in-20250326-IR-045250138NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE FINAL ORDER DENYING REFUND: 04-20242121; 02-20242122 Sales Tax For the Tax Year 2020 NOTICE: IC 4-22-7-7 permits the publication of this document in the Indiana Register. The publication of this document provides the general public with information about the Indiana Department of Revenue’s official position concerning a specific set of facts and issues. The “Holding” section of this document is provided for the convenience of the reader and is not part of the analysis contained in this Final Order Denying Refund. HOLDING Limited liability company failed to establish that it was entitled to a refund of sales tax. ISSUE

I. Sales Tax – Exemptions.

Authority: IC 6-2.5-2-1; IC 6-2.5-5 et seq; IC 6-2.5-5-5.1; Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); 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); Rotation Prods. Corp. v. Dep’t of State Revenue, 690 N.E.2d 795 (Ind. Tax Ct. 1998); 45 IAC 2.2-5-8. Taxpayer protests the denial of requested Indiana sales tax refunds. STATEMENT OF FACTS Taxpayer is an Indiana limited liability company that operates a restaurant in Indiana. In December 2023, Taxpayer filed a claim for refund of sales tax with the Indiana Department of Revenue (“Department”). Taxpayer presented itemized receipts for its purchases. The Department granted the requested refund in part and denied it in part on the ground that Taxpayer was entitled to a refund of sales tax on some of the purchases but not others. Taxpayer timely protested, and the Department held an administrative hearing. This Final Order Denying Refund results. Additional facts will be provided as necessary.

I. Sales Tax – Exemptions.

DISCUSSION Taxpayer argues that it is entitled to a refund of sales tax that it paid on purchases of aprons and chef’s linens. Where, as here, a taxpayer is challenging the imposition of a tax, the 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 a taxpayer seeks an exemption, the exemption statute is strictly construed against the taxpayer, and it will have the burden to prove that it qualifies for the exemption. Rotation Prods. Corp. v. Dep’t of State Revenue, 690 N.E.2d 795, 798 (Ind. Tax Ct. 1998). Additionally, “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.’” Indiana Dep’t 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 are entitled to deference. Indiana imposes a sales tax on all retail transactions made in Indiana. IC 6-2.5-2-1(a). The purchaser is “liable for the tax on the transaction” and “shall pay the tax to the retail merchant as a separate added amount . . . ” IC 6-2.5-2-1(b). However, some retail transactions are exempt from the sales tax. See IC 6-2.5-5 et seq. Among those transactions exempt from the sales tax are transactions where the purchaser buys “tangible personal property . . . for direct consumption as a material to be consumed in the direct production of other tangible personal property . . . ” IC 6-2.5-5-5.1(b). The Department’s regulations state that purchases of “equipment” that is “directly used in the production process” are also exempt. 45 IAC 2.2-5-8(c). Specifically, equipment must be “an essential and integral part of an integrated process which produces tangible personal property” to qualify for this exemption. Id. The Department’s regulations state that purchases of “[s]afety clothing or equipment which is required to allow a worker to participate in the production process without injury or to prevent contamination of the product during production” qualify for the exemption. 45 IAC 2.2-5-8(c)(2)(F). Taxpayer argues that the aprons and chef’s linens that it purchased constitute the sort of safety equipment referenced in 45 IAC 2.2-5-8(c)(2)(F). At the hearing, Taxpayer compared these articles of clothing to lab coats that are worn in factory kitchen settings, and Taxpayer also represented that the aprons and chef’s linens are not donned until the workers who wear them arrive at its restaurant, further supporting the idea that they are meant to be worn only while working in the kitchen. The Department is unable to agree that these facts qualify aprons and chef’s linens as “essential and integral” to the production process. Taxpayer could not point to any way in which the aprons and linens protected the food in the kitchen from contamination. It seems more likely to the Department that the aprons are meant to keep the chef’s linens clean, and the chef’s linens are merely the outfit that Taxpayer’s cooks are expected to wear on the job. The Department cannot agree that either item is “essential and integral” to cooking food for any reason, so the Department cannot agree that Taxpayer is entitled to a refund of sales tax paid on these items. Taxpayer raised a concern during the hearing about the “tax pyramiding” that would occur if it were to lose — that is, if it were required to pay sales tax on these aprons and linens, it would have to raise its prices accordingly, and its customers would pay higher sales tax because of it. However, “[t]ax pyramiding in the sales and use context occurs where the inputs (raw materials, machinery, energy, etc.) into the production of other goods are taxed.” Rotation Prods. Corp. v. Dep't of State Revenue, 690 N.E.2d 795, 798 n.6 (Ind. Tax Ct. 1998). Chef’s linens and aprons are not inputs into the final product. Taxpayer runs a restaurant for which it purchases many items that are necessary for its business to operate. Some of these purchases are exempt from sales tax. However, Taxpayer has not carried its burden to show that its purchases of aprons and chef’s linens are exempt, so the Department cannot agree that Taxpayer is entitled to a refund for sales tax paid on these items. FINDING Taxpayer’s protest is respectfully denied. January 14, 2025 Replaces Finding Document at: New