in-20251126-IR-045250670NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 04-20242584 Sales and Use Tax For the Tax Years 2020 and 2021 HOLDING Out-of-State Business provided verifiable documents to substantiate that the assessments were overstated and the penalty should be abated. ISSUES

II. Tax Administration – Penalty.

Authority: IC 6-8.1-10-2.1; 45 IAC 15-11-2. Taxpayer requested that the penalty be abated. STATEMENT OF FACTS Taxpayer is an out-of-state company doing business in Indiana and also sells products online. Taxpayer periodically files Indiana tax returns. Taxpayer closed its Indiana office in late 2020. The Indiana Department of Revenue (“Department”) audited Taxpayer’s business records and tax returns for the tax years 2020 and 2021. Pursuant to the audit, the Department determined that Taxpayer failed to maintain adequate business records to support that it properly remitted sales and use taxes concerning its sales and purchases of tangible personal property. As a result, the Department proceeded to assess Taxpayer based on the best information available during the audit (“BIA assessment”). Taxpayer submitted additional documentation and protested the BIA assessment. A hearing was held. This final determination ensues.

I. Sales and Use Tax – Imposition.

DISCUSSION Taxpayer submitted additional documents to support its protest that the BIA assessments were overstated. Taxpayer first argued that it was not liable for additional sales tax on sales that were exempt from the Indiana sales tax. In addition, Taxpayer argued that it was not responsible for additional use tax on certain purchases. The issue thus is whether Taxpayer provided verifiable documents to support its protest. Every person who is subject to a listed Indiana tax must keep books and records, including all source documents, “so that the [D]epartment 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(a). If the Department “reasonably believes that a person has not reported the proper amount of tax due,” it “shall make a proposed assessment of the amount of the unpaid tax on the basis of the best information available” to the Department. IC 6-8.1-5-1(b). Notices of proposed assessment issued by the Department are prima facie evidence that the Department’s assessments are correct; the burden of proving the assessment is incorrect rests with the taxpayer. IC 6-8.1-5-1(c). Poorly developed or non-cogent arguments are subject to waiver. Scopelite v. Indiana Dep’t of Local Gov’t Fin., 939 N.E.2d 1138, 1145 (Ind. Tax Ct. 2010); Wendt LLP v. Indiana Dep’t of State Revenue, 977 N.E.2d 480, 486 n.9 (Ind. Tax Ct. 2012). When submitting evidence as part of its protest, the taxpayer needs to specify and explain the portions of the evidence that it believes to be relevant. As the Indiana Tax Court has noted (in the context of a summary judgment motion): “the Court will not consider” exhibits “on the off chance that it might find, on its own and undirected, some fact that supports” a claim, and “the Court is not required to search for specific facts on which” a party relies. Express Scripts Inc. v. Indiana Dep’t of State Revenue, 170 N.E.3d 273, 279 (Ind. Tax Ct. 2021). When an agency is charged with enforcing a statute, courts defer to the agency’s reasonable interpretation of that statute “over an equally reasonable interpretation by another party.” Indiana Dep’t of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014). Taxpayer here is a retail merchant who protested the BIA assessment concerning (i) sales tax on tangible personal property sold to the customers and (ii) use tax on tangible personal property it purchased and used to conduct its business in Indiana. This final determination addresses each, as follows: 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 “[r]etail transaction” is “a transaction of a retail merchant that constitutes selling at retail as described in IC [§] 6-2.5-4-1 [or] . . . in any other section of IC 6-2.5-4.” IC 6-2.5-1-2(a). Selling at retail occurs when a person “(1) acquires tangible personal property for the purpose of resale; and (2) transfers that property to another person for consideration.” IC 6-2.5-4-1(b). IC 6-2.5-2-1(b) further provides that “The person who acquires property in a retail transaction is liable for the tax on the transaction and [] shall pay the tax to the retail merchant as a separate added amount to the consideration in the transaction.” If the retail merchant fails to collect the sales tax, the retail merchant “is personally liable for the payment of those taxes, plus any penalties and interest attributable to those taxes, to the state.” IC 6-2.5-9-3; 45 IAC 2.2-8-12. Pursuant to 45 IAC 2.2-8-12(b), “[r]etail merchants are required to collect sales and use tax on each sale which constitutes a retail transaction unless the merchant can establish that the item purchased will be used for an exempt purpose.” 45 IAC 2.2-8-12(d) also cautions, “[u]nless the seller receives a properly completed exemption certificate the merchant must prove that sales tax was collected and remitted to the state or that the purchaser actually used the item for an exempt purpose. It is, therefore, very important for the seller to obtain an exemption certificate in order to avoid the necessity for such proof.” Specifically, if a purchaser issues an exemption certificate and asserts that the retail transaction is exempt from the sales tax, such exemption certificate issued by the purchaser “shall not be valid unless it is executed in the prescribed and approved form and unless all information requested on such form is completed.” 45 IAC 2.2-8-12(f). The retail merchant also must maintain proper records to substantiate sales of interstate commerce. 45 IAC 2.2-8-12(e). Relevant records to support such “exempt sale must be maintained by the seller for at least three (3) years after the due date of the tax return upon which such exempt transaction is reported.” 45 IAC 2.2-8-12(g). In this case, during the audit, the Department found that Taxpayer underreported its total sales and exempt sales. Specifically, the audit report noted, in part: The Department’s audit thus properly assessed sales tax on the otherwise taxable sales in the absence of the verifiable records. Throughout the protest process, Taxpayer submitted additional documents, including various exemption certificates, to support its assertion that the BIA assessment of sales tax for both 2020 and 2021 were overstated. Upon review, the Department is prepared to accept thirteen exemption certificates. But the Department is not able to agree and must decline the remaining exemption certificates offered. Those documents were not properly executed and were invalid. As such, transactions based on those invalid certificates did not qualify for the sales tax exemption. There is no question that Taxpayer entered into retail transactions for which — absent an exemption — Taxpayer was required to collect sales tax. Taxpayer is reminded that sales tax becomes due at the time of the transaction; either the purchaser is exempt at the time of the transaction or it is not exempt. If the purchaser claims an exemption at the time of the retail transaction, the exemption certificate should be obtained at the time the transaction occurs; otherwise, the burden of proving the transaction was exempt becomes measurably more difficult. Taxpayer thus remained responsible for the sales tax on sales to those customers with no valid exemption certificates. In addition to the sales tax, Indiana also imposes a complementary use tax on tangible personal property that is stored, used, or consumed in the state. IC 6-2.5-3-1 et seq. An exemption from use tax is granted for transactions where the sales tax was paid at the time of purchase pursuant to IC 6-2.5-3-4. The Department used the best information available during the audit because Taxpayer was not able to provide documents requested, such as purchase invoices. Throughout the protest process, Taxpayer stated that its physical store location in Indiana was closed in October 2020. Taxpayer thus argued that it was not responsible for use tax assessed after October 31, 2020. Taxpayer also asserted that several items were purchased but used outside of Indiana. After a careful review of Taxpayer’s supporting documents, the Department is prepared to agree that the BIA assessment concerning Taxpayer’s assets was overstated. Taxpayer was partially responsible on use tax concerning Asset Numbers 1480 and 1515. But Taxpayer remained fully responsible for the use tax on Asset Numbers 11, 1459, 1485, 1497, 1501, 1509, 1524, and 1528, because its supporting documents failed to substantiate its protest. Finally, Taxpayer did not protest and did not provide any supporting documents concerning use tax on its purchases. As such, the use tax on Taxpayer’s purchases remained unchanged. To conclude, Taxpayer met its burden of proof demonstrating that the assessments of sales tax and use tax were overstated pursuant to IC 6-8.1-5-1(c). The Department will conduct a supplemental review and revise the BIA assessment. FINDING Taxpayer’s protest of Issue I is partially sustained.

