Bailey Seed Farms, Inc. v. State Bd. of Tax Com'rs

• Decision Date: 17 August 1989
• Docket Number: No. 38T05-8807-TA-00040,38T05-8807-TA-00040
• Citation: 542 N.E.2d 1389
• Parties: BAILEY SEED FARMS, INC., Petitioner, v. STATE BOARD OF TAX COMMISSIONERS of the State of Indiana, Respondent.
• Court: Indiana Tax Court

Page 1389

542 N.E.2d 1389

BAILEY SEED FARMS, INC., Petitioner, v. STATE BOARD OF TAX COMMISSIONERS of the State of Indiana, Respondent.

No. 38T05-8807-TA-00040.

Indiana Tax Court.

Aug. 17, 1989.

Lon R. Racster, Hinkle & Racster, Portland, for petitioner.

Linley E. Pearson, Atty. Gen. by Joel Schiff, James R. Green, Deputy Attys. Gen., Indianapolis, for respondent.

FISHER, Judge.

STATEMENT OF CASE

Petitioner, Bailey Seed Farms, Inc., appeals a final determination by Respondent, State Board of Tax Commissioners, pertaining to liability for property tax on inventory in Bailey's possession on March 1, 1987.

FACTS AND EVIDENCE

Bailey filed a Business Property Tax Return on or about June 15, 1987. On an attached Form 103-N, Bailey claimed that certain seeds in its possession were owned by Stine Seed Farm, Inc. A hearing was held to review the property tax return and attendant claims. The hearing officer requested additional documentation to support the return as filed. Copies of agreements between Bailey and Stine, an "available to sell" report, a "Sales to Stine" ledger, and a trial balance were submitted by Bailey representatives.

After a review of the documentation received from Bailey, the State Board assessed Stine for certain seed inventory in Bailey's possession. Stine disputed Bailey's 103-N claims and appealed the assessment. The State Board sent notice to Bailey of a rehearing to be held on April 6, 1988. No one from Bailey appeared at the rehearing. Notice was also sent of an additional hearing scheduled for May 2, 1988. Again, no one representing Bailey appeared. The purpose of the rehearings was for Bailey to provide information which would further justify Bailey's 103-N claims in light of Stine's purported denial of ownership of the seeds in Bailey's possession.

On July 1, 1988, the State Board issued a final assessment determination in which it determined that Bailey, not Stine, was liable for the tax. The Board's determination was based upon the hearing officer's recommendation. In his report, the hearing officer indicated that Stine convinced him that "they did not acquire title to seed until they paid for it, and once Bailey contracted to sell seed to third parties, those units were not owned or assessable to Stine."

Respondent's Exhibit 7 at 2 (Written Findings). The record is silent regarding the basis for the hearing officer's conclusions.

The State Board adopted the hearing officer's report because, in the Board's judgment, Bailey's 103-N claim was not adequately supported. Ex. 7 at 3. The Board specifically made reference to a settlement agreement between Bailey and Stine on November 18, 1987, as support for the hearing officer's conclusion that the parties intended for Bailey to retain title to inventory during the assessment period. Ex. 7 at 5.

DECISION

The assessment was made pursuant to IC 6-1.1-2-4, which reads in pertinent part:

(a) The owner of any tangible property on the assessment date of a year is liable for the taxes imposed for that year on the property.

(b) A person holding, possessing, controlling, or occupying any tangible property on the assessment date of a year is liable for the taxes imposed for that year on the property unless:

(1) he establishes that the property is being assessed and taxed in the name of the owner; or

(2) the owner is liable for the taxes under a contract with that person.

"The statute does not clearly establish whether the owner or the possessor is primarily responsible for the tax." Jewell Grain Co., Inc. v. State Bd. of Tax Comm'rs (1988), Ind.Tax, 524 N.E.2d 49, 52 (citing Empire Gas of Rochester, Inc. v. State (1985), Ind.App., 486 N.E.2d 1036, 1041). It is clear, however, that Bailey is not liable for the tax if it "establishes that the owner is being assessed and taxed." Normally, a possessor of tangible personal property avoids liability by filing a Form 103-N establishing ownership of the property in someone else. Form 103-N claims are subject to verification by the State Board.

In response to the hearing officer's request, Bailey submitted, inter alia, a copy of an agreement between Bailey and Stine whereby Bailey agreed to provide various services to Stine and to abstain from the promotion or sale of any type of seed product sold by Stine. (Plaintiff's Exhibit A, Page One). The agreement not to promote or sell seeds was in force during the period of assessment. Id. Other documents submitted by Bailey as proof of its 103-N claim show the amounts of grain in Bailey's possession as well as prior sales to Stine.

The supreme court has noted that courts "must carefully police the scope of their review so that they do not intrude into the area of valid administrative discretion." Uhlir v. Ritz (1970), 255 Ind. 342, 344, 264 N.E.2d 312, 313. Accordingly, this court will not overturn a State Board final determination unless the determination is not supported by substantial evidence, is an abuse of discretion, is in excess of statutory authority, or is arbitrary or capricious. Porter's South Shore Cleaners v. State (1987), Ind.Tax, 512 N.E.2d 895, 898; See also Hall v. State Bd. of Tax Comm'rs (1987), Ind.Tax, 512 N.E.2d 891, 893 (a final determination must be according to law).

The State Board's determination in this case needs to be examined under the "substantial evidence" and "arbitrary or capricious" standards. "Substantial evidence is more than a scintilla. It means such relevant evidence as a...