in-20250430-IR-045250195NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS:  04-20221711 Sales/Use Tax For The Tax Years 2019 and 2020 HOLDING Business was able to establish that contractor did not use time and material contracts. Business failed to meet its burden of proof on all other issues. ISSUE

I. Sales/Use Tax – Miscellaneous Audit Items.

Authority: IC 6-2.5-2-1; IC 6-2.5-3-1; IC 6-2.5-3-2; IC 6-2.5-4-9; IC 6-8.1-5-1; IC 6-8.1-5-2; 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); Wendt LLP v. Indiana Dep’t of State Revenue, 977 N.E.2d 480 (Ind. Tax Ct. 2012); Express Scripts Inc. v. Indiana Dep’t of State Revenue, 170 N.E.3d 273 (Ind. Tax Ct. 2021); 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 Dept. of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); Rhoade v. Indiana Dep’t of State Revenue, 774 N.E.2d 1044 (Ind. Tax Ct. 2002); Sales Tax Information Bulletin 56 (September 2019); Sales Tax Information Bulletin 60 (November 2017). Taxpayer protests the proposed assessment of sales/use tax. STATEMENT OF FACTS Taxpayer is an Indiana limited liability company. Taxpayer operates a farm that includes other components, including a farm store, café, catering, and agricultural experiences. Taxpayer also breeds dogs. Taxpayer was audited by the Indiana Department of Revenue (“Department”) for the sales tax for the years 2019 and 2020. As a result of the audit, the Department issued a Notice of Proposed Assessment (“NOPA”) for additional Indiana tax due. Taxpayer then filed a protest with the Department; a telephone hearing was held on the matter. Additional facts will be provided as necessary.

