J&J Vending, Inc. v. Indiana Dept. of State Revenue, 49T10-9309-TA-00076

• Docket Nº: No. 49T10-9309-TA-00076
• Citation: 673 N.E.2d 1203
• Case Date: November 26, 1996
• Court: Tax Court of Indiana

Page 1203

673 N.E.2d 1203 J & J VENDING, INC., Petitioner,
v.
INDIANA DEPARTMENT OF STATE REVENUE, Respondent. No. 49T10-9309-TA-00076. Tax Court of Indiana. Nov. 26, 1996.

Page 1204

Stephen H. Paul and Janet Madden Charles, Baker & Daniels, Indianapolis, for Petitioner.

Pamela Carter, Attorney General of Indiana and Joel Schiff, Deputy Attorney General, Indianapolis, for Respondent.

FISHER, Judge.

J & J Vending, Inc. ("J & J") appeals the final determination of the Indiana Department of State Revenue denying its claim for a refund of Gross Retail Tax (sales tax) paid to the Department.

ISSUES

I. Whether items sold through vending machines are subject to Indiana's Gross Retail Tax.

Page 1205

II. Whether the Gross Retail Tax, as applied to vending machine operators, violates the Equal Privileges or Immunities clause of the Indiana Constitution or the Equal Protection clause of the federal Constitution.

FACTS AND PROCEDURAL HISTORY

J & J Vending is an Indiana corporation in the business of selling food through vending machines. This food includes single-serving, prepackaged items, such as milk, juice, fruit, potato chips, pastries, and cookies. J & J stocks its machines with these food items and then deploys them on the property of other entities and businesses. J & J does not sell food on or near its own property. J & J employees visit the machines to empty the cash boxes, restock the food, and service the machines. They are not present to make sales. Consequently, sales tax is not collected separately from the purchase price of the food. Instead, J & J charges a composite price for each item of food sold and pays the sales tax from its gross receipts.

J & J paid sales tax to the Department for the years 1990, 1991, 1992, and the six month period ending on June 30, 1993. Sometime after June 30, 1993, J & J concluded that the food it sold (except candy and confections) was tax exempt under IND.CODE ANN. § 6-2.5-5-20(b) (West 1989). Subsequently, J & J filed a refund claim with the Department seeking $73,447.38, the amount of sales tax paid from January 1, 1990 through June 30, 1993.

The Department denied J & J's refund for the years 1990, 1991 and 1992 on August 4, 1993. On August 16, 1993, the Department denied J & J's claim for the six month period ending June 30, 1993. J & J now appeals those determinations.

STANDARD OF REVIEW

This Court reviews the Department's final determinations de novo and is bound neither by the evidence nor the issues raised at the administrative level. Mechanics Laundry & Supply, Inc. v. Indiana Dep't of State Revenue, 650 N.E.2d 1223, 1227 (Ind. Tax Ct.1995).

DISCUSSION AND ANALYSIS

I. EXEMPTION

"An excise tax, known as the state gross retail tax, is imposed on retail transactions made in Indiana." IND.CODE ANN. § 6-2.5-2-1(a) (West 1989). The purchaser is liable for the tax, and the retail merchant is responsible for collecting the tax "as agent for the state." IND.CODE ANN. § 6-2.5-2-1(b) (West 1989). However, exemptions are allowed for the sale of certain types of food. INDIANA CODE ANN. § 6-2.5-5-20 (West Supp.1996) exempts sales of food for human consumption from the tax. "Food for human consumption" includes:

(1) Cereals and cereal products;

(2) Milk and milk products, including ice cream;

(3) Meat and meat products;

(4) Fish and fish products;

(5) Eggs and egg products;

(6) Vegetables and vegetable products;

(7) Fruit and fruit products, including fruit juices;

(8) Sugar, sugar substitutes, and sugar products;

(9) Coffee and coffee substitutes;

(10) Tea, cocoa, and cocoa products;

(11) Spices, condiments, extracts, and salt;

(12) Oleomargarine; and

(13) Natural spring water.

IND.CODE ANN. § 6-2.5-5-20(b). The term "food for human consumption" does not include certain food items and transactions, which remain subject to taxation. Included are:

(1) Candy, confectionery, and chewing gum;

(2) Alcoholic beverages;

(3) Cocktail mixes;

(4) Soft drinks, sodas, and other similar beverages;

(5) Medicines, tonics, vitamins, and other dietary supplements;

(6) Water (except natural spring water), mineral water, carbonated water, and ice;

(7) Pet food;

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(8) Food furnished, prepared, or served for consumption at a location, or on equipment, provided by the retail merchant;

(9) Meals served by a retail merchant off the merchant's premises;

(10) Food sold by a retail merchant who ordinarily bags, wraps, or packages the food for immediate consumption on or near the merchant's premises, including food sold on a "take out" or "to go" basis; and

(11) Food sold through a vending machine or by a street vendor.

IND.CODE ANN. § 6-2.5-5-20(c) (emphasis added). ¹

J & J does not dispute that as a retail merchant, it must collect sales tax on its sales. IND.CODE ANN. §§ 6-2.5-2-1, 6-2.5-4-1 (West 1989). J & J claims that it is entitled to the exemption available to other merchants for sales of "food for human consumption" under the provisions of IND.CODE ANN. § 6-2.5-5-20(b). The Department argues that this assertion cannot stand because IND.CODE ANN. § 6-2.5-5-20(c) specifically excludes food sold through vending machines from the exemption. The Department asserts that they properly applied the imposition and exemption statutes as written.

When an enactment, including a tax exemption statute, is clear and unambiguous, the plain language governs. Faris Mailing, Inc. v. Indiana Dep't of State Revenue, 557 N.E.2d 713, 716 (Ind. Tax Ct.1990). If there is some ambiguity, however, then this Court must look to the rules of statutory construction to ascertain the legislature's intent. Id. In the case of a tax exemption statute, any ambiguity is construed against the taxpayer because an exemption releases the individual from bearing his or her share of the cost of government and disturbs the equality and distribution of the common burden of government upon all. St. Mary's Medical Ctr. of Evansville, Inc. v. State Bd. of Tax Comm'rs, 534 N.E.2d 277, 280 (Ind. Tax Ct.1989); see also Indiana Waste Sys. of Indiana v. Indiana Dep't of State Revenue, 633 N.E.2d 359, 365 (Ind. Tax Ct.1994). For this reason too, the taxpayer bears the burden of proving his or her right to an exemption. Caylor-Nickel Clinic, P.C. v. Indiana Dep't of State Revenue, 569 N.E.2d 765, 767 (Ind. Tax Ct.1991), aff'd, 587 N.E.2d 1311, 1313 (Ind.1992).

In this instance, the plain language of the statute shows that vending machine sales are not exempt from the Gross Retail Tax. Under IND.CODE ANN. § 6-2.5-5-20(c)(11), "food sold through a vending machine" is specifically excluded from the definition of "food for human consumption." As such, J & J's sales simply miss the mark for the tax exemption provided by IND.CODE ANN. § 6-2.5-5-20(a) & (b).

II. CONSTITUTIONALITY

The petitioner has other arrows in its quiver: the Equal Privileges or Immunities clause of the Indiana Constitution and the Equal Protection clause of the federal Constitution. J & J argues that the exclusion of vending machines from the exemption is unconstitutional because it arbitrarily distinguishes between similarly situated merchants selling identical products. Specifically, J & J contends that the tax is not levied on the sale of single-serving, prepackaged food items, like...