Monarch Beverage Co., Inc. v. Indiana Dept. of State Revenue

• Decision Date: 07 April 1992
• Docket Number: No. 49T10-9101-TA-00003,49T10-9101-TA-00003
• Parties: MONARCH BEVERAGE CO., INC., Petitioner, v. INDIANA DEPARTMENT OF STATE REVENUE, Respondent.
• Court: Indiana Tax Court

Page 1209

589 N.E.2d 1209

MONARCH BEVERAGE CO., INC., Petitioner, v. INDIANA DEPARTMENT OF STATE REVENUE, Respondent.

No. 49T10-9101-TA-00003.

Tax Court of Indiana.

April 7, 1992.

Phillip A. Terry, Brian K. Peters, McHale, Cook & Welch, P.C., Indianapolis, for petitioner.

Linley E. Pearson, Atty. Gen., Ted J. Holaday, Deputy Atty. Gen., Indianapolis, for respondent.

FISHER, Judge.

Monarch Beverage Co., Inc. (Monarch) appeals the Indiana Department of State Revenue's (Department) denial of its claim for refund of use tax paid ¹ in conjunction with licensing, registering, and titling sixteen (16) trailers it did not purchase, but used and leased. Monarch asks the court to reverse the Department's determination, to enter a judgment in its favor, and to order a refund in the amount of $21,728.69 plus all proper interest.

FACTS

Monarch is an Indiana corporation with its principal place of business in Indianapolis. Monarch uses trailers in its business of distributing wholesale alcoholic beverages. Monarch and Hackney & Sons (Hackney), a trailer manufacturer, agreed that Hackney would manufacture sixteen trailers for Monarch's use in its distribution business, although Monarch would not purchase the trailers. Instead, the understanding was that Monarch would find a third party to purchase the trailers from Hackney and then lease them to Monarch.

In late January 1990, Hackney delivered the sixteen completed trailers to Monarch along with certificates of origin and invoices for each. The certificates of origin listed each trailer as the property of Monarch. The invoices indicated the trailers were sold to Monarch, stating: "PLEASE PAY FROM INVOICE," "NO STATEMENT WILL BE SENT," and the terms, "NET 15 DAYS." In conformance with its understanding with Hackney, however, Monarch did not pay Hackney for the trailers either upon accepting delivery or thereafter.

On January 31, 1990, Monarch paid use tax in the amount of $21,728.69 to the Indiana Bureau of Motor Vehicles (the BMV) to get license plates and titles for the trailers. When issued, the certificates of title identified Monarch as the owner, but the space for the owner's social security number was blank.

Forty-six days later, on March 19, 1990, Monarch and the Gelco Corporation (Gelco) executed a lease agreement, whereby Gelco would purchase the trailers from Hackney and lease them to Monarch. In addition, Monarch pays the sales tax due on the trailers under the lease terms. Gelco paid Hackney the purchase price, and Monarch, as seller, assigned the certificates of title to Gelco, as purchaser. The certificates, however, did not indicate a selling price.

On August 3, 1990, Monarch filed a claim for refund with the Department for the full amount of tax it paid to obtain the licenses, registrations, and titles, contending it paid the same tax twice, once to the BMV and again as required under its lease. On October 24, 1990, the Department denied Monarch's claim for refund, stating Monarch acquired the trailers from the manufacturer in a taxable retail transaction.

Additional facts will be included as necessary.

ISSUES

1. Did Monarch acquire the trailers from the manufacturer in an isolated and occasional transaction subject to use tax under IND.CODE 6-2.5-3-2(b)?

2. Did Monarch acquire the trailers from the manufacturer in a retail transaction subject to sales tax pursuant to IND.CODE 6-2.5-2-1(a) and use tax pursuant to IC 6-2.5-3-2(a)?

3. Is Monarch entitled to a refund of use tax paid to the BMV on the trailers because it is unfair that Monarch must pay the same tax again on the trailers under its lease agreement?

DISCUSSION AND DECISION

1.

The State Gross Retail and Use Tax Act (the Act), IND.CODE 6-2.5-1-1 et seq., imposes excise tax on sales transactions involving buyers and sellers. The Act does not impose tax on all sales, but generally imposes tax only on those sales that are "retail transactions." ² Exclusively for purposes of the use tax, however, the acquisition of a vehicle is subject to tax even if it is not acquired in a retail transaction:

(b) The use tax is also imposed on the storage, use, or consumption of a vehicle, an aircraft, or a watercraft, if the vehicle, aircraft, or watercraft:

(1) is acquired in a transaction that is an isolated or occasional sale; and

(2) is required to be titled, licensed, or registered by this state for use in Indiana.

IC 6-2.5-3-2(b) (emphasis added). Although a transaction that meets the above requirements is not a "retail transaction," IND.CODE 6-2.5-3-3 deems it to be a "retail transaction" within the meaning of IND.CODE 6-2.5-1-2.

