Source: http://www.in.gov/legislative/iac/20130626-IR-045130259NRA.xml.html
Timestamp: 2017-08-18 16:35:28
Document Index: 324801979

Matched Legal Cases: ['§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6']

04-20120413.LOF
Letter of Findings Number: 04-20120413 Use Tax For Tax Years 2009-11
Authority: Galligan v. Indiana Dep't of State Revenue, 825 N.E.2d 467, 480 (Ind. Tax Ct. 2005); Frame Station, Inc. v. Indiana Dep't of State Revenue, 771 N.E.2d 129 (Ind. Tax Ct. 2002); IC § 6-2.5-1-1; IC § 6-2.5-1-5; IC § 6-2.5-2-1; IC § 6-2.5-3-2; IC § 6-2.5-4-1; IC § 6-2.5-5-3; IC § 6-8.1-5-1; 45 IAC 2.2-3-4.
Taxpayer is an Indiana business. In the course of an audit, the Indiana Department of Revenue ("Department") determined that Taxpayer had not paid sales tax on some transactions upon which tax should have been paid during the tax years 2009, 2010, and 2011. Therefore, the Department issued proposed assessments for use tax and interest for those years. Taxpayer protested that some of those purchases were not subject to sales and use tax. An administrative hearing was held and this Letter of Findings results. Further facts will be supplied as required.
Taxpayer protests the imposition of use tax on five categories of transactions during the tax years 2009, 2010, and 2011. The Department determined that these transactions were subject to sales and use taxes. Taxpayer states that the five categories under protest are not subject to sales and use taxes for various reasons. The Department notes that the burden of proving a proposed assessment wrong rests with the person against whom the proposed assessment is made, as provided by IC § 6-8.1-5-1(c).
The first category under protest is in regards to equipment which Taxpayer believes qualifies as exempt manufacturing equipment. Taxpayer states that the Department included the amount paid for a paint system used in Taxpayer's production line. The relevant statute is IC § 6-2.5-5-3(b), which states:
Therefore, when a taxpayer uses machinery, tools, or equipment in the direct production, manufacture, fabrication, assembly, extraction, mining, processing, refining, or finishing of other tangible personal property, the purchased machinery, tools, or equipment is exempt from sales and use tax. In this case, Taxpayer has provided sufficient documentation to show that the paint line is directly used in the direct production of its goods. Taxpayer has met the burden imposed under IC § 6-8.1-5-1(c).
The second category under protest is a wastewater tank which is part of Taxpayer's paint line. The Department considered the wastewater tank to be a post-production piece of equipment which did not have a direct effect on the direct production of Taxpayer's goods. As part of the hearing process, Taxpayer provided documentation and analysis to show that the wastewater tank is an integral part of the exempt paint line. Therefore, the wastewater tank is also exempt under IC § 6-2.5-5-3(b).
The third category under protest concerns forklifts and related items. Taxpayer argues that the Department agreed to a thirty-eight percent taxable rate for forklifts and that the same rate should apply to battery chargers for the forklifts. Again, IC § 6-2.5-5-3(b) provides an exemption for machinery, tools, and equipment which is directly used in the direct production process. In this case, the battery chargers are not directly used in the direct production of Taxpayer's goods. The forklift batteries themselves would be subject to the same tax rate as the forklifts since they power the forklifts as they transport work-in-process, but the chargers only have a direct effect on the batteries, not on Taxpayer's goods. Taxpayer has not met the burden imposed by IC § 6-8.1-5-1(c).
The fourth category under protest concerns amounts which Taxpayer states were charged for installation services on four invoices. Taxpayer believes that these amounts are not subject to sales and use tax and that they should be removed from the Department's calculations of use tax due. Taxpayer provided copies of the four invoices in support of its position that the Department included delivery charges as amounts subject to sales tax. The first relevant statute is IC § 6-2.5-1-1, which states:
(D) the price reduction or discount is identified as a third party price reduction or discount on the invoice received by the purchaser or on a coupon, certificate, or other documentation presented by the purchaser.For purposes of subdivision (4), delivery charges are charges by the seller for preparation and delivery of the property to a location designated by the purchaser of property, including but not limited to transportation, shipping, postage, handling, crating, and packing.
