United States

Indiana: Department Bound by Published Ruling for Taxpayer with Substantially Identical Facts

Jul 25, 2016
From KPMG TaxWatch

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The Indiana Tax Court recently addressed whether the Department of Revenue was bound by a published revenue ruling interpreting the durable medical equipment exemption. The taxpayer filed a refund claim with the Department for sales tax it collected and remitted on medical equipment it sold to clinics for use by patients with a prescription for the equipment between January 2004 and October 2007. As support for its refund claim, the taxpayer relied on a 1998 revenue ruling―issued to another taxpayer―that interpreted the durable medical equipment sales tax exemption to apply to sales of medical equipment made to healthcare service providers for treating patients under prescription. The ruling was not issued to the taxpayer. In 2008, the Department issued two similar rulings, but later revoked those rulings and replaced them with rulings revising the Department’s interpretation (by limiting the exemption to equipment sold directly to patients with the requisite prescription). After the Department denied the taxpayer’s refund, the taxpayer appealed to the Indiana Tax Court.

The Department contended that it was not bound by the 1998 ruling because it was bound only by departmental regulations, and in any event, the ruling was only binding on the taxpayer to whom it was issued. The court first rejected the Department’s contention that it was bound only by interpretations promulgated as regulations. Notably, the Tax Court noted that departmental regulations indicated that the Department issued advice and guidance in a variety of formats and that such guidance could generally be relied on by taxpayers. The Tax Court had previously determined that the Department is also bound by rulings, like those at issue, that are published in the Indiana Register. The court next addressed the Department’s assertion that, per a departmental regulation, the 1998 ruling could only be relied on by the taxpayer to whom it was issued. Indiana law provides that an interpretation by the Department does not take effect until it is either adopted in a rule or published in the Indiana Register, if the change would increase a taxpayer’s liability for a listed tax. The court interpreted the use of the indefinite article “a taxpayer” rather than the definite article “the taxpayer” to suggest that the legislature had not intended for the provision to apply to only the taxpayer to whom the published ruling was issued. Further, the Department’s own regulation recognized that “other taxpayers with substantially identical factual situations may rely on the publicized rulings.” The court ruled that the taxpayer had demonstrated substantially similar facts to the 1998 ruling and was therefore entitled summary judgment. For more information on Fresenius USA Marketing, Inc. v. Indiana Dep’t of Revenue, please contact Dave Perry at (513) 763-2402.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.