Chrysler Financial Co., LLC v. IND. DEPT. OF STATE REV.

• Decision Date: 25 January 2002
• Docket Number: No. 49T10-9903-TA-21.,49T10-9903-TA-21.
• Citation: 761 N.E.2d 909
• Parties: CHRYSLER FINANCIAL CO., LLC, Petitioner, v. INDIANA DEPARTMENT OF STATE REVENUE, Respondent.
• Court: Indiana Tax Court

761 N.E.2d 909

CHRYSLER FINANCIAL CO., LLC, Petitioner, v. INDIANA DEPARTMENT OF STATE REVENUE, Respondent.

No. 49T10-9903-TA-21.

Tax Court of Indiana.

January 25, 2002.

Stephen H. Paul, Janet Madden Charles, Baker & Daniels, Indianapolis, IN, David E. Otero, Peter O. Larsen, Akerman Senterfitt & Edison, Jacksonville, FL, for Petitioner.

Steve Carter, Attorney General of Indiana, Vincent Mirkov, Deputy Attorney General, Indianapolis, IN, for Respondent.

FISHER, J.

Chrysler Financial Company, LLC (Chrysler), as successor by merger to Chrysler Financial Corporation, appeals the final determination of the Indiana Department of State Revenue (Department) that denied Chrysler a refund of state gross retail tax (sales tax) pursuant to Indiana's "Bad Debt" statute, Indiana Code Section 6-2.5-6-9. In their cross-motions for summary judgment, the parties raise various issues, which the Court consolidates and restates as:

Whether Chrysler is entitled to a sales tax refund pursuant to the Bad Debt statute.

A. Whether an auto dealership may assign to Chrysler its rights to a sales tax deduction under Indiana's Bad Debt statute;¹

B. Whether Chrysler as assignee of an auto dealership's installment contracts qualifies for the sales tax deduction under Indiana's Bad Debt statute;² and

C. Whether a refund of sales tax on the purchase of motor vehicles is calculated by multiplying the unpaid principal of the bad debt by the sales tax rate.³

For the reasons stated below, the Court GRANTS Chrysler's motion for summary judgment and DENIES the Department's cross motion for summary judgment.

FACTS AND PROCEDURAL HISTORY

No material facts are in dispute. Chrysler finances the sale of motor vehicles from Indiana motor vehicle dealers (Dealers) to purchasers of vehicles (Consumers). When a Consumer buys a vehicle, the Consumer—typically financing its purchase over several years—enters into an installment contract with the Dealer. The amount financed includes the price of the vehicle and the sales tax imposed on the sale. The contracts grant the Dealers a security interest in each vehicle.

In the instant case, immediately after the Dealers and Consumers executed the contracts, the Dealers assigned to Chrysler all rights, title, and interest in the contracts without recourse.⁴ As consideration for the assignment, Chrysler paid the Dealers all amounts due under the contracts, including the sales tax. The Dealers then remitted the full amount of sales tax to the Department.

Some Consumers ultimately defaulted on the contracts. When possible, Chrysler repossessed and sold the Consumers' vehicles and applied the proceeds to their delinquent accounts; nevertheless, unpaid balances often remained. After repeated attempts to collect on the defaulted loans, Chrysler wrote the remaining unpaid balances off as uncollectible debts for federal income tax purposes.

On June 18, 1998, Chrysler filed a claim for a refund of sales tax proportional to the sum of unpaid balances in the Consumers' accounts.⁵ The Department denied Chrysler's request. Chrysler filed an original tax appeal with this Court on March 17, 1999. Thereafter, the parties filed cross motions for summary judgment. The Court held a hearing on the motions. 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 and is not bound by the evidence or the issues raised at the administrative level. IND. CODE § 6-8.1-9-1(d); Jack Gray Transport, Inc. v. Dep't of State Revenue, 744 N.E.2d 1071, 1074 (Ind. Tax Ct.2001), reh'g granted in part, 757 N.E.2d 242 (Ind. Tax Ct.2001). Summary judgment is appropriate only when the pleadings, depositions, answers to interrogatories, admissions, matters of judicial notice, and any other matters on which the Court relies for purposes of the motion show 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). Cross motions for summary judgment do not alter this standard. White River Envtl. P'ship v. Department of State Revenue, 694 N.E.2d 1248, 1250 (Ind. Tax Ct.1998).

Discussion

The issue is whether Chrysler is entitled to a sales tax refund pursuant to the Bad Debt statute. This issue is dependent on the resolution of three sub-issues: (1) whether the Dealers may assign to Chrysler their rights to a sales tax deduction under the Bad Debt statute; (2) if so, whether Chrysler as the assignee qualifies for the sales tax deduction under the Bad Debt statute; and (3) whether a refund of sales tax on the purchase of the motor vehicles is calculated by multiplying the unpaid principal of the bad debt by the sales tax rate. The Court will analyze each sub-issue in turn.

