Indiana Dept. of State Revenue v. Martin Marietta Corp.

• Decision Date: 27 December 1979
• Docket Number: No. 2-177A20,2-177A20
• Citation: 398 N.E.2d 1309
• Parties: INDIANA DEPARTMENT OF STATE REVENUE, Defendant-Appellant, v. MARTIN MARIETTA CORPORATION, Plaintiff-Appellee.
• Court: Indiana Appellate Court

Page 1309

398 N.E.2d 1309

INDIANA DEPARTMENT OF STATE REVENUE, Defendant-Appellant, v. MARTIN MARIETTA CORPORATION, Plaintiff-Appellee.

No. 2-177A20.

Court of Appeals of Indiana, Fourth District.

Dec. 27, 1979.

Theo. L. Sendak, Atty. Gen., David L. Steiner, Deputy Atty. Gen., Indianapolis, for appellant.

Michael R. Fruehwald, Indianapolis, for appellee.

MILLER, Presiding Judge.

The Indiana State Department of Revenue (State) appeals from a trial court decision that the Standard Materials Division of Martin Marietta Corporation (Standard) is entitled to a refund of $23,376.51 plus interest for sales tax erroneously assessed and collected on freight charges paid to Standard by its customers in 1968 and 1969. The State contends the trial court erred in interpreting the applicable tax laws.

We affirm.

In 1968 and 1969, Standard was engaged in the excavation, processing and sale of sand, gravel and other aggregate materials. In most sales, at the customer's option and request, shipment of the goods was arranged by Standard. Shipments were made by independent common carriers to which Standard would advance payment. Customers were billed by single invoice that separately stated the price of the goods and the freight charges. No profit was made from the freight charges advanced to the carrier and reimbursed by the customer.

The question is whether these freight charges are taxable receipts from "selling at retail", ¹ defined by the then existing statute, Ind.Ann.Stat., § 64-2601(k) (Burns Code Ed.Supp.1970), ² as follows:

(k) The term "selling at retail" means and includes only a transaction by a "retail merchant" by which the ownership of tangible personal property is transferred, conditionally or otherwise, for a consideration, when such transfer is made in the ordinary course of the transferor's regularly conducted business and when such property is acquired by the transferor for the purpose of resale and is acquired by the transferee for any purpose other than the purposes designated in subsection (a) of section 3 (§ 64-2603) of this chapter; Provided, however, That only so much of the consideration as represents the price at which such property is or may be sold without the rendition of any service whatever by the transferor in respect to such property and such bona fide charges separately stated on the records of the transferor as may be added to or included This statute permits imposition of sales tax only if the transportation services were incurred "prior to the delivery of the property to the transferee, or to the place of delivery designated by the transferee" . . . . No sales tax may be imposed upon "services performed . . . to any extent in respect to any property owned by the transferee . . . ." Because the agreements of sale between Standard and its customers were not evidenced by a writing, and no discussion of "delivery" or "passage of title" occurred between buyer and seller, the trial court thought it appropriate to refer to the law of sales for assistance in its interpretation of the tax laws. In so doing, the trial court concluded:

in such consideration for the preparation, fabrication, alteration, modification, finishing, completion, delivery or other services performed in respect to such property, and not to any extent in respect to any property owned by the transferee, or by or on behalf of the transferor prior to the delivery of the property to the transferee, or to the place of delivery designated by the transferee shall be considered to be received from "selling at retail".

6. Under IC 1971, 26-1-2-308 and 26-1-2-401(2)(a), and the authorities relating thereto, there is a strong presumption against the creation of destination contracts. In the absence of proof of a specific agreement to the contrary, a sales contract merely providing that the goods will be shipped to a given location will be deemed a shipment contract in which delivery occurs and title passes when possession of the goods is transferred to the carrier.

7. The sales contracts between Standard and its customers were shipment contracts. Title to the goods passed and delivery occurred when the goods were loaded onto the common carriers for shipment to Standard's purchasers.

8. The freight charges upon which sales tax was assessed were incurred after delivery of the property to the transferee and in respect to property owned by the transferee and therefore cannot be included in "selling at retail" under IC 1971, 6-2-1-1(k), -37, -38.

The State does not challenge the trial court's interpretation of our commercial code or its designation of the contractual situations herein as "shipment contracts", nor does it claim the trial court was incorrect in concluding the title to the goods passed and delivery occurred when the goods were loaded onto the common carriers for shipment to the buyers and the freight charges incurred after delivery of the property to the buyers. Rather, the State asserts that subsection (k) must be read together with Ind.App.Stat. § 64-2652(i) (Burns Code Ed.Supp.1970) ³ which provided:

(i) Such taxes shall apply and be computed in respect to each unitary transaction. A unitary transaction shall include all items of property or services furnished pursuant to a single order or agreement and for which a total combined charge or selling price is computed for payment. All public utility services and commodities subject to said taxes invoiced in a single billing or statement submitted to a consumer for payment shall constitute a unitary transaction.

The State claims that by reading these two sections together the meaning of the language is clear and unambiguous and the trial court's reference to the law of sales was unnecessary and improper. Finally, it claims that, because the goods and shipping were furnished pursuant to a single order and a combined price was computed for payment, the entire amount is subject to the sales tax.

We first note the State's position has been formally rejected by the same Attorney General of Indiana who represents it in this cause. In 1972, the Commissioner of the Department of Revenue requested the opinion of the Attorney General on the exact issue raised here as follows:

Pursuant to the Indiana Code of 1971, 6-2-1-38(i), does the Gross Retail Tax The Attorney General responded that Ind.Code 6-2-1-38(i) did not make non-taxable services taxable merely because of a combined price, stating:

apply to the total billing or invoice in those instances when a retail merchant separately states or lists the selling price of the tangible personal property from the charge for services and computes a combined charge for payment by the purchaser? ⁴

Section 38(i) defines the term 'unitary transaction', but does not impose, levy, or create a basis for taxation. A 'unitary sale' (transaction) is defined to include All items of property and/or services furnished pursuant to a Single order For which a combined charge or selling price is Computed for payment. Such transactions can only occur if the levying sections of the Act allow an imposition of such Gross Retail Tax upon services.

The levying provisions of the Act are found in Section 36 (as found in Burns' Ind.Stat.Ann. § 64-2651, IC 1971, 6-2-1-37) which provides that the Gross Retail Tax is imposed upon transactions of retail merchants constituting selling at retail as defined in the Act.

The Act, at Section 37, defines 'transaction of retail merchants constituting selling at retail' as all transactions defined as 'selling at retail' in subsection (k) of Section 1 . . .

(quotation of subsection (k) omitted)

The definition of 'selling at retail' precludes the adding of any charge for any service whatever to the price received by the merchant for the tangible personal property transferred to the retail purchaser.

CONCLUSION

It is, therefore, my Official Opinion that pursuant to the provisions of the Gross Retail Tax Act, the retail merchant must list separately on his bills any charge for services not specifically taxable, and the selling price for tangible personal property which is taxable. For the Indiana Gross Retail Tax applies only to the selling prices of the tangible personal property transferred to the retail purchaser, not to services. 1972 Ops.Ind.Att'y.Gen., No. 5 at 10-12.

The Attorney General thus rejected the expansive reading of subsection (i) because such a reading would have required extension of the sales tax to transactions not intended to be taxed.

We agree with the conclusion reached by the Attorney General in his Official Opinion. To construe these statutes otherwise would render meaningless the other provisions of the Gross Retail Tax Act, which exempt transactions from taxation. Standard...