STATE OF ARKANSAS DEPARTMENT OF FINANCE & ADMINISTRATION OFFICE OF HEARINGS & APPEALS ADMINISTRATIVE DECISION IN THE MATTER OF (ACCT. NO.: ) GROSS RECEIPTS TAX ASSESSMENT LETTER ID: DOCKET NO.: 17-381 ($ ) RAY HOWARD, ADMINISTRATIVE LAW JUDGE APPEARANCES This case is before the Office of Hearings and Appeals upon a written protest dated February 28, 2017, signed by, the Taxpayer. The Taxpayer protested an assessment of Gross Receipts Tax ( sales tax ) by the Department of Finance and Administration ( Department ). This case was submitted on written documents included with the protest at the request of the Taxpayer. A Briefing Schedule was mailed to the parties on March 27, 2017. The Department was represented by John Theis, Attorney at Law, Office of Revenue Legal Counsel. The Taxpayer represented himself. The Department filed an Opening Brief on March 29, 2017. The Taxpayer s Response Brief was filed on April 28, 2017. The Department s Reply Brief was filed on May 3, 2017. The documents attached to the Briefs were received into evidence. This case was submitted for decision on July 5, 2017. 1
ISSUE Whether the assessment issued against the Taxpayer should be sustained? Yes. STATUTORY/REGULATORY AUTHORITY Ark. Code Ann. 26-52-510(b)(1)(C)(i) (Repl. 2014) authorizes a sales tax credit for the private sale of a used motor vehicle and states: When a used motor vehicle, trailer, or semitrailer is sold by a consumer, rather than traded-in as a credit or part payment on the sale of a new or used motor vehicle, trailer, or semitrailer, and the consumer subsequently purchases a new or used vehicle, trailer, or semitrailer of greater value within forty-five (45) days of the sale, the tax levied by this chapter and all other gross receipts taxes levied by the state shall be paid on the net difference between the total consideration for the new or used vehicle, trailer, or semitrailer purchased subsequently and the amount received from the sale of the used vehicle, trailer, or semitrailer sold in lieu of a trade-in. Arkansas Gross Receipts Tax Rule GR-12.1(D)(1)(a) sets forth a procedural rule regarding the sales tax credit for a private sale of a used motor vehicle and provides, as follows: D. CERTIFICATION. 1. In order to obtain the sales tax credit as set forth in this rule, the consumer must provide a properly completed bill of sale to the Department. a. If the vehicle sold by the consumer in lieu of a trade-in is sold prior to the time the consumer registers and pays sales tax on his or her newly purchased vehicle, a bill of sale for the vehicle sold must be submitted to the Revenue Office at the time the newly purchased vehicle is registered. The bill of sale must be signed by both the consumer and the purchaser. The bill of sale must include name and address of purchaser and seller, vehicle description and VIN, sales price, and date of sale. (A Bill of Sale form and instructions can be found on the DFA website in the Motor Vehicle Section.) Failure to provide a bill of sale will result in the disallowance of the deduction. 2
FINDINGS OF FACT/CONTENTIONS OF THE PARTIES The Department s Opening Brief addressed the disallowance of the sales tax credit claimed by the Taxpayer and stated, in part: On May 23, 2016, and ("Taxpayer") registered a trailer they had recently purchased, a 2004 ; License Plate No.: ) with the Arkansas Department of Finance and Administration ("DFA"). Taxpayer reported that they purchased the vehicle for $ from Mr. ("Seller"). See Exhibit #1. Taxpayer provided a bill of sale (back of vehicle title) indicating a purchase price of sale of $ and a sale date of May 13, 2016. See Exhibit #2. Because the purchase was below the $4,000 exemption, no taxes were due, only title/registration fees of $, which were paid at that time. Meanwhile, on June 13, 2016, Seller registered a new trailer, claiming to have sold the same 2004 on May 17, 2016, for $, claiming the $ tax credit on the purchase of his new trailer. Seller furnished a bill of sale signed by Mr. and indicating a sale price of $ for the 2004 with a VIN of. See Exhibit #3. Because of the discrepancy on the date of sale and the sale price, additional information was requested by the Arkansas Department of Finance and Administration from both Taxpayer and Seller. Seller submitted a letter on January 17, 2017, indicating a deposit of $ into his bank on May 20, 2016, and stating the following: This is the deposit of $. The other $ was put into our cash reserve in our home safe. It is very possible that I only signed the title and did not write in the amount that we sold it for. This enabling the buyer to write in an amount that would reduce his tax burden. Cash sell (sic) of $ as shown in the bill of sell (sic) that the buyer signed. See Exhibit #4. Taxpayer has provided no response to the request for additional information to explain the discrepancy in the sales price reported by the Taxpayer and Seller. Instead, a notice of proposed assessment was issued to Taxpayer on February 21, 2017, assessing 3
