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 is provided for the convenience of the reader and is not part of the analysis contained in this document

Sale for resale exemption is not allowed under Gasoline Use Tax; therefore, Company is not entitled to a refund of Gasoline Use Tax.

I. Use Tax–Gasoline.

Authority: IC § 6-2.5-8-1; IC § 6-2.5-2-1; IC § 6-2.5-3.5-25; IC § 6-2.5-3.5-19; IC § 6-2.5-3.5-21; Indiana Dep't of State Revenue v. Kimball Int'l Inc., 520 N.E.2d 454 (Ind. Ct. App. 1988); Indiana Dep't of State Revenue, Sales Tax Division v. RCA Corp., 310 N.E.2d 96 (Ind. Ct. App. 1974); Indiana Dept. of State Revenue v. Hertz Corp., 457 N.E.2d 246 (Ind. Ct. App. 1983); Information Bulletin 83 (June 2014).

Taxpayer protests its refund denial.

Taxpayer is a vehicle rental company conducting business in Indiana. In February 2019 Taxpayer filed a claim for refund with the Indiana Department of Revenue ("Department") for use tax paid on gasoline for tax years 2016-2018. The Department denied Taxpayer's refund request. Taxpayer protested this denial. An administrative hearing was held on Taxpayer's protest, and this decision results. Additional facts will be provided as necessary.

I. Use Tax–Gasoline.

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). A person who acquires property in a retail transaction (a "retail purchaser") is liable for the sales tax on the transaction.

IC § 6-2.5-3.5-25 discusses exempt transactions, refunds, and procedures:

Taxpayer claims it is exempt from Gasoline Use Tax ("GUT") because it resells the gas as part of its rental agreement with customers. 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). 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 101.

GUT replaced prepaid sales tax. GUT is collected at the distributor level and is owed by the merchant that purchases the gas, whereas with prepaid sales tax the merchant prepaid sales tax on gasoline. In July 1, 2014, the General Assembly specifically wanted to move the collection responsibility up the supply chain to take away the responsibility from the merchant, thus the General Assembly enacted GUT. GUT will not be collected when a qualified distributor sells to qualified distributor or exports the gasoline to another state. IC § 6-2.5-3.5-16 states:

Taxpayer explained in its protest letter that the gasoline use tax was passed by the Indiana legislators to facilitate the collection of the gross retail tax by shifting the point of collection from the retailer to the distributor; "[gasoline use tax] was not intended to provide for a material increase in tax revenue, or remove any exemptions, or otherwise change the economic burden of the tax."

In addition, Taxpayer states that it is purchasing fuel to resell to its customers for ultimate consumption, and therefore its original purchase of the fuel is a purchase for resale, which is exempt from the gross retail tax. Taxpayer's protest goes onto to states that "Pursuant to I.C. § 6-.5-3.5-25, 'if a sale of gasoline is exempt from the gasoline use tax, the person that pays the tax to the retail merchant may file a claim for refund with the Department.'" Taxpayer goes on to rely on Indiana Dept. of State Revenue v. Hertz Corp., stating that the Court of Appeals affirmed that Taxpayer's purchase of fuel for rental vehicles were purchases for resale and therefore not subject to the gross retail tax, which was imposed on the sales of gasoline at the time of purpose. 457 N.E.2d 246, 250 (Ind. Ct. App. 1983).

Taxpayer also refutes the Department's Information Bulletin 83. Information Bulletin 83, 20140625 Ind. Reg. 045140229NRA (June 2014) states that "Exemptions available to taxpayers under IC 6-2.5-5 (other than the sale for resale exemption under IC 6-2.5-5-8) are also available to taxpayers for gasoline use tax." Taxpayer states Information Bulletin 83 is inconsistent with the law because the law allows for sale of resale exemption for gasoline use tax; therefore, Information Bulletin 83 is incorrect.

First the Department notes that IC § 6-2.5-3.5-19 states:

In addition IC § 6-2.5-3.5-21 states:

In this instance, while Hertz does state that fuel qualifies for the sale for resale exemption, that case came out before the Gasoline Use Tax statute was enacted; the case was published in 1983 and GUT was effective as of July 1, 2014. Thus, the Department cannot rely on the Hertz case to support Taxpayer's position. Taxpayer's business is not a business that sells gasoline, it is in the business of rental vehicles. Taxpayer also argues that, if they have to pay GUT, it is unfair to charge sales tax on the empty tank/prepay-for-full-tank fuel charges. Because GUT is not the sales tax, but a separate tax entirely, it is actually within the law for sales tax to be imposed on the fuel charges, because within the definition of "gross retail income," any taxes paid by the merchant (including GUT) passed on to the purchaser are subject to sales tax per IC 6-2.5-1-5(a)(2).

In addition, Information Bulletin 83 states that the sale for resale exemption does not apply as long as the GUT has been effective; this has always been the Department stated, published interpretation. GUT replaces the prepaid sales tax on gasoline collected from the retail merchant. To allow the "sale for resale" exemption for a merchant would defeat the purpose of moving the collection responsibility to distributors. Taxpayer has not provided information as to how this transaction is exempt from GUT since the sale for resale exemption is not allowed under GUT. Thus, Taxpayer's protest regarding GUT is denied.

Taxpayer's protest is denied.

May 19, 2020