Kentron, Inc. v. State Bd. of Tax Com'rs
| Decision Date | 11 June 1991 |
| Docket Number | No. 71T05-8911-TA-00052,71T05-8911-TA-00052 |
| Court | Indiana Tax Court |
| Parties | KENTRON, INC., Successor in Interest to U.S. Conversions, Inc., Concept Editions, Inc., Premier Editions, Inc., Leisure Editions, Inc., and Lands Design Corporation, Petitioner, v. STATE BOARD OF TAX COMMISSIONERS and State of Indiana, Respondents. |
Michael A. Cosentino, Slabaugh, Cosentino, Arko, Walker & Shewmaker, Elkhart, for petitioner.
Linley E. Pearson, Atty. Gen. by Ted J. Holaday, Deputy Atty. Gen., Indianapolis, for respondents.
Kentron, Inc. (Kentron) appeals the State Board of Tax Commissioners' (State Board) final determination, finding Kentron and the predecessor corporations waived the exemption provided by IC 6-1.1-10-29 and 6-1.1-10-30. In its final determination, the State Board assessed personal property for the tax years 1984, 1985, 1986, and 1987 in the amounts of $1,337,400, $867,810, $876,070, and $371,610, respectively. This matter comes before the court on Kentron's motion for summary judgment and the State Board's response thereto.
Kentron submitted the affidavit of Richard K. Roush, executive vice-president for Kentron, setting forth the following facts. Kentron's place of business is located in Osolo township in Elkhart County, Indiana. Kentron is the successor-in-interest to several companies, 1 hereinafter referred to as "predecessor corporations." These predecessor corporations manufactured personal property consisting of van chassis. At the time of the assessments, Roush stated the property was awaiting shipment under purchase orders from customers located outside Indiana and ultimately was shipped to In opposition to Roush's affidavit, the State Board submitted the affidavits of Robert A. Morgan, Director of the Personal Property Division of the State Board, and Theodore R. Jacobson, Field Auditor of the Personal Property Division. Morgan, the hearing officer at Kentron's administrative hearing, refutes Kentron's contention that either Kentron or its predecessors proved all the personal property was awaiting shipment under purchase orders from customers located outside Indiana and was ultimately shipped in interstate commerce. The State Board requires original documents such as purchase orders, shipping invoices, or other shipping documents, termed by the State Board as source documents, to substantiate a taxpayer's books and records. Instead of producing the required source documents, Kentron relied upon work papers prepared by Kentron, consisting of a summary accounting of vehicles. Kentron never produced the documents necessary to substantiate its claim of exemption. The State Board did not pursue the documentation problem, however, because Kentron had not claimed the exemption on its tax return. From the balance sheet and the work papers that were submitted, it was clear that Kentron's normal method of accounting was a procedure used exclusively for reporting inventory for property tax purposes, and because Kentron and the predecessor corporations failed to claim the exemption, the State Board did not examine whether the goods would otherwise qualify for exemption. The information supplied in the taxpayer's own work papers was not sufficient to prove the property at issue qualified for exemption because the goods were not finished and ready for shipment. 2
the customers in interstate commerce. The predecessor corporations' accounting procedures treated all the property under purchase orders, awaiting shipment as sold and not as part of the inventory value reported on the corporations' personal property tax returns. The State Board determined the cost basis of the property excluded from inventory totalled $7,488,063. The State Board further determined the personal property should have been included in the inventory of record reported on Schedule B of Form 103, and Kentron's failure to report the property and claim the exemption on its return constituted a waiver of the exemption. Roush claims the finished units awaiting shipment out-of-state qualified for the exemption provided by both IC 6-1.1-10-30 and the interstate commerce clause of the United States Constitution. Roush further maintains the State Board would have allowed the exemption for the finished units if the predecessor corporations had not failed to claim the exemption, waiving it under IC 6-1.1-11-1.
Theodore R. Jacobson, State Board Field Auditor, states:
[A]t no time during the course of the affiant's meetings with representatives of the Petitioner were documents, such as purchase orders and shipping invoices, presented to establish or support a claim that at all times relevant hereto all of the personal property in question manufactured by the predecessor corporations was awaiting shipment under purchase orders from customers located outside the State of Indiana, and was ultimately shipped in interstate commerce to such customers.
