Mathis v. Cooperative Vendors, Inc., 2--675A140

Docket NºNo. 2--675A140
Citation354 N.E.2d 269, 170 Ind.App. 659
Case DateSeptember 16, 1976
CourtCourt of Appeals of Indiana

Theo. L. Sendak, Atty. Gen., Robert S. Spear, Asst. Atty. Gen., Richard G. Potter, Deputy Atty. Gen., Indianapolis, for appellants.

David F. McNamar, Indianapolis, Robert L. Sheaffer, Shelbyville, Myron H. Budnick, Sidney A. Horn, Gordon E. Tabor, Indianapolis, for appellees.


This appeal challenges the trial court's ruling that the Indiana Gross Retail Tax Act 1 did not apply to the sale of cigarettes from 1963, when it was originally enacted, to 1973, when it was amended to specifically include cigarettes. 2 This suit was commenced on March 29, 1971 as a declaratory judgment action by Cooperative Vendors, Inc., (Cooperative) individually and on behalf of all other distributors and vendors of cigarettes, and by Ray L. Wickler individually and on behalf of other retailers, consumers, and purchasers of cigarettes. The named defendants in that action were James O. Mathis, Mary D. Aikins (Currie) and Jack L. New as individuals and in their respective capacities as Commissioner of the Indiana Department of Revenue, Auditor of the State, and Treasurer of the State. Donald Clark, who succeeded Mathis as Commissioner of Revenue, was substituted by stipulation of the parties. (For convenience, the defendants-appellants will hereinafter be referred to as the Department.)

Cooperative met with representatives of the Department on November 7, 1965, at which time Cooperative said it had not been collecting and would not collect and pay to the Department, a retail sales tax on the cigarettes it sold. Cooperative's position was (and still is) that the sale of cigarettes was exempt from the retail sales tax by virtue of the Cigarette Tax Act of 1947. 3 Since January 1, 1966, Cooperative has collected and paid sales tax on its other retail sales, but not on cigarettes, stating each year on the reporting form that such sales were exempt.

The Department did nothing to enforce a sales tax on cigarettes until January 12, 1971, when it sent Cooperative a notice of assessment of $54,414.71 for the period January 1, 1967 to September 30, 1970. Cooperative filed a petition of protest. A hearing was held on the petition, and it was denied on March 12, 1971.

Cooperative's and Wickler's complaint sought a declaration that packages of cigarettes with tax stamps affixed are per se exempt from sales tax; that the assessment against Cooperative is illegal and void; that the Department be enjoined from collecting the assessment; and that the Department be ordered to return approximately $15,000,000 illegally collected to purchasers with valid, provable, existing claims for the prior three (3) years.

After denying the Department's motion to dismiss and Cooperative's and Wickler's motion for summary judgment, the trial court granted leave to intervene to James Vending Company, Inc. (James), a vendor who had paid sales tax on the sale of cigarettes, and Jack A. Siler, d/b/a Siler Sales, a retailer who had paid the tax. Cooperative and James then moved for partial summary judgment in favor of themselves only. The trial court granted these motions and directed entry of the judgment that the sales tax did not apply to the sale of cigarettes until the Retail Tax Act was amended in 1973. The court also permanently enjoined the sheriff from executing tax warrants issued against Cooperative. It is from the partial summary judgment that the Department appeals.

Two issues are presented for our decision:

(1) whether the trial court had jurisdiction;

(2) Whether the 1963 Retail Tax Act applied to the sale of cigarettes prior to its amendment in 1973.

We hold that the trial court had jurisdiction to consider the merits of the claim for declaratory relief. We further hold that the Retail Tax Act was applicable to sales of cigarettes during the period in question and we reverse the judgment below.


This case presents vexatious jurisdictional questions, namely whether the remedial procedure prescribed in the Gross Income Tax Act is the exclusive means of challenging an 'assessment' under the Retail Tax Act, 4 and if not, whether a declaratory judgment action is an appropriate vehicle for bringing such a challenge.


Ind.Ann.Stat. 6--2--1--19 (Burns Code Ed. 1972) establishes a refund procedure and reads in pertinent part:

'(d) No injunction to restrain or delay the collection of any tax claimed to be due under the provisions of this act shall be issued by any court, but in all cases in which, for any reason, it be claimed that any such tax about to be collected is wrongful or illegal in whole or in part the remedy, except as otherwise expressly provided in this act, shall be by payment and action to recover such tax as provided in this section.' (Emphasis Supplied).