The next relevant statute is IC § 6-2.5-4-1, which states in relevant parts:
In Frame Station, Inc. v. Indiana Dep't of State Revenue, 771 N.E.2d 129 (Ind. Tax Ct. 2002), the Indiana Tax Court discussed the taxable status of services provided before or after the transfer of tangible personal property. In that case, the court stated:
In Galligan v. Indiana Dep't of State Revenue, 825 N.E.2d 467, 480-81 (Ind. Tax Ct. 2005), the Indiana Tax Court wrote:
As mentioned earlier, the provision of services is, generally, not taxable. As a practical matter, however, "mixed transactions" often occur where tangible personal property is sold in order to complete a service contract, or where services are provided in order to complete the sale of tangible personal property. For these mixed transactions, distinguishing the taxable sale of property from the non-taxable sale of services is often difficult. Accordingly, the legislature has set forth several parameters for imposing tax on these transactions. First, taxable property does not escape taxation merely because it is transferred in conjunction with the provision of non-taxable services. Ind.Code Ann. § 6-2.5-4-1(c)(2) (West 1994) (amended 2004). Second, services, generally outside the scope of taxation, are subject to tax to the extent the income represents "any bona fide charges which are made for preparation, fabrication, alteration, modification, finishing, completion, delivery, or other service performed in respect to the property transferred before its transfer and which are separately stated on the transferor's records." A.I.C. § 6-2.5-4-1(e)(2) (emphasis added). Finally, the legislature imposes tax on services that are provided in a retail unitary transaction, "a unitary transaction that is also a retail transaction." Ind.Code Ann. § 6-2.5-1-2(b) (West 1994). A unitary transaction is one which "includes all items of personal property and services which are furnished under a single order or agreement and for which a total combined charge or price is calculated." Ind.Code Ann. § 6-2.5-1-1(a) (West 1994).
After review of the invoices in question, the Department is not convinced that the delivery and installation charges are not taxable. While two of the invoices include line items listing delivery and/or installation charges, those entries are included in the subtotal which Taxpayer's vendors charged as a total combined charge to Taxpayer. This constitutes a unitary transaction, as provided by IC § 6-2.5-1-1(a). The remaining invoices simply list a total amount charged, which on its face is a unitary transaction. Taxpayer has not met the burden imposed by IC § 6-8.1-5-1(c) for this category of items under protest.
The fifth category of items under protest is in regard to items which the Department considered to be rental of trailers. Taxpayer protests that what the Department considered to be trailer rentals was in fact only a description by Taxpayer's vendor listing the costs that went into providing transportation services. As described above, a unitary transaction is one which includes all items of personal property and services which are furnished under a single order or agreement and for which a total combined charge or price is calculated. However, upon review of the invoice in question, it is clear that no tangible personal property was furnished in this transaction. Therefore, only services were provided and as such were not subject to sales and use tax. Taxpayer has met its burden under IC § 6-8.1-5-1(c).
In conclusion, Taxpayer has met its burden of proving that sales and use taxes were not due on items protested under categories 1, 2, and 5, regarding exempt manufacturing equipment, the wastewater storage tank, and the trailers listed on the service vendor's invoice. Taxpayer has not met the burden imposed under IC § 6-8.1-5-1(c) regarding its protest of items listed in categories 3 and 4, consisting of battery chargers and installation charges. Since use tax was calculated on some of these items as separate capital asset purchases and since use tax was calculated on some of these items under a sample and projection method for ordinary purchases, a supplemental audit will recalculate the amount of use tax due using the appropriate method for either category.
DIN: 20130626-IR-045130259NRA
Composed: Aug 18,2017 12:35:27PM EDT