Maurer v. Indiana Dept. of State Revenue

• Decision Date: 05 February 1993
• Docket Number: No. 82T10-9203-TA-00009,82T10-9203-TA-00009
• Citation: 607 N.E.2d 985
• Court: Indiana Tax Court
• Parties: Sol MAURER, Petitioner, v. INDIANA DEPARTMENT OF STATE REVENUE, Respondent.

Page 985

607 N.E.2d 985

Sol MAURER, Petitioner, v. INDIANA DEPARTMENT OF STATE REVENUE, Respondent.

No. 82T10-9203-TA-00009.

Tax Court of Indiana.

Feb. 5, 1993.

James A. Kornblum, Lockyear & Kornblum, Evansville, for petitioner.

Pamela Carter, Atty. Gen., David A. Arthur, Deputy Atty. Gen., Indianapolis, for respondent.

FISHER, Judge.

In a case of first impression in Indiana, Petitioner Sol Maurer appeals the final determination by the Respondent, the Indiana Department of State Revenue (the Department), denying Maurer's claim for refund of gross retail/use tax. The issue presented is whether Maurer, as the winner of a prize in a charity raffle, is liable for sales or use tax on the prize he received or on the ticket that gave him the chance to win that prize. He is not.

FACTS

Infa-Life Seekers is a tax-exempt Evansville area charity that provides money and equipment to special care nurseries for premature and ill infants. In the spring of 1991, Infa-Life held a raffle to raise funds for its work. The charity sold several hundred tickets at $100 apiece, each ticket representing a chance to win a 1991 Chevrolet Corvette automobile. Maurer purchased ticket number 232, which was eventually drawn as the winner.

On May 18, 1991, Infa-Life paid Kenny Kent Chevrolet Company (Kenny Kent), a downtown Evansville auto dealer, $30,453 for the prize Corvette. After being notified he had won, Maurer went to the dealership on May 20, 1991, to claim his prize. Kenny Kent, however, would not release the car until Maurer paid $1,522.65 in sales tax on the $30,453 purchase price. Maurer paid the tax and filed his claim for refund. The Department's denial of that claim led to this appeal.

DISCUSSION AND DECISION

Standard of Review

In reviewing this appeal from the Department, the court applies a de novo standard and is not bound by the evidence or the issues presented at the administrative level. IND.CODE 6-8.1-9-1(d); Hoosier Energy Rural Elec. Coop., Inc. v. Indiana Dep't of State Revenue (1988), Ind.Tax, 528 N.E.2d 867, 869, aff'd, (1991), Ind., 572 N.E.2d 481, cert. denied, (1991), --- U.S. ----, 112 S.Ct. 337, 116 L.Ed.2d 277. Moreover, bearing in mind the novel nature of the claims presented in this case, the court notes each party, at some stage, has been responsible for meeting a burden of proof. To the extent Maurer seeks an exemption from sales/use tax, he bears the burden because statutes creating tax exemptions are strictly construed against the taxpayer. Harlan Sprague Dawley, Inc. v. Indiana Dep't of State Revenue (1992), 605 N.E.2d 1222, 1225 (citing General Motors Corp. v. Indiana Dep't of State Revenue (1991), Ind. Tax, 578 N.E.2d 399, 404, aff'd, (1992), Ind., 599 N.E.2d 588). At the same time, to the extent the Department claims the transactions at issue are within the ambit of the sales/use tax imposition statutes, the Department bears the burden to prove its case. See Wechter v. Indiana Dep't of State Revenue (1989), Ind. Tax, 544 N.E.2d 221, 224, aff'd (1990), Ind., 553 N.E.2d 844.

At its heart, this is a case about two contracts, their component transactions, and their taxability. Before proceeding to the specific contracts, therefore, a review of the applicable law is necessary.

THE LAW

Sales and Use Tax and Charitable Organizations

Under the State Gross Retail and Use Tax Act (the Act), IND.CODE 6-2.5-1-1 et seq., Indiana imposes excise tax on sales transactions between buyers and sellers. The Act imposes sales tax on "retail transactions." IND.CODE 6-2.5-2-1; Monarch Beverage Co. v. Indiana Dep't of State Revenue (1992), Ind.Tax, 589 N.E.2d 1209 If tangible personal property is acquired in a retail transaction, the use tax "is imposed on the storage, use, or consumption of [that] property in Indiana." IND.CODE 6-2.5-3-2(a). Vehicles, aircraft, and watercraft, however, are subject to use tax even if acquired in isolated or occasional sales. IND.CODE 6-2.5-3-2(b). Property is exempt from the use tax if sales tax was paid on the acquisition of the property. IND.CODE 6-2.5-3-4(a)(1).

                1210.   Generally, to qualify as a retail transaction, tangible personal property must be acquired for the purpose of resale and transferred to another person for consideration in the ordinary course of the seller's regularly conducted trade or business.  IND.CODE 6-2.5-4-1(b)
                

Qualified charitable organizations such as Infa-Life are exempt from federal and state income taxes under I.R.C. Sec. 501(c)(3) and IND.CODE 6-2.1-3-19 through 22. In turn, qualified charitable organizations are exempt from sales tax, both as a buyer and a seller. IND.CODE 6-2.5-5-25; 6-2.5-5-26. The sales tax exemption on sales by qualified charitable organizations applies only to tangible personal property. IC 6-2.5-5-26(a). There is also a use tax exemption for property acquired exempt from sales tax under IC 6-2.5-5 if the property is stored, used, or consumed for the purpose for which it received the exemption. IC 6-2.5-3-4(a)(2). Qualified charitable organizations also receive an additional benefit. They are statutorily allowed to raise funds for their charitable work through raffles, bingo games, and other games of chance. IND.CODE 4-32.

