Cowden & Sons Trucking, Inc. v. Indiana Dept. of State Revenue

• Decision Date: 01 August 1991
• Docket Number: No. 49T05-9001-TA-00004,49T05-9001-TA-00004
• Citation: 575 N.E.2d 718
• Parties: COWDEN & SONS TRUCKING, INC., Petitioner, v. INDIANA DEPARTMENT OF STATE REVENUE, Respondent.
• Court: Indiana Tax Court

Page 718

575 N.E.2d 718

COWDEN & SONS TRUCKING, INC., Petitioner, v. INDIANA DEPARTMENT OF STATE REVENUE, Respondent.

No. 49T05-9001-TA-00004.

Tax Court of Indiana.

Aug. 1, 1991.

Joseph P. Murdock and Joseph S. Smith, Indianapolis, for petitioner.

Linley E. Pearson, State Atty. Gen. and Marilyn S. Meighen, Deputy Atty. Gen., Indianapolis, for respondent.

FISHER, Judge.

Cowden & Sons Trucking, Inc. (Cowden) appeals the Indiana Department of Revenue's (Department) imposition of sales and use tax on money received from hauling services provided to its customers.

Facts

At the time of the assessment, Cowden, an Indiana corporation, was a motor carrier engaged in the business of transporting various materials, such as sand, gravel, stone, and agricultural lime, hereinafter referred to as "stone." Ninety-five percent (95%) of Cowden's business consisted of transporting stone for contractors. For these customers, Cowden usually hauled the stone from a quarry to a construction site. Cowden never sold stone to contractors because the cost was charged to the contractor's account at the quarry. The contractors therefore paid the quarry for the stone and paid Cowden for the hauling charge.

The remaining five percent (5%) of Cowden's customers, hereinafter referred to as "non-contractor customers," were individuals who, unlike the contractors, could not easily pay the quarry directly for the stone because they did not have accounts with the quarry and could not easily pay for the stone in advance because its price is determined according to the weight of the truck's load upon acquisition. As a result, Cowden paid for the stone at the quarry, including the sales tax, and the non-contractor customers reimbursed Cowden for the stone and the sales tax on the stone and paid Cowden the service charge for hauling the stone. The invoice Cowden sent to these customers did not separate the hauling charge from the charges for the cost of the stone and the sales tax Cowden previously paid to the quarry but combined the charges in one total price.

On November 19, 1987, the Department sent Cowden a notice of proposed assessment of sales and use tax, penalties, and interest in the amount of $7,329.95 for the period of January 1, 1984, through December 31, 1986. On December 15, 1987, the Department sent Cowden a notice of tax due for sales and use tax, penalties, and interest in the amount of $4,781.48 for the period ending December 31, 1986, and the amount of $9,439.56 for the period ending December 31, 1985. The Department assessed sales and use tax on Cowden's hauling receipts on the basis that the money was received in a retail unitary transaction. The Department only assessed the portion of Cowden's receipts attributable to its hauling services because Cowden already paid sales tax on the stone at the quarry. On July 20, 1990, Cowden sought and obtained from this court an injunction against paying the assessed tax, pending the outcome of a trial on the merits. Cowden & Sons Trucking, Inc. v. Indiana Dep't of Revenue (1990), Ind.Tax, No. 49T05-9001-TA-00004 (order granting injunction).

Additional facts will be included as necessary.

ISSUE

Did Cowden transfer stone and render hauling services in retail unitary transactions which would subject Cowden's receipts for its hauling services to sales tax?

DISCUSSION AND DECISION

"An excise tax, known as the state gross retail tax [sales tax], is imposed on retail transactions made in Indiana." IC 6-2.5-2-1. A taxable retail transaction is "a transaction of a retail merchant that constitutes selling at retail as is described in IC 6-2.5-4-1, ..., or that is described in any other section of IC 6-2.5-4." IC 6-2.5-1-2(a). Selling at retail requires a transfer of tangible personal property, IC 6-2.5-4-1(b)(2), and the sale of services falls outside the scope of taxation because no transfer of tangible personal property occurs. Consequently, rendering services is not subject to sales tax except as otherwise provided in the statute.

