Western Adjustment & Inspection Co. v. Gross Income Tax Division

• Decision Date: 28 May 1957
• Docket Number: No. 29497,29497
• Citation: 142 N.E.2d 630,236 Ind. 639
• Parties: WESTERN ADJUSTMENT and INSPECTION CO., Appellant, v. GROSS INCOME TAX DIVISION, State of Indiana, Appellee.
• Court: Indiana Supreme Court

Page 630

142 N.E.2d 630

236 Ind. 639

WESTERN ADJUSTMENT and INSPECTION CO., Appellant, v. GROSS INCOME TAX DIVISION, State of Indiana, Appellee.

No. 29497.

Supreme Court of Indiana.

May 28, 1957.

George T. Schilling, Stuart, Devol, Branigin & Ricks, Lafayette, for appellant.

Edwin K. Steers, Atty. Gen. of Indiana, Carl M. Franceschini, George B. Hall, Deputy Attys. Gen., for appellee.

ARTERBURN, Chief Justice.

This case is here on transfer by reason of four Judges of the Appellate Court failing to concur in the result, under Acts 1901, ch. 247, § 15, p. 565, being § 4-209, Burns' 1946 Replacement. This case was brought by the appellant, as a taxpayer, under Acts 1947, ch. 370, § 3, p. 1471, being § 64-2614, Burns' 1951 Replacement, for the purpose of recovering gross income taxes and interest paid for the years 1939 through 1950. Judgment was rendered for the Gross Income Tax Division in the court below. Appellant's claimed error is solely that the decision of the trial court is contrary to law. The appellant is a foreign corporation, organized by certain insurance companies under the laws of the State of Illinois for the purpose of adjusting claims on behalf of such insurance companies. It operated for profit originally, and in 1938, notified its customers that it would render its adjustment service at cost. In its application for admission to do business in Indiana, it stated its business to be:

'The equitable adjustment of losses, whether fire, marine, tornado or windstorm; the storage, handling and sale of all kinds of property under claim for damage; the survey and inspection of all classes of insurance hazards and the making and publishing of maps, surveys and diagrams.

'All of said services to be rendered at cost as agent of the insurance companies served by this corporation.'

During the period in question, the companies accepted adjusting assignments under an oral agreement by which it billed the various insurance companies for which it performed its service. These bills were designed to allocate the proper expense to each loss adjustment. These expenses involved the direct and specifically allocated expenses in each particular case, such as the hotel bills, telephone calls, and other items expended by or for the adjuster, as well as the general administration expense. This latter item was estimated at the time, and was subject to an adjustment at the end of the year when the total actual costs were determined. These bills were more than the actual cost of the operation during the year. In each such year the excess was refunded by the appellant to its customers in the ratio that the billing sent to each insurance company bbore to the total billings. All the receipts during the taxable period in question were derived from these bills, and no other source. The division of this general administrative expense among the insurance companies was based upon the 'volume' of business. Whether by this term was meant the number of adjustments, the dollar amount of the total adjustments, the time element, or some combined formula, is not made clear.

It is the contention of the appellant that the amounts received by the appellant from the billings to the insurance company are not 'receipts' within the meaning of the Gross Income Tax Act, and are not taxable but are merely repayments to the appellant, as an agent for the insurance companies for money advanced and expenses incurred. On the other hand, the Gross Income Tax Division contends that all of such receipts are taxable except possibly those items of reimbursement and repayment for direct expense, which may be specifically allocated to a particular loss or service for the insurance company, and that only those reimbursements for direct expenses advanced are non-taxable.

We are foreclosed, however, from a consideration of the reimbursement and repayment of such items of directly assignable expense, since the appellant in this case has made no attempt to segregate the receipts into those items of strictly allocable expense, and those which are general administrative expense. Therefore, we do not have presented any question as to the tax liability for reimbursement of direct items of expense, such as hotel bills, telephone calls, et cetera.

It is a general rule that a taxpayer must segregate and separate items having different tax liability or exemptions in order to bring himself within such provisions, and a failure or inability to do so subjects the unsegregated amount to the regular rate or the highest rate if so provided by statute. Acts 1937, ch. 117, § 4, p. 604, being § 64-2604, Burns' 1951 Replacement; Department of Treasury of State of Indiana v. Ingram-Richardson Mfg. Co., 1941, 313 U.S. 252, 61 S.Ct. 866, 85 L.Ed. 1313; Gross Income Tax Division of Indiana v. L. S. Ayres & Co., 1954, 233 Ind. 194, 118 N.E.2d 480; Samper v. Indiana Dept. of State Revenue, 1952, 231 Ind. 26, 106 N.E.2d 797; Department of Treasury of Indiana v. J. P. Michael Co., 1938, 105 Ind.App. 255, 11 N.E.2d 512; 51 Am.Jur., Taxation, § 688, p. 643.

The Gross Income Tax Act is quite comprehensive in its definition of 'gross income', and after an enumeration specifically states 'all other receipts of any kind or character received from any source whatsoever, and without any deductions on account of the return of capital invested, the cost of the property sold, the cost of materials used, labor cost, interest, discount, or commissions paid or credited, or any other expense whatsoever paid or credited, and without any deductions on account of losses, and without any other deductions of any kind or character * * *,' shall be taxable. There is no specific word of exception in the Act which covers the exact situation we have presented here.

Appellant says the legislature did not intend to tax funds received in repayment of money borrowed, or in repayment of advances or expenses made or incurred by a taxpayer on behalf of another, and continues:

'These conclusions are inherent in the concept of gross income although not apparent on the face of the statute. There is no statutory provisions expressly including either monies received by an agent or reimbursements of expenses.' (Our italics.)

Regulation 65 (approved July 31, 1934) of the Gross Income Tax Division doex exempt 'money or property received by a taxpayer in which he has no right, title or interest, but is received as an agent for a third party or parties * * *.'

Regulation 1602 (approved July 1, 1937) excludes from taxation the repayment of borrowed money.

Regulation 1609 (approved July 1, 1937) provides for the exclusion of traveling expenses, and expenses incidental to employment, which are itemized and billed to an employer for which the employee receives reimbursement. (Our itaclis.)

Appellant states 'the principle implicit in Regulation 1609 has a wider application than just the employer-employee relationship. If valid at all, it must encompass all relationships whereby one person incurs expenses for another under an agreement to be reimbursed.' In support of this statement the appellant relies upon the cases of Department of Treasury v. Ice Service Inc., 1942, 220 Ind. 64, 41 N.E.2d 201, and Gross Income Tax Div. v. Indiana Assoc. Tel. Corp., 1949, 118 Ind.App. 669, 82 N.E.2d 539.

To interpret an exception to the act so that it will 'encompass all relationships whereby one person incurs expenses for another under an agreement to be reimbursed' (our italics) would, in our opinion, to all practical effects, convert a gross income tax into a net income tax. Without too much difficulty, the receipts in most cases could be made under a contract or oral agreement by which a certain share or portion thereof is a reimbursement for expenses incurred, leaving a tax merely upon a remainder or surplus as a presumptive profit. The gross income tax is applicable regardless of any profit being involved. Walgreen Co. v. Gross Income Tax Div., 1947, 225 Ind. 418, 75 N.E.2d 784, 1 A.L.R.2d 1014. A contrary interpretation would result in most non-profit transactions being tax-free. By extending and engrafting exemptions upon a gross tax, it progressively becomes a net tax. We are not arguing that this would be more equitable or just--that is not within our province for decision. The taxing policy, and the basis upon which the tax is to be levied, as well as the exemptions...