City of Anderson v. Indiana Dept. of State Revenue
Decision Date | 30 June 1980 |
Docket Number | No. 2-1078A344,2-1078A344 |
Citation | 406 N.E.2d 346 |
Parties | CITY OF ANDERSON, Appellant (Plaintiff Below), v. INDIANA DEPARTMENT OF STATE REVENUE, State of Indiana, Appellee (Defendant Below). |
Court | Indiana Appellate Court |
Paul Hirsch, Indianapolis, Charles F. Braddock, City Atty., Anderson, for appellant.
Theo. L. Sendak, Atty. Gen., Wallace T. Gray, Deputy Atty. Gen., Indianapolis, for appellee.
Appellant City of Anderson (City) appeals from an adverse judgment by the trial court raising the following issue:
Were purchases made during the years 1973 to 1975 for City-owned electrical and water utilities exempt from State gross retail tax and use tax? 1
These facts are pertinent to the appeal. City is a municipal corporation that owns and operates electric and water utilities. December 19, 1975 it filed a claim for refund with the Indiana Department of State Revenue (Department) for sales and use taxes paid on purchases made for the water and electric utilities. Exhibits attached to the refund claim list individual payments to suppliers, but do not specify the types of items purchased or their purpose. City also lists by year the total amount of refund claimed.
"City of Anderson Electric Department, 1973, $19,322.06.
City of Anderson Electric Department, 1974, $51,879.97.
City of Anderson Electric Department, January 1, 1975 through October 31, 1975, $18,967.18.
City of Anderson Water Department, 1973, $4,969.64.
City of Anderson Water Department, 1974, $9,231.38.
City of Anderson Water Department, January 1, 1975, through October 31, 1975, $5,480.47."
Six months elapsed from the date of filing the claim without Department acting upon it. Such inaction constituted rejection of the claim and, pursuant to IC 6-2-1-19 (Burns Code Ed.), City brought suit in Madison Circuit Court on July 1, 1976. The Circuit Court entered judgment against City and City appeals that judgment. We affirm.
City contends purchases for municipal utilities fall within the exemption provision of the State gross retail tax and use tax found in IC 6-2-1-39(b)(5) (Burns Code Ed.) (Subsection 5):
Admittedly, City is a municipal corporation; however, provision of electric and water services is not a "governmental function" and, therefore, the purchases were not exempt under Subsection (5). In Department of Treasury v. City of Linton, (1945) 223 Ind. 363, 60 N.E.2d 948, as followed in Gross Income Tax Division of Ind. Dept. of St. Rev. v. City of Goshen, (1969) 145 Ind.App. 652, 252 N.E.2d 259, the Court held the city acted in a private, as opposed to a governmental, capacity in owning and operating a utility. 2 Quoting from the case, 223 Ind., at 366, 367, 60 N.E.2d at 949, 950:
Therefore, City's further argument that Department's decision to tax utilities' purchases beginning in 1973 was based on a new interpretation of the "municipal corporation exemption" in Subsection (5) is erroneous. However, it is erroneous not because Subsection (5) is inapplicable to the subject purchases (in which case City would argue a policy change in 1973 because purchases were always non-exempt under Subsection (5)), but because the legislature specifically addressed purchases by municipal utilities in other sections of the statute. An examination of legislative history as it relates to these exemption provisions is necessary.
Prior to 1973 the state gross retail tax and use tax included an exemption for public utilities, IC 6-2-1-39(b)(6) (Subsection (6)), which was separate and distinct from the "municipal corporation exemption" in Subsection (5). Subsection (6) exempted the following from sales and use taxes:
"(6) Sales of manufacturing machinery, tools and equipment to be directly used by the purchaser in the direct production, manufacture, fabrication, assembly, extraction, mining, processing, refining or finishing of tangible personal property; sales of all tangible personal property to those public utilities described in subsection (c), (d) and (e) of section 37 ; sales of agricultural machinery, tools and equipment to be directly used by the purchaser in the direct production, extraction, harvesting or processing of agricultural commodities; and sales of tangible personal property to be directly used by the purchaser in the direct production or manufacture of any such manufacturing or agricultural machinery, tools, and equipment." (emphasis added).
The public utilities identified in Subsection (6) as "subsection (c) of section 37" utilities are found in IC 6-2-1-38(c) (Burns Code Ed.), which reads in part:
"every person engaged as a public utility in furnishing or selling electrical energy, natural or artificial gas or mixtures thereof, water or steam, or steam heating served to consumers for domestic or commercial consumption." (emphasis added).
The key word is "person." The definition section IC 6-2-1-1 (Burns Code Ed.), defines "person":
"When used in this Act (6-2-1-1 6-2-1-53) the term 'person' . . . means and includes any . . . municipal corporation or any other political subdivision of the State engaged in private or proprietary activities or business . . . " (emphasis added).
A municipal utility is a "person" within the meaning of IC 6-2-1-1 because, as discussed supra, the operation of a public utility is a proprietary activity. Department of Treasury v. City of Linton, supra, as followed Gross Income Tax Division of Ind. Dept. of St. Rev. v. City of Goshen, supra. 3
The 1973 amendment, Acts 1973, P.L. 47 § 3, p. 211, deleted the reference to public utilities in Subsection (6) () 4 and replaced it with Subsections (16) and (18), which read: 5
The 1973 Amendment changes the utility exemption, replacing the previous total exemption with the limited exemption found in Subsections (16) and (18). Therefore, City's argument that Department's decision to tax utility's purchases beginning in 1973 was based on a new interpretation of the "municipal corporation exemption" in Subsection (5) is incorrect. Instead, Department's action was based on the replacement of the public utilities exemption in Subsection (6) with the more restrictive "direct use in direct...
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