in-20250827-IR-045250406NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE SUPPLEMENTAL LETTER OF FINDINGS: 04-20241020 Indiana Use Tax For The Years 2019, 2020, and 2021 HOLDING Indiana Manufacturer failed to provide sufficient evidence establishing that purchases of items were not subject to Indiana’s sales or use tax. ISSUE

I. Indiana Use Tax – Documentation.

Authority: 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); Indiana Dept. of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463 (Ind. 2012); Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); Indiana Dept. of State Revenue v. Kimball Int'l Inc., 520 N.E.2d 1110 (Ind. Ct. App. 1988); Letter of Findings 04-20241020.LOF (September 2024). Taxpayer argues that the Department’s assessment of additional use tax was wrong. STATEMENT OF FACTS Taxpayer is an Indiana company, organized as an S Corporation. Taxpayer manufactures items its customers use for training purposes. The Indiana Department of Revenue (“Department”) conducted an audit of Taxpayer’s sales and use tax returns. The Department determined that Taxpayer had correctly reported its taxable sales; however, some purchases of tangible personal property were made without the payment of sales tax at the time of purchase. Taxpayer also did not remit use tax on those same purchases. As a result, the Department issued Notices of Proposed Assessment for each tax year. Taxpayer disagreed with the assessments and filed a protest. After an administrative hearing and additional review, the Department issued Letter of Findings 04-20241020.LOF, 20241204 Ind. Reg. 045240462NRA, denying Taxpayer’s protest. Taxpayer then requested a rehearing, which the Department granted. An administrative hearing was held where Taxpayer and its representatives explained the basis for the rehearing request. This Supplemental Letter of Findings results. Additional facts will be provided as necessary.

I. Indiana Use Tax – Documentation.

DISCUSSION The Department conducted an audit where it determined certain purchases of tangible personal property by Taxpayer were subject to Indiana’s sales or use tax. As a result of the audit, the Department issued proposed assessments. Taxpayer protested the assessments and argued that many items listed in the audit report as taxable were used “directly for manufacturing of goods for sale.” After an administrative hearing and a review of documentation provided by Taxpayer, the Department determined the assessments were valid and issued a Letter of Findings stating such. The facts and details of that Letter of Findings are hereby incorporated into this Supplemental Letter of Findings. Taxpayer then requested a rehearing, which was granted. In the rehearing, Taxpayer and its representatives explained the nature of its business and how the items noted as taxable in the audit were exempt because the items were used directly in manufacturing. Taxpayer stated that it had copious amounts of documentation that it would provide related to the purchases the audit determined were taxable. 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 DOR’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). Pursuant to Indiana statute, taxpayers are responsible for collecting and maintaining documentation. “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 tax by reviewing those books and records.” IC 6-8.1-5-4(a). In addition, IC 6-8.1-5-4(c) provides that, “A person must allow inspection of the books and records and returns by the department or its authorized agents at all reasonable times.” IC 6-8.1-5-4(c). As noted in the original Letter of Findings, Taxpayer stated that the auditor had not considered crucial documentation during the audit review. Taxpayer provided hundreds of pages of credit card statements during the protest review. While these statements clearly show purchases made by Taxpayer, the statements do not show any details of the purchase and whether sales tax was paid on the purchase. Further, the credit card statements do not show the reason for which the items were purchased. During the protest rehearing review, Taxpayer provided spreadsheets with statements regarding each item and its purpose (i.e., “used in training panels”). The Department does not dispute that some of these items may have been used by Taxpayer in constructing its training modules and could be tax exempt; however, without documentation showing whether sales tax was paid when the items were originally purchased, the Department cannot determine that those items should be tax exempt. During the rehearing review, the Department was very clear with Taxpayer that receipts, invoices, or similar documentation was required in order to determine whether each item purchased was tax exempt. Despite Taxpayer’s insistence that during the audit review, protest review, and rehearing review that “totes of receipts” were available for review, Taxpayer failed to provide any receipts or invoices at any stage for the Department’s review. “Tax exemptions are strictly construed in favor of taxation and against the exemption.” Indiana Dept. of State Revenue v. Kimball Int'l Inc., 520 N.E.2d 1110 (Ind. Ct. App. 1988). “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). Without additional documentation showing whether sales tax was paid at the time the tangible personal property was initially purchased, Taxpayer has not met the burden under IC 6-8.1-5-1(c) of showing the Department’s assessment was wrong. FINDING Taxpayer’s protest is denied. June 25, 2025 Replaces Finding Document: New