Source: http://www.in.gov/legislative/iac/20120725-IR-045120422NRA.xml.html
Timestamp: 2014-09-18 07:45:10
Document Index: 575177756

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

04-20110615.LOF
Letter of Findings: 04-20110615
Authority: IC § 6-2.5-1-5; IC § 6-2.5-2-1; IC § 6-2.5-4-1; IC § 6-2.5-5-1; IC § 6-8.1-5-1; 45 IAC 2.2-4-1; IC § 6-2.5-13-1; Indiana Dep't. of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463 (Ind. 2012); Hall v. Indiana Dep't of State Revenue, 720 N.E.2d 1287 (Ind. Tax Ct. 1999); Hurst v. Indiana Dep't of State Revenue, 721 N.E.2d 370 (Ind. Tax Ct. 1999); Streamlined Sales and Use Tax Agreement (adopted 2002 and amended through December 19, 2011); Streamlined Sales and Use Tax Agreement, Interpretative Opinion 2008-1 (adopted April 2, 2008).
Taxpayer, a florist, protests the assessment of sales tax on fees it charges its customers for relaying the customers' orders for flowers to a second florist to be delivered remotely.
Taxpayer is an Indiana company, which operates several retail flower shops located in Indiana. Taxpayer conducts retail transactions through a florist telegraphic delivery ("FTD") association (namely, a clearinghouse) and offers delivery within and outside of Indiana. On some occasions, customers, who place the orders at Taxpayer's shop, wish to have the flowers delivered to a remote area, such as a different state or country. Taxpayer is the florist ("Accepting Florist") who accepts orders from customers and forwards the orders to a second florist ("Delivering Florist") who delivers the flowers according to the orders and instructions.
The FTD association operates on a member-only arrangement. According to the FTD association's rules, "[a]ll items sent through the [FTD association] network are 100 [percent] guaranteed" and both the Accepting and Delivering Florists must honor the promise of 100 [percent] customer satisfaction. All Accepting Florists must collect payments, including price of the order and delivery charges, and transmit the full amount to the Delivering Florist. All Accepting Florists must collect applicable state and local taxes at the time when the orders were accepted. The Accepting Florists may charge the customers additional fees to cover the costs of transmitting the orders. Within a certain number of days, the Accepting Florists will receive a 20-percent commission on orders reported, which exceed a minimum price set by the FTD association.
Taxpayer accepts orders from Indiana customers and forwards the orders to various Delivering Florists who then prepare and deliver the flowers to the recipients. Taxpayer charges and the customers pay for the price of the flowers, a delivery fee, and a relay or service fee. Taxpayer collects sales tax on all charges, except the "relay or service" charges ("Charges at Issue").
The Indiana Department of Revenue ("Department") conducted a sales/use tax audit for tax years 2008, 2009, and 2010 (the "Years at Issue"). Pursuant to the audit, the Department determined that Taxpayer failed to collect and remit sales tax on the Charges at Issue. The Department's audit also assessed use tax on the grounds that Taxpayer did not pay sales tax or self-assess and remit the use tax on certain purchases of tangible personal property, which Taxpayer used for its business.
Taxpayer only disagreed with and timely protested the assessments of sales tax on the Charges at Issue. A hearing was held. This Letter of Findings ensues. Additional facts will be provided as necessary.
The Department's audit determined that the Charges at Issue are fees which Taxpayer charges its customers for services performed in respect to the flowers prior to the transfer of the flowers. Referring to 45 IAC 2.2-4-1, the Department's audit concluded that the Charges at Issue constitute a part of the consideration for the sale of tangible personal property – namely the flowers – and, therefore, are subject to sales tax.
Taxpayer, to the contrary, claimed that the Charges at Issue are fees for performing services, namely, relaying or forwarding the customer's orders to the Delivering Florists in the areas where the recipients are located. Taxpayer asserted that, as services, the Charges at Issue, which are separately stated in its invoices, are not subject to Indiana sales tax.
