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 This document is effective on its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register. The "Holding" section of this document is provided for the convenience of the reader and is not part of the analysis contained in this Letter of Findings.

Sole proprietor/individual failed to maintain adequate records and was responsible for the sales tax because he was statutorily required to collect and remit sales tax on tangible personal property sold. Individual was responsible for income tax because he earned income from sales of tangible personal property. Individual was responsible for the negligence penalty because he failed to affirmatively establish reasonable cause for penalty abatement.

I. Sales Tax & Income Tax - Imposition - Burden of Proof.

Authority: IC § 6-8.1-5-1; IC § 6-8.1-5-4; 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); 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).

Taxpayer protests the Department's proposed assessments.

II. Tax Administration - Negligence Penalty.

Authority: IC § 6-8.1-10-2.1; 45 IAC 15-11-2.

Taxpayer protests the imposition of the negligence penalty.

Taxpayer is a sole proprietor who has specialized in the vehicle salvage business since 1999. In 2014, the Indiana Department of Revenue ("Department") conducted a sales/use audit of Taxpayer's business records for the tax years 2011, 2012, and 2013. Pursuant to the audit, the Department determined that Taxpayer failed to maintain adequate records. As a result, the audit found that Taxpayer had unreported sales and thus proceeded to assess Taxpayer additional sales tax, interest, and negligence penalty based on the best information available to the Department at the time of the audit.

The income generated by the business flowed through to Taxpayer and was reported on Taxpayer's individual income tax returns. The Department's audit further determined that Taxpayer had additional income for the same tax years from the unreported sales. As a result, the audit assessed additional income tax, interest, and penalty accordingly.

Taxpayer protested both sales tax and income tax assessments. Prior to the hearing, Taxpayer offered additional documents to support his protest. After reviewing those documents, the Department's audit assessments remained unchanged. A hearing was held. This Letter of Findings addresses both protests. Additional facts will be provided as necessary.

I. Sales Tax & Income Tax - Imposition - Burden of Proof.

Taxpayer provided some documentation - but not all business records requested by the Department - during the audit and prior to the hearing. The Department's audit, after reviewing the records submitted, noted that:

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).

IC § 6-8.1-5-4(a) further provides:

Thus, the issue is whether Taxpayer met his burden of proof to demonstrate that the Department's proposed assessment is not correct.

During the protest process, Taxpayer argued that he properly reported his sales every month. Taxpayer stated that he kept the business records in his basement and most of his records were destroyed as a result of flood. Taxpayer further claimed that his computer system was recently upgraded and had technical difficulties reproducing copies of the business records. There are not sufficient reasons for removing the assessments in the absence of required documents.

Given the totality of the circumstances, in the absence of other supporting documentation, the Department is not able to agree that Taxpayer met his burden of proof to demonstrate the proposed assessment is wrong.

Taxpayer's protest is respectfully denied.

II. Tax Administration - Negligence Penalty.

The Department's audit imposed a ten percent negligence penalty for the tax period in question. Taxpayer requested that the Department abate the negligence penalty.

Pursuant to IC § 6-8.1-10-2.1(a), the Department may assess a ten (10) percent negligence penalty if the taxpayer:

The Department may waive a negligence penalty as provided in 45 IAC 15-11-2(c), as follows:

In this instance, Taxpayer simply claimed that he did not owe sales tax and thus was not negligent. It did not, however, provide documents to support its protest of the penalty. A review of the Department records further showed that Taxpayer was previously audited and was aware of his statutory responsibility of record keeping. Given the totality of the circumstances, in the absence of other supporting documentation, the Department is not able to agree that the penalty should be abated.

Taxpayer's protest of the penalty is denied.

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