in-20261028-IR-045260399NRA: SUPPLEMENTAL LETTER OF FINDINGS: 04-20241963

DEPARTMENT OF STATE REVENUE SUPPLEMENTAL LETTER OF FINDINGS: 04-20241963 Use Tax For The Years 2018, 2019, and 2020 HOLDING Business provided documentation establishing the Department's assessment was incorrect. ISSUE

I. 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; Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); 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, Black's Law Dictionary (12th ed. 2024); Sales Tax Information Bulletin 28S (January 2019). Taxpayer protests the assessment of use tax. STATEMENT OF FACTS Taxpayer operates a business located in Indiana. Taxpayer was subject to an audit related to tax years 2018, 2019, and 2020. During the audit, the Indiana Department of Revenue ("Department") determined that Taxpayer made numerous purchases in 2020 without the payment of sales tax at the time of purchase or self-assessing use tax. As a result, the Department issued a Notice of Proposed Assessment for use tax. Taxpayer protested the assessment and requested resolution with a hearing. An administrative hearing was scheduled, which Taxpayer did not attend. Taxpayer's representative later contacted the Department, explained that neither he nor Taxpayer received notice of the original hearing date, and requested a rehearing. This Supplemental Letter of Findings results from the rehearing request. Additional facts will be provided as necessary.

I. Use Tax – Imposition.

DISCUSSION The Department conducted an audit of Taxpayer's sales and use tax related to tax years 2018, 2019, and 2020, and determined that Taxpayer purchased tangible personal property without the payment of sales tax during 2020. Taxpayer also did not self-assess use tax on the purchases. As a result, the Department assessed use tax. Taxpayer protested the assessment and explained that the Indiana office run by Taxpayer operates similarly to a franchise location of an out-of-state corporate office ("Company"). Taxpayer stated that it was not responsible for sales or use tax because Company made all purchases on Taxpayer's behalf. In support, Taxpayer provided a copy of its "Business Services Agreement" with Company. 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). An assessment, including taxpayer's penalty assessment, is therefore presumed valid. A taxpayer must provide documentation explaining and supporting that the Department's position is wrong. Additionally, "[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). 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 construed 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 retail merchant acquires tangible personal property as part of its ordinary business for the purpose of reselling the property; (2) that property is then exchanged between the retail merchant and its customer for consideration; and (3) the property is used, stored, or consumed in Indiana. See IC 6-2.5-1-2; IC 6-2.5-4-1(b) and (c); IC 6-2.5-3-2. The Department determined that Taxpayer made purchases during tax year 2020 without paying sales tax at the time of purchase or self-assessing use tax and issued an assessment. During the protest review, Taxpayer explained that its Indiana office operates pursuant to the terms provided by Company. Taxpayer's location is subject to control and guidelines provided by Company. Taxpayer provided a copy of its "Business Services Agreement" ("Agreement") contract between itself and Company stating that the Agreement provided relevant details of the business relationship. Under the terms of the Agreement, Company maintains control over items such as financial records and bank statements. Company allows Taxpayer the use of its trademark and trade name. Company provides support for the day-to-day operations by furnishing equipment, furniture, and related repair and maintenance services. Company also furnishes advertising and marketing services, insurance coverage, payroll services, and billing and collection services for Taxpayer's patients, insurance companies, and third-party vendors. By signing the Agreement, Taxpayer agrees to comply with the terms such as allowing Company to maintain records, assist with staffing of the location, and purchase specified items and services from vendors selected by Company. Taxpayer also agrees to deposit all practice revenues into an account managed by Company and allow Company to pay expenses like salaries, bonuses, employee benefits, and rent on behalf of Taxpayer. Finally, under the Agreement, Taxpayer pays Company a monthly fee based on the monthly net income of the location. Taxpayer is responsible for federal, state, and local income taxes. Upon termination of the Agreement, Taxpayer surrenders control of the Indiana location and all items provided by Company, including all tangible personal property Company ordered on behalf of Taxpayer and other associated practice items. The Department determined that tangible personal property listed in Taxpayer's inventories was subject to sales and/or use tax to be imposed upon Taxpayer; however, the tangible personal property listed as inventory by Taxpayer was not purchased by Taxpayer as part of a retail transaction. Pursuant to Taxpayer's explanation, Company purchases items on behalf of Taxpayer. Taxpayer could specify that certain items are needed as well as the quantity, but the purchasing was completed strictly by Company. Under this scenario, only the direct purchaser of the tangible personal property would owe sales tax was a result of the transaction, i.e., Company. Taxpayer was never charged for the tangible personal property because Company ordered the items with delivery directly to Taxpayer's location. Additionally, if any item was billed to another party, it was only to one of Taxpayer's patients, and said billing was performed by Company and not Taxpayer. The documentation supplied during the protest establishes that Taxpayer is a service provider and not a retail consumer. Per the terms of the Agreement, Company always maintains title to property purchased on behalf of Taxpayer and should the parties terminate the agreement, Company retains title to the property. Company bills patients for dental services through the corporate office, including tangible personal property used during the dental procedures. Taxpayer does not purchase any tangible personal property as part of a retail transaction as described in IC 6-2.5-4-1. In essence, Taxpayer is purchasing a "services contract" from Company via the Agreement and is never part of the retail sale of tangible personal property. Given the nature of the relationship between Taxpayer and Company, Taxpayer was not obligated to pay sales tax or use tax on the purchase of the tangible personal property at issue because it did not purchase the tangible personal property, as required by IC 6-2.5-1-2; IC 6-2.5-4-1(b) and (c); IC 6-2.5-3-2(a). Company controlled the purchases and retained title on the items purchased on Taxpayer's behalf. Company was responsible for any sales tax related to the purchases. Thus, Taxpayer is also not responsible for self-assessing use tax and had met the burden of proving the proposed assessment was wrong as required by IC 6-8.1-5-1(c). FINDING Taxpayer's protest is sustained. August 10, 2026 Replaces Finding Document: New