Indiana Tax Amnesty Program to Start in September

May 29, 2015, 12:25 pm

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Indiana’s Tax Amnesty Program will begin in mid-September 2015.

In a recent post, we explained Indiana’s new tax amnesty program. We have now just learned that the Indiana Department of Revenue (Department) may soon be announcing that the eight-week tax amnesty program will start in mid-September 2015. The Department will be publishing emergency regulations soon to provide details on the amnesty program. The Department appears to be willing to explore settling taxes, as well as affording taxpayers the abatement of penalties and interest in connection with the amnesty program. Taxpayers with pending disputes with the Department should consider this possible opportunity.

The Department also urges that taxpayers begin discussions with the Department about settlement and amnesty well before the amnesty program start date. Depending upon the issues involved, a business wanting to explore settlement and amnesty with the Department should consider utilizing a tax professional to approach the Department first, especially if the business is a non-filer.

This post was prepared by Francina A. Dlouhy and J. Daniel Ogren.

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Sales Tax Class Actions Raise Red Flags For Retailers

June 9, 2015, 5:47 am

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The following post was originally published by Law360 on May 7, 2015. Since this post’s original publication, additional lawsuits relating to sales tax collection practices, discounts, and “instant rebates” have been filed in California and elsewhere.

A slew of recent class actions have retailers and other businesses that accept or issue coupons double-checking their sales tax collection practices. These lawsuits are not cut-and-dried, but they risk upending an industry built on streamlined, efficient practices and customer convenience.

Interplay Between Taxes and Coupons

All but five states have some form of statewide sales tax and 38 states also authorize at least one form of local sales taxes. Sales taxes are usually paid by customers when they purchase goods or services subject to the tax. To simplify tax collection and administration, sales tax is usually collected by retailers on behalf of the state at the time of the sale. Collected taxes are then held in trust for the state until they are remitted by the retailer. Alternatively, in some states, including Illinois, the tax is imposed on the retailer, which collects use tax from the customer as reimbursement at the time of the sale.

Sales taxes are based on the retailer’s gross receipts from the transaction. As that name suggests, gross receipts include all consideration received by the retailer, including cash and credits, and are measured without deductions for the cost of the goods, shipping costs, interest or any other expense. In order to properly determine the sales tax base, the retailer must consider receipts from all sources attributable to that transaction.

The determination of the sales tax base can present problems for retailers when coupons and other forms of discounts are accepted.

Coupons come in two broad and self-descriptive categories: manufacturer-issued coupons and store-issued coupons. Manufacturer-issued coupons are issued by the manufacturers of retail goods. When a customer presents a manufacturer-issued coupon to a retailer, the retailer is fully or partially reimbursed by the manufacturer, and the loss in revenue is absorbed by the manufacturer. Conversely, a store-issued coupon is issued by the retailer itself, so when a customer presents a store-issued coupon to a retailer, the retailer is not reimbursed by another party and the loss in revenue is absorbed by the retailer.

Under the sales tax regulations of many states, including Illinois, store-issued coupons constitute a reduction in the retailer’s gross receipts. Accordingly, the sales tax liability is reduced. On the other hand, manufacturer-issued coupons do not generally reduce the retailer’s gross receipts, because the retailer is reimbursed by the manufacturer.

Consider how this practice becomes complicated in situations where the sales tax is borne by the retailer and reimbursed by the customer, as in Illinois. In the case of manufacturer-issued coupons, the tax owed by the retailer is on the higher, undiscounted price (because the retailer receives gross receipts from both the customer and the manufacturer). But the customer would ordinarily only owe use tax on the amount expended by the customer (i.e., the discounted amount). To address this issue, an Illinois regulation provides that, while “technically, the coupon issuer … owes the corresponding use tax on the value of the coupon,” in many cases “the coupon issuer incorporates language into the coupon that requires the bearer … to assume this use tax liability.” In other words, the fine print on the coupon can allow the tax burden to shift onto the customer.

