SALT Report 1873 – The Indiana Tax Court ruled that certain purchases made by a Taxpayer qualified for the transportation sales tax exemption. The Taxpayer is a licensed common carrier who provides intrastate, interstate, and international relocation services for oversized factory machinery.
In 2004, the Department conducted an audit for the period of 2002 through 2004. During the course of the audit, the Taxpayer filed two refund claims for sales and use taxes that he remitted on purchases made during the 2001/2004 audit period. The auditor concluded that several purchases were exempt while others were either partially or fully taxable. As a result, the Department denied most of the Taxpayer’s claims for refund and issued the sales tax assessments. The Taxpayer appealed.
Indiana tax law provides a public transportation exemption under 4 512 N.E.2d 906. The regulation states that:
Transactions involving tangible personal property and services are exempt from the state gross retail tax, if the person acquiring the property or service directly uses or consumes it in providing public transportation for persons or property.
The issue before the Court was whether the Taxpayer’s purchases of tangible personal property were predominantly used to provide public transportation services as required by the exemption. Therefore, any property purchased must be necessary and integral to the provision of the public transportation services. The Court determined the Taxpayer’s liabilities as follows:
Purchases of property used to prepare estimates for his customers were not necessary and integral because they were not a part of the carrier’s public transportation process.
Property used to provide reassembly services at a customer’s location were not necessary and integral as the services were not public transportation services.
Property used to plan the routes and obtain the travel permits was necessary and integral as the carrier could not legally haul oversized machinery without travel permits.
Property used to disassemble, load, and secure his customers’ machinery for subsequent movement over highways was necessary and integral because, without disassembly, the machinery would be too heavy for loading and too large to legally transport.
Property used to transport, escort and secure his customers’ machinery was necessary and integral because it was the movement of another’s property for consideration.
Property used to provide warehouse storage services was necessary and integral because temporary storage is considered to be an integral part of public transportation.
Property used to transport customers’ machinery to other locations for repair services was necessary and integral because a common carrier’s movement of another person’s property for consideration is public transportation.
To qualify for the exemption all items that are necessary and integral to the provision of public transportation services must be used at least 70% of the time on jobs that involve the provision of public transportation services.
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