Vendor, Department of Revenue win partial victories on sales tax case

The Indiana Department of State Revenue and a company that sold food through vending machines and its cafeteria both were victorious in Indiana Tax Court Thursday on the issue of whether all of the company’s vending machine sales and cafeteria sales are subject to sales tax and negligence penalties.

RDM Sales and Service sold food through vending machines and operated two cafeterias at business locations owned by third parties. After an audit, the DOR claimed RDM did not report all vending machine and cafeteria food sales subject to sales tax during the 2006-2008 tax years and issued proposed assessments of tax, interest and penalties to RDM. RDM filed a protest and the department denied it in 2009. RDM initiated a tax appeal in 2010; three years later, DOR filed a motion for summary judgment.

The tax court granted summary judgment on DOR’s claim that bottled water and fruit juice sold at regular price from vending machines is subject to sales tax per Indiana Code 6-2.5-5-20(a). RDM was unable to convince the court that it should be exempt from this statute. However, RDM won a partial victory when the tax court ruled that bottled water and fruit juice dispensed from vending machines for free or at a discounted rate to exempt customers was not subject to sales tax.

The Tax Court also ruled food for immediate consumption sold by the company was subject to sales tax even though RDM only operated the restaurants where the food was served and didn’t own them. The court said the plain language “premises of the seller” does not mean ownership, but place of business. If the Legislature wanted to be more specific and include ownership, it would have clarified as such, Judge Martha Wentworth wrote.

The court also ruled that the DOR can impose negligence penalties on RDM for not paying sales tax because RDM relied unreasonably on a 2004 tax clarification without investigating it fully.

However, the Tax Court found genuine issues of material fact on whether cut or repackaged food, pasteurized food requiring cooking, or bakery items sole without utensils were subject to sales tax. A separate trial on these issues will be held at a later date.

The case is RDM Sales and Service Inc. v. Indiana Department of State Revenue, 82T10-1001-TA-00003.

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