Richardson's RV, Inc. v. Indiana Department of State Revenue

FILED
Dec 05 2018, 1:35 pm
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
IN THE
Indiana Supreme Court
Supreme Court Case No. 18S-TA-22
Richardson’s RV, Inc.
Respondent (Petitioner below)
–v–
Indiana Department of State Revenue
Petitioner (Respondent below)
Argued: March 9, 2018 | Decided: December 5, 2018
Appeal from the Indiana Department of State Revenue,
Letter of Findings, No. 04-20140200
On Petition for Review from the Indiana Tax Court,
No. 49T10-1504-TA-16
The Honorable Martha Blood Wentworth, Judge
Opinion by Justice Massa
Chief Justice Rush and Justice Goff concur.
Justice David dissents with separate opinion in which Justice Slaughter joins.
Justice Slaughter dissents with separate opinion in which Justice David joins.
Massa, Justice.
Richardson’s RV thought it could avoid paying Indiana sales tax if it
took RVs it sold to certain out-of-state customers into Michigan before
handing over the keys. The Indiana Department of Revenue quarreled
with this understanding, telling Richardson’s that it owed tax for those
sales. On review, the Tax Court determined Richardson’s owed no sales
tax because it did not complete these transactions in Indiana.
We disagree. Because Richardson’s structured these Michigan
deliveries solely to avoid taxes with no other legitimate business purpose,
we reverse the Tax Court and enter summary judgment in favor of the
Department. 1 We remand, however, for a determination of the amount of
tax Richardson’s owes and for a determination of whether any
independent, non-tax-related business purposes motivated four isolated
deliveries to other locations in the United States and Canada.
Facts and Procedural History
Richardson’s RV, Inc. is an Indiana corporation that owns and operates
an RV dealership in Middlebury, Indiana. 2 Although Richardson’s sells
some RVs onsite, many of its sales happen online. In typical online sales
during the period at issue, once the parties agreed on a price, Richardson’s
sent a purchase order to the customers to sign and return with deposit
payments. Richardson’s then ordered the RVs from the manufacturers and
inspected them for any defects. After curing any found deficiencies,
Richardson’s gassed up the RVs and contacted the customers to come to
the dealership.
1 Even though the Department did not move for summary judgment at the Tax Court,
“[w]hen any party has moved for summary judgment, the court may grant summary
judgment for any other party upon the issues raised by the motion although no motion for
summary judgment is filed by such party.” Ind. Trial Rule 56(B).
2Richardson’s sells many types of recreational vehicles—camper trailers, travel trailers, fifth-
wheels, toy haulers, and motor homes—which collectively we call RVs.
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When the customers arrived at the dealership, they inspected the RVs
for any flaws; if the customers found any, Richardson’s typically fixed the
problems onsite. 3 Then Richardson’s took the customers to its financing
office, where the customers filled out and signed documents necessary to
obtain title to and registration for the RVs. And, at least sometimes,
Richardson’s completed odometer readings at the dealership. Next, the
customers paid Richardson’s directly or completed any financing
agreements. Finally, after completing insurance arrangements,
Richardson’s provided the customers with temporary Indiana license
plates to place on the RVs.
But when it came time to physically transfer possession of the RVs, the
protocol depended on a customer’s state of residence. Customers from
Indiana—or from one of the forty states with reciprocal tax exemption
agreements under Indiana Code section 6-2.5-5-39(c)—drove their RVs
directly off the dealership lot. Customers from the nine states without
reciprocal tax exemption agreements, however, could choose to pay sales
tax either at Indiana’s rate or at their home state’s rate, with customers
ostensibly choosing the lesser of the two. 4
For the non-reciprocal-state customers choosing to pay their home
state’s rate, the delivery method Richardson’s employed was unorthodox.
With the customers following behind, Richardson’s took the RVs to a
Speedway gas station fewer than three miles north of the state border into
the non-reciprocal state of Michigan. After arriving at this Speedway that
functioned as the delivery location, only two simple tasks remained for
the customers accepting these Michigan Deliveries: (1) sign confirmations
of delivery and (2) receive the keys to their new RVs. These Michigan
Deliveries were “just for tax purposes.” Resp.’s App. Vol. VI, pp. 107–08.
3If defects required extensive repairs, Richardson’s would at times pay for the customers to
stay in a Middlebury hotel overnight.