Indiana has been a full member participant of the Streamlined Sales Tax project and complies with the Streamlined Sales and Use Tax Agreement (adopted 2002 and amended through December 19, 2011) (the "Agreement"). The Section 309 to the Agreement, Part B. 4., states, "[f]lorist sales as defined by each member state. Such sales must be sourced according to the requirements of each member state." Id. Additionally, the Interpretative Opinion 2008-1 to the Agreement establishes that the florist who accepts an order is "the seller for sales tax and use tax purposes" and thus certain "provisions of the Agreement applicable to the Library of Definitions" do not apply. Streamlined Sales and Use Tax Agreement, Interpretative Opinion 2008-1, 186-87 (adopted April 2, 2008).
IC § 6-2.5-13-1(h), in pertinent part, further provides:
[A] retail sale of floral products in which a florist or floral business:
IC § 6-2.5-1-5, in relevant part, provides:
(4) delivery charges; or...
(2) except as provided in subsection (g), 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. (Emphasis added).
In this instance, Taxpayer, an Indiana florist and also a member of the FTD association, stated that when a customer places an order for the flowers to be delivered to a different state or country, it relays that order to another florist, Delivering Florist, through its FTD association network. Taxpayer explained that that Delivering Florist (also a member to the FTD association), upon receiving the forwarded customer's order from Taxpayer, will then prepare the flowers and deliver them to the designated recipient per the customer's instruction. Taxpayer contended that the Charges at Issue are not fees for services "[] performed in respect to the property transferred before its transfer []" by Taxpayer; but rather that the Charges at Issue are "for the service provided by the florist delivery association for having the order filled by florists located in other jurisdictions"; and that the Charges at Issue are not "a direct cost associated with the actual preparation, fabrication, alteration, modification, finishing, completion, or delivery of the product being sold to the customer." Thus, Taxpayer asserted that it charges its customer the Charges at Issue to "make a phone call to a florist in another area" and that the Charges at Issue were "not a direct fee charged to the customer as part of the sales price for the product/services provided to the Taxpayer's customer." Taxpayer thus maintained that, pursuant to IC § 6-2.5-4-1-(e), the Charges
at Issue are not subject to Indiana sales tax.
Taxpayer's reliance is misplaced. Taxpayer, as well as other florists in similar circumstances, are the members of the member-only FTD association, which promises 100 percent customer satisfaction guarantee and which all members within the network share a portion of revenue. Taxpayer may assert that it does not physically own the flowers which were ordered and delivered to the customer's designated recipients. However, possession includes "actual" or "constructive." "Constructive possession occurs when somebody has the intent and capability to maintain dominion and control over the item." Hall v. Indiana Dep't of State Revenue, 720 N.E.2d 1287, 1290 (Ind. Tax Ct. 1999); Hurst v. Indiana Dep't of State Revenue, 721 N.E.2d 370, 374-75 (Ind. Tax Ct. 1999). In this instance, every florist who is a member within the FTD association network, including Taxpayer, has constructive possession over the flowers ordered and to be delivered. When Taxpayer takes orders from its customers, it knows that a Delivering Florist will honor and fulfill its forwarded orders under the FTD association's rules. Thus, in making the sales, Taxpayer promises and guarantees the customers that the ordered flowers will be delivered to the customer's designated recipients in a different state or country. Taxpayer promises and guarantees its customers to fulfill the orders as the customers expect. These promises and guarantees are fulfilled according
to the arrangements through the FTD association. Taxpayer thus has constructive possession of the flowers and is a retail merchant making retail transactions. When the flowers are transferred for consideration, "all elements of consideration are included in gross retail income subject to tax" including, but not limited to, "[a]ny additional bona fide charges added to or included in such price for preparation..., delivery, or other services performed in respect to or labor charges for work done with respect to such property prior to transfer." Therefore, any charges by Taxpayer "for any services necessary to complete the sale" must be included in the Indiana "gross retail income" and are subject to Indiana sales tax pursuant to IC § 6-2.5-1-5(a) and IC § 6-2.5-4-1(e).
In short, the Charges at Issue are subject to sales tax.
Composed: Sep 18,2014 3:45:10AM EDT