1 Stop Auto Sales, Inc. Co. v. Indiana Department of State Revenue

• Decision Date: 02 December 2002
• Docket Number: 49T10-9809-TA-108
• Parties: 1 STOP AUTO SALES, INC. COMPANY, Successor in Merger with Petitioner, v. INDIANA DEPARTMENT OF STATE REVENUE, Respondent.
• Court: Indiana Tax Court

1 STOP AUTO SALES, INC. COMPANY, Successor in Merger with Petitioner, v. INDIANA DEPARTMENT OF STATE REVENUE, Respondent.

No. 49T10-9809-TA-108

Tax Court of Indiana

December 2, 2002

ON APPEAL FROM A FINAL DETERMINATION OF THE INDIANA DEPARTMENT OF STATE REVENUE

ATTORNEY FOR PETITIONER: B. KEITH SHAKE HENDERSON DAILY WITHROW & DEVOE.

ATTORNEYS FOR RESPONDENT: STEVE CARTER ATTORNEY GENERAL OF INDIANA, JOEL SCHIFF DEPUTY ATTORNEY GENERAL.

FISHER, J.

1 Stop Auto Sales, Inc. (1 Stop) appeals the final determination of the Indiana Department of State Revenue (Department) denying it a refund of state gross retail tax (sales tax) under Indiana Code Section 6-2.5-6-9, Indiana’s “Bad Debt” statute, for the 1993–1997 tax years. The parties raise three issues, which the Court restates as:

I. Whether the Court has jurisdiction over 1 Stop’s 1993 refund claim;

II. Whether 1 Stop is entitled to a bad debt deduction pursuant to Indiana Code § 6-2.5-6-9; and

III. Whether a bad debt deduction under Indiana Code § 6-2.5-6-9 must equal the amount of Indiana bad debt written off for federal tax purposes.

For the reasons stated below, the Court DISMISSES 1 Stop’s 1993 refund claim for lack of jurisdiction and REMANDS the Department’s final determination on 1 Stop’s refund claims for the 1994–1997 tax years for further proceedings consistent with this opinion.

FACTS AND PROCEDURAL HISTORY

1 Stop is an Indiana corporation that sells vehicles to the public on a “buy-here-pay-here” basis, which means that purchasers of 1 Stop’s vehicles (Consumers) may purchase a vehicle under an installment contract with no money down. When the Consumers opt for this type of financing, 1 Stop does not collect sales tax from the Consumers on the purchase price of the vehicle at the time of the sale. Rather, it loans the sales tax to the Consumers then remits the entire amount of sales tax due to the Department.^[1] From time to time, the Consumers default on their contracts with 1 Stop. 1 Stop characterizes the receivables from these contracts as uncollectible, or bad debt.

Prior to October 1996, 1 Stop reported its sales to the Department and remitted, in full, the sales tax due on these retail transactions. Beginning in October 1996, however, 1 Stop’s monthly sales tax returns reflected a reduction in its current month taxable sales by the amount of prior bad debts. On August 4, 1997, the Department notified 1 Stop, by letter, that since January 1991, its policy had been “to allow credits to be taken against amounts due only for excess [sales tax] payments made or sales overstated in error.” (Pet’r Original Tax Appeal at 3 (emphasis in original).) The Department also indicated that it would audit 1 Stop for the years January 1, 1994 through December 31, 1996, and would give it a sales tax credit where appropriate. As a result of its audit, the Department assessed 1 Stop for additional sales tax in the amount of $131,625.94, plus interest of $3,407.84. 1 Stop paid the assessment on January 6, 1998.

Subsequent to receiving its letter from the Department, 1 Stop filed several claims for refund of sales tax: on September 11 1997, it filed a $22,416.42 refund claim for 1993; on December 31, 1997, it filed refund claims for 1994, 1995, and 1996 in the amounts of $29,021.23, $59,210.76, and $56,180.11, respectively; and on March 9, 1998, it filed a $96,435.96 refund claim for 1997. For each claim, 1 Stop argued that it was entitled to a refund of the sales tax that it had paid on those receivables that it had written off as bad debt for federal tax purposes.

On June 10, 1998, the Department denied all five of 1 Stop’s claims. On September 4, 1998, 1 Stop initiated this original tax appeal. On January 18, 2000, the Court held a trial. On July 6, 2000, the parties presented oral arguments. Additional facts will be supplied as needed.

ANALYSIS AND OPINION

Standard of Review

This Court hears appeals from denials of refunds by the Department de novo. Chrysler Financial Co., LLC v. Indiana Dep’t of State Revenue, 761 N.E.2d 909, 911 (Ind Tax Ct. 2002), review denied. It is therefore not bound by the evidence or the issues raised at the administrative level. Id.

I. Subject Matter Jurisdiction

The first issue is whether the Court has subject matter jurisdiction over 1 Stop’s 1993 refund claim. The Department argues that because 1 Stop filed its 1993 refund claim more than three years after the taxes were paid, the Court lacks subject matter jurisdiction. 1 Stop argues, however, that the Department waived the issue of subject matter jurisdiction because it failed to plead the statute of limitations as an affirmative defense in its Answer and Pre-trial Contentions. 1 Stop is incorrect.

