Uniden America Corp. v. Dept. of State Revenue

• Decision Date: 06 October 1999
• Docket Number: No. 49T10-9604-TA-00035.,49T10-9604-TA-00035.
• Citation: 718 N.E.2d 821
• Parties: UNIDEN AMERICA CORPORATION, Petitioner, v. INDIANA DEPARTMENT OF STATE REVENUE, Respondent.
• Court: Indiana Tax Court

718 N.E.2d 821

UNIDEN AMERICA CORPORATION, Petitioner, v. INDIANA DEPARTMENT OF STATE REVENUE, Respondent.

No. 49T10-9604-TA-00035.

Tax Court of Indiana.

October 6, 1999.

Larry J. Stroble, John T. Bailey, Barnes & Thornburg, Indianapolis, IN, Attorneys for Petitioner.

Jeffrey A. Modisett, Attorney General of Indiana, Ted J. Holaday, Deputy Attorney General, Indianapolis, IN, Attorneys for Respondent.

FISHER, J.

Petitioner Uniden America Corporation (Uniden) appeals the Letter of Findings issued by the Indiana Department of State Revenue (Department) denying in part Uniden's protest of the Department's proposed assessment of Indiana gross income tax. The sole issue for consideration in Uniden's partial motion for summary judgment is whether certain interstate sales of Uniden's products were subject to the gross income tax.

FACTS AND PROCEDURAL HISTORY

The parties do not dispute the relevant facts. Uniden was incorporated under the laws of Indiana in 1970. For its fiscal years ending March 31 of 1990, 1991, 1992 and 1993 (the taxable years), Uniden filed Indiana corporate income tax returns on Form IT-20. See IND.CODE ANN. § 6-2.1-1-15 (West 1989) (defining "taxable year" as "the year that a taxpayer uses for purposes of filing his federal income tax return"); IND. ADMIN. CODE tit. 45, r. 1-1-172 (1996) (stating that form IT-20, used for annual gross income tax returns, is due on or before April 15 each year). During this period, Uniden's headquarters were located in Fort Worth, Texas. Its commercial domicile was also in Texas. The corporation engaged in the interstate sale and distribution of consumer and commercial electronic products such as cellular telephones, pagers, two-way radios, cordless telephones and marine radios.

Sales to Indiana customers during the taxable years totaled $34,317,533. Products were shipped from locations outside of Indiana to in-state customers (Indiana destination sales). Orders for the products were placed by mail or fax with Uniden's sales office in Texas. Once the orders were received and accepted by the Texas office, products were shipped directly by common carrier from Uniden's warehouse in Texas to the Indiana customers. The standard sales terms between Uniden and its customers with respect to the Indiana destination sales provided for delivery F.O.B. Uniden's warehouse, with title and risk of loss passing to the buyer upon delivery by Uniden to the carrier. These sales did not originate from, were not channeled through and were not otherwise associated with or facilitated by any Indiana situs of Uniden.¹

The Department completed an audit of Uniden's gross income for the taxable years on July 28, 1994. On September 21, 1994, the Department issued four Notices of Proposed Assessment to Uniden—one for each of the taxable years. The notices indicated that Uniden owed the Department a total of $366,263.89 in gross income taxes, penalties and interest. On November 16, 1994, Uniden filed with the Department a protest against the proposed assessment. The Department conducted a hearing on the proposed assessment on June 29, 1995. On October 31, 1995, the Department issued a Letter of Findings granting the protest in part and denying the protest in part.

Uniden filed this original tax appeal on April 24, 1996. On February 27, 1997, Uniden filed a motion for partial summary judgment, along with a brief in support thereof.² The Department filed a memorandum in opposition to the motion for partial summary judgment and a cross-claim for summary judgment on April 14, 1997. On April 28, 1997, the Court held a hearing on the motion. Additional facts will be supplied as needed.

ANALYSIS AND OPINION

Standard of Review

On appeal, this Court reviews final determinations by the Department de novo. See IND. ADMIN. CODE § 6-8.1-5-1(h) (West Supp.1998); Cooper Indus., Inc. v. Indiana Dep't of State Revenue, 673 N.E.2d 1209, 1211 (Ind.Tax 1996). Summary judgment is only appropriate where no genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law. See IND. T.R. 56(C); Jefferson Smurfit Corp. v. Indiana Dep't of State Revenue, 681 N.E.2d 806, 807 (Ind.Tax Ct.1997). Summary judgment is particularly appropriate when the issue before the Court involves the application of the law to undisputed facts. See id. Cross motions for summary judgment do not alter this standard. See id.

