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.

Individual was entitled to refund of the Indiana sales tax paid on the purchase of a cargo trailer because the transaction satisfied all of the requirements for the sales tax exemption applicable to cargo trailers purchased by out-of-state residents.

I. Sales Tax - Refund - Non-Resident Cargo Trailer Purchase.

Authority: IC § 6-2.5-1-2; IC § 6-2.5-2-1; IC § 6-2.5-4-1; IC § 6-2.5-5-24; IC § 6-2.5-5-39; IC § 6-2.5-8-8; IC § 6-2.5-9-3; IC § 6-2.5-13-1; IC § 6-8.1-9-1; Indiana Dep't of State Revenue, Sales Tax Division v. RCA Corp., 310 N.E.2d 96 (Ind. Ct. App. 1974); Indiana Dep't of State Revenue v. Kimball Int'l Inc., 520 N.E.2d 454 (Ind. Ct. App. 1988); 45 IAC 2.2-2-1; 45 IAC 2.2-5-53; 45 IAC 2.2-5-54; Sales Tax Information Bulletin 28S (March 2017); Sales Tax Information Bulletin 72 (March 2018).

Taxpayer protests the refund denial of sales tax which was collected at the time of the purchase of a cargo trailer.

Taxpayer is an individual residing in Tennessee. In October 2017, Taxpayer purchased a cargo trailer from a dealership located in Indiana ("Dealership"). The Dealership collected sales tax in the amount of $4,077.50. The sales tax was calculated based on 7 percent of the sale price of the trailer. Taxpayer took possession of the trailer at the Dealership's business location in Indiana and titled and registered it in Tennessee. Taxpayer stated that she was not required to pay gross retail tax in her home state because she had a valid agricultural exemption certificate issued by the state of Tennessee.

Taxpayer filed a claim for refund with the Indiana Department of Revenue ("Department") requesting a refund of the full amount of Indiana sales tax that was collected by the Dealership at the time of purchase. Upon review, the Department denied Taxpayer's refund request, stating in relevant part, "the Indiana sales tax rate imposed on such a transaction is the state-level sales tax rate of the state where the vehicle will be titled and registered. . . . [T]he state of Tennessee has a sales tax rate of 7 [percent] on vehicles."

Taxpayer protested the refund denial. An administrative phone hearing was held. This Memorandum of Decision results. Further facts will be provided as necessary.

I. Sales Tax - Refund - Non-Resident Cargo Trailer Purchase.

Taxpayer requested a refund of the sales tax paid on a cargo trailer purchase on the basis that she possesses a Tennessee agricultural exemption certificate.

IC § 6-8.1-9-1(a) affords a taxpayer a statutory right to file a claim for refund, which provides, in relevant part:

Additionally, a statute which provides a tax exemption is strictly construed against the taxpayer. Indiana Dep't of State Revenue, Sales Tax Division 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 (internal citations omitted). In applying any tax exemption, "[t]he general rule is that tax exemptions are strictly construed in favor of taxation and against the exemption." Indiana Dep't of State Revenue v. Kimball Int'l Inc., 520 N.E.2d 454, 456 (Ind. Ct. App. 1988).

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). 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). A retail sale is sourced to Indiana and therefore is subject to Indiana sales tax when the transaction is a "retail sale . . . of a product" and "the product is received by the purchaser at a business location of the seller [in Indiana] . . . ." IC § 6-2.5-13-1(d)(1). In general, the purchaser "shall pay the tax to the retail merchant as a separate added amount to the consideration in the transaction. The retail merchant shall collect the tax as agent for the state." IC § 6-2.5-2-1(b).

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 only persons authorized to issue exemption certificates include:

Ind. Code Ann. § 6-2.5-8-8(b) (emphasis added). Thus, only persons who receive an exemption certificate from the Indiana Department of Revenue are entitled to a gross retail tax exemption on transactions occurring in Indiana. "A 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. 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's position is that the cargo trailer was not purchased for use in Indiana, and that Indiana should recognize the exemption certificate issued by the state of Tennessee. With respect to interstate transactions, IC § 6-2.5-5-24(b) provides:

During the hearing, Taxpayer stated that she took possession of the trailer at the Dealership's location in Indiana. The trailer was not sold in interstate commerce because the dealer did not deliver the trailer outside Indiana, and the transaction began and concluded in Indiana. Thus, the sale of the trailer was an Indiana sale subject to Indiana sales tax. See IC § 6-2.5-13-1(d)(1) ("When the product is received by the purchaser at a business location of the seller, the sale is sourced to that business location.").

However, IC § 6-2.5-5-39 provides a statutory exemption for certain purchases of recreational vehicles and cargo trailers by non-resident purchasers, which states, in relevant part:

A non-resident purchaser may claim this exemption at the time of purchase by submitting to the retail merchant an Affidavit of Exemption by a Nonresident of Indiana on the Purchase of a Recreational Vehicle or Cargo Trailer ("ST-137RV Affidavit") stating the purchaser's intent to transport the trailer to a destination outside of Indiana within 30 days, and title or register the trailer for use in another state. IC § 6-2.5-5-39(d).

However, the sales tax exemption for non-resident purchasers of cargo trailers does not apply to residents of every state. Sales Tax Information Bulletin 72 (March 2018), 20180425 Ind. Reg. 045180188NRA, which was made retroactive to July 1, 2017, provides additional guidance on the sales tax exemption applicable specifically to cargo trailers and recreational vehicles purchased by non-residents:

Tennessee is one of the states that has a reciprocal statute that provides for a sales tax exemption for cargo trailers purchased in that state and registered in Indiana, thus satisfying the requirement of IC § 6-2.5-5-39(c)(5). See Sales Tax Information Bulletin 72. Because Taxpayer is a resident of Tennessee, transported the trailer to Tennessee within 30 days, and titled and registered the trailer in Tennessee, the transaction met all of the requirements of the statutory sales tax exemption for non-resident cargo trailer purchasers.

In conclusion, Taxpayer's cargo trailer purchase was an Indiana retail transaction subject to Indiana sales tax. Because there is no evidence that the Dealership and Taxpayer executed an ST-137RV Affidavit at the time of purchase, the Dealership fulfilled its obligation to collect and remit Indiana sales tax at the time of purchase. However, Taxpayer has demonstrated that her purchase satisfies all of the requirements for the exemption to apply under IC § 6-2.5-5-39(c), and Taxpayer is therefore entitled to a refund of the Indiana gross retail tax collected on the cargo trailer at issue.

Taxpayer's protest is sustained.

November 16, 2018