Subject matter jurisdiction implicates the power of a court to hear and determine the class of cases to which the case before it belongs, and it may not be waived.^[2] UACC Midwest, Inc. v. Indiana Dep’t of State Revenue, 629 N.E.2d 1295, 1298 n.1 (Ind. Tax Ct. 1994); State Bd. of Tax Comm’rs v. Vermillion County Property Owners’ Ass’n, 490 N.E.2d 341, 346 (Ind.Ct.App. 1986), review denied. See also Town Council of New Harmony v. Parker, 726 N.E.2d 1217, 1223 n.8 (Ind. 2000) (holding that ‘[w]here lack of subject matter jurisdiction in the original tribunal is apparent from the record, it is the duty of the reviewing court to raise and determine the issue sua sponte”). Furthermore, the Indiana Legislature has expressly provided that “[i]f a taxpayer fails to comply with any statutory requirement for the initiation of an original tax appeal, the tax court does not have jurisdiction to hear the appeal.” Ind. Code § 33-3-5-11(a). Cf. Ind. Tax Court Rule 1 (providing that “nothing... in the Trial Rules shall be deemed to extend the jurisdiction of the Tax Court with respect to persons, actions, or claims over which it does not otherwise have authority”). Consequently, when seeking a refund of sales tax, a taxpayer must comply with the requirements of Indiana Code Section 6-8.1-9-1, see UACC Midwest, 629 N.E.2d at 1298–99, which states:

(a) If a person has paid more tax than the person determines is legally due for a particular taxable period, the person may file a claim for a refund with the department. [I]n order to obtain the refund, the person must file the claim with the department within three (3) years after the latter of the following:

(1) The due date of the return.

(2) The date of payment.

For purposes of this section, the due date for a return filed for the state gross retail or use tax... is the end of the calendar year which contains the taxable period for which the return is filed. The claim must set forth the amount of the refund to which the person is entitled and the reasons that the person is entitled to the refund.

Ind. Code § 6-8.1-9-1(a) (1998) (emphasis added).

Accordingly, if 1 Stop wanted a refund of the sales tax it paid during 1993, the very latest it could have filed a claim was no later than three years after December 31, 1993 (the latest possible due date of return), or by January 1, 1997.^[3] See I.C. 6-8.1-9-1(a). 1 Stop, however, did not file a refund claim for sales tax it paid during 1993 until September 1997, nine months past the statutory deadline.

Because 1 Stop did not comply with the statutory requirements of Indiana Code Section 6-8.1-9-1, this Court does not have jurisdiction over its claim. See UACC Midwest, 629 N.E.2d at 1298–99; Evansville Concrete Supply Co., Inc. v. Indiana Dep’t of State Revenue, 571 N.E.2d 1350, 1352 (Ind. Tax Ct. 1991). Accordingly, the Court DISMISSES 1 Stop’s refund claim for 1993 for lack of jurisdiction.

II. Bad Debt Deduction

The next issue is whether 1 Stop is entitled to a bad debt deduction pursuant to Indiana Code Section 6-2.5-6-9, which provides that a retail merchant may deduct from its gross retail income an amount equal to its receivables that:

(1) resulted from retail transactions in which the retail merchant did not collect the state gross retail or use tax from the purchaser; (2) resulted from retail transactions on which the retail merchant has previously paid the state gross retail or use tax liability to the department; and (3) were written off as an uncollectible debt for federal tax purposes during the particular reporting period.

Chrysler Financial, 761 N.E.2d at 914 (quoting Ind Code § 6-2.5-6-9(a)) (internal punctuation omitted). 1 Stop argues that it is entitled to a bad debt deduction because it has remitted sales tax on retail sales for which it has not collected sales tax from the Consumers, and it has subsequently written those receivables off as bad debt for federal tax purposes. The Department argues that 1 Stop is estopped from claiming a bad debt deduction for two separate reasons. First, the Department contends that the law prohibits 1 Stop from loaning sales tax to the Consumers because Indiana Code Section 6-2.5-9-4 prohibits retail merchants from assuming or absorbing sales tax on the prices of retail goods.^[4] Consequently, the Department argues that 1 Stop cannot claim a bad debt deduction where it has loaned sales tax to the Consumers and not collected it. The Department, however, is incorrect.

Indiana Code Section 6-2.5-9-4(a)(2) states “[e]xcept as provided in IC 6-2.5-7, a person who:... offers to assume or absorb part of a customer’s state gross retail or use tax on a sale... commits a class B infraction.” Ind. Code § 6-2.5-9-4(a)(2) (emphasis added). The Indiana Legislature, however, has not defined the words “assume” or “absorb,” therefore this Court must give each word its common and ordinary meaning. See LDI Mfg. Co., Inc. v. State Bd. of Tax Comm’rs, 759 N.E.2d 685, 689 (Ind. Tax Ct. 2001) (citing Ind. Code § 1-1-4-1(1)); Tucker v State, 646 N.E.2d...