in-20250528-IR-045250262NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 04-20241813 Use Tax For The Year 2022 HOLDING Taxpayer established the Department’s assessment of use tax on several watercraft acquired as part of a real estate transaction was incorrect. ISSUE

I. Use Tax – Imposition.    

Authority: IC 6-2.5-2-1; IC 6-2.5-3-1; IC 6-2.5-3-2; IC 6-2.5-3-6; 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); 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); 45 IAC 2.2-2-1; 45 IAC 2.2-3-4. Taxpayer protests the assessment of consumer use tax on watercraft items she acquired as part of a real estate transaction. STATEMENT OF FACTS Taxpayer is an Indiana resident.  In 2022, Taxpayer purchased a new home and received ownership of two watercraft and a pontoon boat as part of the purchase.  Taxpayer titled the three items with the Indiana Bureau of Motor Vehicles (“BMV”).  Paperwork submitted at the BMV included a Bill of Sale noting the three items were being transferred in an “AS-IS condition” for the sales price of $1.00.  The Bill of Sale was signed by the Taxpayer, her husband, and the seller.  Taxpayer paid $.07 in sales tax at the BMV. The Indiana Department of Revenue (“Department”) later received information from the BMV regarding the low purchase price because the amount was significantly less than the “blue book” value of the watercraft.  As a result, the Department issued Taxpayer an assessment for use tax.  Taxpayer protested the assessment and requested resolution without a hearing.  This Letter of Findings is based on the information submitted by Taxpayer as part of the protest and a review of the Department’s records.  Additional facts will be provided as necessary.

I. Use Tax – Imposition.

DISCUSSION The Department determined Taxpayer’s watercraft and boat transfers were subject to use tax after a review of information received from the BMV.  Taxpayer protested the assessment and explained that she gained ownership of the items when she purchased a home, and the previous homeowner didn’t want the items.  The parties agreed the items were being transferred in an “AS-IS condition,” and Taxpayer was unaware the three items were inoperable until after she transferred the titles to her name. 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 is 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). Tangible personal property purchased in Indiana and stored, used, or otherwise consumed in Indiana is subject to Indiana use tax for such property unless the Indiana sales tax has been collected at the point of purchase.  45 IAC 2.2-3-4.  IC 6-2.5-3-6 provides further guidance on the collection of use tax on the use, storage, or consumption of tangible personal property acquired in a retail transaction.  Purchases of vehicles or watercrafts that are not retail transactions but rather occasional sales, are still subject to use tax pursuant to IC 6-2.5-3-2(b): The person liable for the use tax shall pay the use tax to the Department or, in the case of a vehicle or watercraft, to the titling agency when the person applies for a title for the vehicle or watercraft.  IC 6-2.5-3-6(c) and (d)(1). Further, IC 6-2.5-3-6(e) states: The Department reviewed Taxpayer’s watercraft and boat transfers based on a request from the BMV.  The BMV noted that the transfer of ownership occurred for “$1.00.”  Based upon this information, the Department completed a review and issued an assessment for use tax based upon the “average selling price” of the make and model of each item. Taxpayer provided a copy of a Bill of Sale stating the items were sold in an “AS-IS condition” with “no guarantee or warranty, express or implied” related to any of the items.  The Bill of Sale was signed by Taxpayer, her husband, and the seller.  Taxpayer also explained that she was unaware at the time she titled the items that all were inoperable.  Further, despite two years passing, neither watercraft has ever been in working order.  The pontoon boat required extensive repairs that required more than a year to fix and was not water-worthy until late 2023. After reviewing the documentation, Taxpayer has met her burden under IC 6-8.1-5-1.  In the course of the protest, Taxpayer provided documentation rebutting the presumption outlined under IC 6-2.5-3-6(e).  The protest is sustained. FINDING Taxpayer’s protest is sustained. March 4, 2025 Replaces Finding Document: New