Plaintiffs’ Theories and their Consequences

Several class actions have recently been filed against national retailers in Illinois and elsewhere capitalizing on the confusion surrounding sales taxes and coupons. In each case, the customer allegedly presented a manufacturer-issued coupon that did not have language shifting the tax burden to the customer. The retailers collected tax on the full, undiscounted price of the goods as they would do with any other manufacturer-issued coupon.

In the complaints, the plaintiffs argue the retailers violated the Illinois Consumer Fraud Act by collecting tax on the coupon amount and were unjustly enriched as a result. The plaintiffs seek compensatory damages, punitive damages of at least 1 percent of annual revenues from each retailer’s Illinois stores during the years in issue, and fees and costs.

In another recent lawsuit, a Florida plaintiff filed a class action against a wholesale club retailer, alleging the retailer collected sales tax on the full price of merchandise when the goods were discounted as a result of the store-issued discounts, rather than manufacturer-issued discounts. The complaint alleges violations of Florida’s Deceptive and Unfair Trade Practices Act, fraud, and unjust enrichment, among other things.

Whatever the merits of these lawsuits, they present problems for retailers beyond the potential damages in any individual case. The lawsuits put retailers between a tax-collecting rock and a litigious hard place. On one hand, retailers can err on the side of undercollecting sales tax, but in doing so, they risk being audited by taxing authorities; those audits can result in the payment of penalties and interest, and potentially risk the loss of the retailer’s license. On the other hand, retailers can err toward overcollecting sales tax, but in doing so they expose themselves to class actions and their associated expenses and negative publicity.

Further, if the courts endorse the arguments of the class action litigants, retail clerks would need to carefully read — and understand the implications of — the fine print on every coupon presented, and self-service lanes may have to disallow the use of manufacturer-issued coupons. These changes would be significant burdens in an industry built on customer convenience.

Best Practices to Cut Exposure

Sales tax compliance is already complicated enough for retailers doing business in multiple jurisdictions. Even the best point-of-sale systems can have problems determining whether to collect tax under the thousands of fact patterns that arise daily. Each state and locality has its own tax rate, tax base and exemptions from that base. A bag of coffee, for example, may or may not be taxable in a particular jurisdiction; the presentation of a coupon for that coffee only muddies the water further.

While there is no practical way to fully eliminate exposure to these types of lawsuits, retailers should consider several best practices that can reduce that exposure while also managing audit risk.

First, retailers should regularly review their tax collection process in all jurisdictions where they do business and ensure they are diligently complying with each jurisdiction’s unique sales tax rules. In-house attorneys and accountants should regularly compare the retailer’s practices with the requirements of the jurisdiction and engage outside counsel familiar with the nuances of the jurisdiction when questions arise.

When a retailer is uncertain how a particular discount should be classified for tax purposes, particularly in jurisdictions without specific rules relating to such discounts, retailers should also consider seeking regulatory guidance from the taxing authorities. Assuming retailers comply with the guidance, administrative rulings can provide retailers with a level of protection against damages in lawsuits while simultaneously reducing exposure to audits. It would be impractical to seek a ruling for every fact pattern in every jurisdiction, however, so retailers should be selective in which rulings to pursue.

Due to their size and scale of operations, national retailers often have significant influence with their vendors. Because many of the issues in the recent lawsuits revolve around manufacturer-issued coupons, and specifically their lack of language shifting the tax burden to the customer, retailers may want to work with vendors to ensure that the appropriate tax-shifting language is on every coupon. Manufacturers should be open to this language, as the burden of the use tax on the coupon amount otherwise may fall to the manufacturer.

Finally, and more fundamentally, retailers should ensure that the entire amount of sales tax they collect is remitted to the proper taxing authority. While this is a fairly rudimentary best practice, some class action defenses, such as the voluntary payment doctrine which states that voluntarily paid taxes cannot be recovered even if such payment was erroneous, may only be available when the tax is collected and remitted. Further, if the retailer does not retain the tax that is allegedly collected erroneously, the case for unjust enrichment is made arguably weaker. Of course, overcollecting sales tax and failing to remit it exposes the retailer to fire from both sides.

