NOTICE: IC § 4-22-7-7 permits the publication of this document in the Indiana Register. The publication of 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. The "Holding" section of this document is provided for the convenience of the reader and is not part of the analysis contained in this Final Order Denying Refund.

Under its HVAC maintenance contract, Company offered its customers maintenance and repair services, under which both Company and its customers were aware that the "consumable items will be provided under the contract." Since the price of the items exceeded ten percent of the total price of the maintenance contract, the sales of the maintenance contracts were bundled transactions subject to Indiana sales tax. Because Company sold the maintenance contracts without collecting the sales tax, the sales tax was properly imposed.

I. Sales Tax - Taxable Bundled Transactions - Optional Maintenance Contracts.

Authority: IC § 6-2.5-1-2; IC § 6-2.5-1-11.5; IC § 6-2.5-2-1; IC § 6-2.5-4-1; IC § 6-2.5-4-15; 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 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); Miller Brewing Co. v. Indiana Dep't of State Revenue, 903 N.E.2d 64 (Ind. 2009); Scopelite v. Indiana Dep't of Local Gov't Fin., 939 N.E.2d 1138 (Ind. Tax Ct. 2010); Wendt LLP v. 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 2.2-2-1; 45 IAC 2.2-4-2; Sales Tax Information Bulletin 2 (January 2013); Sales Tax Information Bulletin 2 (March 2013).

Taxpayer protests the refund denial of sales tax, which it paid pursuant to an audit assessment.

Taxpayer is an Indiana company providing plumbing as well as heating, ventilation, and air conditioning (HVAC) services. Taxpayer also offers HVAC maintenance contracts to its customers, both commercial and residential.

The Indiana Department of Revenue ("Department") conducted a sales and use tax audit of Taxpayer's business records for the 2013 and 2014 tax years. Pursuant to the audit, the Department determined that Taxpayer sold various maintenance contracts to its customers - taxable retail transactions - without collecting sales tax. The Department also found that Taxpayer purchased and used various tangible personal property, such as batteries and chargers, during the course of conducting its business without paying sales tax at the time of the purchases or self-assessing use tax later. As a result, in addition to the assessment of additional sales and use tax, the audit assessed penalty and interest.

Taxpayer paid the full amount of the assessments in January 2016 but subsequently filed a GA-110L form, claiming that it was entitled to a refund of the amount it paid. The Department, upon review, denied Taxpayer's refund claim.

Taxpayer protested the refund denial. An administrative phone hearing was held during which Taxpayer's representatives explained the basis of Taxpayer's protest. This Final Order Denying Refund results. Additional facts will be provided as necessary.

I. Sales Tax - Taxable Bundled Transactions - Optional Maintenance Contracts.

During the hearing, Taxpayer explained that it did not protest the assessment of use tax; rather, it protested the audit assessment of the sales tax on sales of the HVAC maintenance contracts. Taxpayer stated in a February 26, 2016, letter, in relevant part, as follows:

Thus, the issue is whether Taxpayer's sales of its HVAC maintenance contracts were subject to Indiana sales tax.

Although Taxpayer technically protested the Department's refund denial, it actually is contesting the audit's assessment of tax on the sales of HVAC maintenance contracts. Thus, 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). "Each assessment and each tax year stands alone." Miller Brewing Co. v. Indiana Dep't of State Revenue, 903 N.E.2d 64, 69 (Ind. 2009). 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). 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 to the agency's reasonable interpretation of that statute "over an equally reasonable interpretation by another party." Caterpillar, Inc., 15 N.E.3d at 583.

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); 45 IAC 2.2-2-1. A retail transaction is a transaction made by a retail merchant that constitutes "selling at retail." IC § 6-2.5-1-2(a). Selling at retail occurs when a person "(1) acquires tangible personal property for the purpose of resale; and (2) transfers that property to another person for consideration." IC § 6-2.5-4-1(b). Additionally, "[a] person is a retail merchant making a retail transaction when the person sells tangible personal property as part of a bundled transaction." IC § 6-2.5-4-15(b). IC § 6-2.5-1-11.5, in relevant part further provides:

A person who acquires tangible person 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 purchaser in general "shall pay the tax to the retail merchant as a separate added amount to the consideration in the transaction." Id. "The retail merchant shall collect the tax as agent for the state." Id.

When a purchaser claims the purchase "is exempt from the state gross retail and use taxes," the purchaser "may issue an exemption certificate to the seller instead of paying the tax." IC § 6-2.5-8-8(a). The "seller accepting a proper exemption certificate under [IC § 6-2.5-8-8] has no duty to collect or remit the state gross retail or use tax on that purchase." Id. However, the "seller that accepts an incomplete exemption certificate . . . is not relieved of the duty to collect gross retail or use tax on the sale unless the seller obtains . . . a fully completed exemption certificate . . . within ninety (90) days after the sale." IC § 6-2.5-8-8(d). Otherwise, as an agent for the State of Indiana, the seller "holds 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.

Taxpayer in this instance asserted that it was entitled to a refund of the sales tax - which was assessed by the Department's audit - on its sales of HVAC maintenance contracts. Taxpayer claimed that "[its] maintenance [contracts] do not include any parts or taxable items, [and] they only include labor . . . ," i.e., not bundled transactions. Taxpayer argued that the Department's Sales Tax Information Bulletin 2 (March 2013), 20130327 Ind. Reg. 045130126NRA ("Information Bulletin 2"), was not applicable because it provided maintenance services and the audit should not have assessed the sales tax. To support its protest, Taxpayer provided additional documents, including a list of customers' names, signed maintenance contracts, invoices, and a sample copy of the "Planned Maintenance Checklist."

Upon review, however, the Department is not able to agree that Taxpayer's sales of maintenance and repair contracts were not subject to sales tax. Information Bulletin 2 explains in relevant part, as follows:

Taxpayer's maintenance contracts showed that it provided "Value Service Plus" to periodically maintain and repair its customers' HVAC equipment. Taxpayer's "Value Service Plus" included, in relevant part:

In short, under its HVAC maintenance contract, Taxpayer offered its customers periodic maintenance and repair services, under which both Taxpayer and its customers were aware that "consumable items will be provided under the contract." Since the sales price of the items, including "gauges" and "filters," exceeded ten percent of the total price of the maintenance contract, the sales of the maintenance contracts were bundled transactions and were subject to Indiana sales tax. IC § 6-2.5-4-15(b); IC § 6-2.5-1-11.5(b); 45 IAC 2.2-4-2(a); see Sales Tax Information Bulletin 2 (March 2013); Sales Tax Information Bulletin 2 (January 2013). Because Taxpayer sold the maintenance contracts to its customers without collecting the sales tax, Taxpayer remained liable for the tax. As a result, the sales tax was properly imposed and Taxpayer was not entitled to the refund of the sales tax.

Taxpayer's protest is denied.