Gaming Laws

The purpose of IC 4-32 is to "permit a [tax exempt] organization ... to conduct raffles ... and award prizes as a fund raising activity for lawful purposes of the organization." IND.CODE 4-32-1-2. A raffle is "the selling of tickets or chances to win a prize awarded through a random drawing." IND.CODE 4-32-2-7 (repealed by P.L. 24-1992, Sec. 63, now IND.CODE 4-32-6-21).

The words of these statutes, like all others, are given their plain, ordinary, and usual meaning unless the legislative intent reveals a contrary purpose. See Harlan Sprague Dawley, Inc., 605 N.E.2d at 1224 (citing Hartman v. State (1992), 602 N.E.2d 1011, 1013; Park 100 Dev. Co. v. Indiana Dep't of State Revenue (1981), Ind., 429 N.E.2d 220, 222; Johnson County Farm Bureau Coop. Ass'n v. Indiana Dep't of State Revenue (1991), Ind. Tax, 568 N.E.2d 578, 580-81, aff'd (1992), Ind., 585 N.E.2d 1336). Moreover, statutes must be construed within the context of the entire act of which they are a part and to give full effect, if possible, to all words and clauses. Id. 605 N.E.2d at 1225 (citing Guinn v. Light (1990), Ind., 558 N.E.2d 821, 823).

By its plain terms, IC 4-32-2-7 provides that a raffle ticket or chance represents a potential claim to a prize awarded after a random drawing. The player is indifferent to the ticket; what matters is the prize the ticket may generate. In Indiana, the substance, not the form, of a transaction determines its tax consequences. Mason Metals Co. v. Indiana Dep't of State Revenue (1992), Ind. Tax, 590 N.E.2d 672, 675 (citing Meridian Mortgage Co. v. State (1979), 182 Ind.App. 328, 395 N.E.2d 433, 440), and the substance of a raffle ticket sale transaction is the purchase of the opportunity to win, not the purchase of the ticket. The sale of a raffle ticket to a raffle player is therefore not a sale of tangible personal property. Other courts have reached the same result, holding a ticket "is the physical evidence of a right of the purchaser or holder to a chance to win." City of Gilroy v. State Bd. of Equalization (1989), 212 Cal.App.3d 589, 598, 260 Cal.Rptr. 723, 728, rev. denied (emphasis in original). ¹ The court now turns to the contracts at hand.

THE CONTRACTS

The Department claims Maurer took title to the car in a retail transaction with Kenny Kent, and that Maurer is therefore liable for the sales tax on the entire $30,453 purchase price. This position misstates the nature of the transactions at issue.

Kenny Kent and Infa-Life

The first contract is between Kenny Kent and Infa-Life. Under that contract, Infa-Life paid Kenny Kent $30,453 for the Corvette, and Kenny Kent promised to deliver the car to the winner of Infa-Life's drawing. Kenny Kent is an auto dealer, and the transaction between Kenny Kent and Infa-Life was a retail transaction made in the ordinary course of Kenny Kent's regularly conducted business and subject to sales tax under IC 6-2.5-2-1. The transaction was not taxable, however, due to Infa-Life's uncontested tax exempt status under IC 6-2.5-5-25.

Acknowledging Infa-Life's tax exempt status, the Department claims Maurer is liable for sales tax on his receipt of possession because title went directly from Kenny Kent to Maurer and Infa-Life never acquired title to the vehicle. The Department bases its argument on the title documents, which fail to show Infa-Life in the chain of title. In Indiana, however, transfer of title is not dependent upon delivery of title documents. See Monarch Beverage Co., 589 N.E.2d at 1214, n. 13 (quoting IND.CODE 26-1-2-401(2)). Rather, unless otherwise agreed, title passes on receipt of consideration. Id. at 1213. It is well settled that title "certificates do not convey title and they are not conclusive proof of title in him who is therein designated as the owner." Champa v. Consol. Fin. Corp. (1953), 231 Ind. 580, 592, 110 N.E.2d 289, 294 (quoting Nichols v. Bogda Motors (1948), 118 Ind.App. 156, 77 N.E.2d 905, 907) (emphasis in original). ²

In the case at bar, there is no evidence Kenny Kent and Infa-Life agreed to any special transfer of title, and therefore, when Infa-Life gave Kenny Kent consideration for the vehicle, it acquired title to the vehicle, and would have been liable for the sales tax but for its exempt status. See IC 6-2.5-2-1(b) ("The person who acquires property in a retail transaction is liable for the tax on the transaction....") (emphasis added). As stated in IC 6-2.5-4-1(b)(2), selling at retail requires a "transfer[ ] [of] property to another person for consideration." See Monarch Beverage Co., 589 N.E.2d at 1213, n. 10. ³

After Infa-Life paid for the car, all that remained for Kenny Kent was to transfer physical possession to the drawing winner, Maurer. Despite the Department's arguments, the delivery...