossible to read.

As a result, the Department assessed additional sales tax, interest, and the fraud penalty for the Tax Years at Issue.

Taxpayer protested the assessments. An administrative hearing was held and the Letter of Findings 04-20140025 (May 29, 2014), 20140730 Ind. Reg. 045140272NRA ("LOF"), denied Taxpayer's protest in its entirety because Taxpayer's arguments and documentation failed to support its protest. Taxpayer requested a rehearing. The rehearing was granted to address the issue of the blanket exemption certificates. This Supplemental Letter of Findings ("SLOF") ensues. Also, this SLOF incorporates by reference the applicable statement of facts and laws established in the LOF. Additional facts will be provided as necessary.

I. Gross Retail Tax - Imposition.

As a threshold issue, all tax assessments are prima facie evidence that the Department's claim for the unpaid tax is valid; the taxpayer bears the burden of proving that any assessment is incorrect. IC § 6-8.1-5-1(c); Lafayette Square Amoco, Inc. v. Indiana Dep't of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007); Indiana Dep't of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012). Thus, the taxpayer is required to provide documentation explaining and supporting its challenge that the Department's assessment is wrong. Poorly developed and non-cogent arguments are subject to waiver. Scopelite v. Indiana Dep't of Local Gov't Fin., 939 N.E.2d 1138, 1145 (Ind. Tax Ct. 2010); Wendt LLP v. Indiana Dep't of State Revenue, 977 N.E.2d 480, 486 n.9 (Ind. Tax Ct. 2012).

In this instance, the Department's audit assessed additional sales tax for the Tax Years at Issue because Taxpayer failed to collect sales tax or obtain valid exemption certificates on various sales of diesel fuel - taxable retail transactions - at the time of the sales. Throughout the rehearing, Taxpayer argued that the assessments were overstated because (1) the Department erroneously rejected some of the Exemption Certificates at Issue and (2) the "audit failed to account for blanket exemption certificates." Taxpayer also reiterated its claim that the Department violates its constitutional due process right.

Indiana imposes an excise tax called "the state gross retail tax" (or "sales tax") on retail transactions made in Indiana. IC § 6-2.5-2-1(a). A person who acquires property in a retail transaction (a "retail purchaser") is liable for the sales tax on the transaction. IC § 6-2.5-2-1(b). "The retail merchant shall collect the tax as agent for the state." Id.

The Indiana Code also expressly states that a retail merchant who sells special (diesel) fuel in Indiana is required to collect sales tax at the time of the sale pursuant to IC § 6-2.5-7-3(b) (as in effect for the Tax Years at Issue), which provides specific requirements:

Accordingly, Indiana retail merchants, who sell special (diesel) fuel in Indiana, must collect the sales tax unless an exemption certificate is provided in accordance with IC § 6-2.5-8-8. Moreover, retail merchants must collect the exemption certificate even when the transaction is exempt from taxation under IC 6-2.5-5. In other words, on the sale of special fuel, a valid and complete exemption certificate must be obtained by the retail merchant under all circumstances.

The exemption certificate, referenced in IC § 6-2.5-7-3, is governed by IC § 6-2.5-8-8 which provides the general rules for exemption certificates, explaining in relevant part:

(Emphasis added).

Taxpayer in this case operates a truck stop in Indiana, selling special fuel to customers. The retail transactions (namely, sales of diesel fuel) occur in Indiana, are completed in Indiana, and are subject to Indiana sales/use tax. IC § 6-2.5-2-1(a). Thus, Taxpayer, an Indiana retail merchant, is required to collect and remit the sales tax on the sales of diesel fuel at the time of the transactions under IC § 6-2.5-7-3(b). Further, Taxpayer is required to obtain the properly executed exemption certificates from its customers at the time of the transactions if Taxpayer does not intend to collect sales tax from the sale of the fuel. Id.; See also IC § 6-2.5-8-8(a).