No system can practically and perfectly consider every possible variation relating to the taxability of products sold by local and national retailers, but those retailers not already in the crosshairs of class action litigants should take every opportunity to reduce their exposure, before they find themselves the next target.

This post was prepared by Francina A. Dlouhy and Benjamin A. Blair.

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Indiana Tax Court Serves a Sales Tax Exemption To Restaurant Chain for Electricity Used to Warm Food

August 25, 2015, 10:16 am

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Electricity used by Qdoba Mexican Restaurants to keep food warm before final preparation and sale was found exempt from sales tax by the Indiana Tax Court. On June 23, 2015, the Indiana Tax Court in Aztec Partners, LLC v. Indiana Department of State Revenue granted the refund claims filed by Aztec Partners, LLC, which operates nineteen of the restaurants in the State. The restaurants use food warmers, hot food cabinets, and other equipment to hold and to preserve the temperature of food items such as salsa, chicken, lettuce and rice until they are combined into entrées sold to customers. After first concluding that it had jurisdiction to hear the refund claims, the Court analyzed whether the electricity used to power the equipment was exempt from sales tax under the consumption exemption, which exempts electricity acquired “for direct consumption as a material to be consumed in the direct production of other tangible personal property.” To qualify for the exemption, the Court explained, Aztec had to show that (1) it is engaged in production, (2) it has an integrated production process, and (3) the electricity is essential and integral to its integrated production process.

Preparing entrées was production. Noting the “iron-clad rule” that “without production there can be no exemption,” the Court observed that “production” is defined broadly. In deciding whether production occurs, the focus is on whether a marketable good is created. Aztec engaged in production, because its preparation and combination of food items into entrées substantially changed the individual food items into new, marketable products – entrées – that have a character and form different from the food items originally acquired.

Combining food created a marketable product. Aztec’s marketable finished products were the entrées, not the individual food items. (No evidence showed that food items were individually sold.) Entrées were not ready for sale until this final step was completed. According to Aztec, combining food items was the last of several steps within its integrated production process. The electricity was consumed in this process.

Electricity essential to creating entrées. Without the electricity, the individual food items could not have been properly preserved for combination into marketable products. Aztec did not need to show the electricity had a transformational effect on the food items to prove it was essential and integral to producing the entrées. Aztec’s purchases of the electricity were exempt.

Department takes one more bite. The Department filed a petition for rehearing in which it claimed, in part, that Aztec’s refund claims were ambiguous, so it never filed adequate claims and thereafter never invoked the Court’s jurisdiction. In a July 30th order, the Court ruled that Aztec’s refund claims were proper, as they were filed on the Department’s designated form and described the basis for the claims. Furthermore, the Department had sufficient information to process the claims, denying them in part and granting them in part. The refund claims, therefore, were not ambiguous.

The Department of Revenue often seeks to narrow the scope of what is considered production and to restrict the availability of the consumption exemption. However, as this decision shows, electricity used to create a final, marketable product – whether tacos, tanks, or turbines – is likely exempt.

This post is for general informational and educational purposes only. The reader should not rely or act upon any information in this post without seeking professional legal counsel or advice from a tax professional.

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Online travel company did not owe Indiana sales and innkeeper’s taxes for facilitating rental of hotel rooms

January 9, 2017, 6:36 am

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Online travel company was not a retail merchant, so it did not owe Indiana sales and innkeeper’s taxes

In Orbitz LLC v. Indiana Department of State Revenue (Dec. 20, 206), the Indiana Tax Court characterized the key issue as “whether the Department erred in issuing sales and innkeeper’s tax assessments against Orbitz based on the retail rather than the wholesale rate of Indiana hotel rooms.” (The Court did not reach Taxpayer’s claims regarding constitutional violations, equitable estoppel, and the Internet Tax Freedom Act.)

