SALT Report 1908 – The Indiana Department of Revenue issued a ruling regarding a landscaper’s sales of various landscaping materials. The Taxpayer in question manufactures and sells various types of landscaping products, including mulch. In 2011, the Department conducted an audit for the 2009 and 2010 tax years. Upon completion of the audit, the Department determined that Taxpayer had not paid sales or use tax for items purchased and used in the course of business. As a result, the Department assessed use tax plus interest.
The Taxpayer accepted portions of the assessment however; he appealed the portion that applied to a portable transfer conveyor. The Taxpayer claimed that the conveyor was exempt from sales and use tax as it was used to control the size of the mulch pile thereby minimizing any potential fire hazard.
The Taxpayer explained that, prior to its purchase of the conveyor, it used a bulldozer to compact and control the size of the mulch pile. However, this process would often cause the mulch to spontaneously combust. After several fires, the local fire department requested that the Taxpayer use a conveyer to minimize the fire hazard. Therefore, the Taxpayer argued that he purchased and used the conveyor to be in compliance with Indiana Fire Code.
In their decision, the Department noted that even if the Taxpayer purchased the conveyor to be in compliance with Indiana Fire Code, the conveyor was primarily used to control and maintain the size of the mulch pile to prevent spontaneous combustion prior to sale. Pursuant to 45 IAC 2.2-5-8(j), “fire prevention equipment which does not have an immediate effect on the product” is subject sales/use tax. Additionally, the Department noted that the Taxpayer did not refer to any environmental statutes, regulations, or standards to support its appeal.
Therefore, the Department ruled that the Taxpayer had not proven that the conveyor was “used and acquired for the purpose of complying with any state, local or federal environmental statutes, regulations or standards” and his appeal was denied. Further, because the Taxpayer did not pay sales tax at the time of purchase, the Department ruled that the use tax assessment was properly imposed.
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