Samper v. Indiana Dept. of State Revenue

• Decision Date: 23 June 1952
• Docket Number: No. 28818,28818
• Citation: 231 Ind. 26,106 N.E.2d 797
• Court: Indiana Supreme Court
• Parties: SAMPER v. INDIANA DEPT. OF STATE REVENUE et al.

Page 797

106 N.E.2d 797

231 Ind. 26

SAMPER v. INDIANA DEPT. OF STATE REVENUE et al.

No. 28818.

Supreme Court of Indiana.

June 23, 1952.

Ferdinand Samper, Richard L. Gilliom, Indianapolis, for appellant.

J. Emmett McManamon, Atty. Gen., John J. McShane, Lloyd C. Hutchinson, Joseph E. Nowak, Robert F. Wallace, Deputy Attys. Gen., for appellees.

Baker & Daniels, Indianapolis, Joseph J. Daniels, Paul N. Rowe, Dan R. Winchell, Indianapolis, of counsel, amici curiae.

BOBBITT, Judge.

Appellant owns and operates a business known as J. & R. Radio Service Company in the city of Indianapolis, Indiana. He has a store license issued by the State of Indiana. During the years 1946, 1947, 1948 and the first six months of 1949 appellant's income from said business was derived from the following sources and activities: (1) The sale of radio and television sets, which source accounted for five per cent of his total business income; (2) the sale 'over-the-counter' of electronic parts and equipment which were in no way connected with service of any kind, accounted for thirty-two per cent of said income; and (3) the repair of radios and other electronic equipment and the sale and installation of 'additional' radio and other electronic equipment and parts. This activity constituted sixty-three per cent of said income of which five per cent are 'addition jobs'.

Appellant reported and paid tax on activities one and two as a 'retail merchant' at the rate of one-half of one per cent. The correctness of this rate is not disputed by appellee.

In the operation of his radio repair service, which was carried on from the same place as was that part of his business consisting of the sale of radios and electronic equipment and repairs, appellant purchased, at the prevailing wholesale prices, and kept in stock for his and his customer's convenience, parts and equipment which might be needed to complete a repair job. Such parts and equipment when so used were invoiced to the repair customer at the prevailing 'over-the-counter' price. The profit which appellant realized on parts used in repair jobs was the same as that on identical parts sold 'over-the-counter' and not in any way connected with service or repair.

In all repair jobs the customer was charged for the labor involved at the customary prevailing labor charge for such work. The charges for parts and equipment and for labor were separately set out and itemized on each job. A record of each transaction was provided by the use of a three-part detachable card which consists of (1) a claim check in the usual form which is given to the customer at the time he leaves the radio to be repaired; (2) an index card which shows the name and address of the customer, the description of the radio to be repaired together with any specific information regarding the nature of the repairs. This card also contains, under the heading 'estimate', the following:

Tubes

Material

Labor

Total

and is retained by appellant; and (3) a service card guarantee which we may assume, from its form, is given to the customer when the repair job is completed and accepted.

During the taxable years here in question appellant, acting pursuant to the provisions of Acts of 1937, ch. 117, § 4, p. 604, § 64-2604, Burns' 1951 Replacement, separated both on his books and his Gross Income Tax Return, the income received from the charges for parts and equipment used in repair jobs, from that received from charges for labor in connection with such repair. Upon that part of said income derived from parts and equipment appellant reported and paid tax at the rate of one-half of one per cent, and upon that part of said income resulting from labor he reported and paid tax at the rate of one per cent. After audits by the Gross Income Tax Department an additional assessment was levied against appellant on the theory that the tax reported and paid on income from charges for parts used in repair and 'addition' jobs should be at the rate of one per cent because the activity from which the income was derived was the performance of a contract for services. Following an order of the Indiana Review Board confirming said additional assessment, appellant filed his petition in the Marion Circuit Court for a Judicial Review of said order as provided by the Acts of 1947, ch. 365, § 14, p. 1451, § 63-3014, Burns' 1951 Replacement. From an order of the trial court affirming the order of the Review Board, except as to the five per cent of income derived from 'addition' jobs, appellant prosecuted his appeal to this court under § 18, p. 1451, of said ch. 365 of the Acts of 1947, § 63-3018, Burns' 1951 Replacement.

