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 This document is effective as of its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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

Corporation's tender truck, purchased in 2017, is partially eligible for the agricultural exemption. The tender truck purchased in 2015 is not eligible for the exemption.

I. Gross Retail Tax - Agricultural Exemption.

Authority: IC § 6-8.1-5-1(c); IC § 6-2.5-5-2; 45 IAC 2.2-5-4; 45 IAC 2.2-5-6; 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, 867 N.E.2d 289 (Ind. Tax Ct. 2007); Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); Sales Tax Information Bulletin 9 (January 2019).

Taxpayer protests the imposition of use tax on the purchase of two tender trucks.

Taxpayer is an Indiana Corporation engaged in manufacturing livestock feed. As the result of an audit, the Indiana Department of Revenue ("Department") found that Taxpayer owed use tax on taxable purchases upon which neither sales tax nor use tax was already paid. The Department therefore issued proposed assessments for use tax for the years 2015-2017. Taxpayer protested a portion of the assessments. The Department held a hearing and issued Letter of Findings 04-20182351 denying Taxpayer's protest. Taxpayer petitioned for a rehearing, which was granted. The rehearing was held and this Supplemental Letter of Findings results. Additional facts will be provided as necessary.

I. Gross Retail Tax - Agricultural Exemption.

Taxpayer protests the Department's proposed assessments of use tax for 2015-2017. The Department based those assessments on the Taxpayer's purchase of and repair parts for two tender trucks. Taxpayer argued that the tender trucks were eligible for the agricultural exemption. The Department held an administrative hearing and issued its initial Letter of Findings #04-20182351 ("LOF") denying Taxpayer's protest by referring to both IC § 6-2.5-5-2 and Sales Tax Information Bulletin 9 (2019) Example 6. The Department found that Taxpayer's delivery of feed did not qualify for the agricultural exemption. Taxpayer's argument on rehearing is that its tender trucks and the related repair purchases are exempt from sales tax and use tax under IC § 6-2.5-5-2 and 45 IAC 2.2-5-6. Moreover, it contends that the facts align more with Sales Tax Information Bulletin 9 (2019) Example 11.

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.

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

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

Therefore, the purchase and/or use of tangible personal property is subject to sales or use tax unless an applicable exemption exists.

In the course of the audit period, the statute providing the agricultural exemption was amended twice. Therefore, three different versions of that statute existed in three consecutive years, and each version must be applied to the appropriate year. In 2015, IC § 6-2.5-5-2 provided:

Effective in 2016, IC § 6-2.5-5-2 was amended and provided:

Effective in 2017, IC § 6-2.5-5-2 was amended and provided:

The emphasized portions of IC § 6-2.5-5-2 cited above indicate the changes from the previous versions. Since the audited years span all three versions of IC § 6-2.5-5-2, each purchase will be evaluated under the version in effect at the time of the transaction.

For all years at issue 45 IAC 2.2-5-6 in relevant parts provided:

For all years at issue 45 IAC 2.2-5-7 provided:

Regarding Truck A, Taxpayer purchased it in 2015, therefore the version of IC § 6-2.5-5-2 in effect in 2015 is controlling here. At that time, IC § 6-2.5-5-2 only allowed use of the agricultural exemption if the purchaser of the tangible personal property was the owner of the land being used for agricultural purposes and if the tangible personal property was directly use in the direct production of agricultural products. Since Taxpayer is a service provider and did not own the land or livestock being raised on that land, under IC § 6-2.5-5-2 as in effect in 2015, Truck A was not exempt at the time of purchase.

Taxpayer purchased Truck B in 2017, by which point IC § 6-2.5-5-2 had been amended to add subsection (c). Taxpayer is in the feed business and uses Truck B after the feed production is complete. Truck B transports the feed from Taxpayer's facility to its customer's farms and places the food in front of the animals, as established in picture evidence at the administrative hearing. For all years at issue, under 45 IAC 2.2-5-6(d) sales of agricultural machinery used directly in feeding exempt animals, poultry, etc., are exempt from tax. However, that exemption does not extend to machinery used in transportation of feed prior to the actual feeding process. That feeding process includes actions where the food is placed in front of the animals to eat. Truck B has a modified arm that extends to deposit the feed into bins for Taxpayer's customers. Taxpayer provided picture verification that Truck B sometimes deposits the feed directly into the bin where the animals feed from. All of Taxpayer's customers pay for the feed, own or rent property that is used for agricultural production, and are occupationally engaged in agricultural production, as required in IC § 6-2.5-5-2(c).

Truck B also will transport the feed from Taxpayer's manufacturing facility to its customers' farms and deposit it into storage bins. Since storage bins do not directly feed the livestock, depositing feed into storage bins does not qualify for the exemption provided under IC § 6-2.5-5-2(c)(1) and 45 IAC 2.2-5-6(d). Thus Truck B is partially exempt. Since there is no documentation establishing the actual time Truck B was used in an exempt manner, the Department will consider Truck B and any repair parts purchased for it as fifty percent taxable and fifty percent exempt. Further, while Truck A was taxable at the time it was purchased, due to the change in IC § 6-2.5-5-1 effective in 2017, repair parts purchased for Truck A in 2017 will also be considered as fifty percent taxable and fifty percent exempt.

Sales Tax Information Bulletin 9 (2019) in relevant part provides examples of agricultural machinery, tools, equipment, and buildings used directly in direct production and are thus exempt. However, the tax years at issue are 2015, 2016, and 2017, thus Sales Tax Information Bulletin 9 (2019) is not applicable. During the tax years at issue, Sales Tax Information Bulletin 9 published in 2015 and 2017 applied. Neither the 2015 nor 2017 different versions of Sales Tax Information Bulletin 9 contemplate the issue Taxpayer and the Department attempted to address in Letter of Findings #04-20182351. Therefore, Sales Tax Information Bulletin 9 (2019) will not be relied on in this Supplemental Letter of Findings. Rather, the statutes and regulations from 2015 through 2017 govern this issue.

In conclusion, the different versions of IC § 6-2.5-5-2 in effect during the audit years lead to the conclusion that Taxpayer's tender truck purchases in different years have different taxable status. Truck A was not exempt under IC § 6-2.5-5-2 as in effect in 2015. However, Truck B, plus repair parts purchased in 2017 for both Truck A and Truck B, are 50 percent exempt under IC § 6-2.5-5-2(c) as in effect in 2017. The Department notes that, since Taxpayer is now aware of the requirements of IC § 6-2.5-5-1 regarding taxable and exempt use of its tender trucks, from this point forward documentation is required to prove exempt uses under IC § 6-2.5-5-2.

Taxpayer's protest is sustained in part and denied in part.

April 21, 2020