Source: http://www.in.gov/legislative/iac/20140625-IR-045140219NRA.xml.html
Timestamp: 2017-05-25 05:08:53
Document Index: 227244867

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

04-20130477.LOF
Letter of Findings: 04-20130477
Authority: IC § 6-2.5-1-1 et seq.; IC § 6-2.5-1-2; IC § 6-2.5-1-5; IC § 6-2.5-2-1; IC § 6-2.5-3-1; IC § 6-2.5-3-2; IC § 6-2.5-3-4; IC § 6-2.5-4-1; IC § 6-2.5-5-1 et. seq.; IC § 6-8.1-5-1; Lafayette Square Amoco, Inc. v. Indiana Dep't of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); Indiana Dep't. of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463 (Ind. 2012); Rhoade v. Indiana Dep't of State Revenue, 774 N.E.2d 1044 (Ind. Tax Ct. 2002); USAir, Inc. v. Indiana Dep't of State Revenue, 623 N.E.2d 466 (Ind. Tax Ct. 1993); Indiana Dep't. of State Revenue, Sales Tax Division v. RCA Corp., 310 N.E.2d 96 (Ind. Ct. App. 1974); Indiana Dep't of State Revenue v. Kimball Int'l Inc., 520 N.E.2d 454 (Ind. Ct. App. 1988); Indiana Dep't of State Revenue v. Belterra Resort Indiana, LLC, 935 N.E.2d 174 (Ind. 2010); Gregory v. Helvering, 293 U.S. 465 (1935); Comm'r v. Transp. Trading & Terminal Corp., 176 F.2d 570 (2d Cir. 1949), cert. denied, 338 U.S. 955 (1950); Horn v. Comm'r, 968 F.2d 1229 (D.C. Cir. 1992); Lee v. Comm'r, 155 F.3d 584 (2d Cir. 1998); 45 IAC 2.2-3-4; 45 IAC 15-5-7; Sales Tax Information Bulletin 28WC (August 2008).
Taxpayer protests the Department's assessments on purchases of nine (9) vehicles and one (1) watercraft, claiming that the purchases were either not subject to Indiana use tax or the Department's assessments were overstated.
The Department imposed use tax on various vehicles/watercrafts Taxpayer purchased, based on the best information available at the time of the audit.
Use of tangible personal property in Indiana could be exempt from Indiana use tax if the sales tax is paid or collected at the time of the purchase pursuant to IC § 6-2.5-3-4 and 45 IAC 2.2-3-4. There are also various tax exemptions available outlined in IC § 6-2.5-5-1 et seq. A statute which provides a tax exemption, however, is strictly construed against the taxpayer. Indiana Dep't. of State Revenue, Sales Tax Division v. RCA Corp., 310 N.E.2d 96, 97 (Ind. Ct. App. 1974). "[W]here such an exemption is claimed, the party claiming the same must show a case, by sufficient evidence, which is clearly within the exact letter of the law." Id. at 101 (internal citations omitted). Thus, in applying any tax exemption, the general rule is that "tax exemptions are strictly construed in favor of taxation and against the exemption." Indiana Dep't of State Revenue v. Kimball Int'l Inc., 520 N.E.2d 454, 456 (Ind. Ct. App. 1988).
As mentioned earlier, Indiana imposes a sales tax on retail transactions and a complementary use tax on tangible personal property that is stored, used, or consumed in the state. IC § 6-2.5-2-1; IC § 6-2.5-3-2. The Indiana Supreme Court, in Indiana Dep't of State Revenue v. Belterra Resort Indiana, LLC, 935 N.E.2d 174 (Ind. 2010), explained that "[t]he use tax is complementary to the sales tax because it ensures non-exempt transactions that have escaped sales tax liability are nonetheless taxed. In fact, Indiana's use tax is primarily designed to reach out-of-state sales of tangible personal property that is subsequently used in Indiana." Id. at 177. (internal citations omitted).
IC § 6-2.5-1-5 (effective July 1, 2010 to June 30, 2013), in relevant part, provides:
The Department's Sales Tax Information Bulletin 28WC (August 2008), 20081001 Ind. Reg. 045080728NRA, further addresses issues related to Indiana Sales & Use Tax on Watercraft & Boat Trailers and explains which charges are subject to tax, in relevant part, as follows:
The selling price upon which the tax will be based will be the actual amount of consideration tendered for the watercraft after deducting all cash discounts and trade-in allowances. The deduction for trade-in allowance applies only to a "like-kind" trade and does not apply to other property, either personal or real, that is traded.
