Richardson's RV, Inc. v. Ind. Dep't of State Revenue

• Decision Date: 05 December 2018
• Docket Number: Supreme Court Case No. 18S-TA-22
• Citation: 112 N.E.3d 192
• Parties: RICHARDSON'S RV, INC., Respondent (Petitioner below) v. INDIANA DEPARTMENT OF STATE REVENUE, Petitioner (Respondent below)
• Court: Indiana Supreme Court

112 N.E.3d 192

RICHARDSON'S RV, INC., Respondent (Petitioner below)

v.INDIANA DEPARTMENT OF STATE REVENUE, Petitioner (Respondent below)

Supreme Court Case No. 18S-TA-22

Supreme Court of Indiana.

Argued: March 9, 2018

FILED December 5, 2018

ATTORNEYS FOR PETITIONER: Curtis T. Hill, Jr., Attorney General of Indiana, Winston Lin, David C. Dickmeyer, Evan W. Bartel, Deputy Attorneys General, George M. Plews, Brett E. Nelson, Joshua S. Tatum, Steven A. Baldwin, Plews Shadley Racher & Braun LLP, Indianapolis, Indiana

ATTORNEYS FOR RESPONDENT: Randal J. Kaltenmark, Mark J. Crandley, Ziaaddin Mollabashy, Barnes & Thornburg LLP, Indianapolis, Indiana

On Petition for Review from the Indiana Tax Court, No. 49T10-1504-TA-16

Massa, Justice.

Richardson's RV thought it could avoid paying Indiana sales tax if it took RVs it sold to certain out-of-state customers into Michigan before handing over the keys. The Indiana Department of Revenue quarreled with this understanding, telling Richardson's that it owed tax for those sales. On review, the Tax Court determined Richardson's owed no sales tax because it did not complete these transactions in Indiana.

We disagree. Because Richardson's structured these Michigan deliveries solely to avoid taxes with no other legitimate business purpose, we reverse the Tax Court and enter summary judgment in favor of the Department.¹ We remand, however, for a determination of the amount of tax Richardson's owes and for a determination of whether any independent, non-tax-related business purposes motivated four isolated deliveries to other locations in the United States and Canada.

Facts and Procedural History

Richardson's RV, Inc. is an Indiana corporation that owns and operates an RV dealership in Middlebury, Indiana.² Although Richardson's sells some RVs onsite, many of its sales happen online. In typical online sales during the period at issue, once the parties agreed on a price, Richardson's sent a purchase order to the customers to sign and return with deposit payments. Richardson's then ordered the RVs from the manufacturers and inspected them for any defects. After curing any found deficiencies, Richardson's gassed up the RVs and contacted the customers to come to the dealership.

When the customers arrived at the dealership, they inspected the RVs for any flaws; if the customers found any, Richardson's typically fixed the problems onsite.³ Then Richardson's took the customers to its financing office, where the customers filled out and signed documents necessary to obtain title to and registration for the RVs. And, at least sometimes, Richardson's completed odometer readings at the dealership. Next, the customers paid Richardson's directly or completed any financing agreements. Finally, after completing insurance arrangements, Richardson's provided the customers with temporary Indiana license plates to place on the RVs.

But when it came time to physically transfer possession of the RVs, the protocol depended on a customer's state of residence. Customers from Indiana—or from one of the forty states with reciprocal tax exemption agreements under Indiana Code section 6-2.5-5-39(c) —drove their RVs directly off the dealership lot. Customers from the nine states without reciprocal tax exemption agreements, however, could choose to pay sales tax either at Indiana's rate or at their home state's rate, with customers ostensibly choosing the lesser of the two.⁴

For the non-reciprocal-state customers choosing to pay their home state's rate, the delivery method Richardson's employed was unorthodox. With the customers following behind, Richardson's took the RVs to a Speedway gas station fewer than three miles north of the state border into the non-reciprocal state of Michigan. After arriving at this Speedway that functioned as the delivery location, only two simple tasks remained for the customers accepting these Michigan Deliveries: (1) sign confirmations of delivery and (2) receive the keys to their new RVs. These Michigan Deliveries were "just for tax purposes." Resp.'s App. Vol. VI, pp. 107–08. But in four Non-Michigan Deliveries, Richardson's deviated from this norm for non-reciprocal-state customers and delivered RVs to them in California, North Dakota, Nova Scotia, and Buchanan, Michigan.⁵

Richardson's collected no Indiana sales tax on any of the Michigan or Non-Michigan Deliveries. After an audit, the Department issued proposed assessments to Richardson's for the years at issue, which totaled nearly $250,000 in unpaid taxes and interest on the Michigan and Non-Michigan Deliveries.⁶ Following an unsuccessful appeal to the Department, Richardson's petitioned the Tax Court for review. Richardson's RV Inc. v. Indiana Dep't of State Revenue , 80 N.E.3d 293 (Ind. Tax Ct. 2017), vacated .