For the 2004 – 2006 tax years, Taxpayer’s customers used its website to search for, compare prices for, and reserve, among other things, lodging. Taxpayer entered into hotel listing agreements for Indiana properties. Under those agreements, Taxpayer publicized the rooms, facilitated pre-paid reservations, and collected sales and innkeeper’s taxes based on the wholesale room rates set by the hotel operators. Taxpayer charged customers a higher retail rate. After the customer checked out, the hotel operator invoiced Taxpayer for the wholesale rate and tax recovery amounts, and Taxpayer kept the facilitation and service fees (which comprised the higher retail rate charged).

In 2008, the Department audited Taxpayer and charged it more than $200,000, asserting it should have collected tax based on the retail rates. Taxpayer’s protest of the assessment was denied, Taxpayer appealed, and the parties filed summary judgment motions in 2013. Oral argument was heard before the Court in 2014.

During the tax years, Indiana charged a 6% sales tax rate (now 7%) on retail transactions, defined as “a transaction of a retail merchant that constitute[d] selling at retail[.]” (quoting Ind. Code § 6-2.5-1-2(a) (emphasis by Court). The Court further explained that the “innkeeper’s taxes [imposed by various counties] were similar to sales taxes . . . [and were] imposed and administered in the same manner as the sales tax . . . .” (citing Ind. Code § 6-9-9-2). According to the Court, “finding a liability for sales tax under Indiana Code § 6-2.5-4-4 necessitates finding a liability for the innkeeper’s taxes because both taxes were imposed based on the same tax incidents during the period at issue.” Opinion, at 6-7. (The Court in a footnote explained that it did not rely upon or find persuasive several decisions from other jurisdictions released in recent years regarding the liability of online travel companies in similar circumstances because those cases are “dependent on state-specific statutory language” for their resolutions.)

As a matter of law, Taxpayer was not a retail merchant. Opinion, at 9. Taxpayer could only confirm reservations. The Court explained that it was the hoteliers “alone” – not Taxpayer – who “delivered or transferred possession and control of hotel rooms to customers during the check-in process.” Id. The hotel operator’s obligation to provide rooms was only executory until the customer checked-in or cancelled the reservation. Because it was not a retail merchant, Taxpayer was not liable for the sales and innkeeper’s taxes. Additional tax due, if any, would be the responsibility of the hoteliers as retail merchants. Opinion, at 10.

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Indiana Tax Court deep freezes sales tax exemptions for Warehouse Operator’s purchases of equipment and electricity

January 19, 2017, 6:30 am

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A frozen food warehouse operator did not qualify for sales tax exemptions because it did not produce other tangible personal property.

In Merchandise Warehouse Co., Inc. v. Indiana Department of State Revenue (Jan. 11, 2017), the Indiana Tax Court rejected a Taxpayer’s request for a sales tax exemption for certain freezer equipment and the electricity used to power the equipment. Taxpayer operated a food storage warehouse. Food manufacturers delivered their products to Taxpayer packaged and on pallets. Taxpayer provided customers with either “slow” or “blast” freezing services. (With “slow” freezing, products were placed on pallets to freeze at their own pace in five to twelve days; with “blast” freezing, specialized equipment froze products within two days.)

Taxpayer claimed the freezing phase was the last stage of the food manufacturing process. Therefore, it sought a refund of sales tax paid for the equipment and electricity used in that process in 2009 to 2012. These purchases were exempt, Taxpayer asserted, under the Consumption and Equipment Exemptions. Generally speaking, these provisions exempt from Indiana sales tax transactions involving the purchase of electricity or equipment that is directly used in the manufacturing process. To qualify for the exemption, the Court explained that Taxpayer (a) must “be engaged in the production of other tangible personal property” and (b) “use its electricity and freezer equipment as an essential and integral part of its integrated production process.” Opinion, at 6-7.