The Department contends that 6--2--1--19, supra, by its explicit terms requires that Cooperative first pay the assessment, then sue for a refund. Since Cooperative did not follow this route in challenging the applicability of the sales tax to cigarettes, the Department argues that the trial court had no jurisdiction over the subject matter of this suit and thus could not render judgment on the merits.

Two recent cases lend facial support to the Department's position. State ex rel. Indiana Dept. of State Revenue v. Marion Cir. Ct. (1971), 255 Ind. 501 at 504, 265 N.E.2d 241 at 243, and Marhoefer Packing Co., Inc. v. Indiana Dept. of State Revenue (2d Dist. 1973), Ind.App., 301 N.E.2d 209 at 213 both make the blanket statement that 6--2--1--19 is 'the sole and exclusive remedy available to question the legality of the imposition of a tax under the Indiana Gross Income Tax Law.' Despite this broad language, we hold that Cooperative was not limited in its remedies to payment of the tax and suit for a refund.

The tax burden is placed upon the retail purchaser in both the Cigarette Tax Act and the Retail Tax Act. Cooperative is not a taxpayer, but an agent of the state for purposes of collecting both the cigarette tax and the sales tax. The Cigarette Tax Act, Ind.Ann.Stat. 6--7--1--1 (Burns Code Ed. 1972), says:

'It is the intent and purpose of this act (6--7--1--1--6--7--1--36) to levy a tax on all cigarettes sold, used, consumed, handled or distributed within this state, and to collect the tax from the person who first sells, uses, consumes, handles or distributes the cigarettes. It is further the intent and purpose of this act, that whenever any cigarettes are given for advertising or any purpose whatsoever, they shall be taxed in the same manner as if they were sold, used, consumed, handled, or distributed in this state. Notwithstanding any other provisions contained in this act, the liability for the excise taxes imposed hereby shall be conclusively presumed to be on the retail purchaser or ultimate consumer, precollected for convenience and facility only. When such taxes are paid by any other person, such payment shall be considered as an advance payment and shall be added to the price of the cigarettes and recovered from the ultimate consumer or user. Distributors, wholesalers, or retailers may state the amount of the tax separately from the price of such cigarettes on all price display signs, sales or delivery slips, bills, and statements which advertise or indicate the price of such cigarettes.' (Emphasis supplied).

That Act further provides that:

'(d)istributors who hold certificates and retailers shall be agents of the state of Indiana in the collection of the taxes imposed by this act (6--7--1--1--6--7--1--36) and the amount of the tax levied, assessed and imposed by this act on cigarettes sold, exchanged, bartered, furnished, given away or otherwise disposed of by distributors or to retailers. Distributors who hold certificates shall be agents of the department to affix the required stamps and shall be entitled to purchase said stamps from the department at a discount of four per cent (4%) of the amount of the tax stamps so purchased, as compensation for their labor and expense.' (Emphasis supplied). Ind.Ann.Stat. 6--7--1--17 (Burns Code Ed. 1972).

The Retail Tax Act designates the retail merchant as a State agent for collecting the tax:

'6--2--1--37 (64--2651). Gross retail tax imposed--Rate--Collection by retail merchants.--In addition to the gross income tax imposed by this act (6--2--1-- 1--6--2--1--53), an additional excise tax, to be known as the state gross retail tax, is hereby imposed on transactions of retail merchants constituting selling at retail, as defined in section 37 (6--2--1--38) of this act, occurring on or after July 1, 1963, subject to the exceptions and exemptions provided in section 39 (6--2--1--39) of this act, at the rate of two per cent (2%) on the gross income derived therefrom. Such tax shall be borne by the purchaser and shall be paid by the purchaser to the retail merchant, who shall collect the tax as agent for the state, at the rate fixed herein . . ..' (Emphasis supplied).

In defining the liability of retail merchants the Retail Tax Act provides:

'6--2--1--49 (64--2664). Collection of sales and use tax by merchant as agent of state--Liability of merchant.--(a) The state gross retail tax and the use tax shall be collected by the retail merchant, as agent for the state of Indiana, from the purchaser of property or services furnished in the transaction subject to said taxes as a separate added amount not part of the...

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