I. TAXABLE SELLING PRICE
The dealer's actual selling price, for which the dealer receives gross retail income, is the amount subject to sales tax.
A manufacturer's rebate is not an allowable deduction from the taxable selling price if the dealer receives payment for such rebate, as shown on the customer's purchase agreement. A manufacturer's rebate, as shown on the written purchase agreement, is a form of payment. It is not a reduction in the dealer's gross retail selling price.
A manufacturer's price reduction is considered deductible for sales tax purposes. This is because the manufacturer is actually reducing the selling price of the watercraft or trailer. The dealer does not receive the amount of the price reduction as consideration for the sale from the manufacturer.
All types of discounts, regardless of the terminology used to describe the price adjustment, either remain as part of the taxable selling price or are deductible from the amount subject to sales tax based on whether the selling dealer receives "gross retail income" for the sale or lease.
Documentation fees for services performed after the transfer of a watercraft or trailer are not considered part of the sales price and, therefore, are not subject to sales tax. Transfer of a watercraft or trailer takes place when the purchaser takes possession and control of the property and assumes the risk of loss, even though the title has not yet been transferred. The dealer must maintain adequate records to show which services pertain to the fees charged and that the services were performed after the transfer of the watercraft or trailer to be exempted from sales tax. Documentation fees charged for services performed prior to the customer taking physical possession of the watercraft or trailer are subject to sales tax.
Like-Kind trade values are deductible in determining the amount subject to sales tax. An exempt trade must be of like-kind. This means only a watercraft may be traded for another watercraft or a trailer may be traded for another trailer. Any other type of trade is merely a payment (consideration) from the buyer, the value of which does not reduce the taxable sales price of the purchase.
The selling price upon which the tax is based for purposes of calculating the sales tax is indicated by the following examples:
(T =Taxable, Amount Subject To Tax; E = Exempt, reduces taxable selling price)
A. 1. Boat Sticker Price $12,000 T 2. Dealer Discount $ 500 E 3. Used Boat Trade $ 4,000 E 4. $1,000 Rebate Assigned as Down Payment by Purchaser $ 1,000 5. Taxable Selling Price $ 7,500 In the above example, items number 2 and 3 reduce the selling price subject to sales tax. The dealer discount is deductible, as is the like-kind trade of a boat for a boat. The rebate in this example is used as a down payment but does not decrease the taxable selling price.
This leads to consideration of the "sham transaction" doctrine, which is long established both in state and federal tax jurisprudence dating back to Gregory v. Helvering, 293 U.S. 465 (1935). In that case, the Court held that in order to qualify for favorable tax treatment, a corporate reorganization must be motivated by the furtherance of a legitimate corporate business purpose. Id. at 469. A corporate business activity undertaken merely for the purpose of avoiding taxes was without substance and "[T]o hold otherwise would be to exalt artifice above reality and to deprive the statutory provision in question of all serious purpose." Id. at 470.
The courts have subsequently held that "in construing words of a tax statute which describe [any] commercial transactions [the court is] to understand them to refer to transactions entered upon for commercial or industrial purposes and not to include transactions entered upon for no other motive but to escape taxation." Comm'r v. Transp. Trading & Terminal Corp., 176 F.2d 570, 572 (2d Cir. 1949), cert. denied, 338 U.S. 955 (1950). "[T]ransactions that are invalidated by the [sham transaction] doctrine are those motivated by nothing other than the taxpayer's desire to secure the attached tax benefit" but are devoid of any economic substance. Horn v. Comm'r, 968 F.2d 1229, 1236 (D.C. Cir. 1992). In determining whether a business transaction was an economic sham, two factors can be considered: "(1) did the transaction have a reasonable prospect, ex ante, for economic gain (profit), and (2) was the transaction undertaken for a business purpose other than the tax benefits?" Id. at 1237. (internal footnote omitted). The question of whether or not a transaction is a sham, for purposes of the doctrine, is primarily a factual one. Lee v. Comm'r, 155 F.3d 584, 586 (2d Cir. 1998).
Taxpayer's protest under Subpart A, purchase of 2011 Watercraft, is respectfully denied. Taxpayer's protest under Subpart B, purchases of Vehicles at Issue, is sustained pending a supplemental audit review. The Department's Audit Division is instructed to review the supporting documentation submitted and recalculate the assessments as appropriate.
Composed: May 25,2017 1:08:52AM EDT