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 Indiana Department of Revenue's official position concerning a specific set of facts and issues. This document is effective as of its date of publication and remains in effect until the date it is superseded by the publication of another document in the Indiana Register.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 Restaurant was properly assessed gross retail tax on pizza delivery charges. Restaurant was entitled to abatement of negligence penalty because it demonstrated that its failure to collect and remit sales tax was not due to willful neglect.

I. Gross Retail Tax - Delivery Charges.

Authority: IC § 6-2.5-1-1; IC § 6-2.5-2-1; IC § 6-2.5-1-5; IC § 6-2.5-9-3; IC § 6-8.1-5-1; Dep't of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); 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); 45 IAC 2.2-4-1; Commissioner's Directive 23 (July 2013).

Taxpayer protests the Department's imposition of gross retail tax on delivery charges.

II. Tax Administration - Penalty.

Authority: IC § 6-8.1-10-1; IC § 6-8.1-10-2.1; 45 IAC 15-11-2.

Taxpayer protests the imposition of negligence penalties.

Taxpayer is an Indiana pizza restaurant franchisee that provides delivery services for the food it sells. The Indiana Department of Revenue ("Department") conducted a sales/use tax audit of Taxpayer for the 2013, 2014, and 2015 tax years and issued proposed assessments for additional amounts of sales tax, penalties and interest. Among the sales tax adjustments, the Department determined that Taxpayer failed to collect and remit retail sales tax on delivery charges.

Taxpayer protested the audit's assessment of additional retail sales tax on these delivery charges. An administrative hearing was held and this Letter of Findings results. Additional facts will be provided as necessary.

I. Gross Retail Tax - Delivery Charges.

Taxpayer disputes the imposition of retail sales tax on delivery fees charged to customers for delivery of prepared food.

As an initial matter, the Department notes that all tax assessments are prima facie evidence that the Department's claim for the tax is valid, and the taxpayer bears the burden of proving that any assessment is incorrect. IC § 6-8.1-5-1(c); Lafayette Sq. Amoco. Inc. v. Ind. Dep't of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007); Ind. 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. In reviewing a taxpayer's argument, the Indiana Supreme Court has held that when it examines a statute that an agency is "charged with enforcing . . . we defer to the agency's reasonable interpretation of [the] statute even over an equally reasonable interpretation by another party." Dep't of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014).

Taxpayer, as a registered retail merchant, is responsible for collecting and remitting sales tax on retail transactions. "The retail merchant is required to collect the tax [due on the retail transaction] as [an] agent for the state." IC § 6-2.5-2-1(b). The retail merchant "has a duty to remit Indiana [sales] or use taxes . . . to the department, [to] hold those taxes in trust for the state, and is personally liable for the payment of those taxes, plus any penalties and interest attributable to those taxes, to the state." IC § 6-2.5-9-3(2). Thus, when a retail merchant fails to collect and hold the taxes in trust for the state, the retail merchant is personally liable for the sales tax, interest, and penalties due to the state for those sales.

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.

IC § 6-2.5-2-1 provides:

IC § 6-2.5-1-5, in pertinent part, provides:

Commissioner's Directive 23 (July 2013), 20130828 Ind. Reg. 045130394NRA, which replaces Commissioner's Directive 23 (April 2004), specifically addresses the issue concerning taxability of food delivery charges. Commissioner's Directive 23, in relevant part, states:

It is well-established under Indiana law, including IC § 6-2.5-1-5(a)(4), that delivery fees are subject to Indiana gross retail tax. Taxpayer argues that it should not be held responsible for the sales tax assessed during the audit because other similar taxpayers have not been assessed sales tax for food delivery charges by the Department. However, IC § 6-2.5-2-1 places an affirmative obligation on retail merchants to collect sales tax as agents for the state, and other taxpayers' failure to comply with this statutory duty does not excuse Taxpayer from the same duty. Taxpayer has not met its burden under IC § 6-8.1-5-1(c) of showing that the Department's assessment of sales tax on delivery charges during the audit period is incorrect.

Taxpayer's protest is respectfully denied.

II. Tax Administration - Penalty.

Taxpayer protests the imposition of penalties pursuant to IC § 6-8.1-10-2.1. The Department notes that waiver of interest is not permitted under IC § 6-8.1-10-1(e). Penalty waiver is permitted if the taxpayer shows that the failure to pay the full amount of the tax was due to reasonable cause and not due to willful neglect.

The standard for waiving the negligence penalty is given at 45 IAC 15-11-2(c) as follows:

Taxpayer protests the Department's assessment of penalties. Taxpayer provided documentation showing that another restaurant within the same pizza restaurant franchise was previously audited by the Department for tax years 2008 through 2010 and that the Department determined the taxpayer was in "substantial compliance" with Indiana sales tax regulations governing the reporting and remitting of the gross retail tax; no additional sales tax was assessed on that taxpayer's delivery fees. Taxpayer and the previously audited restaurant, as part of the same franchise, share the same accountant. Taxpayer's accountant stated that as soon as the Department notified Taxpayer that they had improperly failed to collect sales tax on delivery fees, Taxpayer immediately corrected its point-of-sale software to start collecting the tax, and Taxpayer's accountant also made the same correction for other franchisees she represented.

While taxpayers generally may not rely upon the audits of unrelated entities, Taxpayer's reliance upon the Department's conclusion that a franchisee within the same franchise, represented by the same accounting firm, was in substantial compliance with Indiana law does not amount to willful neglect. Therefore, the Department concludes that Taxpayer is entitled to abatement of the negligence penalty. However, Taxpayer is on notice that, going forward, failure to collect sales tax on delivery fees would amount to negligence.

Taxpayer's protest of the negligence penalties is sustained.

Taxpayer's Issue I protest regarding the imposition of sales tax on food delivery charges is denied. Taxpayer's Issue II protest regarding abatement of the negligence penalty is sustained.