Three questions are here presented for our consideration:

First: Is appellant's income from the activity of repairing and restoring radio receiving sets and other electronic equipment (1) that of a 'retail merchant' selling at retail in the ordinary course of his regularly conducted business; or (2) is it income received 'for the performance of contracts' for services; or (3) is it income from both which may be segregated for tax purposes under § 64-2604, supra.

The answer to these questions must be found in the consideration of subsections (j) and (k) of ch. 370, § 1, p. 1471, Acts of 1947, § 64-2601, Burns' 1951 Replacement; subsections (c) and (g) of ch. 310, § 1, p. 1380, Acts of 1945, § 64-2603, Burns' 1951 Replacement; and § 4, ch. 117, p. 604, of the Acts of 1937, § 64-2604, supra, as they apply to the facts in the case before us.

They provide as follows:

Section 64-2601, supra,

'(j) The term 'retail merchant' means and includes only a person regularly and occupationally engaged in purchasing tangible personal property and selling the same at retail at a fixed and established place of business.

'(k) The term 'selling at retail' means and includes only a transaction by a 'retail merchant' by which the ownership of tangible personal property is transferred, conditionally or otherwise, for a consideration, when such transfer is made in the ordinary course of the transferer's regularly conducted business and at a fixed and established place of business, and is acquired by the transferee for any other purpose than those designated by subsection (a) of sec. 3 [ § 64-2603] of this act.'

Section 64-2603, supra,

'(c) With respect to that part of the gross income of every person who is a retail merchant as defined in this act which is received from selling at retail, the tax shall be equal to one-half of one per cent [1/2%] of such part of the gross income.

* * *

* * * '(g) With respect to that part of the gross income of every person which is received from any source not enumerated in subsections (a) to (f) inclusive, of this section, including, but not in limitation of the foregoing, gross income from professional services, personal services, or services of any character whatsoever, sales of real estate, rentals, all funds received for the performance of contracts, all funds received from the investment of capital, all receipts from retail sales and all receipts received from any source whatsoever, the tax shall be equal to one per cent of such part of the gross income. The term 'retail sales' shall mean any sale of any property not included within the definitions of 'wholesale sales' and 'selling at retail." (Our italics).

Section 64-2604, supra.

'Any person receiving gross income taxable at different rates under the provisions of this act shall be subject to taxation upon his entire gross income at the highest rate applicable to any part of such gross income unless he shall segregate the parts of his gross income taxable at different rates upon his records and in the returns which he files pursuant to the provisions of this act. Such segregation shall be subject to the review of the department as hereinafter provided.'

These sections should, when possible, receive a practical and workable construction. Department of Treasury v. Ridgely, Executrix, 1937, 211 Ind. 9, 18, 4 N.E.2d 557, 108 A.L.R. 1067; State ex rel. Shea v. Billheimer, 1912, 178 Ind. 83, 89, 96 N.E. 801; Suabedissen-Wittner Dairy v. Dept. of Treas., 1938, 105 Ind.App. 626, 629, 16 N.E.2d 964; Western Leather & Finding Co. v. State Tax Commission, 1935, 87 Utah 227, 48 P.2d 526, 529.

It is first necessary to consider whether or not such income is subject to segregation under section 64-2604, supra.

Appellant contends that the income derived from the sale of parts which are used by him in the repair of radios and other electronic equipment, and that derived from labor performed in connection with such repairs, is income from two separate sources or activities and, therefore, he has properly segregated his income as to sales and service within the intent of the provisions of said § 64-2604, supra.

Appellees contend that the separation of such income is merely a division of income from one source or activity and is not a segregation of income within the meaning of said § 64-2604, supra.

If appellant is correct, and he has properly segregated his income from repair and service jobs into sales at retail and service, then he is taxable on that part derived from sales at retail at the rate of one-half of one per cent and on that part of his income derived wholly from labor or service at the rate of one per cent. If appellees are right, then appellant is taxable on the total of said income at a single rate of tax either as a retail dealer under § 3(c) of the Gross Income Tax Act at one-half of one per cent, or he is taxable under § 3 (g) on income received from the performance of contracts at the rate of one per cent.

A taxpayer may have several kinds of income derived from different sources and activities, each of which is taxable at a different rate. Section 64-2604, supra, makes it possible for such taxpayer to segregate his income according to its source and pay the rate of tax applicable thereto. 'Segregate' as used in said § 64-2604, supra, means the...