Kentron contends the State Board ignored precedential cases where courts have permitted a taxpayer to claim a federal exception from state taxation by protesting payment, irrespective of procedural requirements imposed by the state. Furthermore, the State Board's finding that Kentron waived its rights to the exemption is contrary to law because the State Board failed to follow the correct legal standard when it failed to determine whether Kentron knowingly and intentionally waived the exemption.
Conversely, the State Board contends Kentron is not entitled to summary judgment because substantial and material issues of fact remain to be determined and the grounds on which Kentron claims the exemption are contrary to law. Furthermore, the State Board claims it did not determine whether Kentron's property would otherwise qualify for exemption since Kentron had not properly claimed the exemption. No dispute exists that purchase orders and shipping invoices were not presented to prove the inventory was awaiting shipment. Moreover, many of the chassis did not qualify for exemption, according to the State Board, because they were unfinished raw materials, some only three percent (3%) completed. The State Board further contends Indiana's property taxation scheme is based upon self-assessment and full disclosure, requiring all property to be reported. IC 6-1.1-3-9. Full disclosure enables a just and equal valuation of all property. Kentron failed to comply with the full disclosure requirement, because even though property is not included on the taxpayer's books and records, it still must be reported. 50 I.A.C. 4.1-3-4.
The State Board's Written Findings provide in pertinent part:
The remaining question ... is whether ... the Taxpayers are entitled to an exemption that was not claimed on their self-assessment returns. When claiming an exemption on goods considered to be in interstate commerce, Indiana Code 6-1.1-10-31 3 required that the exemption be shown on the personal property return....
A logical interpretation of [IC 6-1.1-10-31 is] ... that the property must be reported on the personal property return and the exemption claimed must also be shown on the return. In this way, assessing officials can carry out their statutorily imposed review requirements....
In the present case, the property in question was omitted from the returns and no exemption claim was made on this property [as required by IC 6-1.1-11-1 4]....
Indiana Code 6-1.1-10-31 contained the procedures necessary to claim an interstate commerce exemption and IC 6-1.1-11-1 requires compliance with these procedures. The State Board does not believe that the Taxpayers have followed the statutory procedures for obtaining an exemption on the property in question. In the case of State Board of Tax Commissioners v. Stanadyne, Inc. (Ind.App; [sic] 1982) 435 N.E.2d 278, the Indiana Court of Appeals (Third District) held that:
Stanadyne claims that it did not waive the exemption, but rather that it merely claimed an incorrect amount. As such, it is argued that the Board has the power to increase as well as decrease exemption claims. However, IC 1971, 6-1.1-11-1, supra, requires compliance with the statutory procedures for obtaining an exemption.
* * * * * *
In addition, it should be noted that exemptions from taxation are not favored by the law, and that the tax statutes are therefore strictly construed against the party claiming an exemption thereunder. Ind. Dept. of (Emphasis added; footnote omitted.)
State Revenue v. The Boswell Oil Co. (1971), 148 Ind.App. 569, 268 N.E.2d 303. Stanadyne is therefore permitted an exemption, but only to the extent claimed on its return
Clearly, Stanadyne is directly on point in the matter before the State Board. The Taxpayers are seeking exemptions that were not claimed on their returns for the years at issue. For this reason, the State Board must find against the Taxpayers.
A second case directly on point is Gulf Stream Coach, Inc. v. State Board of Tax Commissioners [ (Ind.Tax.1988) 519 N.E.2d 238].... [where t]he Indiana Tax Court stated that:
The requirement of full disclosure is not a trap for the unwary, it is a clear and necessary procedure to insure fair and accurate administration of the property tax laws.... (F)ailure to follow proper procedure for claiming the exemption constitutes a waiver of the exemption as provided by statute.
The State Board believes that with Stanadyne and Gulf Stream, there is more than sufficient statutory and case law to deny the Taxpayers an exemption that was not claimed on their returns for the years in issue.
(State Board's Written Findings, September 19, 1989) (footnotes added) (citation omitted).
In its motion for summary judgment, Kentron asks the court to find the State Board erred in determining Kentron waived the interstate commerce exemption and that the penalties and interest were improperly assessed.
The issues are whether there is a genuine issue of material fact concerning whether...
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Monarch Steel Co., Inc. v. State Bd. of Tax Com'rs, 45T10-9411-TA-00261
... ... See Kentron, Inc. v. State Bd. of Tax Comm'rs, 572 N.E.2d 1366, 1372-74 (Ind.Tax 1991) ... CONCLUSION ... The State Board did not abuse its ... ...