Taxpayer did not satisfy the “iron-clad rule” that “without production there can be no exemption.” Opinion, at 7 (citing Indianapolis Fruit Co. v. Dep’t of State Revenue, 691 N.E.2d 1379, 1384 (Ind. Tax Ct. 1998).) “Production,” the Court explained, “focuses on the transformation of materials into a new, distinct marketable good.” Opinion, at 7 (citations omitted). But here Taxpayer did not engage in production, because it “simply preserves the food products that have already been prepared and packaged by its customers.” Opinion, at 8. Through its freezing services, Taxpayer did not increase the number of scarce economic goods in the marketplace – no “new, distinct marketable goods” were created. Opinion, at 9. In addition, the exemptions did not apply because Taxpayer did not use the equipment and electricity as part of its own production process.

The Court held: “Merchandise Warehouse does not produce other tangible personal property in an integrated production process when it freezes its customers’ food products.” Opinion, at 11. The exemptions were denied.

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Purchases of Truck Leasing Company not exempt from Indiana Sales and Use Tax under Public Transportation Exemption

September 5, 2017, 4:50 am

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Public transportation exemption for sales and use tax did not apply to all “transportation-related transactions”

In Schilli Leasing, Inc. v. Indiana Dep’t of State Rev., Cause No. 49T10-1306-TA-00054 (Aug. 31, 2017), the Indiana Tax Court denied the public transportation exemption from sales and use tax for purchases of a truck leasing company. The Leasing Company acquired vehicles which it then leased to third-parties, including four related companies – including three that hauled freight for hire and one that was a freight preparation company. The Related Companies were owned by the same individual but were separate corporate entities. In addition, the Leasing Company operated numerous garage facilities to provide repair and maintenance services for its vehicles. It provided additional services to the Related Companies, such as offering overnight accommodations (a “bunkhouse”) to their drivers while vehicles were serviced. Leasing Company made “accounting allocations” on the related companies’ financial records to note the “charges” for these additional services.

After completing an audit for the 2008 to 2010 tax years, the Department of Revenue found that Leasing Company failed to collect sales tax for charges to Related Companies for vehicle lease payments, fuel, repair parts, temporary freight storage and bunkrooms. The Department also concluded that Leasing Company failed to remit use tax on its purchases of “bunkhouse improvements” (e.g. a water softener) and purchases of items used in its repair shops (e.g. uniforms, gloves).

Leasing Company argued the purchases were exempt under Indiana’s public transportation exemption for sales and use tax. That exemption, Indiana Code § 6-2.5-5-27, states: “Transactions involving tangible personal property and services are exempt from the [sales] tax, if the person acquiring the property or service directly uses or consumes it in providing public transportation for persons or property.” The Department by rule has defined “public transportation” as “the movement, transportation, or carrying of persons and/or property for consideration by a common carrier, contract carrier, household goods carrier, carriers of exempt commodities, and other specialized carriers performing public transportation service for compensation by highway, rail, air, or water[.]” Slip op. at 6 (quoting 45 IND. ADMIN. CODE 2.2-5-61(b)).

Leasing Company stipulated that it did not “transport property owned by third-parties for consideration.” And it offered only general claims that the Related Entities were themselves engaged in public transportation.

Leasing Company claimed that the public transportation exemption applied to all “transportation-related transactions,” so the contested transactions were all exempt because everything it did related to the transportation industry. Leasing Company argued that the Department’s rule “impermissibly narrows” the exemption. The Court rejected this argument, explaining that the “plain language of the public transportation exemption necessarily links the person who acquired property to the use or consumption of it in his provision of public transportation.” Slip op. at 8. The rule was consistent with the statute.

Leasing Company next asked the Court to disregard the separate corporate existence of each Related Company and to treat them “as a single diverse ground transportation company” whose “inter-company transactions” qualify for the public transportation exemption. Slip op. at 9. It relied upon the “unitary business principle” to support its position. But that is a “concept that has no application in the sales and use tax arena.” Slip op. at 9. The principle is the “linchpin of apportionability” for state income tax purposes but “does not play a role in the imposition and collection of sales and use taxes.” Id. (citations omitted).

