in-20250326-IR-045250135NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 04-20241823 Sales and Use Tax For the Year 2021 HOLDING Business failed to establish that the Department’s proposed assessment for additional sales tax was incorrect. ISSUE

I. Sales Tax – Exemption.

Authority: IC 6-2.5-1-2; IC 6-2.5-2-1; IC 6-2.5-2-2; 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); Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); 45 IAC 2.2-8-12. Taxpayer protests the assessment for additional sales tax. STATEMENT OF FACTS Taxpayer is an Indiana S Corporation. The Indiana Department of Revenue (“Department”) conducted an audit of Taxpayer’s sales for the 2021 tax year. The audit resulted in an adjustment to Taxpayer’s taxable sales, and ultimately, a Notice of Proposed Assessment was issued to Taxpayer. Taxpayer disagreed with the assessment and submitted a protest to that effect. Taxpayer waived its right to an administrative hearing. This Letter of Findings is written in reliance on documents provided by Taxpayer and the Department’s own records. Additional facts will be provided as necessary.

I. Sales Tax – Exemption.

DISCUSSION In 2023, the Department conducted an audit of Taxpayer’s sales for the 2021 tax year. As a result of the audit, the Department determined that Taxpayer owed additional tax on sales for which no sales tax was collected. The Department issued a corresponding proposed assessment. Taxpayer protested, stating that some of the sales in question were exempt from sales and use tax. In support of its protest, Taxpayer provided a written explanation and a proposal for machined components previously sent to its customer. 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 the proposed assessment is wrong rests with the person against whom the proposed assessment is made. Id.; See e.g. 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). 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). Pursuant to IC 6-2.5-2-1(a), sales tax, also known as state gross retail tax, is imposed on retail transactions made in Indiana unless a valid exemption is applicable. A retail transaction is a transaction made by a retail merchant that constitutes “selling at retail.” IC 6-2.5-1-2(a). Selling at retail occurs when a person “(1) acquires tangible personal property for the purpose of resale; and (2) transfers that property to another person for consideration.” IC 6-2.5-4-1(b). Sales tax is imposed at a rate of seven percent. IC 6-2.5-2-2(a). A retail merchant that has a physical presence in Indiana shall collect the tax as agent for the State. IC 6-2.5-2-1(b). Under 45 IAC 2.2-8-12, “[r]etail merchants are required to collect the sales and use tax on each sale which constitutes a retail transaction unless the merchant can establish that the item purchased will be used by the purchaser for an exempt purpose.” Here, Taxpayer asserts that it “did not have a sales tax exemption form from [its customer],” but Taxpayer “did not sell any material to [its customer].” Instead, Taxpayer states, “we were only performing labor on their provided parts.” In support of this statement, Taxpayer provided a proposal for machined components sent to its customer on July 29, 2021. However, the proposal is silent as to where Taxpayer is acquiring the components to be “machined,” whether from its customer or another entity. Additionally, the proposal includes a list of parts and their total costs. Based on the proposal, it is unclear whether Taxpayer is providing a service or purchasing pieces of equipment. Pursuant to IC 6-8.1-5-1(b), “[i]f 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.” Here, the Department conducted an audit of Taxpayer’s sales, and, based on the best information available, determined that Taxpayer had not reported the proper amount of sales tax due. The Department then issued an assessment for additional sales tax due. Taxpayer has not provided documentation sufficient to establish that the proposed assessment was incorrect. Taxpayer has not carried its burden under IC 6-8.1-5-1(c). Taxpayer’s protest is denied. FINDING Taxpayer’s protest is denied. January 17, 2025 Replaces Finding Document at: New