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 This document is effective on its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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

Dealership relied on Department advice when calculating its sales tax bad debt deduction; thus, the Department's assessment relying on Dealerships accounting method is incorrect. Dealership however, could not show that the returned vehicles were not repossessed vehicles and therefore the assessment regarding repossessed vehicles is denied.

I. Sales Tax–Imposition.

Authority: IC § 6-2.5-2-1; IC § 6-2.5-3-7; IC § 6-2.5-4-1; IC § 6-2.5-6-2; IC § 6-8.1-5-1; IC § 6-2.5-6-9; Indiana Dep't of State Rev. v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); 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); 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 15-3-2.

Taxpayer protests the calculation of sales tax liability.

II. Tax Administration–Penalty.

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

Taxpayer protests the imposition of the negligence penalty.

Taxpayer is an Indiana business. As the result of an audit, the Indiana Department of Revenue ("Department") determined that Taxpayer improperly calculated its sales tax for the tax years 2012 through 2014. The Department therefore issued proposed assessments for sales tax, penalty, and interest for those years. Taxpayer protests that the Department's assessment was incorrect. An administrative hearing was held and this Letter of Findings results. Further facts will be supplied as required.

I. Sales 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); see also Wendt LLP v. Indiana Dep't of State Revenue, 977 N.E.2d 480, 486 n.9 (Ind. Tax Ct. 2012). Also, "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)). When an agency is charged with enforcing a statute, the jurisprudence defers the agency's reasonable interpretation of that statute "over an equally reasonable interpretation by another party." Caterpillar, Inc., 15 N.E.3d at 583.

Taxpayer protests the Department's calculations of sales tax due for the tax years 2012, 2013, and 2014. The Department based its calculations on Taxpayer's records.

The sales tax is imposed by IC § 6-2.5-2-1, which states:

The Department also refers to IC § 6-2.5-4-1, which states in relevant part:

Taxpayer took a bad debt deduction on its sales tax return based on sales where some of its customers defaulted on their payments. Taxpayer based its "bad debt" deduction on IC § 6-2.5-6-9. The Indiana sales tax "bad debt" deduction is found under IC § 6-2.5-6-9, which provides in relevant part:

(Emphasis added).

Next, Taxpayer states that it operated on an accrual basis and that it reported its Federal and Indiana income tax on an accrual basis. Taxpayer protests that the Department's calculations of sales tax due from Taxpayer as a retail merchant were based on the assumption that Taxpayer reported on a cash basis. IC § 6-2.5-6-2 states:

Taxpayer however, argues that during a previous audit the Department advised Taxpayer that it qualified for the bad debt deduction and provided Taxpayer with a worksheet to show how to calculate the deduction.

The Department also assessed sales tax on transactions included in Taxpayer's "bad debt" deduction, but which were for repossessed vehicles. As stated above, any repossessed vehicles will not qualify for the sales tax bad debt deduction. IC § 6-2.5-6-9(d). Repossessed vehicles do not qualify for the "bad debt" deduction because when a dealership gets the vehicle back, there is no loss to receive a bad debt; in other words when the dealership gets the vehicle back, it is made whole. Taxpayer explained that he did not repossess the vehicles. Taxpayer allows its customer to return the vehicles without the detriment that repossession causes the customers. Taxpayer however does not return any portion of the price or sales tax to its customers. Taxpayer's actions, while beneficial to the customer are not a true return. They are a "voluntary repossession." Therefore based on IC § 6-2.5-6-9(d), Taxpayer cannot deduct sales tax paid on the "voluntary repossessed" vehicles.

Taxpayer's protest is sustained regarding the sales tax bad debt deduction adjustments based on its accounting methodology. Taxpayer's protest regarding repossessed vehicles is denied.

II. Tax Administration–Penalty.

Taxpayer requested that the Department abate the negligence penalty.

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

The Department may waive a negligence penalty when "the taxpayer affirmatively establishes that the failure . . . was due to reasonable cause and not due to negligence." 45 IAC 15-11-2(c). The taxpayer "must demonstrate that it exercised ordinary business care and prudence in carrying out or failing to carry out a duty giving rise to the penalty imposed under this section." Id. The Department is mindful that "[r]easonable cause is a fact sensitive question and thus will be dealt with according to the particular facts and circumstances of each case." Id.

In this instance, Taxpayer has demonstrated that its actions were reasonable as described in 45 IAC 15-11-2(c). Thus, Taxpayer's request for penalty abatement is sustained.

Taxpayer's protest of the negligence penalty is sustained.

Taxpayer's protest regarding the bad debt deduction is sustained in part and denied in part. Taxpayer's protest regarding negligence penalty is sustained.