The Court concluded that the underlying transactions did not qualify for the public transportation exemption.

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South Dakota v. Wayfair – United States Supreme Court overturns Quill and the physical presence requirement for the enforcement of sales tax collection by out-of-state sellers

June 21, 2018, 2:12 pm

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On June 21, 2018, the United States Supreme Court decided South Dakota v. Wayfair, Inc., No. 17-494, holding that states can require out-of-state sellers to collect and remit sales tax on goods shipped to the state, even if the seller has no physical presence in the state. In so holding, the Court overruled its prior decisions in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), and National Bellas Hess Inc. v. Department of Revenue of Illinois, 386 U.S. 753 (1967).

Under the Court’s prior decisions in Quill and Bellas Hess, states were prohibited, under application of the Commerce Clause, U.S. Const., Art. I, § 8, cl. 3, from requiring a business that has no physical presence in a state to collect and remit sales tax to that state. Despite this prohibition, South Dakota enacted legislation requiring an out-of-state seller to collect sales tax on goods shipped to South Dakota if in a given year the seller delivers more than $100,000 of goods or services into the State or has 200 or more separate transactions for the delivery of goods or services into the State.

After the Act was passed, South Dakota filed a declaratory judgment action against three online retailers, Wayfair, Inc., Overstock.com, Inc., and Newegg, Inc. Based on Quill and Bellas Hess, the trial court granted summary judgment to the retailers, holding the Act was unconstitutional. The South Dakota Supreme Court affirmed.

The Supreme Court reversed and remanded, holding that states may require out-of-state sellers to collect and remit sales tax on goods and services shipped into states, even if the sellers do not have a physical presence in the state. In doing so, the Court overruled its decisions in Quill and Bellas Hess.

The Court looked to the Commerce Clause’s boundaries of a State’s ability to regulate interstate commence to reason that Quill and Bellas Hess were incorrectly decided and should be overruled. The Court reasoned that a physical presence is not necessarily required for there to be a “substantial nexus with the taxing State.” In fact, selling goods and services into a state may establish a sufficient nexus depending on the amount and frequency of the sales. Second, Quill creates, rather than resolves, market distortions by incentivizing sellers to limit their physical presence and even encouraging tax evasion by consumers who are responsible for remitting use tax in many states when the seller does not collect sales tax. Finally, Quill’s physical presence distinction is arbitrary and formalistic, which the Court reasoned is not supported by modern Commerce Clause jurisprudence.

In reversing and remanding for further proceedings, the Court concluded the substantial nexus test was met, and that Wayfair, Overstock.com, and Newegg each has a substantial nexus with the taxing state based on economic and virtual contacts in South Dakota. The Court remanded so that other Commerce Clause principles that were not litigated or briefed in the courts below, such as whether the Act is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services the State provides, can be addressed. See Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977).

Justice Kennedy delivered the opinion of the Court, in which Justices Thomas, Ginsburg, Alito, and Gorsuch joined. Justices Thomas and Gorsuch filed concurring opinions. Chief Justice Roberts filed a dissenting opinion, in which Justices Breyer, Sotomayor, and Kagan joined.

The Court’s decision can be viewed here.

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Environmental monitoring services and cooling towers not subject to Indiana sales tax

January 28, 2019, 6:23 am

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IDOR agreed that groundwater testing services and cooling towers were not subject to Indiana sales tax

On December 26, 2018, the Indiana Department of Revenue, in Letter of Findings No. 04-20171229, sustained Manufacturer’s protest against the assessments of sales tax against environmental monitoring services and cooling towers for the 2010 – 2012 tax years. Manufacturer challenged the assessment of sales tax for charges by a vendor for collecting groundwater samples from Manufacturer’s wells, which the vendor later analyzed at the vendor’s lab. The Department agreed that no sales tax was due, explaining “that no tangible personal property (TPP) was acquired in a retail transaction since it was [Manufacturer’s] own water that was being tested.”

