in-20250827-IR-045250414NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 04-20251093 Use Tax For the 2021 and 2022 Tax Years HOLDING Corporation successfully established that the Department’s assessment was too high and that penalties should be waived. ISSUE

I. Use Tax – Documentation.

Authority: IC 6-2.5-1-2; IC 6-2.5-1-27; IC 6-2.5-2-1; IC 6-2.5-3-2; IC 6-2.5-3-4; IC 6-2.5-4-1; IC 6-2.5-5 et seq.; 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); 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); Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007); Rhoade v. Indiana Dept. of State Revenue, 774 N.E.2d 1044 (Ind. Tax Ct. 2002); Sales Tax Information Bulletin 8. Taxpayer protests the imposition of use tax on several transactions that it argues should not be subject to tax.

I. Use Tax – Documentation.

DISCUSSION The Department and Taxpayer agreed to use a sampling method to determine use tax liability. Taxpayer argues that the Department incorrectly assessed use tax on several transactions in the audit sample due to lack of documentation. Taxpayer provided documentation to support its claim. The Department based its assessment on a lack of documentation showing that sales or use tax was paid on certain transactions. 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 Dep’t of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007). Where a taxpayer is challenging the Department’s final determination, the taxpayer is required to provide documentation explaining and supporting its challenge. Poorly developed and 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). Additionally, “when [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.’” Indiana Dep’t of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014). Thus, all interpretations of Indiana law contained within this decision are entitled to deference. 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 person who acquires tangible personal property in a retail transaction (a “retail purchaser”) is liable for the sales tax on the transaction. IC 6-2.5-2-1(b). The purchaser in general “shall pay the tax to the retail merchant as a separate added amount to the consideration in the transaction.” Id. Indiana also imposes an excise tax called the “use tax” on “[the] storage, use, or consumption of tangible personal property in Indiana if the property was acquired in a retail transaction.” IC 6-2.5-3-2(a). A “retail transaction” occurs when a person or business makes a “sale at retail.” See IC 6-2.5-1-2. A “sale at retail” occurs when, “in the ordinary course of . . . [a] regularly conducted trade or business,” a person or business buys property “for the purpose of resale” and transfers it to someone else “for consideration.” IC 6-2.5-4-1(b). 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). A transaction is exempt from use tax if Indiana sales tax has already been paid on it. IC 6-2.5-3-4(a). IC 6-2.5-1-27 incorporates “prewritten computer software” in the definition of tangible personal property subject to sales/use tax: As a general rule, all purchases of tangible personal property - including prewritten computer software – are subject to sales or use tax unless specifically exempted by a statute or regulation. Various sales tax exemptions are outlined in IC 6-2.5-5 et seq. Pursuant to the Department’s Sales Tax Information Bulletin 8: Sales Tax Information Bulletin 8 (December 2019), 20200401 Ind. Reg. 045200164NRA. It further states: Id. (Emphasis added.) The Department's Sales Tax Information Bulletin 8 further defines some types of cloud computing products: Id. Taxpayer provided documentation showing that the software purchased from Foundation, Smartsheet, Dodge Construction, and Dropbox, as well as the Microsoft subscription for cloud access to Outlook, are non-taxable SaaS purchases. Specifically, Taxpayer provided descriptions of the software from the manufacturers describing the software as cloud-based and accessible only through a web browser, and Taxpayer presented an affidavit from its general manager stating that Taxpayer did not download the software to its computers. The Department agrees that Taxpayer’s software is non-taxable SaaS and that Taxpayer’s use tax liability should be reduced accordingly. Taxpayer provided documentation showing that twenty-one transactions were not subject to use tax because Taxpayer had already paid sales tax to the Department on those transactions. Taxpayer also provided documentation showing that one transaction was not a retail transaction because it was a fee paid to a governmental agency for administrative review, and therefore, it is not a retail transaction subject to sales or use tax. The Department agrees that Taxpayer has met the burden imposed under IC 6-8.1-5-1(c) regarding these transactions, and its use tax liability should be reduced accordingly. FINDING Taxpayer’s protest is sustained to the extent described above. The Department will adjust the error percentage in the audit and will recalculate Taxpayer’s use tax owed accordingly.

II. Use Tax – Exemption.

DISCUSSION Taxpayer argues that one of its purchases should be exempt from sales and use tax because it was purchased for an exempt customer. The Department based its assessment on a lack of documentation showing that certain transactions were exempt from sales and use tax. As provided in Issue I above, 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 Dep’t of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007). Indiana imposes use tax on “a contractor’s conversion of construction material into real property if that construction material was purchased by the contractor.” IC 6-2.5-3-2(c). However, if the contractor’s customer “could have purchased the material exempt from the state gross retail and use taxes, as evidenced by a properly issued exemption certificate,” had the customer purchased it directly, then the transaction is exempt from use tax. IC 6-2.5-3-2(c)(2). Taxpayer presented documentation showing that the Department assessed use tax on a purchase of construction materials for a project commissioned by an exempt Indiana school district. Taxpayer included a properly issued exemption certificate demonstrating that this customer was exempt. The Department therefore agrees that this transaction is exempt from use tax as provided by IC 6-2.5-3-2(c)(2) and its liability should be reduced accordingly. FINDING Taxpayer’s protest is sustained to the extent described above.

III. Tax Administration – Penalties.

DISCUSSION Taxpayer argues that the Department should waive the ten percent negligence penalty. The Department imposed the penalty on the grounds that Taxpayer did not pay sales tax or use tax on several taxable transactions. If the Department determines that a taxpayer has underreported its tax liability “due to negligence,” the Department may assess a ten percent penalty. IC 6-8.1-10-2.1(a)(3). 45 IAC 15-11-2(b) further states: 45 IAC 15-11-2(c) further states, Taxpayer presented documentation showing that their error rate was very small and that this was the first time that the Department had assessed them a penalty. Further, Taxpayer stated at the hearing that after the Department’s audit, it hired an accounting firm to review its processes and implement procedures that will help it keep records more thoroughly and ensure that it pays tax appropriately. The Department agrees that Taxpayer has carried its burden to show that the penalty should be waived. FINDING Taxpayer’s protest is sustained on this issue. SUMMARY Taxpayer’s protest is sustained on Issue I and on Issue II to the extent described above. Taxpayer’s protest is sustained on Issue III. June 2, 2025 Replaces Finding Document: New