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 This document is effective on its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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

Motor Carrier was unable to provide 2016 original source records sufficient to allow Indiana to accurately apportion IFTA taxes owed the various jurisdictions in which Motor Carrier's vehicles traveled; however, the Department agreed with Motor Carrier that it provided sufficient evidence to warrant abating the ten-percent IFTA penalty. Motor Carrier's objections to an IRP 2017 and 2018 penalty was unfounded because no such penalty was assessed.

I. International Fuel Tax Agreement and International Registration Plan - Penalties and Interest.

Authority: IC § 6-6-4.1-4(a); IC § 6-6-4.1-14(a); IC § 6-6-4.1-20; IC § 6-6-4.1-24(b); IC § 6-8.1-3-14; IC § 6-8.1-5-1(c); IC § 6-8.1-5-4(a); IC § 6-8.1-10-2.1(a)(2); IC § 6-8.1-10-2.1(a)(3); IC § 6-8.1-10-2.1(d); IFTA Articles of Agreement, § R1210 (2017); IFTA Articles of Agreement, § R1220 (2017); IFTA Procedures Manual, § P510.00 (2015); IFTA Procedures Manual, § P530.100 (2013); IFTA Procedures Manual § P540 (2015); IFTA Procedures Manual at § P550 (2015); 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); 45 IAC 15-11-2; International Fuel Tax Agreement, https://www.fin.gov.on.ca/en/tax/ifta/.

Taxpayer argues it is entitled to an abatement of any penalty and interest charges attributable to the Department's assessments of additional IFTA tax and IRP fees.

Taxpayer is an Indiana, multi-state motor carrier which - according to publicly available information - is "a leading power only transportation service provider with coverage throughout the continental United States." As a "power only provider," Taxpayer essentially offers only towing services on behalf of its customers; whatever cargo the customer has - livestock, household goods, building materials, animal feed - Taxpayer will arrange to transport that customer's loaded trailer. Taxpayer provides these year-round services to customers in Indiana and 47 other states including those states which are member jurisdictions.

The available information indicates that Taxpayer operates 18 leased power units and employs 18 drivers. Taxpayer's drivers travel both interstate and intrastate highways in providing Taxpayer's hauling services. Taxpayer chose Indiana as its base jurisdiction for purposes of the International Fuel Tax Association ("IFTA").

The Indiana Department of Revenue ("Department") conducted an IFTA and IRP audit, which resulted in the assessment of additional 2016 IFTA taxes and additional 2017 and 2018 IRP fees. Along with the assessment of the IFTA taxes, the Department also imposed penalty and interest charges.

Taxpayer disagreed with the penalty assessments on the ground that "the amount of the tax and penalties is excessive . . ." and that the Department's audit "did not find any blatant attempts to avoid taxation." Taxpayer submitted a protest to that effect. An administrative hearing was conducted by telephone during which Taxpayer's representative explained the basis for the protest. This Letter of Findings results.

I. International Fuel Tax Agreement and International Registration Plan - Penalties and Interest.

The Department conducted a fuel and mileage tax audit of Taxpayer's travel records and determined that Taxpayer owed additional 2016 IFTA fuel tax. Simultaneously, the Department's audit also found that Taxpayer owed additional 2017 and 2018 IRP fees.

The assessment was attributable to the Department's finding that Taxpayer's "records presented for audit were not compliant and . . . rated as inadequate."

The audit explains the reasons for finding that Taxpayer's records were inadequate.

. . . .

The audit report concluded that the absence of these records "substantially impacted the audit process" because, "While trip reports were provided the necessary information was not contained on them."

In effect, the Department - representing Indiana as Taxpayer's "base jurisdiction" - was unable to accurately apportion the proper amount of tax owed to the various state jurisdictions in which Taxpayer traveled during the years at issue.

As a result and based upon the limited information available, the Department concluded that Taxpayer owed approximately $22,000 in additional IFTA tax. Along with that tax, the Department also assessed approximately $3,400 in interest and $2,200 in penalties. In addition, the Department assessed Taxpayer approximately $4,800 in IRP fees.

The IRP audit report notes that imposition of the additional IRP fees was also attributable to "inadequate records."

While generally believing that the assessments are excessive, Taxpayer does not challenge the substantive audit mileage calculations which underlie those amounts. Taxpayer's protest is therefore based on its objections to the $2,200 penalty assessment and $3,400 in interest charges.

Taxpayer previously paid both the entire IFTA assessment and IRP fee amounts in order to avoid the accumulation of additional charges. Taxpayer expects that if its protest is sustained, it will receive a refund of those amounts.

As a threshold issue, it is Taxpayer's responsibility to establish that the existing proposed penalty and interest 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, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007).

IFTA is an agreement between various United States jurisdictions and certain Canadian provinces allowing for the equitable apportionment of previously collected motor carrier fuel taxes. International Fuel Tax Agreement, https://www.fin.gov.on.ca/en/tax/ifta/ (last visited March 12, 2020). The agreement's stated goal is to simplify the taxing, licensing, and reporting requirements of interstate motor carriers such as Taxpayer. The agreement itself is not a statute but was implemented in Indiana pursuant to the authority specifically granted under IC § 6-6-4.1-14(a) and IC § 6-8.1-3-14.

Taxpayer operated trucks in Indiana. As such, it operated on Indiana highways and consumed motor fuel while on those highways. Therefore, the Taxpayer was subject to Indiana motor carrier fuel taxes under the IFTA. IC § 6-6-4.1-4(a).

