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 This document is effective on its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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

Indiana Farmer was liable for the sales tax (or use tax) on materials, including lumber, frame, track, valley, guide, screws, spikes, bracket, clips, trim, metal, and trusses, he purchased to construct a building.

I. Sales & Use Tax - Agricultural Exemptions.

Authority: IC § 6-2.5-1-1 et seq.; IC § 6-2.5-3-4; IC § 6-2.5-5-2; IC § 6-8.1-5-1; Lafayette Square Amoco, Inc. v. Indiana Dep't of State 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); Indiana Dep't of State Revenue v. RCA Corp., 310 N.E.2d 96 (Ind. Ct. App. 1974); 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); 45 IAC 2.2-3-14; 45 IAC 2.2-5-1; 45 IAC 2.2-5-4; 45 IAC 2.2-5-6.

Taxpayer protests the assessment of tax on his purchases of tangible personal property.

Taxpayer, an Indiana farmer, purchased materials including lumber, frame, track, valley, guide, screws, spikes, bracket, clips, trim, metal, and trusses ("Items at Issue") without paying sales tax at the time of the purchase. The Indiana Department of Revenue ("Department") discovered that Taxpayer did not pay sales tax at the time of the purchase nor did Taxpayer self-assess and remit use tax to the Department. As a result, the Department assessed Taxpayer additional tax and interest.

Taxpayer timely protested the assessment and submitted additional documentation to support his protest. A phone hearing was held. This Letter of Findings ensues. Additional facts will be provided as necessary.

I. Sales & Use Tax - Agricultural Exemptions.

The Department's audit assessed Taxpayer use tax on his purchases of tangible personal property because Taxpayer did not pay sales tax at the time of the transactions, nor did he self-assess and remit the use tax to the Department. Taxpayer, to the contrary, claimed that he is entitled to the exemption found in the Department's Sales Tax Information Bulletin 9 (January 2016) ("Information Bulletin 9").

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).

Indiana imposes a sales tax on retail transactions and a complementary use tax on tangible personal property that is stored, used, or consumed in the state. IC § 6-2.5-1-1 et seq. Generally, all purchases of tangible personal property by persons engaged in the direct production, extraction, harvesting, or processing of agricultural commodities are taxable. 45 IAC 2.2-5-6(a). An exemption from use tax is granted for transactions where the gross retail tax ("sales tax") was paid at the time of purchase pursuant to IC § 6-2.5-3-4 and 45 IAC 2.2-3-14(a). There are also additional exemptions from sales tax and use tax. Some statutory exemptions under IC 6-2.5-5 which apply to sales tax may also apply to use tax. 45 IAC 2.2-3-14(b). A statute which provides a tax exemption, however, is strictly construed against the taxpayer. Indiana Dep't of State Revenue v. RCA Corp., 310 N.E.2d 96, 97 (Ind. Ct. App. 1974). "[W]here such an exemption is claimed, the party claiming the same must show a case, by sufficient evidence, which is clearly within the exact letter of the law." Id. at 100-101.

Taxpayer in this instance claimed that his purchases of the Items at Issue were exempt from sales tax and use tax. Taxpayer referenced Information Bulletin 9, which addresses issues concerning agricultural production exemptions under IC § 6-2.5-5-2.

IC § 6-2.5-5-2 (as in effect for 2013) states:

In this instance, Taxpayer referencing several examples outlined in the Information Bulletin 9, states in relevant part, that "[i]n reviewing the Bulletin #9 . . . my lumber and materials are . . . tax exempt." Taxpayer further explained, as follows:

In addition, Taxpayer offered six photos to demonstrate his use of the Items at Issue. Thus, Taxpayer believes that he is entitled to the agricultural exemptions on the purchases of the Items at Issue.

Upon review, however, Taxpayer's reliance of the above mentioned Information Bulletin 9 is misplaced. Taxpayer may argue, and rightly so, that a building used as a processing facility and storage is essential for his cattle operation. However, pursuant to the above mentioned statutes and regulations, all purchases of tangible personal property by persons engaged in the direct production, extraction, harvesting, or processing of agricultural commodities are taxable, unless the use of the tangible personal property satisfies the "double-direct" test; i.e., the Items at Issue must be involved in the direct production of the agricultural commodity and must have a direct effect upon that commodity.

At the hearing, Taxpayer explained that he raises and sells animals, such as cows, for human consumption and uses a grinder to process the corn to feed his animals. To preserve the quality of the feed, processed or otherwise, he purchased Items at Issue to construct the building to protect the feed from severe weather and moisture. Taxpayer's documentation demonstrates that the building is "also used to store hay and other feed which is fed to the cattle as well. . . ." That is, Taxpayer constructed the building to preserve the quality of the feed and hay, which he uses to feed and to bed his animals that would be sold for human consumption later. In other words, Taxpayer does not sell the feed nor hay, rather the feed and hay are for his animals. Therefore, the building he constructed is to prepare feeds and store hay to raise his cattle and it is pre-production.

Since Taxpayer did not pay sales tax at the time of the purchase, the use tax is properly imposed.

Taxpayer's protest is respectfully denied.