in-20250528-IR-045250265NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 04-20241952 Gross Retail and Use Tax For the Years 2020, 2021, and 2022 HOLDING Indiana Motel failed to meet its burden of establishing that the Department’s assessment of additional sales tax was incorrect. Indiana Motel’s argument, that the assessment was based on an incorrect accounting of exempt transactions, was itself incorrect. ISSUE

I. Gross Retail and Use Tax – Furnishing Guest Accommodations

Authority: IC 6-2.5-1-2; IC 6-2.5-2-1; IC 6-2.5-4-1; IC 6-2.5-4-4; IC 6-2.5-5 et seq.; IC 6-2.5-9-3; IC 6-8.1-5-1; IC 6-8.1-5-4; Dep’t. 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); 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 Dep’t of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); 45 IAC 2.2-4-8; 45 IAC 15-5-1; Sales Tax Information Bulletin 41 (June 2019); Sales Tax Information Bulletin 41 (July 2022); Sales Tax Information Bulletin 41 (June 2019). Taxpayer argues that the Department’s assessment of additional sales and use tax is excessive on the grounds that the Taxpayer has now provided additional documentation which would either refute the assessment of additional tax or call for an adjustment of the tax amount assessed. STATEMENT OF FACTS Taxpayer is an Indiana motel in the business of providing guest accommodations. Taxpayer offers rooms equipped with a kitchenette, television, and Wi-Fi access. It also provides its guests with a continental breakfast and an invitation to a midweek social event. The Indiana Department of Revenue (“Department”) conducted an audit review of Taxpayer’s business records and sales tax returns (“ST-103s”). The audit found that “[T]axpayer miscalculated the sales tax due which resulted in understated total sales . . .” In coming to that decision, the Department’s audit reviewed “guest folios, revenue reports and exempt sales reports.” Those reports were offered by Taxpayer to support its sales tax filings with the Department. The audit resulted in an assessment of additional sales and use tax. Taxpayer disagreed with the assessment and submitted a protest to that effect. Although the assessment included both sales and use tax, Taxpayer’s specific protest is directed at the sales tax assessment. An administrative hearing was conducted during which Taxpayer’s representative explained the basis for the protest. This Letter of Findings results.

