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Tax Court rules in favor of exemptions for trucking company

July 20, 2017

The Indiana Tax Court has ruled in favor of a northern Indiana trucking company protesting a proposed tax assessment of nearly $500,000, finding the company’s use of its trucks were predominately related to public transportation during the years at issue.

During the 2008, 2009 and 2010 tax years, drivers working for Klink Trucking Inc.’s hauling service – which hauled both third party and in-house property – were required to complete several forms to keep track of their hauling work and facilitate billing. The drivers completed Klink Tickets, which provided details of a specific hauling job; “trip sheets” that summarized a truck’s daily hauling activities; “demurrage sheets” that documented excessive travel for each hauling trip; and “pit tickets,” or bills of lading.

At the end of a shift, the information on the various forms was entered into a computerized accounting system to prepare monthly customer invoices and reconcile sales. Additionally, an auditor analyzed the trip sheets as part of 2011 audit to determine when use of each of Klink’s trucks warranted an exemption.

Specifically, the auditor allowed a 100 percent exemption when a truck’s mileage exceed its non-exempt mileage, and a 38 percent exemption when related expenses, such as fuel and repair parts, could not be linked to a specific truck. The results of the audit for the trucks yielded a $449,733.09 proposed assessment of use tax.

Klink filed a protest, which the Indiana Department of State Revenue denied. On appeal in Klink Trucking, Inc. v. Indiana Department of State Revenue, 49T10-1307-TA-64, Klink argued the use of a truck-by-truck methodology was erroneous both by law and in reliability.

Klink argued the department “did not properly determine the predominate use of its tangible personal property in providing public transportation because it used an item-by-item method of analysis that is not allowed by law.” But in a Wednesday opinion, Indiana Tax Court Judge Martha Blood Wentworth wrote Indiana’s public transportation exemption statute does not require a specific method to determine predominate use, so Klink failed to establish the department’s methodology was precluded by law.

However, Wentworth agreed when Klink argued that even if the item-by-item methodology was permissible, it was still unreliable because it “failed to capture the full use of its property for public transportation purposes.” The department based its analysis on the trip sheets, which did not show exempt mileage for each trip, so the auditor could only estimate exempt mileage, the company argued.

Wentworth agreed the department’s “reliance on unverifiable estimates, inferences, and assumptions in applying its item-by-item methodology detracts from its reliability,” in contrast to Klink’s aggregate income methodology that took the data from the company’s computerized accounting system into consideration. Further, the company’s financial statements corroborated the accuracy of Klink’s conclusions from its aggregate income methodology, the judge said.

“Consequently, the Court finds Klink’s aggregate income methodology, which determined that it generated 60.2 percent of its income from providing public transportation in 2008, 58.9 percent in 2009, and 62.7 percent in 2010, more reliable than the Department’s item-by-item methodology,” Wentworth wrote.

The Tax Court remanded the case for further action from the department.

 

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