During the course of the rehearing, Taxpayer contended that the Department should have accepted certain Exemption Certificates at Issue provided by Taxpayer for each separate sale (or sales) of the special fuel even when those Exemption Certificates at Issue were incomplete. Additionally, Taxpayer submitted three "blanket" Exemption Certificates at Issue and various diesel sales tickets, claiming that "[t]he audit failed to account for blanket exemption certificates." Taxpayer argued that it "was not required to collect an exemption certificate each and every time a return customer purchased exempt diesel fuel." Further, Taxpayer asserted that "[i]f a blanket exemption certificate existed and the customer data which would have otherwise been recorded on [the Exemption Certificates at Issue] was in the taxpayer's database, the taxpayer was not required to collect an exemption certificate for every transaction with the customer." Taxpayer maintained that one blanket exemption certificate for each "return customer" together with its "database" should suffice and it was not required to obtain additional exemption certificate(s) from the "return customer" for the subsequent sale(s) of the special fuel.

Taxpayer, however, is mistaken. There is no dispute that Taxpayer is an Indiana retail merchant engaged in retail transactions (selling special fuel to customers) in Indiana, which requires that Taxpayer must collect and remit the sales tax to Indiana in regards to these fuel sales unless a valid exemption certificate is presented. IC § 6-2.5-7-3(b); IC § 6-2.5-8-8(c). As IC § 6-2.5-7-3(b) cautions, "unless the purchaser provides an exemption certificate in accordance with IC [§] 6-2.5-8-8, a retail merchant shall collect, for each unit of special fuel or kerosene sold, [the] state gross retail tax . . . ." Therefore, it is very important to the seller selling special fuel to obtain a valid exemption certificate. In the absence of the properly signed and executed exemption certificates, the Department's audit properly assessed sales tax on the otherwise taxable sales. Without the valid exemption certificates, Taxpayer is liable for the sales tax. IC § 6-2.5-9-3.

In this instance, after the additional time permitted, Taxpayer provided the Exemption Certificates at Issue and the Department reviewed them to determine Taxpayer's tax liability. The audit noted that after the Department reviewed the Exemption Certificates at Issue, as presented, it determined a number of the Exemption Certificates at Issue were invalid for various reasons, including "Missing address information," "Missing signatures," "Invalid signatures," and/or "Illegible certificates." As explained above, the exemption certificates, including "blanket certificates," are not valid unless the exemption certificate "is executed in the prescribed and approved form and unless all information requested on such form is completed." IC § 6-2.5-8-8(a); 45 IAC 2.2-8-12(f). The audit, after review, rejected various invalid Exemption Certificates at Issue. The Department subsequently, in the LOF, addressed the validity of Taxpayer's Exemption Certificates at Issue and affirmed the audit determination. This SLOF thus must decline Taxpayer's invitation to address the same issue in the absence of additional supporting documentation.

Nonetheless, upon further review, Taxpayer's documentation for rehearing here - namely, the three blanket exemption certificates - are just as invalid as the Exemption Certificates at Issue that were considered during the first hearing. While each of Taxpayer's three "blanket exemption certificates" was filled in by different persons with different handwriting, presumably at different times and/or dates, those "blanket exemption certificates" contained invalid signatures, incomplete information, and/or information which the Department could not verify when comparing it to information on file. The blanket exemption certificates provided by Taxpayer thus fail to meet the statutory requirements and do not relieve Taxpayer's duty to collect tax.

Taxpayer further erred in asserting that it was not required to collect additional valid exemption certificate from each "return customer" at the subsequent sale(s) if its customer had previously provided the blanket exemption certificate(s) because its "database" would have contained the information of the return customers. In other words, Taxpayer believes that its "database" is a substitution for the valid exemption certificates prescribed by the Department pursuant to the above mentioned statutes and regulation. However, Taxpayer's "database" is not a valid exemption certificate because that "database" is not in the form or manner prescribed by the Department, as required under IC § 6-2.5-7-3(b), IC § 6-2.5-8-8, and 45 IAC 2.2-8-12. The plain language of the relevant legal authorities does not permit a taxpayer to create substitutions of the exemption certificates. Indiana Dep't of State Revenue v. Caterpillar, Inc., 15 N.E.2d 579, 583 (Ind. 2014) (explaining that when a court "examine[s] a statute that an agency is 'charged with enforcing . . . [the courts] defer to the agency's reasonable interpretation of [the] statute even over an equally reasonable interpretation by another party") (internal citations omitted). Thus, whether the "database" would have contained all the information of Taxpayer's customers is irrelevant. Pursuant to the Department's interpretation of the above referenced statutes and regulation, Taxpayer must obtain valid exemption certificates (including valid blanket exemption certificates) if the sales tax is not collected at the time of the sales of special fuel.

