Following a state sales tax audit, the resulting state sales tax assessment will often include penalty and interest in addition to the sales tax due. Absent an unnecessary delay, interest can be very difficult, if not impossible to reduce. Penalties, however, are often worth the fight and usually exceed the fees to hire a state sales tax attorney or other professional. Therefore, it is generally worthwhile to protest, or even litigate, the sales tax assessment if penalties remain on a company’s state sales tax audit.
In a recent Indiana Department of Revenue case, the taxpayer was assessed sales tax on a $14,500 RV. Specifically, the taxpayer purchased the RV for his daughter and sold it to her for $1. While sales tax is calculated on the sales price, most states have special fair market value rules for larger purchases such as cars, boats, and airplanes. Using its “doubtful purchase” authority, the Indiana Department of Revenue imposed a tax on the fair market value.
In addition to contesting the tax, the taxpayer also fought the penalty. Like most states, Indiana imposes a penalty of 10% of the sales tax due to negligent noncompliance. Similar to most states, Indiana allows the Department to waive the penalty upon a showing of reasonable cause. Without explaining its rationale, the Department was satisfied the taxpayer exercised reasonable cause and waived the penalty, in part, because it was the taxpayer’s first time under audit. The Department also noted that due to the taxpayer’s knowledge, the next time the penalty will not be waived.
Although the amount at issue was relatively small, the Indiana case can be instructive for state sales tax lawyers and other professionals. For starters, most states have specific rules for sales tax on big-ticket purchases like cars, boats, and airplanes. Taxpayers making such purchases should be aware and likely be prepared to pay sales and use tax on such items. Equally important, if you receive a state sales tax assessment, it is likely worth fighting the state sales tax penalty. You or your business have a strong chance to eliminate the penalty assessment and the savings will likely outweigh the costs of hiring a state sales tax lawyer or other professional. If the penalty waiver and the professional fees are a wash, it can also be an opportunity to protest or challenge the underlying issue, which may have previously been cost-prohibitive.
At Sales Tax Helper we help those in need of assistance with sales tax audits, sales tax protests, and even sales tax administrative litigation. We offer hourly, fixed fee, and contingency fee pricing. We welcome the opportunity to answer all your questions and handle your sales tax issues!