HAR § 18-237-20-07 — Burden of proof on Taxpayer

(a) Taxpayer has the burden of providing evidence satisfactory to the Department that Taxpayer qualifies for the reimbursement exemption. Whether the transaction qualifies for the reimbursement exemption is determined by all the facts and circumstances; no single factor is controlling. (b) The designation or characterization by Taxpayer of a receipt of a payment as a reimbursement that qualifies for exemption from the general excise tax is not controlling. The substance of a transaction, not the form of the transaction nor the designation used by Taxpayer, shall determine whether the reimbursement exemption is applicable. Example 39: Taxpayer provides market surveys, issues press releases, and places advertisements for client (Reimbursing Party). Taxpayer’s contract with client includes a provision that costs of transportation, living expenses when traveling, payments for long distance telephone calls and telegrams, and other payments to Third Parties are deemed “reimbursements”. Taxpayer’s billings to client are broken down into services and “reimbursements”. Taxpayer receives payments from client and files a general excise tax return and excludes these costs paid to Third Parties claiming the reimbursement exemption. Conclusion: The expenses designated by Taxpayer as “reimbursements” do not qualify for the reimbursement exemption because the payments from Taxpayer to Third Parties were not for or on behalf of client. The property or services provided by the Third Parties were used, consumed, or altered by Taxpayer. Even though Taxpayer has claimed these costs as qualifying for the reimbursement exemption, such costs do not qualify for the reimbursement exemption.