in-20260826-IR-045260277NRA: LETTER OF FINDINGS: 04-20251521

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 04-20251521 Sales Tax and Use Tax For Tax Years 2021 and 2022 HOLDING Corporation met its burden to show the Department's assessment was incorrect. ISSUE

I. Sales and Use Tax - Imposition.

Authority: IC 6-2.5-1-2; IC 6-2.5-2-1; IC 6-2.5-3-1; IC 6-2.5-3-2; IC 6-2.5-3-4; IC 6-2.5-4-1; IC 6-8.1-5-1; IC 6-8.1-5-4; Indiana Dept. of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463 (Ind. 2012); Indiana Dept. of State Revenue, Sales Tax Division v. RCA Corp., 310 N.E.2d 96 (Ind. Ct. App. 1974); Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); Rhoade v. Indiana Dept. of State Revenue, 774 N.E.2d 1044 (Ind. Tax Ct. 2002); USAir, Inc. v. Indiana Dept. of State Revenue, 623 N.E.2d 466 (Ind. Tax Ct. 1993); 45 IAC 2.2-2-1; 45 IAC 2.2-3-4; 45 IAC 2.2-3-8; 45 IAC 2.2-5-8. Taxpayer protests the assessments for additional sales tax and use tax. STATEMENT OF FACTS Taxpayer is an Indiana company, which installs roofs, gutters, siding, windows, awning, and fences. The Indiana Department of Revenue (“Department”) conducted a sales tax and use tax audit of Taxpayer's business records and tax returns for 2021 and 2022 tax years. Pursuant to the audit, the Department found Taxpayer did not remit use tax on certain purchases of tangible personal property, which Taxpayer used for its business and was required to remit as a consumer. Likewise, the Department found that Taxpayer had underreported sales tax, which it was required to collect and remit as a retail merchant. The Department issued a Notice of Proposed Assessment for additional sales tax and use tax. Taxpayer protested the assessment and requested a determination without a hearing. Taxpayer submitted additional documentation during the protest period. This Letter of Findings results. Additional facts will be provided as necessary.

I. Sales and Use Tax - Imposition.

DISCUSSION Taxpayer is an Indiana S Corporation. Taxpayer installs roofs, gutters, siding, windows, awning, and fences. Taxpayer charges its customers on either a “lump sum” (one-time and materials) basis or on a “time and materials” basis. The Department conducted a sales tax and use tax audit for calendar years 2021 through 2022, which revealed underreporting of both sales tax and use tax. As a result, the Department issued an assessment for additional sales tax and use tax. The assessment was based on the best information available because TP did not provide any purchase invoices, exemption certificates, description of job listings, or contracts to conduct the audit. Taxpayer protested the assessment and requested a determination without a hearing. Taxpayer submitted additional documentation during the protest period. As a threshold issue, it is the taxpayer's responsibility to establish that the existing tax assessment is incorrect. A proposed assessment is prima facie evidence that the Department's claim for the unpaid tax is valid. 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. Id.; See e.g., 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). 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); 45 IAC 2.2-2-1. A person who acquires property in a retail transaction is liable for the sales tax on the transaction. IC 6-2.5-2-1(b). Indiana also imposes a complementary excise tax called a “use tax” on “the storage, use, or consumption of tangible personal property in Indiana if the property was acquired in a retail transaction, regardless of the location of that transaction or of the retail merchant making that transaction.” IC 6-2.5-3-2(a). “Use” means the “exercise of any right or power of ownership over tangible personal property.” IC 6-2.5-3-1(a). The use tax is a functional equivalent to the sales tax. See Rhoade v. Indiana Dept. of State Revenue, 774 N.E.2d 1044, 1047 (Ind. Tax Ct. 2002). The complementary relationship between sales and use tax ensures non-exempt retail transactions that escape sales tax liability remain taxed. Id.; USAir, Inc. v. Indiana Dept. of State Revenue, 623 N.E.2d 466, 468 (Ind. Tax Ct. 1993). If sales tax is paid at the time of the transaction, an exemption from use tax is granted under IC 6-2.5-3-4. A statute which provides a tax exemption is strictly constructed against the taxpayer. Indiana Dept. of State Revenue, Sales Tax Division v. RCA Corp., 310 N.E.2d 96, 97 (Ind. Ct. App. 1974). To trigger the imposition of Indiana's use tax, tangible personal property must be acquired in a retail transaction. A taxable retail transaction occurs when (1) a party acquires tangible personal property as part of its ordinary business for the purpose of reselling the property; (2) that property is then exchanged between parties for consideration; and (3) the property is used in Indiana. See IC 6-2.5-1-2; IC 6-2.5-4-1(b) and (c); IC 6-2.5-3-2(a). Generally, all purchases of tangible personal property by persons engaged in the direct production, manufacture, fabrication, assembly, or finishing of tangible personal property are taxable. 45 IAC 2.2-5-8. IC 6-8.1-5-4(a) states: “Every person subject to a listed tax must keep books and records so that the department can determine the amount, if any, of the person's liability for that tax by reviewing those books and records.” IC 6-8-1.5-4(c) states: “A person must allow inspection of the books and records and returns by the department or its authorized agents at all reasonable times.” Taxpayer stated it was a “lump sum” contractor. Under IC 6-2.5-3-2(a) and 45 IAC 2.2-3-4, use tax is imposed on the storage, use, or consumption of tangible personal property in Indiana that was acquired in a retail transaction.45 IAC 2.2-3-8 explains that the conversion of construction materials into realty does not relieve the liability for any sales or use tax due on the acquisition of the materials, and the construction materials purchased by the contractor are subject to tax at the time of purchase or upon disposition unless the ultimate recipient could have purchased the materials exempt. The audit conducted by the Department revealed underreporting of use tax of Taxpayer's fixed assets. Expenses reported on Taxpayer's income tax returns, with use tax exposure, included: repairs & maintenance on leasehold improvements, advertising, auto & truck, miscellaneous and office expenses. Additionally, the audit revealed that Taxpayer may not have paid sales tax on purchases from its vendors. To support its protest, Taxpayer offered additional documentation, including: customer invoices; bank statements; the business' general ledger; accrual to cash reports; credit card reports for vendor purchases (including refund documentation from vendors); leasehold improvement invoices; and vehicle purchases. After review, the documentation Taxpayer submitted substantiated its 2021 and 2022 returns as filed regarding their sales tax and use tax obligations pursuant to IC 6-2.5-2-1 and IC 6-2.5-3-1 respectively. Therefore, Therefore, Taxpayer has met the burden imposed under IC 6-8.1-5-1(c) of proving the proposed assessment wrong. Taxpayer's protest of sales tax and use tax is sustained. FINDING Taxpayer's protest is sustained. June 24, 2026 Replaces Finding Document: New