I. Gross Retail and Use Tax – Furnishing Guest Accommodations

DISCUSSION For various reasons outlined below, Taxpayer argues that the Department’s assessment of sales tax is incorrect. As with any assessment of Indiana listed taxes, it is Taxpayer’s responsibility to establish that the proposed assessments of tax, interest, and penalty are incorrect. As stated in IC 6-8.1-5-1(c) and Indiana case law, “The notice of proposed assessment is prima facie evidence that the [D]epartment’s claim for the unpaid tax is valid . . . . The burden of proving that the proposed assessment is wrong rests with the person against whom the proposed assessment is made.” 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). Moreover, when a taxpayer challenges taxability in a specific instance, that 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). When an agency is charged with enforcing a statute, the jurisprudence defers to the agency’s reasonable interpretation of that statute “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). Pursuant to IC 6-2.5-2-1, a sales tax, known as state gross retail tax, is imposed on retail transactions made in Indiana unless a valid exemption is applicable. IC 6-2.5-5 et seq. Retail transactions involve the transfer of tangible personal property. IC 6-2.5-1-2; IC 6-2.5-4-1. In Taxpayer’s case, its particular Indiana sales tax liability is defined at IC 6-2.5-4-4(a) which provides in part as follows: Indiana defines “retail transactions” to include renting a motel room. The Department’s regulation, 45 IAC 2.2-4-8(b), states the rule succinctly: Sales Tax Information Bulletin 41 (July 2022) 20230426-IR-045230185NRA and Sales Tax Information Bulletin 41 (June 2019), 20190731 Ind. Reg. 045190367NRA elaborate on the “thirty (30) days” exemption provision as follows: The presumption in Indiana is that all retail sales are subject to sales tax unless expressly exempted by statute. IC 6-2.5-2-1 (“An excise tax, known as the state gross retail tax, is imposed on retail transactions made in Indiana . . .”). A retail merchant – such as Taxpayer – is required to “collect the tax as agent for the state.” IC 6-2.5-2-1(b). The retail merchant then “holds those taxes in trust for the state and is personally liable for the payment of those taxes......” IC 6-2.5-9-3. The Department’s sales and use tax assessment was made fulfilling the Department’s responsibility set out in IC 6-8.1-5-1(b). That statute defines the Department’s responsibility. “If the [D]epartment reasonably believes that a person has not reported the proper amount of tax due, the [D]epartment shall make a proposed assessment of the amount of the unpaid tax on the basis of the best information available to the [D]epartment.” (Emphasis added). See also 45 IAC 15-5-1. According to the audit report, Taxpayer failed to maintain, retain, or provide exemption certificates and, as a result, “miscalculated the sales subject to sales tax which resulted in overstated exempt sales as listed on the ‘Additional Taxable Sales’ workpaper for all periods except September 2021.” In addition, the audit found fault with the manner in which Taxpayer reported exempt transactions. Those transactions occurred when a particular guest rented a room for thirty or more days but where the thirty days spanned two different reporting periods (months). For illustrative purposes, assume that a guest stayed in his or her room for fifteen days in March and fifteen days in April. Taxpayer would have charged, reported, and remitted sales tax during the first twenty-nine days of the guest’s stay. Assuming for the moment that Taxpayer remitted sales tax of $1,000 attributed to the first twenty-nine days’ stay, on its April return Taxpayer would report “Total Sales” and report “Exemptions” including the tax paid during March and the exempt April rental transactions. Taxpayer argues that it accounted for and remitted the correct amount of sales tax each month but that the Department’s audit made a fundamental error when it reviewed – and then adjusted – sales tax due on these particular rental transactions. According to Taxpayer, instead of allowing the $1,000 exemption in the example above, the audit only allowed seven percent of the $1,000 exempt amount. According to Taxpayer, the audit calculated that Taxpayer was entitled to claim only a $70 dollar “credit” reflecting Indiana’s seven-percent sales tax rate. According to Taxpayer, the Department fundamentally misunderstood taxable sales and misapplied the exemptions to which Taxpayer was entitled. If correct, the Department apparently overstated its sales tax liability by ninety-three percent. The Department’s audit touched on a number of minor sales and use tax issues but Taxpayer maintains that the assessment amount at issue here is largely attributed to the Department’s erroneous “adjustments” to legitimately exempt transactions. In addition, Taxpayer’s representative argued that the Taxpayer’s previous owner instructed the representative on how to report Indiana sales tax and that, if there we errors, those errors were attributed to the previous owner’s faulty instructions. Taxpayer’s representative further argued that its accounting system and point-of-sales system (computer-based cash register) is not equipped to account for exempt transactions. The Department’s audit did address exempt rental transactions. In particular, the audit report criticized Taxpayer’s purported failure to retain and/or provide documentation related to exempt transactions That failure led to the decision “to assess the sales tax on the rental of hotel accommodations per 45 IAC 2.2-4-8.” The audit report explained as follows: Along with its protest, Taxpayer offered detailed records of its rental transactions, but those documents do not get to the issue Taxpayer raised. That issue is whether the Department’s audit made a significant error in assessing the sales tax and applying the thirty-day exemptions. Again, Taxpayer’s argument is that the Department failed to account for and allow full credit for exempt sales. That “full credit” – in the example above – included the $1,000 collected or reported for transactions in which Taxpayer rented a room for thirty or more days. In other words, Taxpayer’s argument is that the Department’s audit failed to correctly calculate its sales tax liability because it misunderstood the manner in which Taxpayer accounts for exempt transactions attributable to customers who rent a room for a period of thirty or more days. The Department here acknowledges Taxpayers’ effort to assemble and provide the records it offered subsequent to the administrative hearing. However, the receipts do not satisfactorily explain how and why these additional records support Taxpayer’s particular arguments. A review of the audit report and the additional records Taxpayer provided do nothing to support its argument that the Department misunderstood or misapplied the thirty-day exempt transactions. To the contrary, the Department was aware of the thirty-day rule and did nothing to make erroneous adjustments to the sales tax credits to which Taxpayer was entitled. The audit assessments were driven by instances in which Taxpayer claimed exemptions to which it was not entitled or could not be verified. For example, the audit corrected instances in which Taxpayer claimed an exemption, but Taxpayer’s own records established that the guest did not stay thirty or more days. The Department’s audit allowed credit for the customers listed on his tax-exempt report. However, Taxpayer’s representative was unable to satisfactorily explain the discrepancy between the tax-exempt reports and the credit amount claimed on the ST-103s. The explanation provided was that in completing the ST-103s, Taxpayer “backed into” the amount of the ST-103 credit amounts. Both the Taxpayer’s own representative and the Department agreed that the representative did not understand or misunderstood Taxpayer’s own accounting and point-of- sales systems. As a result, there remains an unaccounted discrepancy between the approximately $930,000 in reported exempt sales and – based on the records available – the approximately $820,000 in exempt sales indicated by those records. The Department is unable to agree that the assessment should be adjusted to account for the mistaken or incorrect accounting instructions provided by the former hotel owner. Similarly, the Department is unable to reconsider the assessment based on Taxpayer’s argument, that its point- of-sale system was incapable of reporting and accounting for exempt transactions. The Department is unable to agree that Taxpayer has met its burden under IC 6-8.1-5-1(c) of establishing that the Department’s sales tax assessment was wrong. FINDING Taxpayer’s protest is respectfully denied. March 14, 2025 Replaces Finding Document: New