4During the years at issue, Arizona, California, Florida, Hawaii, Massachusetts, Michigan,
Mississippi, North Carolina, and South Carolina did not have reciprocal agreements with
Indiana. Foreign countries are non-reciprocal too.
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But in four Non-Michigan Deliveries, Richardson’s deviated from this
norm for non-reciprocal-state customers and delivered RVs to them in
California, North Dakota, Nova Scotia, and Buchanan, Michigan. 5
Richardson’s collected no Indiana sales tax on any of the Michigan or
Non-Michigan Deliveries. After an audit, the Department issued proposed
assessments to Richardson’s for the years at issue, which totaled nearly
$250,000 in unpaid taxes and interest on the Michigan and Non-Michigan
Deliveries. 6 Following an unsuccessful appeal to the Department,
Richardson’s petitioned the Tax Court for review. Richardson’s RV Inc. v.
Indiana Dep’t of State Revenue, 80 N.E.3d 293 (Ind. Tax Ct. 2017), vacated.
Following briefing and a hearing, the Tax Court granted summary
judgment for Richardson’s, concluding that it owed no Indiana sales tax
for any of these transactions because (1) an explicit agreement between
non-reciprocal-state customers and Richardson’s mandated delivery of the
vehicles in Michigan, (2) Richardson’s designed the trips to Michigan to
further legitimate business purposes, and (3) Indiana’s exemption statute
did not apply to these transactions because “as a matter of law the sales
transactions at issue were not made ‘in Indiana.’” Id. at 296–99.
We granted the Department’s petition for review. See Ind. Appellate
Rule 63(A). And now we reverse.
Standard of Review
Summary judgment is appropriate when there are no genuine issues of
material fact and the moving party is entitled to judgment as a matter of
law. Ind. Trial Rule 56(C). Tax Court Rule 10, which this Court
concurrently adopted with the Tax Court commencing business in 1986,
commands that we “shall not set aside the findings or judgment of the Tax
5We do not consider the delivery to Buchanan, Michigan as part of the Michigan Deliveries
for reasons discussed in Section II.
6The Department at first proposed assessments on 145 sales for the years at issue. But after
further investigation, it conceded that six transactions were exempt from taxation, arriving at
the 139 sales at issue.
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Court unless clearly erroneous.” Pub. L. No. 291-1985, § 1, 1985 Ind. Acts
2278, 2279 (codified at Ind. Code § 33-26-1-1 (2004)) (establishing the
Indiana Tax Court); July 18, 1986, Order Adopting Rules for the Indiana
Tax Court (found in volume 494–496 of Ind. Cases ed. of N.E.2d at XXXIV)
(adopting Rule 10’s “clearly erroneous” standard). In other words,
“[a]lthough this Court ordinarily reviews summary judgment orders de
novo, we take a limited departure when reviewing summary judgments
entered by the Tax Court,” setting aside its decisions within its expertise
when “we are definitely and firmly convinced that an error was made.”
Merch. Warehouse Co. v. Indiana Dep’t of State Revenue, 87 N.E.3d 12, 16 (Ind.
2017) (internal quotation marks omitted).
Discussion and Decision
State gross retail tax, commonly known as the Indiana sales tax,
generally applies to “retail transactions made in Indiana.” Ind. Code § 6-
2.5-2-1(a) (1980). But not every RV transaction “made in Indiana” is
subject to our sales tax: reciprocity agreements exempt some out-of-state
buyers from paying our sales tax if they can show Indiana purchasers
receive similar exemptions for purchases in their states. I.C. § 6-2.5-5-39(c)
(2007); Hamilton Cnty. Assessor v. SPD Realty, LLC, 9 N.E.3d 773, 776 (Ind.
Tax. Ct. 2014) (noting that “the taxpayer bears the burden of proving that
it is entitled to the exemption that it seeks”).
If, however, those non-residents live in states without reciprocity
agreements with Indiana, RV sales are not exempt from our sales tax. I.C.
§ 6-2.5-5-39(c). Instead, the only way for these non-reciprocal-state
customers to avoid paying Indiana sales tax is to take physical delivery of
their RVs outside Indiana because “[s]ales of tangible personal property
which are delivered to the purchaser in a state other than Indiana for use
in a state other than Indiana are not subject to gross retail tax or use tax.”
45 Ind. Admin. Code § 2.2-5-54(b).
But “[a] transaction structured solely for the purpose of avoiding taxes
with no other legitimate business purpose will be considered a sham for
taxation purposes.” Indiana Dep’t of State Revenue v. Belterra Resort Indiana,
LLC, 935 N.E.2d 174, 179 (Ind. 2010) (internal quotation marks omitted).