II. Tax Administration – Penalty.

Discussion Taxpayer requested that the Department abate the penalty. A person is subject to a ten percent penalty if the person “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(a)(2) and (b). IC 6-8.1-10-2.1(d) states that “[i]f 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 waive the penalty.” 45 IAC 15-11-2(b) further explains: The Department shall abate the penalty when a taxpayer “affirmatively establishes that the failure to . . . pay the full amount of tax due . . . or pay a deficiency was due to reasonable cause and not due to negligence.” 45 IAC 15-11-2(c); see also IC 6-8.1-10-2.1(d). Finally, in order to establish reasonable cause, the taxpayer is required to 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 . . . .” 45 IAC 15-11-2(c). The Department is mindful that “[r]easonable cause is a fact sensitive question and thus will be dealt with according to the particular facts and circumstances of each case.” Id. In determining whether the taxpayer has reasonable cause, the Department is required to consider the following factors: Taxpayer in this case stated that its business store location in Indiana was closed in late October 2020. Taxpayer stated that it contacted the local taxing authority to file the required documents in November 2020, but it did not receive any response. Taxpayer further asserted that this audit was its first audit and has taken steps to comply with all applicable tax laws in Indiana. Upon a review of Taxpayer’s business and the totality of circumstances, the Department agrees that the penalty should be abated. FINDING Taxpayer’s protest is sustained. SUMMARY Taxpayer’s protest of Issue I is partially sustained and partially denied. Taxpayer’s protest of Issue II is sustained. August 15, 2025 Replaces Finding Document: New