20100728-IR-045100444NRA Letter of Findings Number: 10-0209P Sales and Use Tax – Negligence Penalty For the Periods 2007-2008

DEPARTMENT OF STATE REVENUE

04-20100209P.LOF

Letter of Findings Number: 10-0209P Sales and Use Tax – Negligence Penalty For the Periods 2007-2008

NOTICE: Under IC § 4-22-7-7, this document is required to be published in the Indiana Register and is effective on its date of publication. It shall remain in effect until the date it is superseded or deleted by the publication of a new document in the Indiana Register. The publication of this document will provide the general public with information about the Department's official position concerning a specific issue.

ISSUE

I. Tax Administration – Negligence Penalty.

Authority: IC § 6-8.1-10-2.1; 45 IAC 15-11-2.

Taxpayer protests the imposition of the ten percent negligence penalty.

STATEMENT OF FACTS

Taxpayer is a company doing business in Indiana. The Indiana Department of Revenue ("Department") audited Taxpayer for sales and use tax for the years 2007 to 2008. As a result of the Department's audit, the Department issued proposed assessments of use tax, interest, and penalties. Taxpayer protested only the penalties.

I. Tax Administration – Negligence Penalty.

DISCUSSION

Taxpayer protests the imposition of the ten percent negligence penalty on the use tax imposed as a result of the Department's audit.

Penalty waiver is permitted if the taxpayer shows that the failure to pay the full amount of the tax was due to reasonable cause and not due to willful neglect. IC § 6-8.1-10-2.1. The Indiana Administrative Code, 45 IAC 15-11-2 further provides:

(b) "Negligence" on behalf of a taxpayer is defined as the failure to use such reasonable care, caution, or diligence as would be expected of an ordinary reasonable taxpayer. Negligence would result from a taxpayer's carelessness, thoughtlessness, disregard or inattention to duties placed upon the taxpayer by the Indiana Code or department regulations. Ignorance of the listed tax laws, rules and/or regulations is treated as negligence. Further, failure to read and follow instructions provided by the department is treated as negligence. Negligence shall be determined on a case by case basis according to the facts and circumstances of each taxpayer.

(c) The department shall waive the negligence penalty imposed under IC 6-8.1-10-1 if the taxpayer affirmatively establishes that the failure to file a return, pay the full amount of tax due, timely remit tax held in trust, or pay a deficiency was due to reasonable cause and not due to negligence. In order to establish reasonable cause, the taxpayer must demonstrate that it exercised ordinary business care and prudence in carrying out or failing to carry out a duty giving rise to the penalty imposed under this section. Factors which may be considered in determining reasonable cause include, but are not limited to:

(1) the nature of the tax involved;

(2) judicial precedents set by Indiana courts;

(3) judicial precedents established in jurisdictions outside Indiana;

(4) published department instructions, information bulletins, letters of findings, rulings, letters of advice, etc.;

(5) previous audits or letters of findings concerning the issue and taxpayer involved in the penalty assessment.

Reasonable cause is a fact sensitive question and thus will be dealt with according to the particular facts and circumstances of each case.

Taxpayer states that it is a subcontractor on various construction jobs. Whenever Taxpayer sent invoices to the appropriate general contractors, those contractors would remove sales tax from the invoice or not pay the sales tax, even though no entity provided an exemption certificate. Taxpayer's bookkeeper then erroneously assumed that the general contractors remitted the sales tax directly or that the project was in fact exempt from sales and use tax.

However, Taxpayer failed to follow long-standing Department guidance regarding sales and use tax relevant to its particular business. Further, Taxpayer has had over forty liabilities for late payments of various taxes. Taxpayer's failure to comply with basic sales and use tax requirements for its business, in conjunction with Taxpayer's prior compliance history, does not demonstrate "reasonable cause" sufficient to justify penalty waiver.

FINDING

Taxpayer's protest is denied.

Posted: 07/28/2010 by Legislative Services Agency

DIN: 20100728-IR-045100444NRA

Composed: Nov 01,2016 12:56:41AM EDT

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