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A taxpayer who entered into a software maintenance agreement was not subject to sales tax on the purchase of the agreement. The State of Indiana does not apply sales and use taxes to optional warranties and maintenance agreements that do not supply property on a periodic basis. Even though the language in the agreement indicated that the vendor would provide upgrades to the customer when the upgrades were made available, the State of Indiana stated that there was no guarantee that the upgrade would ever be produced. The state concluded that since this was the case, the taxpayer merely purchased an agreement with a right to have property supplied if the vendor should do so and the property may not be delivered on a periodic basis. (Letter of Findings, No. 02-0086, Indiana Department of Revenue, January 1, 2005)

(01/21/2005)

In a recently issued Letter of Findings, the Indiana Department of Revenue found that a taxpayer failed to provide a significant amount of information that its purchase of display booths was shipped to a location outside the State of Indiana. During an audit of the taxpayer’s records, it was determined that a 1995 invoice for the purchase of display booths was taxable. The taxpayer contended that those particular booths were shipped into the State of Ohio and Ohio sales tax was paid. However, the only evidence that the taxpayer provided was a 1997 purchase order for the same type of purchases from the same vendor. The state contended that all this evidence provided was that the taxpayer makes purchases from this vendor and may intermittently have these items shipped into the State of Ohio. In addition to the time periods differing, the purchase amounts were also different; therefore the state had no choice but to conclude that these booths were in fact shipped into the State of Indiana and subject to Indiana use tax. (Letter of Findings, No. 98-0213, Indiana Department of Revenue, January 1, 2005)

(01/21/2005)

In a Letter of Findings issued by the Indiana Department of Revenue, a taxpayer whose main business operation was the finishing of furniture products provided by its customers and then returning such items was not able to employ either the manufacturing exemption or the resale exemption under a recent audit. The audit disallowed multiple items due to the fact that certain purchases of machinery and equipment were utilized outside the production process. Also, even though the taxpayer was required to follow specific customer guidelines in packaging and labeling the finished products for delivery back to the customers, the Department of Revenue indicated that such a requirement did not exempt the purchase of packaging and labeling materials nor did such purchases qualify for the resale exemption. (Letter of Findings, No. 02-0241, Indiana Department of Revenue, January 1, 2005)

(12/06/2005)

An Indiana company is in the business of developing and manufacturing electricity using a new technology that is “cleaner” than methods traditionally used with emissions levels that fall below both current and anticipated future environmental standards. The issue at hand is whether the equipment and the other consumables used in the electric generating facility are exempt under either the manufacturing exemption or the pollution control exemption. In a Revenue Ruling the Department determined that the equipment and consumables were exempt under the manufacturing exemption because they were used in the direct production of electricity. The environmental exemption did not hold because the equipment was not purchased in order to comply with any environmental standard or regulation. (Revenue Ruling No. 2004-01 ST, Indiana Department of Revenue, June 28, 2004)

(10/22/2004)

In Indiana, a corporation was found liable for sales tax on the purchase of an airplane that were later leased or rented to the public. The taxpayer’s attempt to contend this sales tax exemption is based on Indiana Code 6-2.5-5-8, which exempts from sales tax retailers who are in the business of leasing aircraft to the public, was denied. Instead, the court classified the taxpayer as a “private flying club” due in part to the reduced fees offered to its members, which fell short of covering operating expenses and therefore produce no profit. As a result of the taxpayer’s neglect to submit the proper amount of tax a ten percent negligence penalty was imposed. It was later determined that the taxpayer did not intentionally neglect to pay the proper tax. The penalty was waived. (Letter of Findings No. 98-0017, Indiana Department of Revenue, September 1, 2004)

(10/22/2004)

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