additional tax of $, as well as, interest of $ and penalty of $ for a total assessment of $.... Based on these facts, it appears that Seller sold the vehicle to Taxpayer on or about May 13, 2016, for $ with payment having been made in cash to Seller. This $ sales price is supported by the Bill of Sale provided by Seller as well as the deposit slip reflecting the deposit of $ into Seller's bank account soon after the sale date and Seller's statement that he retained the remaining $ for his personal use. Taxpayer has not contradicted the information provided by Seller that the actual selling price of the 2004 was $. Instead, Taxpayer has made an assertion that he may be entitled to a private sale deduction for the sale of another trailer. Taxpayer provided no documentary proof to support this claim for a private sale deduction that may be available to offset the tax due on the 2004.... Penalty was assessed under the provisions of Ark. Code Ann. 26-18-208(5)(A), which states that if any part of any deficiency of any state tax required to be shown on a return is determined to be due to fraud, there shall be added to the tax an amount equal to fifty percent (50%) of the deficiency. The Department contends that the assessment of this fifty percent 50% fraud penalty is proper because the Taxpayer clearly signed a bill of sale agreeing that the sales price of the 2004 was $ and then put a lower price of $ on the title for purposes of avoiding the lawfully imposed tax due on the transaction. [P. 1-4]. The Taxpayer s Response Brief asserted the following defense against the proposed assessment: Whether you go with bill of sale or the back of the title, I sold a on May 13, 2016 for the amount of $ for which I have enclosed a bill of sale. So I should not owe any taxes it should cancel each other out. [P. 1]. The Department s Reply Brief addressed the defense asserted by the Taxpayer and stated, as follows: 4
In the Taxpayer 's reply the Taxpayer makes no effort to explain the discrepancy between the conflicting bills of sale identified in Exhibits #2 and #3 to the Department's opening brief. Instead, the Taxpayer provides another bill of sale purporting to show he is entitled to a private sale deduction for the sale of a 1999 to Mr..... Exhibit #1 to DFA's opening brief reveals that Taxpayer registered the 2004 on May 23, 2016. The bill of sale provided by Taxpayer reflecting a sale of the 1999 to indicates a sale date of May 13, 2016. Based on these dates, Taxpayer should have claimed the private sale deduction for the 1999 at the time he registered the 2004. Instead, Taxpayer choose to assert that he paid $ for the trailer. Since this amount is below the amount on which sales tax would be due, the Revenue Office did not collect sales tax on the 2004. Now that DFA has provided proof that the $ sales price for the 2004 is incorrect, the Taxpayer should not now be allowed to claim a private sale deduction for the sale of the 1999 when he failed to properly follow the procedure outlined in the rule. Consequently, the claim for a private sale deduction for the sale of the 1999 should be disallowed for failure to comply with rule GR-12.1. Doubt Regarding Sale of 1999 DFA Motor Vehicle Records reflect that the 1999 is currently registered in the name of and has been so registered since May, 2013. Mr. has not registered the 1999 and the vehicle title issued to Taxpayer for the 1999 has not been surrendered reflecting the Taxpayer's transfer of that title. The only evidence that the 1999 was sold by Taxpayer is the bill of sale presented by the Taxpayer. Taxpayer has not provided a copy of the title to the 1999 indicating that the title has been transferred. The bill of sale document provided by Taxpayer, standing alone, is insufficient evidence to prove that the purported sale of the 1999 to Mr. actually occurred. Consequently, Taxpayer's claim for a private sale credit related to the 1999 should be disallowed. Instead, the proper issue before the Office of Hearings and Appeals is the propriety of the assessment of sales tax outlined in the Restatement of Facts above and the arguments presented in DFA's opening brief. [P. 1-3]. 5
The Department disallowed the sales tax credit claimed by the Taxpayer for the private sale of a motor vehicle in lieu of a trade-in and issued an assessment against the Taxpayer in the amount of $ (Tax - $ ; Penalty - $ ; and Interest - $ ). follows: CONCLUSIONS OF LAW Standard of Proof Ark. Code Ann. 26-18-313(c) (Supp. 2015) provides, in pertinent part, as The burden of proof applied to matters of fact and evidence, whether placed on the taxpayer or the state in controversies regarding the application of a state tax law shall be by preponderance of the evidence. A preponderance of the evidence means the greater weight of the evidence. Chandler v. Baker, 16 Ark. App. 253, 700 S.W.2d 378 (1985). In Edmisten v. Bull Shoals Landing, 2014 Ark. 89, at 12-13, 432 S.W.3d 25, 33, the Arkansas Supreme Court explained: A preponderance of the evidence is not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other. The Department bears the burden of proving that the tax law applies to an item or service sought to be taxed, and a taxpayer bears the burden of proving entitlement to a tax exemption, deduction, or credit. Ark. Code Ann. 26-18- 313(d) (Supp. 2015). Statutes imposing a tax or providing a tax exemption, deduction, or credit must be reasonably and strictly construed in limitation of their application, giving the words their plain and ordinary meaning. Ark. Code 6
