in-20250430-IR-045250196NRA: DEPARTMENT OF STATE REVENUE
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Construction Manager failed to establish that it was entitled to a refund of sales tax Construction Manager reimbursed its Subcontractors; the sales tax was paid by the Subcontractors.
The agency’s own summary, as published.
The rule, in full
1,897 words as published, April 30, 2025. View the original →
DEPARTMENT OF STATE REVENUE SUPPLEMENTAL FINAL ORDER DENYING REFUND: 04-20231602 Indiana Gross Retail Tax For March 1, 2021, to September 30, 2022 HOLDING Construction Manager failed to establish that it was entitled to a refund of sales tax Construction Manager reimbursed its Subcontractors; the sales tax was paid by the Subcontractors. ISSUE
I. Gross Retail Tax – Purchases of Construction Materials.
Authority: IC 6-2.5-2-1; IC 6-2.5-3-2; Conklin v. Town of Cambridge City, 58 Ind. 130 (1877); Tell City Boatworks, Inc., v. Indiana Department of Revenue, 162 N.E.32 603 (Ind. Tax Ct. 2020); Haas Pub. Co. v. Indiana Department of Revenue, 835 N.E.2d 235 (Ind. Tax Ct. 2005); Tri-States Double Cola Bottling Co. v. Dep’t of State Revenue, 706 N.E.2d 282 (Ind. Tax Ct. 1999); Mynsberge v. Dept. of State Revenue, 716 N.E.2d 629 (Ind. Tax Ct. 1999); General Motors Corp. v. Indiana Dept. of State Revenue, 578 N.E.2d 399 (Ind. Tax Ct. 1991); Indiana Dept. of State Rev. v. Kimball Int’l Inc., 520 N.E.2d 454 (Ind. Ct. App. 1988); Indiana Dept. of State Revenue, Sales Tax Division v. RCA Corp., 310 N.E.2d 96 (Ind. Ct. App. 1974); Sales Tax Information Bulletin 60 (March 2023); Sales Tax Information Bulletin 60 (July 2021). Taxpayer argues that it is entitled to a refund of sales tax paid to its Subcontractors because the materials were acquired and used to complete construction of an exempt utility’s generating facility. STATEMENT OF FACTS Taxpayer is an out-of-state company in the business of providing construction services including “design-build” projects. Taxpayer undertook a project on behalf of a utility company. The project was completed over a period of approximately one year and completed on the basis of what Taxpayer argued were “time and material contracts” between Taxpayer and the utility company. The utility company provided Taxpayer with an Indiana “General Sales Tax Exemption Certificate” (ST-105). In claiming the exemption, the utility relied on Indiana law exempting the purchase of tangible personal property purchased by a utility company furnishing electricity, steam, or steam heat. Taxpayer proceeded to purchase construction materials and then resold those materials to the utility company. According to Taxpayer, it collected sales tax from the utility company and remitted those amounts to the Indiana Department of Revenue (“Department”). Taxpayer concluded it was entitled to a refund of the tax and submitted a “Claim for Refund” (GA-110L) seeking a refund of approximately $350,000. The GA-110L explained the refund was requested for “[t]angible property and expenses related to power production.” According to Taxpayer, its $350,000 claim was limited to materials that were incorporated into the utility’s real property.” Accompanying Taxpayer’s GA-110L was a copy of the utility company’s ST-105 (“General Sales Tax Exemption Certificate”). The Department reviewed Taxpayer’s refund request and – in a letter dated December 2022 – informed Taxpayer the $350,000 refund was being denied. The letter explained why the refund was denied. Taxpayer disagreed with the Department’s decision and submitted a protest to that effect. An administrative hearing was conducted by telephone during which Taxpayer’s representative explained the basis for the protest. The Department issued a Memorandum of Decision (“MOD”) dated November 15, 2023, sustaining Taxpayer’s protest in part. The Department conducted a supplemental audit intended to implement the findings contained with the November 2023 decision. The supplemental audit was completed, and Taxpayer was issued a sales tax refund. Taxpayer disagreed with the results of the supplemental audit on the grounds that the original MOD did not address a category of transactions which – when properly considered – would have resulted in an additional sales tax refund. Taxpayer’s argument is that the Department failed to account for and/or grant an additional portion of the originally requested refund based on transactions not considered in that MOD. An administrative hearing was conducted, and this Supplemental Final Order Denying Refund (“SODR”) results.