Following briefing and a hearing, the Tax Court granted summary judgment for Richardson's, concluding that it owed no Indiana sales tax for any of these transactions because (1) an explicit agreement between non-reciprocal-state customers and Richardson's mandated delivery of the vehicles in Michigan, (2) Richardson's designed the trips to Michigan to further legitimate business purposes, and (3) Indiana's exemption statute did not apply to these transactions because "as a matter of law the sales transactions at issue were not made ‘in Indiana.’ " Id. at 296–99.

We granted the Department's petition for review. See Ind. Appellate Rule 63(A). And now we reverse.

Standard of Review

Summary judgment is appropriate when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law.

Ind. Trial Rule 56(C). Tax Court Rule 10, which this Court concurrently adopted with the Tax Court commencing business in 1986, commands that we "shall not set aside the findings or judgment of the Tax Court unless clearly erroneous." Pub. L. No. 291-1985, § 1, 1985 Ind. Acts 2278, 2279 (codified at Ind. Code § 33-26-1-1 (2004) ) (establishing the Indiana Tax Court); July 18, 1986, Order Adopting Rules for the Indiana Tax Court (found in volume 494–496 of Ind. Cases ed. of N.E.2d at XXXIV) (adopting Rule 10's "clearly erroneous" standard). In other words, "[a]lthough this Court ordinarily reviews summary judgment orders de novo, we take a limited departure when reviewing summary judgments entered by the Tax Court," setting aside its decisions within its expertise when "we are definitely and firmly convinced that an error was made." Merch. Warehouse Co. v. Indiana Dep't of State Revenue , 87 N.E.3d 12, 16 (Ind. 2017) (internal quotation marks omitted).

Discussion and Decision

State gross retail tax, commonly known as the Indiana sales tax, generally applies to "retail transactions made in Indiana." Ind. Code § 6-2.5-2-1(a) (1980). But not every RV transaction "made in Indiana" is subject to our sales tax: reciprocity agreements exempt some out-of-state buyers from paying our sales tax if they can show Indiana purchasers receive similar exemptions for purchases in their states. I.C. § 6-2.5-5-39(c) (2007) ; Hamilton Cnty. Assessor v. SPD Realty, LLC , 9 N.E.3d 773, 776 (Ind. Tax. Ct. 2014) (noting that "the taxpayer bears the burden of proving that it is entitled to the exemption that it seeks").

If, however, those non-residents live in states without reciprocity agreements with Indiana, RV sales are not exempt from our sales tax. I.C. § 6-2.5-5-39(c). Instead, the only way for these non-reciprocal-state customers to avoid paying Indiana sales tax is to take physical delivery of their RVs outside Indiana because "[s]ales of tangible personal property which are delivered to the purchaser in a state other than Indiana for use in a state other than Indiana are not subject to gross retail tax or use tax." 45 Ind. Admin. Code § 2.2-5-54(b).

But "[a] transaction structured solely for the purpose of avoiding taxes with no other legitimate business purpose will be considered a sham for taxation purposes." Indiana Dep't of State Revenue v. Belterra Resort Indiana, LLC , 935 N.E.2d 174, 179 (Ind. 2010) (internal quotation marks omitted). Indeed, "the substance, rather than the form, of transactions determines their tax consequences." Id. ; see also Gregory v. Helvering , 293 U.S. 465, 469, 55 S.Ct. 266, 79 L.Ed. 596 (1935) (where the Supreme Court put aside "the question of motive in respect of taxation" and instead "fix[ed] the character of the proceeding by what actually occurred").

"To determine the substance of a transaction, the court must consider all of the surrounding facts and the legal effect of the transaction." Bethlehem Steel Corp. v. Indiana Dep't of State Revenue , 597 N.E.2d 1327, 1332 (Ind. Tax Ct. 1992).

I. The Michigan Deliveries are subject to sales tax.

When personal property is delivered to the purchaser in a state other than Indiana solely to avoid paying sales tax—with no other legitimate business purpose—we will not " ‘exalt artifice above reality.’ " Belterra , 935 N.E.2d at 180 (quoting Gregory , 293 U.S. at 470, 55 S.Ct. 266 ). Instead, we will consider these deliveries part of "retail transactions made in Indiana" subject to Indiana sales tax. I.C. § 6-2.5-2-1(a).

Richardson's argues that the Michigan Deliveries are non-taxable because three legitimate business purposes prompted them: (1) ensuring that customers paid taxes in the proper jurisdiction, (2) avoiding double taxation, and (3) maintaining competitive pricing.⁷ But with these arguments, Richardson's asks this Court to elevate the form of these deliveries over their substance. And, tellingly, all these purposes are tax—not business—based. We find no legitimate business purpose motivating the Michigan Deliveries and so we consider them a sham for taxation purposes. See Belterra , 935 N.E.2d at 179.

First, Richardson's maintains that it did not pay the Indiana sales tax for the Michigan Deliveries to ensure that the proper jurisdiction received the tax payments for the RVs. It argues that Indiana adheres to the destination principle,...