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