I. Gross Retail Tax – Purchases of Construction Materials.
DISCUSSION The issue is whether Taxpayer has established it is entitled to an additional refund of sales tax because Taxpayer incorrectly paid sales tax on purchases of construction materials from its Subcontractors. What follows is the MOD’s original simplified explanation of what took place during a series of transactions between vendors, Subcontractors, Taxpayer, and the utility company. As described in the original MOD, Taxpayer billed the utility company because it expected to be compensated for the brick purchase. According to Taxpayer, it billed the utility company for the bricks ($100), collected $7.00 in Indiana sales tax from the utility, and charged a fixed transaction fee agreed upon in the time and materials contract. In effect, Taxpayer explains it acted as a “retail merchant” collecting Indiana’s seven percent sales tax on behalf of and acting as an agent for Indiana. The original MOD addressed the question of whether the Department was required to refund Taxpayer the $7.00 it paid to the vendor. In its original protest, Taxpayer maintained that the contract, between Taxpayer and the utility was structured as a “time and materials” contract which is “a contract in which the cost of construction material and the cost of labor or other charges are stated separately.” Sales Tax Information Bulletin 60 (March 2023), 20230329 Ind. Reg. 045230095NRA, available at http://iac.iga.in.gov/iac//20230329-IR-045230095NRA.xml.pdf. See also Sales Tax Information Bulletin 60 (July 2021), 20210728 Ind. Reg. 045210278NRA, available at http://iac.iga.in.gov/iac//20210728-IR-045210278NRA.xml.pdf. The category of “vendors” was intended to include the original retailers which – for illustrative purposes only – would include a retailer such as Home Depot. “Contractor” refers to Taxpayer which has an agreement with the utility company to complete improvements at its Indiana coal- fired electricity generating site. “Utility Company” refers to the company which hired Taxpayer to complete construction improvements at its Indiana generating facility. However, the illustration and explanation provided above miss a series of transactions which now Taxpayer asks be addressed. What is missing from the original MOD are the six “Subcontractors” hired by Contractor to complete portions of the construction project and who purportedly sold materials to Taxpayer. For example, one of the Subcontractors was hired to complete concrete work and expected to be compensated by Taxpayer for the materials the Contractor purchased.
