in-20250430-IR-045250167NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 04-20242545 Use Tax For the 2023 Tax Year HOLDING Limited liability company established that it did not owe use tax on the capital contribution of a motor vehicle. ISSUE

I.     Use Tax – Motor Vehicle.

Authority: IC 6-2.5-1-2; IC 6-2.5-3-2; IC 6-2.5-4-1; 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); Indiana Dep’t of State Revenue v. Belterra Resort Indiana, LLC, 935 N.E.2d 174 (Ind. 2010); Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); 45 IAC 2.2-1-1. Taxpayer protests the assessment of use tax on the capital contribution of a motor vehicle. STATEMENT OF FACTS Taxpayer is an Indiana limited liability company. In January 2023, Taxpayer’s ownership (“Owners”) transferred title of a motor vehicle to Taxpayer. On the title application, Owners listed the “sale price” as $0.00. The Department audited Taxpayer’s transfer and determined that Taxpayer had underreported the retail purchase price of the vehicle. The Department then assessed use tax based on the fair market value of the vehicle. Taxpayer timely protested, and this Letter of Findings results. Further facts will be provided as necessary. Because Taxpayer waived its right to a hearing, this Letter of Findings relies on the Department’s records and documentation provided by Taxpayer.

I.    Use Tax – Motor Vehicle.

DISCUSSION Taxpayer argues that it does not owe use tax on a title transfer that was not a sale. 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 Dep’t of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012) and 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. 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). Thus, all interpretations of Indiana tax law contained within this decision shall be entitled to deference. Indiana imposes an excise tax called the “use tax” on “the storage, use, or consumption of tangible personal property in Indiana if the property was acquired in a retail transaction.” IC 6-2.5-3-2(a) (emphasis added). A “retail transaction” occurs when a person or business makes a “sale at retail.” See IC 6-2.5-1-2. A “sale at retail” occurs when, “in the ordinary course of . . . regularly conducted trade or business,” a person or business buys property “for the purpose of resale” and transfers it to someone else “for consideration.” IC 6-2.5-4-1(b). For sales of motor vehicles, the use tax is also imposed on “an isolated or occasional sale.”  IC 6-2.5-3-2(b)(1); 45 IAC 2.2-1-1(d). In other words, the purchaser of a motor vehicle must pay sales or use tax so long as they acquired the vehicle in a sale, i.e., a transfer for consideration. Although the term “consideration” is not defined in the Indiana Code, the Indiana Supreme Court has said that consideration requires “a benefit accruing to the promisor or a detriment to the promisee,” and that a benefit is “a legal right given to the promisor to which the promisor would not otherwise be entitled.” Indiana Dep’t of State Revenue v. Belterra Resort Indiana, LLC, 935 N.E.2d 174, 179 (Ind. 2010)(internal citations omitted). Consideration is therefore not limited to payment in money. Id. It can include a wide variety of benefits, including promises to do something for the seller and the assumption of a debt that the seller owed. A “capital contribution” occurs when the owner of a business “transfers money or property to the [business].” Belterra, 935 N.E.2d at 177–78 (citing Hoang v. Jamestown Homes, Inc., 768 N.E.2d 1029, 1041 (Ind. Ct. App. 2002)). When an owner makes a capital contribution, they do not receive more stock; instead, their tax basis in the stock increases “in proportion to the capital contribution.” Id. The Indiana Supreme Court has said that capital contributions “made without consideration” are not subject to use tax. Belterra, 935 N.E.2d at 178. Taxpayer has presented documentation showing that it did not acquire the vehicle in question for consideration. The original title application shows a “sale price” of $0.00, and it reflects the Owners’ intent to claim an exemption for a “no consideration company transaction.” The title application stated that the reason this transaction should be exempt is because it was an “individual owner transfer to company (e.g., individual owner now wants to transfer title to her newly formed LLC).” The old title to the vehicle shows that the vehicle was not encumbered by any liens. Furthermore, the transfer did not accrue any benefit to the Owners, as their capital contribution did not increase their ownership in the company or imbue them with new rights or responsibilities. In short, Taxpayer has shown that Owners made a capital contribution to it for which no consideration was paid. No money changed hands, Taxpayer assumed no debts, and Owners received nothing of value from Taxpayer. Because Owners did not receive consideration in exchange for the vehicle, the transfer was neither a “sale at retail” nor an “isolated or occasional sale.” The transfer was not a sale at all, and Taxpayer does not owe use tax. Taxpayer acquired title to a vehicle from Owners as a capital contribution. Taxpayer did not pay Owners anything for the title, nor did it provide Owners with any sort of benefit in exchange for the title. Therefore, the title transfer in question was not a sale subject to Indiana use tax, and Taxpayer does not owe use tax to the Department. FINDING Taxpayer’s protest is sustained. February 05, 2025 Replaces Finding Document at: New