Revenue Finds Taxpayer Failed to Pay Tax on Materials for Lump Sum Contract Sales

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Taxpayer is an out-of-statebusiness, which sells and installs acoustic panels for customers in Indiana andoutside of Indiana. Taxpayer bills its customers on a lump sum basis. Taxpayerdid not file any Indiana sales/use tax returns.
In 2011, the Indiana Department ofRevenue ("Department") conducted a sales/use tax audit of Taxpayer.The Department determined that the three-year statute of limitations does notapply to Taxpayer's purchases because Taxpayer is a non-filer of sales tax. TheDepartment requested that Taxpayer provide its records for 2001 through 2010tax years, but Taxpayer only provided the Department limited records for 2008,2009, and 2010 tax years. Pursuant to the audit, the Department determinedthat, for tax year 2008, Taxpayer failed to pay sales tax or self-assess usetax on the materials it purchased and used to perform its installation at anIndiana customer's location. The audit then utilized the 2008 result to projectTaxpayer's tax liabilities for 2001 through 2007 based on the best informationavailable at the time of the audit. As a result, the Department assessedTaxpayer additional use tax and interest for tax years 2001 through 2008.…
The Department's audit determinedthat Taxpayer charged its customers on a lump sum basis; however, theDepartment found that, for tax year 2008, Taxpayer failed to pay sales/use taxon materials which it used in performing the installations in Indiana. Taxpayerclaimed that it was not responsible for paying sales/use tax because thecustomer claimed that it was exempt from sales/use tax. Thus, Taxpayer believesthat the Department's assessments were overstated....
In this instance, the Department'saudit noted that Taxpayer charged its customer pursuant to a lump sum contractbut did not pay sales tax or self-assess use tax on the materials it used toperform the lump sum contract. Taxpayer did not present any exemptioncertificate to the Department at the time of the audit. Thus, the audit properlyassessed use tax.
At the hearing, Taxpayer assertedthat it was not responsible for sales/use tax because its customer was exempt.Subsequently, Taxpayer submitted additional documentation including copies ofthe contract, invoices, and the customer's exemption certificate to support itsprotest. Upon reviewing Taxpayer's documentation, the Department agrees thatTaxpayer has provided sufficient documentation to demonstrate that thefollowing purchases for tax year 2008 were exempt.

Date	Reference	Amount
07/22/2008	2124460RI	$23,122.00
07/28/2008	2129563RI	$ 4,736.37
08/15/2008	2147518RI	$12,265.52

Thus, the Department willrecalculate Taxpayer's 2008 tax liability in a supplemental audit.Additionally, since the audit utilized the 2008 result to project Taxpayer'stax liabilities for tax year 2001 through 2007, the Department will alsorecalculate Taxpayer's 2001-2007 tax liabilities accordingly.
Taxpayer is reminded that sales/usetax becomes due at the time of purchase. If its customer claims an exemption,the exemption certificate should be obtained at the time the transaction occursotherwise the burden of proving the transaction was exempt falls on Taxpayerand ultimately becomes measurably more difficult.
http://www.in.gov/legislative/iac/20121031-IR-045120563NRA.xml.html