Finally, at the rehearing, Taxpayer reiterated its constitutional challenge asserting that its due process right was violated. Taxpayer invites the Department to address it in this SLOF. However, the Department must respectfully decline Taxpayer's invitation. The administrative rehearing is not a proper forum to address constitutional challenges because "all statutes are presumptively constitutional." Indiana Dep't of State Rev. v. Caterpillar, Inc., 15 N.E.3d 579, 587 (Ind. 2014) (citing UACC Midwest, Inc. v. Indiana Dep't of State Rev. 629 N.E.2d 1295, 1299 (Ind. Tax Ct. 1994)). Notwithstanding that an administrative hearing is not a proper forum to address the constitutional challenge, Taxpayer simply restates its previous contentions; it fails to present additional evidence to support its constitutional challenge at the rehearing. The LOF properly addressed Taxpayer's concerns.

In short, Taxpayer's arguments and supporting documentation fail to support its protest. Given the totality of the circumstances, in the absence of other supporting documentation, Taxpayer has not demonstrated that the Department's proposed assessment is wrong. IC § 6-8.1-5-1(c); Lafayette Square Amoco, Inc., 867 N.E.2d at 292; Rent-A-Center East, Inc., 963 N.E.2d at 466.

Taxpayer's protest is denied.

II. Tax Administration - Fraud Penalty.

Throughout the rehearing, Taxpayer maintains that the Department erroneously imposed the fraud penalty.

Again, as a threshold issue, all tax assessments are prima facie evidence that the Department's claim for the unpaid tax is valid; the taxpayer bears the burden of proving that any assessment is incorrect. IC § 6-8.1-5-1(c); Lafayette Square Amoco, Inc. v. Indiana Dep't of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007); Indiana Dep't of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012). Thus, the taxpayer is required to provide documentation explaining and supporting its challenge that the Department's assessment is wrong. Poorly developed and non-cogent arguments are subject to waiver. Scopelite v. Indiana Dep't of Local Gov't Fin., 939 N.E.2d 1138, 1145 (Ind. Tax Ct. 2010); Wendt LLP v. Indiana Dep't of State Revenue, 977 N.E.2d 480, 486 n.9 (Ind. Tax Ct. 2012).

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

Additionally, 45 IAC 15-5-7(f)(3) states:

(Emphasis added).

In this instance, Taxpayer claims that since the Department previously abated the negligence penalty, which was imposed in a previous audit for the same issue for the tax years 2007 and 2008 ("Previous Audit"), a fraud penalty is not justified for this subsequent audit. Taxpayer asserts that the imposition of the fraud penalty is erroneous and unreasonable. To support its protest, Taxpayer submitted a copy of the Department's previous decision, which abated the negligence penalty imposed in the Previous Audit.

Upon review, Taxpayer's reliance on the Department's previous decision alone is, however, misplaced. The Department is authorized to abate the negligence penalty on a case by case basis. The Department found a reasonable cause in that case to abate the negligence penalty. The standard for abatement of the negligence penalty is, however, very different from the standard for abatement of the fraud penalty. Further, all tax years, and any related audit results, stand alone. Miller Brewing v. Indiana Dept. of State Revenue, 903 N.E. 2d 64, 69 (Ind. 2009). Thus, the Department's prior decision of the negligence penalty abatement regarding 2007 and 2008 tax years is not dispositive at this case.

Since Taxpayer was audited previously, Taxpayer was on notice and is deemed to know its duty to comply with the statutory and regulatory requirements. Years later, the Department, through the audit for the Tax Years at Issue, again found that Taxpayer has failed to properly collect, report, and remit trust taxes. At the conclusion of the audit, the Department imposed the fraud penalty, noting that Taxpayer "at first claimed that [it] had no exemption certificates." The Department further noted that Taxpayer subsequently provided "additional certificates which were almost all incomplete" and that "[s]everal of these certificates had obviously been signed by the same person." The Letter of Findings 04-20140025 ("LOF") further found that:

The LOF examined and concluded that the facts surrounding Taxpayer's second failure warrants the imposition of the fraud penalty. Given the totality of the circumstances, in the absence of other supporting documentation, the Department is not able to agree that the fraud penalty should be abated.

Taxpayer's protest of the fraud penalty is denied.

Taxpayer's protest of the imposition of additional sales tax is respectfully denied. Taxpayer's protest of the imposition of the fraud penalty is also respectfully denied.