A. Assignment under Indiana's Bad Debt statute

The first sub-issue is whether the Dealers may assign to Chrysler their statutory right to a sales tax deduction under Indiana's Bad Debt statute.⁶ Chrysler contends that because Indiana's Bad Debt statute does not expressly forbid assignment, Indiana common law, which favors assignment, should control. The Department in effect argues that assignment is generally forbidden in this instance because the Legislature did not write the Bad Debt statute to expressly benefit assignees.⁷ The Department is incorrect.

A retail merchant must remit the entire amount of sales tax during the reporting period in which a retail sale occurs, even if the price and sales tax are financed over time. See IND.CODE § 6-2.5-6-7; IND. ADMIN. CODE tit. 45, rr. 2.2-6-1, -8 (1996). Indiana's Bad Debt statute allows retail merchants to deduct from their gross retail income an amount equal to any receivables on which a merchant has remitted sales tax to the Department but has not collected the sales tax from the purchaser. See IND.CODE § 6-2.5-6-9(a)(1)-(2). Additionally, the Department routinely grants sales tax refunds to retail merchants. (Answer at ¶ 15.) The Bad Debt statute says nothing, however, about whether a retail merchant may assign its rights to a deduction.

When a statute is silent as to the issue before a court, the court may look to the common law for guidance and interpret the statute in conformity to common law principles. See McKnight v. State, 658 N.E.2d 559, 560 (Ind.1995). Indiana common law recognizes the assignment of contractual rights, statutory rights, and causes of action. See Picadilly, Inc. v. Raikos, 582 N.E.2d 338, 340 (Ind.1991) (finding that contract-based and tort-based choses in action are assignable); Chicago, St. L. & P.R. Co. v. Wolcott, 141 Ind. 267, 39 N.E. 451, 453 (1895) (holding that a statutory right to property damages may be assigned); Brownlee v. Board of Comm'rs of Madison County, 81 Ind. 186, 187-88 (1881) (recognizing the assignability of a promissory note for a property tax refund). Furthermore, the courts presume that the Indiana Legislature understands and acquiesces in the common law of assignment absent a clear expression of contrary intent. See McKnight, 658 N.E.2d at 562; General Motors v. Indiana Dep't of State Revenue, 578 N.E.2d 399, 406 (Ind. Tax Ct.1991), aff'd, 599 N.E.2d 588 (Ind.1992).

As for the assignment of statutory rights, the Indiana Legislature has demonstrated its understanding of the common law by expressly forbidding assignment in numerous instances. See, e.g., IND.CODE §§ 4-30-9-4 ("The authority to act as a retailer [of lottery tickets] is not assignable[.]"); 6-2.5-7-7 ("A permit [to collect prepayment of motor fuel tax] issued under this section is not assignable[.]"); XX-X-X-XX(a) ("[N]o claims for [worker's] compensation under IC 22-3-2 through IC 22-3-6 shall be assignable[.]"); XX-X-X-XX(b) ("Except as provided in subsection (c), no claims for [worker's occupational disease] compensation under this chapter shall be assignable[.]"); 29-3-7-5(b) ("The interest of [a] protected person in guardianship property is not ... assignable by the protected person."); XX-X-XX-X(b)(4) (providing that liens for hospital charges are not assignable); XX-XX-XX-X ("A patient's claim for [medical malpractice] compensation under this article is not assignable."). See also Stout v. Board of Comm'rs of Grant County, 107 Ind. 343, 8 N.E. 222, 224 (1886) (holding that courts may refer to "contemporaneous legislation not precisely in pari materia"); Humphries v. Davis, 100 Ind. 274, 284 (1885) (holding that courts may properly look to other statutes and the rules of the common law to discern a statute's meaning). The absence of an express prohibition of assignment in this instance indicates that the Legislature did not intend to derogate the common law of assignment in Indiana Code Section 6-2.5-6-9.⁸See McKnight, 658 N.E.2d at 562; General Motors, 578 N.E.2d at 406; see also Stout, 8 N.E. at 224; Humphries, 100 Ind. at 284. Accordingly, the Dealers may assign to Chrysler their right to a sales tax deduction under Indiana Code Section 6-2.5-6-9.⁹Cf. IND. CODE § 26-1-2-210(2) (providing that "[u]nless otherwise agreed, all rights of either seller or buyer can be assigned"); First Nat'l Bank of Milltown v. Schrader, 176 Ind.App. 391, 375 N.E.2d 1124, 1125-26 (1978) (holding that a retail installment contract for purchase of a motor vehicle "represented a transaction in goods" that "may be assigned by either the seller or the buyer," thus, the assignee was the "real party in interest" under Indiana Trial Rule 17).

B. Chrysler's qualification for a sales tax deduction

The next sub-issue is whether Chrysler, as the Dealers' assignee, qualifies for the sales tax deduction under Indiana Code Section 6-2 .5-6-9. In its cross motion for summary judgment, the Department argues that even if Indiana's Bad Debt statute does not forbid assignment, Chrysler does not satisfy the definition of a "retail merchant" under a plain reading of Indiana Code Section 6-2.5-4-1, and therefore Chrysler does not qualify for the deduction. The...