Ann. 26-18-313(a), (b), and (e) (Supp. 2015). If a well-founded doubt exists with respect to the application of a statute imposing a tax or providing a tax exemption, deduction, or credit, the doubt must be resolved against the application of the tax, exemption, deduction, or credit. Ark. Code Ann. 26-18- 313(f)(2) (Supp. 2015). Tax Assessment As a general rule, all sales of tangible personal property in the State of Arkansas are taxable unless a specific statutory exemption is applicable. See Ark. Code Ann. 26-52-101 et seq. (Repl. 2008, Supp. 2015). Ark. Code Ann. 26-52- 103(21)(A) (Repl. 2014) defines tangible personal property as personal property that can be seen, weighed, measured, felt, or touched or that is in any other manner perceptible to the senses[.] The liability for sales tax on sales of tangible personal property is upon the seller in most circumstances. See Ark. Code Ann. 26-52-517 (Repl. 2014). However, the liability for sales tax on sales of motor vehicles required to be licensed is upon the purchaser. See Ark. Code Ann. 26-52-510 (Repl. 2014). Arkansas Gross Receipts Tax Rule GR-12 provides, in pertinent part, as follows: A. GENERAL INFORMATION. All sales of new and used motor vehicles, trailers, and semi-trailers are subject to sales or use tax unless a specific exemption applies. The tax is to be collected as follows: 1. Tax due on vehicles and trailers which are required by Arkansas law to be registered and licensed for use on public streets and highways shall be paid by the purchaser at the time of registration and application for certification of title. E. PROOF OF VALUE....... 7
2. If the taxpayer is unable to provide sufficient documentation for either the total gross receipts or gross proceeds for the sale of the vehicle or trailer, or the value of the traded-in vehicle or trailer, or if the buyer and the seller disagree on the consideration (gross receipts) for the sale of the used vehicle, then the total gross proceeds shall be presumed to be the greater of the actual sales price as provided on the bill of sale, invoice or financing agreement, or the average loan value of the vehicle as listed in the most current edition of the National Automotive Dealers' Association Official Used Car Guide or any pricing guide that may be approved by the Director for use in determining vehicle values. The evidence supports a finding that Taxpayer purchased a 2004 for $ on May 17, 2016, 1 but an amount of $ was claimed as the purchase price upon registration of the 2004 on May 23, 2016. 2 The Department correctly assessed sales tax against the Taxpayer for the purchase of the 2004 based on a sales price of $. The Taxpayer s asserted claim of a sales tax credit in lieu of trade-in on the private sale of the motor vehicle/trailer is not supported by the evidence. Tax deductions and credits, like tax exemptions, exist as a matter of legislative grace. See Cook, Commissioner of Revenue v. Walters Dry Good Company, 212 Ark. 485, 206 S.W.2d 742 (1947); and Kansas City Southern Ry. Co. v. Pledger, 301 Ark. 564, 785 S.W.2d 462 (1990). A taxpayer claiming a deduction or credit bears the burden of proving that it is entitled to the deduction or credit by bringing himself or herself clearly within the terms and conditions imposed by the statute that contains the deduction or credit. See Weiss v. American Honda Finance Corp., 360 Ark. 208, 200 S.W.3d 381 (2004). The Taxpayer failed to properly claim the sales tax credit in lieu of trade-in on the private sale of the 1 See Department s Opening Brief Exhibit 3. 2 See Department s Opening Brief Exhibits 1 and 2. 8
motor vehicle/trailer at the time of the registration of the 2004 since the purported private sale occurred prior to the registration of the 2004. 3 Interest and Penalty Interest was properly assessed upon the tax deficiency for the use of the State s tax dollars. See Ark. Code Ann. 26-18-508 (Repl. 2012). Given the conflicting Bills of Sale reflecting different purchase prices for the Taxpayer s 2004, the fraud penalty was properly assessed under Ark. Code Ann. 26-18-208(5) (Repl. 2012). DECISION AND ORDER The assessment is sustained. The file is to be returned to the appropriate section of the Department for further proceedings in accordance with this Administrative Decision and applicable law. Pursuant to Ark. Code Ann. 26-18- 405 (Supp. 2015), unless the Taxpayer requests in writing within twenty (20) days of the mailing of this decision that the Commissioner of Revenues revise the decision of the Administrative Law Judge, this Administrative Decision shall be effective and become the action of the agency. The revision request may be mailed to the Assistant Commissioner of Revenues, P.O. Box 1272, Rm. 2440, Little Rock, Arkansas 72203. A revision request may also be faxed to the Assistant Commissioner of Revenues at (501) 683-1161 or emailed to revision@dfa.arkansas.gov. The Commissioner of Revenues, within twenty (20) days of the mailing of this Administrative Decision, may revise the decision regardless of whether the Taxpayer has requested a revision. The Taxpayer may 3 See Arkansas Gross Receipts Tax Rule GR-12.1(D)(1)(a). The Bill of Sale attached to the Taxpayer s Response Brief reflects a date of the purported private sale as May 13, 2016, and the 2004 was registered on May 23, 2016. 9
seek relief from the final decision of the Administrative Law Judge or the Commissioner of Revenues on a final assessment by following the procedure set forth in Ark. Code Ann. 26-18-406 (Supp. 2015). OFFICE OF HEARINGS & APPEALS DATED: July 12, 2017 10