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 This document is effective as of its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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

Business provided sufficient documentation to support its position that it had already paid sales tax on a portion of its purchases during the audit period. Therefore, the Department's use tax assessment will be recalculated. Also, penalties will be waived.

I. Use Tax–Partial Payment.

Authority: IC § 6-2.5-1-1; IC § 6-2.5-1-2; IC § 6-2.5-2-1; IC § 6-2.5-3-2; IC § 6-2.5-4-1; IC § 6-8.1-5-1; Indiana Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014); Indiana Dept. of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463 (Ind. 2012); Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 897 N.E.2d 289 (Ind. Tax Ct. 2007); The Frame Station, Inc. v. Indiana Dept. of State Revenue, 771 N.E.2d 129 (Ind. Tax 2001); 45 IAC 2.2-3-4.

Taxpayer protests a portion of the Department's proposed assessment.

II. Tax Administration–Penalty.

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

Taxpayer protests the imposition of the negligence penalties.

Taxpayer is an Indiana business. In the course of an audit, the Indiana Department of Revenue ("Department") determined that Taxpayer had not paid sales or use taxes on all taxable purchases it had made during the audit years 2015 and 2016. The Department therefore issued proposed assessments for sales tax, use tax, penalties, and interest. Taxpayer paid the assessments but protested that it had already paid sales tax on a portion of a catering charge it incurred regarding a holiday party it had in 2016. Taxpayer also protested the imposition of penalties. At the time it filed its protest, Taxpayer initially opted for audit review of its protest prior to holding an administrative hearing. After review of the protest file, the Department's Legal Appeals section called Taxpayer and explained that the normal protest process could result in a faster decision. Taxpayer agreed to proceed with a written decision option for the protest. This Letter of Findings results. Further facts will be supplied as required.

I. Use Tax–Partial Payment.

Taxpayer protests the imposition of use tax on a portion of one transaction in 2016. The Department based its decision to impose use tax on Taxpayer's payment for catering a holiday party it hosted in 2016 on the basis that the amount charged constituted a unitary transaction and that the entire amount was therefore taxable. Taxpayer protests that it paid sales tax to the caterer on the food and beverage portion of the bill at the time of the transaction and that it should now only pay use tax on the service portion of the bill. The caterer was paid in two payments listed as "Party Deposit" and "Party Balance" in the Department's audit report. The service charge was $11.88 per person. Fifty-six people attended the party, for a total service charge of $665.28.

As a threshold issue, it is the Taxpayer's responsibility to establish that the existing tax assessment is incorrect. As stated in IC § 6-8.1-5-1(c), "The notice of proposed assessment is prima facie evidence that the [D]epartment's claim for the unpaid tax is valid. The burden of proving that the proposed assessment is wrong rests with the person against whom the proposed assessment is made." Indiana Dept. of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012); Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 897 N.E.2d 289, 292 (Ind. Tax Ct. 2007). Consequently, a taxpayer is required to provide documentation explaining and supporting his or her challenge that the Department's position is wrong. Further, "[W]hen [courts] examine a statute that an agency is 'charged with enforcing . . . [courts] defer to the agency's reasonable interpretation of [the] statute even over an equally reasonable interpretation by another party.'" Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014). Thus, all interpretations of Indiana tax law contained within this decision, as well as the preceding audit, shall be entitled to deference.

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

Use tax is imposed by IC § 6-2.5-3-2(a), which states:

Also, 45 IAC 2.2-3-4 provides:

Therefore, when tangible personal property is used, stored, or consumed in Indiana, use tax is due unless sales tax was paid at the time of the transaction or unless the transaction is exempt from taxation in some manner.

Also of relevance, IC § 6-2.5-1-1 provides:

Next, IC § 6-2.5-1-2 states:

Finally, IC § 6-2.5-4-1 provides in relevant part:

The Indiana Tax Court explained unitary transactions in The Frame Station, Inc. v. Indiana Dept. of State Revenue, 771 N.E.2d 129, 130 (Ind. Tax 2001), when it wrote:

In the instant case, Taxpayer arranged for a holiday party in 2016. In the course of the audit, the Department saw two entries for payments to the caterer and determined that the amount paid for the event was a unitary transaction and so was a taxable purchase. The Department therefore imposed use tax on the entire amount which Taxpayer paid to the caterer.

Taxpayer protests that it did pay sales tax on a portion of the cost of the party. Specifically, in the course of the protest process, Taxpayer provided a copy of the caterer's event proposal which listed the cost per person for catering the event. That proposal listed a price for food and drinks plus sales tax on that amount, then listed a price for service without sales tax listed. These amounts were totaled for a price per person which included food, drinks, sales tax on the food and drinks, and service charge.

After review of this document, the Department agrees that Taxpayer has already paid a portion of the tax due on the catering for the 2016 holiday party. While the Department's audit was correct that the catering billing constituted a unitary transaction, as provided by IC § 6-2.5-1-1 and Frame Station, and that sales or use tax would be due on the entire amount of the transaction, if part of it has been paid then tax would only be due on the remaining untaxed portion. Taxpayer has met the burden imposed under IC § 6-8.1-5-1(c) of proving this portion of the proposed assessment wrong. Use tax is only due on the $665.28 representing service charges included in the unitary transaction, since sales tax was paid on the other amounts paid to the caterer. Therefore, the Department will recalculate the amount of use tax due and, since Taxpayer has already paid the entire amount of the assessments for the audit period, will refund the portion which was paid as sales tax to the caterer on the food and drink portion of the catering bill for the 2016 holiday party.

Taxpayer's protest is sustained.

II. Tax Administration–Penalty.

Taxpayer also protests the imposition of penalties pursuant to IC § 6-8.1-10-2.1. 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. 45 IAC 15-11-2(b) clarifies the standard for the imposition of the negligence penalty as follows:

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

Taxpayer states that the underpayment of sales tax and use tax was not intentional. Also, Taxpayer states that they have a use tax accrual and remittance system in place. After review of the documentation and analysis provided in the protest process, the Department agrees with Taxpayer's position. Therefore, waiver of penalties is warranted under 45 IAC 15-11-2(c). The Department notes that, since Taxpayer has now had penalties waived once, waiver may not be appropriate on any future assessments. As explained above, Taxpayer has already paid the assessments and so the amounts representing penalties will be refunded.

Taxpayer's protest to the imposition of penalties is sustained.

Taxpayer is sustained in Issue I regarding the imposition of use tax on the food and drink portion of the catering for its 2016 holiday party. Taxpayer is sustained in Issue II regarding the imposition of penalties. The Department will recalculate the amount due after taking these findings into account and will refund the overpaid amount to Taxpayer.

April 30, 2019