The Department contends Monarch's transaction with Hackney is subject to use tax pursuant to IC 6-2.5-3-2(b). The court first must determine whether Monarch acquired the trailers in a transaction that was an isolated or occasional sale. IC 6-2.5-3-2(b)(1). The Indiana Court of Appeals found persuasive a definition of the term "isolated sale" as a sale that stands alone, disconnected from any other. Hippensteel v. Karol (1973), 159 Ind.App. 146, 153, 304 N.E.2d 796, 800 (construing the term "isolated transaction" as used in the Indiana Securities Act, IND.CODE 23-2-1-2). The State Gross Retail and Use Tax Act, however, only distinguishes, without defining, an isolated or occasional sale ³ from a sale in the ordinary course of a regularly conducted trade or business. ⁴ Nonetheless, juxtaposition of these concepts in the Act suggests their opposition, an isolated sale representing a non-retail transaction and a sale in the ordinary course of business representing a retail transaction. Accordingly, IC 6-2.5-3-2(b) imposes use tax on transactions in which individuals, not normally in the business of selling vehicles, sell their car, truck, or other vehicle. ⁵

Hackney is in the business of manufacturing and selling trailers. ⁶ Hackney transferred the trailers to Monarch in the ordinary course of its regularly conducted business, not in a non-recurring transaction that stands isolated and alone. The requirement under IC 6-2.5-3-2(b)(1) therefore is not met, ⁷ and Monarch's transaction is not the type of transaction the Legislature intended IC 6-2.5-3-2(b) to tax. The court therefore finds IC 6-2.5-3-2(b) does not impose use tax on Monarch's acquisition of the trailers from Hackney.

2.

The Department further asserts the transaction between Monarch and Hackney is subject to sales and use tax because Monarch acquired the trailers in a retail transaction. The Act imposes sales tax "on retail transactions made in Indiana," IC 6-2.5-2-1(a) (emphasis added), and use tax "on the storage, use, or consumption of tangible personal property in Indiana if the property was acquired in a retail transaction...." ⁸ IC 6-2.5-3-2(a) (emphasis added). The transaction between Monarch and Hackney therefore is subject to tax if it was a retail transaction.

A " '[r]etail transaction' means a transaction of a retail merchant that constitutes selling at retail as described in IC 6-2.5-4-1...." IC 6-2.5-1-2(a) (emphasis added). The activities of the seller/transferor are scrutinized under IC 6-2.5-1-2(a) to determine whether a transaction is a retail transaction. Accordingly, Monarch's acquisition of the trailers is a taxable retail transaction only if Hackney, the seller/transferor, is a retail merchant making retail transactions because its activities constitute "selling at retail." See Cowden & Sons Trucking, Inc. v. Indiana Dep't of State Revenue (1991), Ind.Tax, 575 N.E.2d 718, 720-21.

Hackney engages in "selling at retail" if it (1) acquires property for the purpose of resale and (2) transfers the property for consideration during the ordinary course of its regularly conducted trade or business. IC 6-2.5-4-1. Hackney acquired parts and materials for the purpose of resale as manufactured trailers, ⁹ satisfying the first requirement of "selling at retail."

Hackney's transfer of the trailers to Monarch also must be for consideration to constitute "selling at retail." The Act, however, does not expressly define the term "consideration," as used in IC 6-2.5-4-1(b)(2). The concept of consideration evolved from the law of contracts. In order to have a legally binding contract there must generally be an offer, acceptance, and consideration. Bain v. Board of Trustees of Starke Memorial Hosp. (1990), Ind.App., 550 N.E.2d 106, 110 (citing Herald Telephone v. Fatouros (1982), Ind.App., 431 N.E.2d 171, 174). Consideration is essential to every contract. Alber v. Standard Heating and Air Conditioning, Inc. (1985), Ind.App., 476 N.E.2d 507, 510 (citing Puetz v. Cozmas (1958), 237 Ind. 500, 147 N.E.2d 227).

Indiana has long held that consideration in the form of money is not essential to a binding contract. Kelley, Glover & Vale, Inc. v. Heitman (1942), 220 Ind. 625, 632, 44 N.E.2d 981, 984 (citing Trackwell v. Irvin (1917), 66 Ind.App. 5, 115 N.E. 807), cert. denied, (1943), 319 U.S. 762, 63 S.Ct. 1320, 87 L.Ed. 1713. A mere promise is sufficient as consideration if it is the result of a bargained for exchange. Burdsall v. City of Elwood (1983), Ind.App., 454 N.E.2d 434, 436 (citing Urbanational Developers, Inc. v. Shamrock Eng'g, Inc. (1978), 175 Ind.App. 416, 372 N.E.2d 742). Moreover, a benefit to the promisor or a detriment to the promisee is sufficient as consideration. Tuthill Corp., Fill-Rite Div. v. Wolfe (1983), Ind.App., 451 N.E.2d 72, 78 (citing Urbanational Developers, Inc., 372 N.E.2d 742). "The doing of an act by one at the request of another which may be a detrimental inconvenience, however slight, to the party doing it or may be a benefit, however slight, to the party at whose request it is performed, is legal consideration for a promise by such requesting party." Harrison-Floyd Farm Bureau Coop. Ass'n v. Reed (1989), Ind.App., 546 N.E.2d 855, 857 (citing Herrera v. Collection Serv. Inc. (1982), Ind.App., 441 N.E.2d 981).

The court may apply either of the above tests to determine...