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 This document is effective as of its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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

Individual was required to pay use tax based on the fair market value of the vehicle that he bought from his LLC. Moreover, Individual was not entitled to the exemption sought on the ST-108E Certificate of Gross Retail or use Tax Exemption.

I. Tax Administration - Use Tax.

Authority: IC § 6-8.1-5-1; IC § 6-2.5-3-2; 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); Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579, (Ind. 2014); Black's Law Dictionary, (11th ed. 2019)

Taxpayer is an individual Indiana resident. He purchased a vehicle in 2012 and paid sales tax on that transaction. In 2013 he sold the vehicle to his LLC, of which he is both the president and CEO, for $1.00. In 2016 he purchased the vehicle back from the LLC. He signed the sale agreement on behalf of himself and the LLC. The Indiana Department of Revenue ("Department") made adjustments to the Taxpayer's return. The Department then assessed use tax based on the fair market value on the car in 2016. Thus, the Taxpayer protests the assessment. A hearing was conducted and this Letter of Finding results. Additional facts will be provided as necessary.

I. Tax Administration - Use Tax.

Taxpayer protests the proposed assessment of use tax based on the fair market value of the car he purchased from his LLC. Taxpayer indicated that he and the LLC are both one and the same, and because of that no use tax was due. Moreover, he completed a ST-108E Certificate of Gross Retail or use Tax Exemption and elected to take the exemption for an individual to individual sale. Individual contends that because no money was transferred in the sale, no tax is due. Taxpayer believes it would be double jeopardy to pay use tax on this purchase because he paid sales tax when he originally purchased the vehicle in 2012. He contends that he followed advice from his local BMV when buying the vehicle back from his LLC.

As a threshold issue, it is 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 department'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, 867 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 shall be entitled to deference.

IC § 6-2.5-3-2 in relevant parts provides guidance on use tax:

Taxpayer claims that because he paid sales tax on the vehicle in 2012 that it is double jeopardy to pay tax on the present transaction. Double jeopardy is a criminal concept, but assuming he meant double taxation, use tax is still due. Sales tax is a transactional tax, which means that on every event, sales tax is due. The sale from Taxpayer to the LLC in 2013 was a transaction and the 2016 sale back to the Taxpayer was a transaction. Per evidence presented by the Taxpayer, the vehicle was acquired in an isolated sale and titled, licensed, and registered for use in Indiana. Since sales tax was not collected by the seller in 2016, use tax is due on the vehicle, as provided by IC § 6-2.5-3-2 and 45 IAC 2.2-3-5(d).

To determine the amount we must look at the transaction. In this case, Taxpayer bought the car from LLC for $0.00. An effective way to determine the value of an item is to determine its value in an arm's length transaction. An arm's length transaction is defined as "(1) a transaction between two unrelated and unaffiliated parties. (2) A transaction between two parties, however closely related they may be, conducted as if the parties were strangers, so that no conflict of interest arises." Black's Law Dictionary 983 (11th ed. 2011). Because the transaction between taxpayer and his LLC fails the definition of an arm's length transaction the Department determined the fair market value of the vehicle and assessed it to the taxpayer.

While Taxpayer is the sole member of LLC, Taxpayer is not LLC. An LLC is "A statutorily authorized business entity that is characterized by limited liability for and management by its members and managers, and taxable as a partnership for federal income-tax purposes." Black's Law Dictionary (11th ed. 2011). Taxpayer and LLC are two different entities. Taxpayer is a person and LLC is a commercial enterprise that holds itself out to the public as a business. Taxpayer is an individual person and does not conduct the business of LLC. That is precisely why Taxpayer created the LLC, so not to avail himself to lawsuits based on the actions of his insurance company. Not only does this disallow the exemption claimed on the ST-108E, as it was an LLC to an individual, but it also undermines notion that the transaction was arm's length.

In conclusion, this is neither double jeopardy nor double taxation because 45 IAC 2.2-3-5 provides that each transaction stands alone. The transaction was not arm's length because it was not exposed to the market. Lastly, Taxpayer and LLC are distinct and separate entities. Thus, Taxpayer has not met the burden imposed under IC § 6-8.1-5-1(c) of proving the proposed assessment wrong.

Taxpayer's protest is denied.

December 31, 2019