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Indeed, “the substance, rather than the form, of transactions determines
their tax consequences.” Id.; see also Gregory v. Helvering, 293 U.S. 465, 469
(1935) (where the Supreme Court put aside “the question of motive in
respect of taxation” and instead “fix[ed] the character of the proceeding by
what actually occurred”).
“To determine the substance of a transaction, the court must consider
all of the surrounding facts and the legal effect of the transaction.”
Bethlehem Steel Corp. v. Indiana Dep’t of State Revenue, 597 N.E.2d 1327, 1332
(Ind. Tax Ct. 1992).
I. The Michigan Deliveries are subject to sales tax.
When personal property is delivered to the purchaser in a state other
than Indiana solely to avoid paying sales tax—with no other legitimate
business purpose—we will not “‘exalt artifice above reality.’” Belterra, 935
N.E.2d at 180 (quoting Gregory, 293 U.S. at 470). Instead, we will consider
these deliveries part of “retail transactions made in Indiana” subject to
Indiana sales tax. I.C. § 6-2.5-2-1(a).
Richardson’s argues that the Michigan Deliveries are non-taxable
because three legitimate business purposes prompted them: (1) ensuring
that customers paid taxes in the proper jurisdiction, (2) avoiding double
taxation, and (3) maintaining competitive pricing. 7 But with these
arguments, Richardson’s asks this Court to elevate the form of these
7 Richardson’s made a few constitutional arguments in its summary judgment brief too. First,
Richardson’s argued that the proposed assessments violate the Commerce Clause of the
United States Constitution. See U.S. Const. art. I, § 8, cl. 3. But because “[t]he Commerce
Clause only requires that the states not discriminate against interstate commerce,” Bulkmatic
Transp. Co. v. Dep’t of State Revenue, 715 N.E.2d 26, 34 (Ind. Tax Ct. 1999)—and these
transactions occurred in Indiana—the Commerce Clause does not apply.
Richardson’s also argued that the Department violated its Equal Protection and Equal
Privileges and Immunities rights by subjecting its out-of-state sales to inconsistent standards.
See U.S. Const. amend. XIV, § 1; Ind. Const. art. 1, § 23. But because “individuals are afforded
equal protection guarantees, not activities,” RDI/Caesars Riverboat Casino, LLC v. Indiana Dep’t
of State Revenue, 854 N.E.2d 957, 962 n.4 (Ind. Tax Ct. 2006), this argument fails too.
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deliveries over their substance. And, tellingly, all these purposes are tax—
not business—based. We find no legitimate business purpose motivating
the Michigan Deliveries and so we consider them a sham for taxation
purposes. See Belterra, 935 N.E.2d at 179.
First, Richardson’s maintains that it did not pay the Indiana sales tax
for the Michigan Deliveries to ensure that the proper jurisdiction received
the tax payments for the RVs. It argues that Indiana adheres to the
destination principle, which instructs that tax is properly paid “where the
property is delivered to the ultimate consumer.” Resp.’s Br. at 32–33. But
the General Assembly made clear that non-reciprocal-state customers
buying RVs in Indiana must pay our sales tax: “A transaction involving a
. . . recreational vehicle [purchased from a non-reciprocal-state customer]
is not exempt from the state gross retail tax.” I.C. § 6-2.5-5-39(c). Indiana is
the proper jurisdiction to receive sales tax on the Michigan Deliveries, and
Richardson’s has no power to abrogate that legislative policy decision by
artificially shifting the point of physical delivery to a non-reciprocal state.
See Murray v. Conseco, Inc., 795 N.E.2d 454, 457 (Ind. 2003) (“[P]ublic policy
is a matter for the General Assembly.”).
Second, Richardson’s asserts that it left unpaid the sales tax because it
wanted to help customers avoid paying a double tax. But “[w]hen the
purpose of a taxing act is plain, courts will not interfere. It is not
permissible to ignore the words of the statute in order to avoid double
taxation.” State Bd. of Tax Comm’rs v. Jewell Grain Co., 556 N.E.2d 920, 925
(Ind. 1990). Richardson’s asks us to do just that: ignore the words of
Indiana Code section 6-2.5-5-39(c)—that non-reciprocal-state customers
must pay Indiana sales tax—to avoid double taxation.
