in-20250528-IR-045250259NRA: DEPARTMENT OF STATE REVENUE 

DEPARTMENT OF STATE REVENUE  LETTER OF FINDINGS: 04-20241626 Sales Tax For the Tax Years 2019, 2020, 2021, and 2022 HOLDING ISSUE

I. Gross Retail Tax – Assessment Based on the Best Information Available

Authority: IC 6-2.5-1-2; IC 6-2.5-1-5; IC 6-2.5-2-1; IC 6-2.5-4-1; IC 6-2.5-5-8; IC 6-2.5-8-8; IC 6-2.5-9-3; IC 6-8.1-5-1; IC 6-8.1-5-4; IC 15-21-5-2; Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); Indiana Dep’t of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463 (Ind. 2012); Lafayette Square Amoco, Inc. v. Indiana Dep’t of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); 45 IAC 2.2-8-12. Taxpayer protests a sales tax assessment based on unreported retail sales of puppies. STATEMENT OF FACTS Taxpayer is an Indiana commercial dog breeder in the business of raising and selling puppies. The Indiana Department of Revenue (“Department”) obtained information from the Indiana Board of Animal Health indicating that Taxpayer was registered with the state as a “commercial dog breeder.” However, the Department found nothing to indicate that Taxpayer was registered as a retail merchant. The Department contacted Taxpayer requesting that the business register as a retail merchant and file any necessary sales tax returns. Taxpayer did not respond. Thereafter, the Department’s compliance division conducted an audit review of Taxpayer’s business activity. The review resulted in the issuance of a “Compliance Report Summary.” The report then led to the issuance of Notices of Proposed Assessment. The notices provided by the Taxpayer explained: The Department’s review – based on what the Department found was the “best information available” – resulted in an assessment of approximately $18,000 in sales tax. Taxpayer submitted a protest challenging the Department’s assessment. In that protest, Taxpayer provided additional information concerning its dog breeding business. This Letter of Findings results and is based on the Department’s compliance report and on the information provided by Taxpayer.

I. Sales Tax – Assessment Based on the Best Information Available.

DISCUSSION The issue is whether Taxpayer has provided information sufficient to establish that the $18,000 additional assessment was wrong. Indiana law provides for various exemptions. However, if purchasers assert that the retail transactions are exempt from the sales tax, the retail merchant is required to obtain properly executed exemption certificates. 45 IAC 2.2-8-12(f). The merchant must maintain proper records to substantiate sales of interstate commerce. 45 IAC 2.2-8-12(e). Liability for failure to collect or remit sales tax flows through to persons responsible for operation of the merchant. 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. IC 6-8.1-5-4(a) requires that “[e]very person subject to a listed tax must keep books and records 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. The records [] include all source documents necessary to determine the tax, including invoices, register tapes, receipts, and canceled checks.” The person also “must allow inspection of the books and records and returns by the [D]epartment or its authorized agents at all reasonable times.” IC 6-8.1-5-4(c). Additionally, “[a] commercial dog breeder shall maintain its records for at least five (5) years.” IC 15-21-5-2. When the person subject to the listed tax fails to keep books and records, under IC 6-8.1-5-1(b), the Department “shall make a proposed assessment of the amount of the unpaid tax on the basis of the best information available to the [D]epartment,” if the Department “reasonably believes that a person has not reported the proper amount of tax due.” (Emphasis added). In reviewing both the summary report, the assessments, and Taxpayer’s contentions, the Department points out that it is Taxpayer’s responsibility to establish that the tax assessment is incorrect. As stated in IC 6-8.1-5-1(c), “The notice of proposed assessment is prima facie evidence that the department's claim for the unpaid tax is valid, including during an action appealed to the tax court under this chapter. The burden of proving that the proposed assessment is wrong rests with the person against whom the proposed assessment is made.” Indiana Dep’t 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). Consequently, a taxpayer is required to provide documentation explaining and supporting his or her challenge that the Department’s position is wrong. In assessing the summary report’s conclusion, the relevant Indiana law, and Taxpayer’s arguments, the Department bears in mind that “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.’” Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014). Thus, interpretations of Indiana tax law contained within this decision, as well as the original compliance findings, are entitled to deference. Taxpayer offers arguments and explanations intended to establish that the assessments were overstated. According to Taxpayer, “Most of the sales were wholesale sales to one customer who has provided a sales tax exemption certificate for a majority of the sales for the entire four-year period.” Taxpayer explained that it was “providing a summary of the sales as provided by the customer [Puppy Wholesaler].” Publicly available information confirms that Puppy Wholesaler acquires thousands of puppies from small breeders in Indiana and adjoining states. That same publicly available information establishes that Puppy Wholesaler then “broker[s] the puppies to pet stores from coast to coast.” Taxpayer provided Puppy Wholesaler’s properly completed exemption certificates (ST-105s) for the years 2019, 2020, 2021, 2022, and 2023. In addition, Taxpayer provided a copy of the Puppy Wholesalers’ list of amounts paid to Taxpayer. That “list of amounts” indicates that Puppy Wholesaler paid Taxpayer approximately $122,000 during 2019 to 2022. Taxpayer also provided a copy of Puppy Wholesaler’s 2018 to 2022 inventory of puppies purchased from Taxpayer. Taxpayer confirmed that it also sold puppies directly to individual retail customers. Taxpayer received approximately $25,000 from retail customers. Taxpayer also provided copies of its owner’s income returns intended to confirm the owner’s business income and a “Schedule C copy for 2019-2022 tax years.” Schedule C reflects the filer’s “Profit or Loss From Business” for a “Sole Proprietorship.” IC 6-2.5-5-8 provides a sales tax exemption for transactions involving the sale of tangible personal property acquired by the customer for resale, rental, or leasing. Specifically, the statute reads as follows: Exempt buyers are entitled to purchase personal property without paying sales tax. To do so, the buyer presents the retailer with an exemption certificate. IC 6-2.5-8-8 in part provides: The Department agrees that Taxpayer has met its burden under IC 6-8.1-5-1(c) of establishing that the assessments were, as issued, wrong. Taxpayer’s additional documentation is sufficient to distinguish Taxpayer’s exempt and nonexempt puppy sales and sufficient to account for the puppy sales conducted during the years at issue. FINDING Taxpayer’s protest is sustained. March 15, 2025 Replaces Finding Document: New