in-20251126-IR-045250666NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 04-20241753 Sales and Use Tax For the Tax Years 2020 and 2021 HOLDING Business failed to substantiate its purchases and use of trailers were exempt from sales and use tax; however, Business demonstrated that the penalty should be abated. ISSUES

I. Sales and Use Tax – Exemption.

Authority: IC 6-2.5-2-1; IC 6-2.5-5-45.8; IC 6-2.5-3-4; IC 6-8.1-5-1; IC 6-8.1-5-4; Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); Express Scripts Inc. v. Indiana Dep’t of State Revenue, 170 N.E.3d 273 (Ind. Tax Ct. 2021); Wendt LLP v. Indiana Dep’t of State Revenue, 977 N.E.2d 480 (Ind. Tax Ct. 2012); Scopelite v. Indiana Dep’t of Local Gov’t Fin., 939 N.E.2d 1138 (Ind. Tax Ct. 2010); Indiana Dep’t of State Revenue v. RCA Corp., 310 N.E.2d 96 (Ind. Ct. App. 1974); 45 IAC 2.2-5-10. Taxpayer argues that its purchases and use of trailers were partially exempt from use tax.

II. Tax Administration – Penalty.

Authority: IC 6-8.1-10-2.1; 45 IAC 15-11-2. Taxpayer requests that the penalty should be abated. STATEMENT OF FACTS Taxpayer is a company doing business in Indiana. Taxpayer recycles certain products and  produces reusable materials which are subsequently resold. To conduct its business, Taxpayer purchased certain tangible personal property, including various utility reefer trailers (“Trailers”). The Indiana Department of Revenue (“Department”) audited Taxpayer’s business records for the tax years 2020 and 2021. Pursuant to the audit, the Department determined that Taxpayer did not pay sales tax or use tax on tangible personal property used in conducting its recycling business. Taxpayer protested the assessment of Trailers. A hearing was held. This final decision ensues.

I.  Sales and Use Tax – Exemption.

DISCUSSION Taxpayer argued that its purchases and use of Trailers were partially exempt from sales and use tax. The issue is whether Taxpayer’s supporting documents substantiated that its purchases and use of Trailers were exempt. Pursuant to IC 6-8.1-5-4(a), 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.” 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). Additionally, 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). The taxpayer, when submitting evidence as part of the taxpayer’s protest, needs to specify and explain the portions of the evidence that taxpayer believes to be relevant. As the Indiana Tax Court has previously 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 Rev. v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014). Indiana imposes a gross retail tax (“sales tax”) on retail transactions and a complementary use tax on tangible personal property that is stored, used, or consumed in the state. IC 6-2.5-2-1 et seq. All purchases of tangible personal property by persons engaged in the direct production or processing of tangible personal property generally are taxable unless specifically exempted by Indiana law, such as IC 6-2.5-5-45.8 or 45 IAC 2.2-5-10. 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. A statute which provides a tax exemption is strictly construed against the taxpayer. Indiana Dep’t of State Revenue 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. IC 6-2.5-5-45.8(b) exempts transactions “involving recycling materials and other tangible personal property” from the state gross retail tax if “(1) the person acquiring that property acquires it for the person’s direct use in the processing of recycling materials; and (2) the person acquiring that property is occupationally engaged in the business of recycling.” (Emphasis added). IC 6-2.5-5-45.8(a)(3) defines “processing of recycling materials” as “(A) receiving recycling materials and other tangible personal property; and (B) creating a product for sale[.]” Additionally, 45 IAC 2.2-5-10 explains: Further, tangible personal property (namely transportation equipment) used for moving (i) “raw materials to the plant prior to entrance into the production process” or (ii) “finished goods from the plant after completion of the processing or refining process” is taxable. 45 IAC 2.2-5-10(f)(1) and (f)(2). Only when the purchaser demonstrates that such transportation equipment is used to transport work-in-process or semi-finished materials within the production process, can it be exempt from tax. 45 IAC 2.2-5-10(f)(3). In this case, Taxpayer protested the audit assessment on Trailers. Taxpayer maintained that the Department’s audit erred in determining that Trailers ‘were used to transport raw materials to the facility and transport the finished product to the final customers.” Taxpayer asserted, in part: Thus, Taxpayer argued that it qualified for a partial exemption concerning its Trailers because they were “used to move and hold [work-in-process] during production.” Taxpayer also argued that its Trailers qualified for the public transportation exemption. Taxpayer did not provide any documents to substantiate either argument. Upon review, the Department is not able to agree. As mentioned above, Taxpayer was required to substantiate its use of Trailers qualified for the statutory exemptions. But Taxpayer provided no documents to support its protest. As such, the Department is not able to agree that Taxpayer met its burden of proving the assessment is incorrect pursuant to IC 6-8.1-5-1(c). To conclude, given the totality of the circumstances, in the absence of other verifiable supporting documents to substantiate that it used the Trailers in an exempt manner, the Department is not able to agree that Taxpayer was entitled to a partial tax exemption. FINDING Taxpayer’s protest of Issue I is respectfully denied.

II. Tax Administration – Penalty.

Discussion Taxpayer requested that the penalty to be abated. 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 requested that penalty be abated. According to Taxpayer, its “goal has always been to be fully compliant with all applicable tax laws in Indiana.” Taxpayer asserted that it has a good history of compliance and has “implemented procedures to mitigate future instances of non-compliance.” 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 respectfully denied. Taxpayer’s protest of Issue II is sustained. August 1, 2025 Replaces Finding Document: New