Tax assessments of motor carrier fuel tax under IFTA are presumed to be valid. IC § 6-6-4.1-24(b). In addressing any challenges to those assessments, the taxpayer bears the burden of proving that any assessment is incorrect. Id. The taxpayer has a duty to maintain books and records and present them to the Department for review upon the Department's request. IC § 6-6-4.1-20; IC § 6-8.1-5-4(a).

Taxpayer, as an IFTA licensee, is subject to the record-keeping rules of IFTA. According to the IFTA Procedures Manual, § P510.00 (2015) in part, imposes upon licensees the responsibility to preserve verifiable mileage and fuel purchase records:

(Emphasis added).

The IFTA Procedures Manual at § P550 (2015) imposes upon IFTA licensees the responsibility of maintaining and then providing verifiable fuel purchase and fuel consumption records.

The Procedures Manual allows licensees to maintain these records in various ways but in whatever format maintained, the Manual sets out specific requirements. IFTA Procedures Manual § P540 (2015) provides:

However, Taxpayer does not disagree the third-party's mileage tracking records were deficient.

In the absence or failure to provide mileage and fuel records, IFTA Procedures Manual, § P530.100 (2013) states that: "Failure to maintain records upon which the licensee's true liability may be determined or to make records available upon proper request may result in an assessment as stated in IFTA Articles of Agreement Section R1200."

IFTA Articles of Agreement, § R1210 (2017) in relevant part, states that:

(Emphasis added).

Exercising its authority and responsibility as the Taxpayer's chosen base jurisdiction, the Department assessed the additional IFTA tax and the now disputed penalty and interest amounts.

As noted above, Taxpayer objects to the "taxes, interest, and penalties for IFTA tax and IRP fees" on the ground that the assessments are in excess of what "this case warrants." Taxpayer repeats that the Department's audit found no "blatant attempts to avoid taxation" and that it "did not try to purchase agricultural diesel nor did [Taxpayer] over-report mileage." Taxpayer finds that assessments were entirely attributable to "insufficient record keeping."

Moreover, Taxpayer states that it has "taken steps to avoid problems in the future by installing GPS units in all trucks and to acquire software programs to gather this data accurately."

Finally, Taxpayer states the assessments are "an overt burden on [a] small company and is equivalent to a full year's worth of profit" inhibiting Taxpayer from expanding its business in the future.

IFTA Articles of Agreement, § R1220 (2017) provides as follows:

(Emphasis added).

In the absence of specific guidance provided under either the IFTA Articles of Agreement or the IFTA Procedures Manual and because the ten-percent penalty is retained by the base jurisdiction, the Department turns to Indiana's own statutory and regulatory regime for direction.

IC § 6-8.1-10-2.1(a)(3) requires that a penalty be imposed if the tax deficiency results from the taxpayer's negligence. IC § 6-8.1-10-2.1(a)(2) requires a ten-percent penalty if the taxpayer "fails to pay the full amount of tax shown on the person's return on or before the due date for the return or payment."

IC § 6-8.1-10-2.1(d) states that, "If a person subject to the penalty imposed under this section can show that the failure to . . . pay the full amount of tax shown on the person's return . . . or pay the deficiency determined by the department was due to reasonable cause and not due to willful neglect, the department shall wave the penalty."

Departmental regulation 45 IAC 15-11-2(b) defines negligence as "the failure to use such reasonable care, caution, or diligence as would be expected of an ordinary reasonable taxpayer." Negligence is to "be determined on a case-by-case basis according to the facts and circumstances of each taxpayer." Id.

Departmental regulation 45 IAC 15-11-2(c) requires that in order to establish "reasonable cause," the taxpayer must demonstrate that it "exercised ordinary business care and prudence in carrying out or failing to carry out a duty giving rise to the penalty imposed . . . ."

Under IC § 6-8.1-5-1(c), "The burden of proving that the proposed assessment is wrong rests with the person against whom the proposed assessment is made." An assessment - including the ten-percent IFTA penalty - is presumptively valid.

Nonetheless, Taxpayer maintains that for the reasons stated above, that under IC § 6-8.1-5-1(c) it has established that the IFTA penalty assessment was wrong and that the penalty should now be abated. The Department agrees. Although Taxpayer "missed the mark" in its efforts to maintain, retain, and provide the requested documentation, there is no indication that this failure was "not due to willful neglect . . . ."

In arriving at that conclusion, the Department takes special notice of Taxpayer's efforts to enhance its record-keeping responsibilities by installing the GPS units and acquiring computer software which aids in tracking travel mileage. In doing so, Taxpayer is acting in a fashion which reflects "ordinary business care and prudence . . . ."

As to the issue of the interest charges, Taxpayer has not provided authority and the Department can point to no authority which authorizes abatement of interest. The Department may not abate these charges.

Taxpayer objected to penalties attributable to the assessment of the IRP fees. Presumably, Taxpayer cites to the same objections noted above in the discussion of the IFTA penalties. However, a review of the IRP assessment establishes that no additional penalties was assessed.

To the extent that Taxpayer challenged the Department's imposition of the IFTA penalties, Taxpayer's protest is sustained. Because there was no penalty associated with the IRP fee assessments and because the Department may not abate interest charges, Taxpayer's challenge on these issues is moot.

June 17, 2020