Third, Richardson’s claims that it failed to pay sales tax because doing
so helped it maintain competitive pricing. Richardson’s argues that
choosing to not pay Indiana sales tax tracks “the Legislature’s concern for
the competitiveness of Indiana RV dealers.” Resp.’s Br. at 38. But Indiana
businesses cannot absorb—or completely ignore—sales tax to entice
customers. See I.C. § 6-2.5-9-4 (establishing that sellers commit Class B
infractions if they include sales tax in displayed prices or if they offer to
assume, absorb, or refund tax). And this logic forecloses our form-over-
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substance jurisprudence in the tax realm because any tax-avoidance
strategy could constitute a legitimate business purpose since taxes
inherently increase prices for customers.
Because Richardson’s executed the Michigan Deliveries solely to avoid
paying Indiana sales tax with no other legitimate business purpose, we
reverse the Tax Court and enter summary judgment for the Department.
Still, the Tax Court must determine how much tax Richardson’s owes
on these Michigan Deliveries. In its motion for summary judgment,
Richardson’s asserted that the Department mathematically erred in
calculating the total tax it would owe under the proposed assessments. 8
Because the Tax Court declined to address this argument when it held in
favor of Richardson’s, 80 N.E.3d at 299 n.7, we remand for it to determine
the precise amount of tax Richardson’s owes.
II. The Tax Court must determine if the Non-
Michigan Deliveries are taxable.
The Department also charged Richardson’s with owing Indiana sales
tax for deliveries it made to non-reciprocal-state customers in California,
North Dakota, Nova Scotia, and Buchanan, Michigan. 9 The parties and the
Tax Court treated these deliveries synonymously with the Michigan
Deliveries. 10
8 Richardson’s argued that the assessment of “Transaction #5 is overstated because the
Department double-counted Transaction #5 by applying the $26,330.00 purchase price for that
transaction to Transaction #2, which was $18,633.50.” Resp.’s App. Vol. V, p.128.
9Although a common carrier delivered the RVs to North Dakota and Nova Scotia, “[d]elivery
to common carrier in Indiana for shipment to another state by common carrier shall be
deemed delivery to a purchaser in a state other than Indiana for purposes of applying the
gross retail tax or use tax.” 45 Ind. Admin. Code § 2.2-5-54(c)(1).
10See Resp.’s Br. at 9 n.1 (“All of the 155 RVs were physically delivered at White Pigeon,
Michigan, except for 4 RVs which were delivered to other locations in California, Michigan,
North Dakota, and Nova Scotia. . . . For ease of reference, this brief will refer to these delivery
locations collectively as being in Michigan, as the Tax Court did.”).
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But they significantly differed. First, Richardson’s delivered an RV to a
customer at a sister-dealership in Menifee, California, about seventy-five
miles from where the customer lived in San Diego and more than 2,100
miles away from Richardson’s. Second, the North Dakota delivery was to
a Canadian customer near the U.S.-Canada border, about 1,100 miles
away from the dealership. Third, the RV delivered to Nova Scotia traveled
about 1,500 miles from Richardson’s. And fourth, the Buchanan, Michigan
delivery shipped directly to a customer’s home about fifty miles from the
dealership. 11
Even though these deliveries outwardly differ from the typical
Michigan Deliveries, Richardson’s designated no evidence showing any
independent, non-tax-related business purpose that motivated them. So
we remand to the Tax Court to determine that. If the Tax Court
determines that any legitimate business purpose indeed prompted these
Non-Michigan Deliveries, they are exempt from our sales tax under title
45, section 2.2-5-54(b) of the Indiana Administrative Code.
Conclusion
Because “we are definitely and firmly convinced that an error was
made,” we reverse the Tax Court’s grant of summary judgment for
Richardson’s and order summary judgment for the Department for the
Michigan Deliveries. We remand, however, for a determination of the
amount of tax Richardson’s owes and for a determination of whether any
independent, non-tax-related business purposes motivated the four Non-
Michigan Deliveries.
Rush, C.J., and Goff, J., concur.
David, J., dissents with separate opinion in which Slaughter, J., joins.
Slaughter, J., dissents with separate opinion in which David, J., joins.
11We take judicial notice of the distances between Richardson’s and these four delivery
locations under our longstanding tradition of taking “notice of the geography of the country.”
Hays v. State, 8 Ind. 425, 426 (1856).
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David, J., dissenting.
I respectfully dissent from Justice Massa’s thoughtful majority opinion
because I believe that Richardson’s followed the letter of the law. As the
majority noted, ““[s]ales of tangible personal property which are
delivered to the purchaser in a state other than Indiana for use in a state
other than Indiana are not subject to gross retail tax or use tax.” 45 Ind.