Discussion

"Gross income" is defined in part as "all the gross receipts a taxpayer receives ... from trades, businesses, or commerce...." IND.CODE ANN. § 6-2.1-1-2(a)(1) (West 1989). However, IND.CODE ANN. § 6-2.1-1-2(c)(6) (West 1989) provides the following exclusion from the definition of gross income:

(c) The term "gross income" does not include:

* * *

(6) gross receipts received by corporations incorporated under the laws of Indiana from a trade or business situated and regularly carried on at a legal situs outside Indiana or from activities incident to such trade or business (including the disposal of capital assets or other properties which were acquired and used in such trade or business)[.]

As applied to a taxpayer, the term "receipts" is defined as "the gross income in cash notes, credits, or other property that is received by the taxpayer or a third party for the taxpayer's benefit." IND. CODE ANN. § 6-2.1-1-10 (West 1989 & Supp.1999) (amended 1997). Indiana imposes a gross income tax pursuant to IND. CODE ANN. § 6-2.1-2-2, which provides in relevant part:

(a) An income tax, known as the gross income tax, is imposed upon the receipt of:

(1) the entire taxable gross income of a taxpayer who is a resident or a domiciliary of Indiana; and

(2) the taxable income derived from activities or businesses or any other sources within Indiana by a taxpayer who is not a resident or a domiciliary of Indiana.

A taxpayer's "taxable gross income" includes all gross income not exempted less all permitted deductions. See IND.CODE ANN. § 6-2.1-1-13 (West 1989).

Uniden contends that the plain language of section 6-2.1-1-2(c)(6) prohibits imposition of the gross income tax upon the Indiana destination sales. "The court's foremost goal in construing a statute is to give effect to the true intent of the legislature. The true intent of the legislature is best evidenced by the language in the statute." Associated Ins. Cos., Inc. v. Indiana Dep't of State Revenue, 655 N.E.2d 1271, 1273 (Ind.Tax 1995) (citations omitted), review denied, 685 N.E.2d 51 (Ind.1997). Further, "[i]t is a well established rule of statutory construction that words and phrases shall be given their plain, ordinary, and usual meaning." Koufos v. Indiana Dep't of State Revenue, 646 N.E.2d 733, 736 (Ind.Tax 1995) (citations omitted). Finally, "[t]o authorize a collection of gross income tax, a transaction must come clearly within the relevant statutory provisions. In case of doubt, the statute will be construed against the state and in favor of the taxpayer." Chrome Deposit Corp. v. Indiana Dep't of State Revenue, 557 N.E.2d 1110, 1112 (Ind.Tax 1990),aff'd, adopted and incorporated by reference in 578 N.E.2d 643 (Ind.1991). Thus, in the present case, the Court must first examine the text of section 6-2.1-1-2(c)(6) to ascertain whether the General Assembly intended to exclude from the definition of gross income transactions such as the Indiana destination sales. If the language of the statute is ambiguous, the Court will resolve all doubts in favor of the taxpayer.

A plain and ordinary reading of section 6-2.1-1-2(c)(6) suggests that Uniden's income from the Indiana destination sales is not subject to the gross income tax. For purposes of the Court's analysis, the key issue is whether the "gross receipts" received by Uniden from the Indiana destination sales were derived from a "trade or business situated and regularly carried on at a legal situs outside Indiana." As noted supra, the Indiana destination sales were not connected with Indiana in any significant manner: (1) Uniden's corporate headquarters and commercial domicile were in Texas; (2) orders from Indiana customers were sent to Texas by mail or fax (i.e., Uniden had no physical sales presence in Indiana with regard to the Indiana destination sales); and (3) once received and accepted, orders were shipped from out-of-state warehouses to Indiana by common carrier, with title and risk passing at the time the products were picked up by the common carrier. Considered together, these facts indicate that Uniden's income from the Indiana destination sales was derived from trade or business activities taking place and carried on at a legal situs beyond Indiana's borders.

The Department insists that Uniden's gross receipts from its Indiana destination sales qualify as taxable gross income, because the income is derived from an Indiana source. The Department, in its Letter of Findings and in its brief on appeal, relies upon the case Indiana Department of State Revenue v. Frank Purcell Walnut Lumber Co., 152 Ind.App. 122, 282 N.E.2d 336 (1972) to support its position. In Purcell, the taxpayer-lumber company applied for and was denied a refund of gross income taxes. The taxes arose out of the company's interstate sales of logs and timber. The lumber company was an Indiana corporation authorized to do business in Kansas City, Kansas, where the company maintained its plant and office and conducted its business. During the fiscal years at issue, 17% to 34% of the company's gross income was generated by sales to its sole shareholder, an Indiana corporation named Amos-Thompson Corporation.

The Purcell court examined IND.CODE ANN. § 6-2-1-1(m) (Bobbs-Merrill 1971) [hereinafter referred as section 1(m)], the predecessor statute to section 6-2.1-1-1. Section 1(m) read in relevant part:

That with respect to individuals resident in Indiana and corporations incorporated under the laws of Indiana authorized to do and doing business in any other state and/or foreign

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