Manufacturer produced acid, and it had to cool acid “to limit the corrosion rate to the internal equipment.” It explained the process in detail:

The manufacturing process begins with reclaimed acid from refineries in liquid form as raw materials. The raw materials then go through the furnace and boiler stations to be cleaned by a WET Acid precipitator. Next, the materials go through the main blower and a series of additional production processing stations. During these stations, oxygen molecules are introduced into the process. This process causes a chemical reaction which causes the product heat to go up. To control the heat process, the acids must go through tube coolers throughout the production process. Tube coolers are tubes inside a direct contact water cooler. The cooling towers are used to control the temperature of the water which in turn, regulates the temperature of the acid being produced.

The Department noted that its regulation 45 IAC 2.2-5-8(c) under “Examples” states in part: “Cooling towers . . . used to cool, circulate, and supply water employed to control the temperature of exempt furnaces and exempt machines” are exempt from sales tax because they are “essential and integral parts of the integrated production process.” The Department ruled, “[Manufacturer] . . . established that cooling towers were an exempt part of its manufacturing process.”

The Department’s ruling can be found here.

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Indiana: Income Tax Filing and Payment Deadlines Extended and Sales/Use Tax Relief for Certain Donations

March 25, 2020, 6:24 am

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Executive Order 20-05 issued by Indiana Governor Eric Holcomb includes extensions of filing deadlines for corporate and individual taxpayers, as well as sales and use tax relief for certain items donated to help combat the COVID-19 pandemic.

Specifically, the Executive Order says that corporate tax returns and payments, including estimated payments, that were originally due on April 15 or 20 are now due on July 15, and corporate returns and payments originally due by May 15 are now due by August 17. The Department also extended the deadline for individual returns and payments, including estimated payments, from April 15 to July 15.

The Executive Order also provides that, subject to Department of Revenue approval, manufacturers donating medicine, medical supplies, or other goods “in furtherance of fighting the COVID-19 pandemic” won’t be subject to use tax on those items. In addition, groups and organizations other than manufacturers that donate these items won’t have to pay use tax on them if sales tax hasn’t already been paid. And, in either instance, the donations will not amount to a retail transaction subject to sales or use tax. Notably, such donations will not entitle the donor to a refund of sales or use tax that it already has paid.

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Indiana Department of Revenue Provides Guidance for Use Tax Waiver for Donations to Fight COVID-19

April 7, 2020, 7:02 am

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As a follow up to Governor Holcomb’s March 19, 2020, Executive Order 20-05, the Indiana Department of Revenue has provided additional guidance regarding the types of items that may be eligible for a use tax waiver if they are donated to fight the COVID-19 pandemic, as well as the process for obtaining the waiver.

Qualifying items. The Department’s guidance states that items eligible for waiver of use tax include:

o Medicine;
o Medical supplies, including PPE, ventilators, and dialysis machines;
o Food donated to charities helping feed those impacted by COVID-19;
o Clothing, bedding, and personal care products for homeless shelters and other charities helping those displaced or at risk due to COVID-19;
o Soaps, sanitizers, disinfectants, detergents, and other cleaning supplies donated to medical facilities and the charities mentioned above; and
o Building supplies, beds, and other materials used for field hospitals or other temporary medical facilities.

While this list is not exhaustive, the Department’s guidance makes clear that there must be a COVID-19 connection for the waiver to apply.

How to claim. To obtain the waiver, donors must obtain approval from the Department. They may do so by emailing COVID19donations@dor.in.gov and submitting the following information:

o Donor’s name;
o Donor’s Tax ID or FEIN;
o Whether donor manufactured or purchased donated items;
o List of items donated, including cost or purchase price of items;
o Organization receiving donated items; and
o Confirmation by donee organization that items have been or will be donated (email confirmations from donee organization are acceptable).

If the Department approves waiver, the donor is not required to report use tax on its next sales and use tax return, income tax return, or consumer use tax return.

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