Taxpayer owns farm land andresidential property which is leased to individual tenants. Taxpayer also rentsconstruction equipment to a related entity. The Indiana Department of Revenue("Department") conducted a sales and use tax audit of Taxpayer forthe years 2008 through 2010. As a result of the audit Taxpayer was assessedadditional use tax and related interest. Taxpayer protested the assessments.
During the audit period Taxpayerpurchased a Caterpillar Multi Terrain Loader and a Komatsu Excavator that weredelivered to Taxpayer in Indiana. No sales or use tax was paid on thesepurchases. Taxpayer states that both these items were purchased with theintention of renting them to a related company ("Related"). Accordingto the Department's Audit Summary, Taxpayer did not provide the auditordocumentation to substantiate Taxpayer's claims related to these two items.According to the Audit Summary:
The taxpayer stated that anincorrect description of the loader appeared on the billing invoices to[Related] and that they had forgotten to bill that company for rentals of theexcavator. In addition, they stated that the income from the excavator rentalswould be placed on the company's books in 2011, but the excavator sold in 2010.
In making the assessment, the auditcited to 45 IAC 2.2-3-20 which states in part that allpurchases of tangible personal property which are delivered to the purchaserfor storage, use, or consumption in Indiana are subject to Indiana use tax. Theterrain loader was purchased in 2008 and the excavator was purchased in 2009and they were both used in Indiana.
If Taxpayer bought the vehicles atissue for the purpose of leasing them to Related, Taxpayer would not berequired to pay sales tax on the purchases of the vehicles because Taxpayerwould have bought the vehicles for resale/leasing which is exempt.
Taxpayer explains that the vehiclesin question were mistakenly capitalized on Related's books and as a resultTaxpayer failed to collect sales tax on the lease stream. Taxpayer does notdisagree that it should have collected sales tax on the lease stream. Taxpayerstates that the internal records of both Taxpayer and Related will be adjustedto reflect the leasing arrangement and the collection of sales tax on the leasestream.
For the purpose of this protest,Taxpayer purchased the implicated vehicles without paying sales or use tax onthe purchases and use of these vehicles. Furthermore, Taxpayer did not provideevidence of a leasing arrangement with Related. How Taxpayer adjusts itsbusiness operations and records going forward – several years after theequipment was purchased – is irrelevant to the years at issue.
The Department's audit correctlyassessed tax on the implicated transactions.
http://www.in.gov/legislative/iac/20121031-IR-045120560NRA.xml.html
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