B. Indiana Sales Tax Assessments and Exemptions.
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.”). Taxpayer bases its claim on a sales tax exemption provided under Indiana law. The general rule is that “tax exemptions are strictly construed in favor of taxation and against the exemption.” Indiana Dept. of State Rev. v. Kimball Int’l Inc., 520 N.E.2d 454, 456 (Ind. Ct. App. 1988). A statute which provides a tax exemption, however, is strictly construed against the taxpayer. Indiana Dept. of State Revenue, Sales Tax Division v. RCA Corp., 310 N.E.2d 96, 97 (Ind. Ct. App. 1974). “[W]here such an exemption is claimed, the party claiming the same must show a case, by sufficient evidence, which is clearly within the exact letter of the law.” Id. at 101 (citing Conklin v. Town of Cambridge City, 58 Ind. 130, 133 (1877). IC 6-2.5-3-2(c), like all tax exemption provisions, is strictly construed against exemption from the tax. Tri-States Double Cola Bottling Co. v. Dept. of State Revenue, 706 N.E.2d 282, 283 (Ind. Tax Ct. 1999); Mynsberge v. Dept. of State Revenue, 716 N.E.2d 629, 636 (Ind. Tax Ct. 1999). Nevertheless, the Department is well aware of the countervailing rule that a “statute must not be construed so narrowly that it does not give effect to legislative intent because the intent of the legislature embodied in a statute constitutes the law.” General Motors Corp. v. Indiana Dept. of State Revenue, 578 N.E.2d 399, 404 (Ind. Tax Ct. 1991). In considering both Department’s decision denying the refund and Taxpayer’s contentions, the Department points out that it is Taxpayer’s responsibility to establish that the Department’s decision was incorrect. “When a taxpayer claims entitlement to a tax exemption, the taxpayer bears the burden of showing that the terms of the exemption are met.” Haas Pub. Co. v. Indiana Department of Revenue, 835 N.E.2d 235, 236 (Ind. Tax Ct. 2005). “[W]hen a taxpayer seeks a refund of tax based on its eligibility for a certain credit or exemption, the taxpayer bears the burden of proving that it qualifies for that credit or exemption . . . . ” Tell City Boatworks, Inc., v. Indiana Department of Revenue, 162 N.E.32 603, 616 (Ind. Tax Ct. 2020). IC 6-2.5-3-2(c) provides the following: This SODR considers only transactions between Taxpayer and its Subcontractors to whom Taxpayer purportedly paid sales tax on purchases of tangible personal property. Although those secondary transactions are indirectly related to the issues raised by Taxpayer, they are not immediately related to the transactions between Taxpayer and the Subcontractors. The issue here is whether Taxpayer was required to pay Indiana sales tax when it purportedly purchased the construction materials from its Subcontractors. To the extent that Taxpayer purchased construction materials from its Subcontractors, resold the materials to the utility, and the materials were incorporated into the utility’s exempt construction project, Taxpayer is correct. The Subcontractors’ sale of materials to Taxpayer under IC 6-2.5-3-2 would have been exempt because Taxpayer (the Contractor) purchased materials governed by a time and materials contract, the utility “could have purchased the material exempt from the state gross retail and use taxes,” and because the utility provided Taxpayer with a “properly issued exemption certificate.” A review of one of the contracts details the financial relationship between Taxpayer (the Contractor), the Subcontractors, and the utility (owner). . . . . The agreement between Taxpayer and this Subcontractor constitutes a “lump sum contract” under which Taxpayer agreed to pay a fixed amount for the work – and material costs – Subcontractor incurred in completing its portion of improvements made to the utility’s facility, including any sales tax expenses. Under the terms of this contract, Taxpayer is reimbursing the Subcontractor for the costs the Subcontractor incurred for completing the work the Subcontractor agreed to perform. It is the Subcontractor who paid sales tax on the purchase of the materials and not Taxpayer. Taxpayer simply agreed to reimburse the Subcontractor for the costs incurred in completing the project. One of those costs is – of course – the sales tax the Subcontractor paid to the vendors, but that is not what Taxpayer posits. There may very well be a sales tax exemption which covers the purchase of these materials, but that is an argument that the Subcontractor is entitled to make. If there is to be a refund of sales tax, it is the Subcontractor’s right to claim that refund and not Taxpayer. The Department here acknowledges that Taxpayer is relying on its agreements between itself and six Subcontractors. However, Taxpayer has not clearly established that it purchased materials (lumber, concrete, bricks) under time and material contracts and that it paid the Subcontractors sales tax. At the outset, the Department framed the issue raised by Taxpayer. There is insufficient evidence establishing that “Taxpayer incorrectly paid sales tax on purchases of construction materials from its Subcontractors.” On the single question of whether Taxpayer is entitled to a refund of sales tax expenses incurred by the Subcontractors, Taxpayer’s protest is denied. FINDING To the extent described in this SODR, Taxpayer’s protest is denied. February 19, 2025 Replaces Finding Document at: New
Documents
- Full text (state register) · April 30, 2025
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