USAir, Inc. v. Indiana Dept. of State Revenue

• Decision Date: 20 November 1991
• Docket Number: No. 49S00-8911-TA-870,49S00-8911-TA-870
• Citation: 582 N.E.2d 777
• Parties: USAIR, INC., Appellant, v. INDIANA DEPARTMENT OF STATE REVENUE, Appellee.
• Court: Indiana Supreme Court

Page 777

582 N.E.2d 777

USAIR, INC., Appellant, v. INDIANA DEPARTMENT OF STATE REVENUE, Appellee.

No. 49S00-8911-TA-870.

Supreme Court of Indiana.

Nov. 20, 1991.

Rehearing Denied March 10, 1992.

Barton T. Sprunger, Mark J. Richards, Ice Miller Donadio & Ryan, Indianapolis, for appellant.

Linley E. Pearson, Atty. Gen., Joel Schiff, Kim Ohmart Laurin, Indianapolis, for appellee.

DeBRULER, Justice.

On December 29, 1987, appellant, USAir, Inc., timely filed a claim for refund with the Indiana Department of Revenue seeking reimbursement of $233,199. In a letter dated June 16, 1988, the Indiana Department of Revenue, hereinafter referred to as the Department, informed appellant of its final determination that the claim for refund with respect to food and beverages, constituting the bulk of appellant's refund claim, was denied. Afterward, on September 6, 1988, USAir filed its original tax appeal seeking judgment against the Department for $189,098 which constituted the amount of tax and interest paid by appellant for food purchased from Dobbs House Inc., and Michael Lewis, Co. The Tax Court rendered its final decision for the Department ordering that appellant take nothing by its appeal. USAir, Inc. v. Indiana Dep. of State Revenue (1989), Ind. Tax, 542 N.E.2d 1033.

Appellant USAir now brings this further appeal in this Court, seeking review of the decision of the Tax Court pursuant to I.C. 33-3-5-15. Ind. Appellate Rule 18, promulgated since the commencement of this further appeal with an effective date of January 1, 1992, will govern cases of this class. In this further appeal, USAir asserts that the Tax Court was in error in denying its original tax appeal, and in rejecting its claims that (1) the food purchased in this instance was acquired for direct use or consumption in providing public transportation and thus is exempt from the state gross retail tax pursuant to I.C. 6-2.5-5-27, and that (2) the food items purchased in this instance were exempt from the state gross retail tax as "food for human consumption." Ind.Code 6-2.5-5-20.

Appellant's burden in this Court is an onerous one as a determination by the Tax Court is here entitled to a presumption of validity. Ind. Tax Court Rule 10. Its findings and judgment resolving an original tax appeal will be affirmed unless clearly erroneous. A finding is clearly erroneous if, considering the record as a whole, the reviewing court is left with the definite and firm conviction that a mistake was made, even though there is some evidence to support the finding below. Associated Milk Prod. v. Indiana Dep. of State Revenue (1989), Ind., 534 N.E.2d 715.

The facts in this instance are as follows. During the years in issue, 1979 to 1982, appellant USAir was engaged in providing public transportation for persons or property on a for-profit basis. Appellant provided meals for passengers and crew members on flights designated as meal flights. Appellant purchased the food for the meals from two caterers located in Indiana: Dobbs House Inc., and Michael Lewis, Co. Approximately ten percent (by cost) of the food items purchased from Dobbs were heated meals which were loaded directly into the cabins of the airplanes in Indianapolis upon their delivery. Dobbs delivered these food items to appellant in individual serving trays owned by appellant. The remainder of the food items purchased from Dobbs, which consisted largely of snacks, were packaged in dry ice and loaded directly into the holds of airplanes in Indianapolis in the same form as purchased and then shipped to cities outside of Indiana. Appellant's food purchases from Michael Lewis consisted primarily of coffee, apple juice, and cheese and crackers.

We first examine the issue of whether a refund of all state gross retail tax paid with respect to the food items purchased from Dobbs and Michael Lewis was required. Appellant claims that the food items in question are exempt from the state gross retail tax pursuant to I.C. 6-2.5-5-27 as they are directly used or consumed in providing public transportation. I.C. 6-2.5-5-27 states:

Transactions involving tangible personal property and services are exempt from the state gross retail tax, if the person acquiring the property or service directly uses or consumes it in providing public transportation for persons or property.

The Tax Court noted that "direct use" is determined by whether the item is a "necessary and integral" part of the transportation service. USAir, Inc., 542 N.E.2d at 1037. In the case of Indiana Department of State Revenue v. Indianapolis Transit System, Inc. (1976), 171 Ind.App. 299, 356 N.E.2d 1204, certain purchases by the Indianapolis Transit System (ITS) were found to be exempt from the state gross retail tax. The Court of Appeals stated that ITS could not continue operating without the purchases for which it sought exemption. These ITS purchases were in furtherance of ITS's compliance with regulatory requirements promulgated by the legislature and the Public Service Commission. Indeed, ITS would not have been able to operate if it did not comply with these requirements. Thus, this exemption for public transportation was found to have included items which were legally required for ITS to remain in operation. Indianapolis Transit, 171 Ind.App. at 306, 356 N.E.2d at 1209. The items in Indianapolis Transit were thus necessary and integral in providing the service of transportation.

In Indiana Department of State Revenue v. Indiana Harbor Belt Railroad Co., (1984), Ind.App., 460 N.E.2d 170, the Court of Appeals found certain purchases to be exempt from the state gross retail tax by virtue of the fact that the items purchased were needed and used by the railroad in effectively providing transportation service. The court considered the items purchased to be an integral part of the railroad's ability to provide public transportation. Harbor Belt, 460 N.E.2d at 177.

In both of the aforementioned cases, the items found to be exempt...