As a practical matter, however, most sales do not involve purely providing services, on one hand, or strictly transferring tangible personal property, on the other. Instead, mixed transactions, involving the transfer of property in conjunction with the provision of services, are commonplace. Determining the portion of the price charged attributable to a taxable sale of property and the portion attributable to a non-taxable sale of services is often difficult. Accordingly, the legislature set forth parameters for imposing sales tax on mixed transactions. First, taxable property does not escape taxation merely because it is transferred in conjunction with the provision of non-taxable services. IC 6-2.5-4-1(c)(2). Second, services, generally outside the scope of taxation, are subject to sales tax to the extent the income represents "any bona fide charges which are made for preparation, fabrication, alteration, modification, finishing, completion, delivery, or other service performed in respect to the property transferred before its transfer and which are separately stated on the transferor's records." IC 6-2.5-4-1(e)(2) (emphasis added). Finally, the legislature imposes sales tax on services provided in a retail unitary transaction, "a unitary transaction that is also a retail transaction." IC 6-2.5-1-2(b).

A unitary transaction is a transaction which "includes all items of personal property and services which are furnished under a single order or agreement and for which a total combined charge or price is calculated." IC 6-2.5-1-1(a) (emphasis added). Cowden's transactions with its non-contractor customers are clearly unitary transactions because Cowden furnished a single invoice charging one undivided price, a total calculated to include the combined costs of the stone, the sales tax on the stone, and the cost of the hauling service. The Department asserts Cowden's failure to separate the charges for hauling services from charges for the cost of the stone and sales tax on the stone on the invoices sent to its non-contractor customers renders its hauling service charges subject to sales tax. Nonetheless, for Cowden's hauling services to be subject to sales tax, as the Department claims, the transaction must be not only a unitary transaction but also a retail transaction, i.e., a retail unitary transaction taxed under IC 6-2.5-2-1 since it is a type of retail transaction. IC 6-2.5-1-2(b).

The Department asserts Cowden's services provided in unitary transactions are also retail transactions subject to sales tax because Cowden is a retail merchant. Retail merchant status is determined by meeting one of two statutory tests contained in IC 6-2.5-1-8. First, one "who is required to hold a retail merchant's certificate under IC 6-2.5-8" is presumed to be a retail merchant. IC 6-2.5-1-8. Cowden holds a retail merchant's certificate which the Department contends is conclusive proof of Cowden's retail merchant status. The critical issue, however, is not whether Cowden holds a retail merchant's certificate but whether Cowden is "required to hold" a retail merchant's certificate. IC 6-2.5-1-8. Retail merchants are required to obtain a retail merchant's certificate to make retail transactions in Indiana under IC 6-2.5-8-1(a). Therefore, the first test does not indicate Cowden is a retail merchant because it provides merely a circular definition that one is a retail merchant if required to hold a retail merchant's certificate, yet one is required to hold a retail merchant's certificate only if one is a retail merchant.

The second test defines a retail merchant as "a person who is described as a retail merchant in IC 6-2.5-4." IC 6-2.5-1-8.

(a) A person is a retail merchant making a retail transaction when he engages in selling at retail.

(b) A person is engaged in selling at retail when, in the ordinary course of his regularly conducted trade or business, he:

(1) acquires tangible personal property for the purpose of resale; and

(2) transfers that property to another person for consideration.

IC 6-2.5-4-1 (emphasis added). Accordingly, whether Cowden is a retail merchant and whether Cowden's unitary transactions are taxable retail transactions both turn on whether Cowden's activities constitute selling at retail. The court therefore must inquire into the nature of the transactions to determine whether they constitute selling at retail.

During the ordinary course of its regularly conducted business, Cowden received consideration for transferring stone to its non-contractor customers; however, Cowden asserts it did not acquire the stone for the purpose of resale but instead, purchased the stone merely for the convenience of its non-contractor customers. Cowden concludes its receipts for services are not subject to sales tax because the stone was not acquired for the purpose of resale, and as a result, it did not engage in selling at retail, and it is not a retail merchant making retail transactions.

Conversely, the Department asserts Cowden purchased the stone from the quarry for the purpose of resale to its non-contractor customers. Cowden clearly transferred ownership of the stone for consideration. The pivotal issue is, however, Cowden's intent when it acquired the stone not whether Cowden in fact resold the stone. Was Cowden's purpose resale or convenience for its non-contractor customers?

Persuasive evidence supports Cowden's assertion that its acquisition of stone was for the convenience and accommodation of its customers, incidental to its hauling services and not for the purpose of resale. Cowden's business assets include forty-five or fifty dump trucks but do not include any quarries or stockpiles of stone. Cowden therefore has no inventory of stone to sell to customers. Cowden does not advertise the sale of stone or hold itself out as a merchant of stone. Ninety-five percent of Cowden's customers use and pay Cowden for hauling services alone; only...