Admin. Code § 2.2-5-54(b). Here, there seems to be no dispute that the
RVs at issue were delivered in Michigan. As such, under the plain
language of our administrative code, they are not subject to retail or use
tax. While the Department makes a policy argument that the spirit of the
law was not complied with, Richardson’s complied with the plain
language of the regulation. Accordingly, I do not believe the remedy for
the Department is a judicial one. Instead, the regulation needs to be
revised.
I would affirm the Tax Court.
Slaughter, J., joins.
Slaughter, J., dissenting.
Like Justice David, whose opinion I join, I respectfully dissent from the
Court’s decision to impose excise-tax liability on Richardson’s RV. The
Court holds that Richardson’s is liable for excise tax on sales of more than
a hundred recreational vehicles physically delivered to buyers in
Michigan. The excise tax at issue here is Indiana’s gross retail tax, also
known as the sales tax, which is imposed on retail transactions “made in
Indiana.” Ind. Code § 6-2.5-2-1(a). Transactions made elsewhere are not
subject to this tax. According to the Department’s own regulation, as long
as the buyer does not intend to use the vehicle in Indiana, no tax is owed
for vehicle deliveries made outside of Indiana. “Sales of tangible personal
property which are delivered to the purchaser in a state other than
Indiana for use in a state other than Indiana are not subject to gross retail
tax or use tax, provided the property is not intended to be subsequently
used in Indiana.” 45 Ind. Admin. Code 2.2-5-54(b).
The Department does not claim that buyers of the disputed RVs intend
to use their vehicles in Indiana. So the only issue is whether the RVs were
delivered in a state “other than Indiana”. The Court agrees that physical
delivery of these vehicles occurred in Michigan but concludes that
Richardson’s had no legitimate business purpose for delivering them
across the state line other than to avoid paying tax in Indiana. The Court
thus calls these sales a “sham” and subjects them to Indiana’s tax anyway.
In my view, a taxpayer that structures its affairs to satisfy the law’s strict
letter should not be penalized for violating its spirit. I would hold that
complying with the law is never a “sham”, even if the result is to deprive
the Department of tax dollars it would prefer to collect.
My vote to affirm the tax court’s judgment has nothing to do with the
applicable standard of review. As our Court recites, we have traditionally
deferred to legal rulings by the tax court on matters of tax law because of
that court’s subject-matter expertise. I believe such deference is
unwarranted within our hierarchical judiciary. It is one thing for a
reviewing court to defer to a lower court’s factual findings because of the
judge’s ability to assess witness credibility, to take just one example. But it
is something else entirely to defer to a lower court’s conclusions of law.
Just as it is “emphatically the province and duty of the judicial department
to say what the law is”, Marbury v. Madison, 5 U.S. (1 Cranch) 137, 177
(1803), the responsibility to serve as the final arbiter of Indiana law lies
with us. That is what it means to be a “supreme” court.
In addition to the tax court, our state judiciary is replete with various
specialized courts having responsibility over probate matters, commercial
disputes, criminal cases, environmental issues, small-claims matters,
traffic infractions, to name just a few. Do we likewise owe deference to the
legal conclusions of these tribunals? Surely, the answer is no, and not
because the judges who populate these courts lack subject-matter
expertise, or because members of this Court necessarily have greater
expertise in these areas. As Justice Jackson observed in Brown v. Allen, 344
U.S. 443 (1953), “We are not final because we are infallible, but we are
infallible only because we are final.” Id. at 540 (Jackson, J., concurring in
judgment). As Indiana’s court of last resort, we should reaffirm our
supremacy to “say what the law is”, and that includes Indiana’s tax law.
I respectfully dissent.
David, J., joins.
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ATTORNEYS FOR PETITIONER
Curtis T. Hill, Jr.
Attorney General of Indiana
Winston Lin
David C. Dickmeyer
Evan W. Bartel
Deputy Attorneys General
Indianapolis, Indiana
George M. Plews
Brett E. Nelson
Joshua S. Tatum
Steven A. Baldwin
Plews Shadley Racher & Braun LLP
Indianapolis, Indiana
ATTORNEYS FOR RESPONDENT
Randal J. Kaltenmark
Mark J. Crandley
Ziaaddin Mollabashy
Barnes & Thornburg LLP
Indianapolis, Indiana