I. Sales/Use Tax – Miscellaneous Audit Items.

DISCUSSION Taxpayer’s owner states that she “is not a trained bookkeeper” and that she “kept all the books for the business from the beginning.” The owner states that the Department’s audit “report grossly overstated sales and other figures.” The owner concedes that she made “bookkeeping mistakes,” for example she “did not realize that [the company] had to pay Use tax for sales purchased out of state….” Nonetheless, Taxpayer contends that the Department’s audit report contained “multiple instances where the auditor double counted sales tax and is charging it to [Taxpayer] twice.” As a threshold issue, under IC 6-8.1-5-1(c), it is Taxpayer’s responsibility to establish that the existing tax assessment is incorrect. As stated in IC 6-8.1-5-1(c), “[t]he 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). Consequently, a taxpayer is required to provide documentation explaining and supporting his or her challenge that the Department’s position is wrong. Further, “[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). Turning to Indiana’s sale and use tax laws, 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). A person who acquires property in a retail transaction (a “retail purchaser”) is liable for the sales tax on the transaction. IC 6-2.5-2-1(b).  Indiana also imposes a complementary excise tax – called 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 functionally equivalent to the sales tax. See Rhoade v. Indiana Dep’t of State Revenue, 774 N.E.2d 1044, 1047 (Ind. Tax Ct. 2002). Taxpayer during the telephonic administrative hearing withdrew some issues from its protest. The Department in follow up e-mail correspondence attempted to specify what was being withdrawn—namely, catering sales, dog sales, online sales, online purchases from Amazon, were not being protested. In a subsequent Taxpayer e-mail, Taxpayer stated that for 2019 and 2020 the protested items were “Purchases Subject to Use Tax – Capital Assets” and “Total Sales – Additional Taxable Indiana Store Sales.” Taxpayer also stated, “we believe according to Indiana code 6-8.1-5-2, this is all now past the statute of limitations.” Regarding the statute of limitations assertion, Taxpayer did not develop this assertion into an argument but suffice it to say that the Department’s audit report (“Audit Summary Report”) was issued on August 16, 2022, and that the report notes on the first page that the “Earliest Statute” date was December 31, 2022. IC 6-8.1-5-2 generally provides for three years to issue an assessment. As Sales Tax Information Bulletin 56 (September 2019), 20191225-IR-045190679NRA, notes, “The Department must issue an assessment within three (3) years of the latter of the due date of the return, or, in the case of a return filed for the state gross retail tax, the end of the calendar year which contains the taxable period for which the return is filed.” Thus, the Department’s audit was within the applicable timeframe. Taxpayer protests what it calls “Purchase Subject to Use Tax – Capital Assets.” On that issue, the audit report stated: Further, the audit report states that a “review of the fixed asset records revealed that the taxpayer purchased various fixed asset items for which no documentation or vendor receipts were provided demonstrating that sales tax was paid or use tax was remitted.” Taxpayer, for its part, states: Taxpayer also provided a copy of a letter from Company R that states it is “a General Contractor for [Taxpayer]” and that Company R does not sell supplies to any of its customers. It also says that the “[c]ustomer invoices are Itemized to show our Customer what supplies, materials and equipment were purchased by [Company R] and taxes paid by [Company R].” Within the audit report the invoice numbers for Company R were as follows: 3004/3003; 2959; 3053/3067; and 3038. Taxpayer provided copies of Company R invoices, that show itemized descriptions of materials and a total. For example, invoice 3053 starts with “[s]torage room, stairs, kitchen project: stairs material labor” and ends at the bottom of the invoice with “stainless counter.” A total price is given, and the terms of the contract are not provided (the invoice under “Terms” says, “as set forth in contr…”). This is repeated in the other Company R invoices. The auditor found the contracts to be a time and materials contract. A “Time and Material Contract” is defined in Sales Tax Information Bulletin 60 (November 2017), 20180131 Ind. Reg. 045180051NRA, as “a contract in which the cost of construction material and the cost of labor or other charges are stated separately.” The audit report references the “fixed asset invoices,” which do not clearly specify the terms of the contract. However, the letter from Company R sheds light on the matter—Company R states that it pays the taxes. Thus, Taxpayer’s protest on this issue for Company R is sustained. Taxpayer also states that “[r]egarding the ‘Missing Invoice’ notes in the 2019 adjustment details,” that this was for “Invoice #3006” which was “split among four line items on the depreciation schedule” for a barn office (#82), tractor path excavation (#83), baby barn concrete (#84), and barn loft (#88). The audit report lists this as a “Barn Loft,” described as: “No Tax; Materials; Extra Insulation, HeatAir Unit, elect. Extras, liner metal storage, overhead door” and cites to IC 6-2.5-4-9 (the statute that in part addresses when a “contractor is a retail merchant”). The audit report also states for the items, “Missing Invoice(s); Invoice #2959 provided belonged to another asset.” Taxpayer states “invoice #3006 was paid in two installments” in 2019 and 2020 and that this “seems to have caused some of the confusion . . . .” At any rate, it does not appear that Taxpayer has provided the relevant invoice (or specified where within the submitted materials it can be found). Instead, Taxpayer points to a “2020 Federal Summary Depreciation Schedule.” Taxpayer’s protest regarding the missing invoice (#3006) is denied. The audit report states that, before the audit began, that the “auditors prepared and sent an initial information document request letter that requested all sales records such as invoices, point-of-sale (POS) reports, or other source documentation” for the “Farm Store and Market Store.” Per the audit report “these were the ‘in-person’ sales” and were referenced within the audit report “as the ‘in-store’ sales at the one Indiana location.” The audit report states: When asked about exempt sales, the audit report says that Taxpayer stated, “‘Agritourism’ made up most of the exempt sales” and that “the taxpayer would have employees write down the ‘Agritourism’ sales each day and then would enter them into the taxpayer’s QuickBooks software. However, none of this documentation was still available or provided for the auditors to review.” Taxpayer’s lack of source documentation led the auditors to “review[] the documentation that was available.” The audit report describes this process in depth: Regarding Taxpayer’s lack of documentation, IC 6-8.1-5-4(a) states: With that in mind, we now turn to Taxpayer’s protest of the Indiana store sales. Taxpayer states that it agrees that the audit report has the “total of the deposits correct,” however Taxpayer does not “agree that these amounts are all taxable as listed by the auditor.” Taxpayer asserts the “auditor included many items listed elsewhere and is trying to double charge sales tax on these items.” Taxpayer further states that it has “itemized and attached a breakdown of each of these deposits and what the deposits were for” as an “attachment titled Appendix A.” These are unsupported assertions by Taxpayer. For example, at one point within the protest, Taxpayer concedes that there were “bookkeeping errors” but nonetheless argues that $23,000 in deposits were done in error and were actually for “personal expenses that were improperly paid for on the business accounts.” As noted supra, Taxpayer bears the burden of proof in a protest. The Department notes that poorly developed or 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). Also a taxpayer, when submitting evidence as part of the taxpayer’s protest, needs to specify and explain the portions of the evidence that taxpayer believes to be relevant. As 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). Taxpayer’s protest of the Indiana store sales fails to meet the burden of IC 6-8.1-5-1(c) and the case law cited above. Taxpayer also failed to develop any argument regarding penalties and interest, thus to the extent penalties and interest were assessed, Taxpayer is denied on those issues too. The Department nonetheless instructs the audit division to review Taxpayer’s audit report to ensure that no “double count[ing],” as Taxpayer alleges, occurred as it relates to the Indiana store sales. FINDING Taxpayer is sustained regarding issue IA; Taxpayer is denied regarding all other issues. The audit division is instructed, however, to review the audit report to ensure no invoices were inadvertently counted more than once in the audit. February 26, 2025 Replaces Finding Document at: New