ATTORNEYS FOR PETITONER:
ATTORNEYS FOR RESPONDENT: FRANCINA A.
KAREN M. FREEMAN-WILSON
J. DANIEL OGREN
ATTORNEY GENERAL OF INDIANA
BAKER & DANIELS
Deputy Attorney General
INDIANA TAX COURT
PANHANDLE EASTERN )
PIPELINE COMPANY )
TRUNKLINE GAS COMPANY, )
v. ) Cause No. 49T10-9604-TA-33
INDIANA DEPARTMENT OF )
STATE REVENUE, )
ON APPEAL FROM FINAL DETERMINATIONS OF THE STATE BOARD OF TAX COMMISSIONERS
January 3, 2001
The petitioners, Panhandle Eastern Pipe Line Company and its subsidiary Trunkline Gas Company
(collectively referred to as Panhandle), in these consolidated cases
appeal the final determinations
of the Department of State Revenue (Department) covering the 1987-1990 tax years.
In a Motion for Summary Judgment (Motion), Panhandle raises one issue: Whether
Panhandle was entitled to a 100% exemption from Indiana use tax for equipment
purchased and used in the distribution of natural gas (gas)
based on Ind.
Code Ann. § 6-2.5-5-27 (West 2000).
In a cross-motion for summary judgment,
the Department claims its calculations for the tax years at issue were warranted.
For the reasons explained below, the Court finds for Panhandle and grants
its Motion and denies the Departments cross-motion.
FACTS AND PROCEDURAL HISTORY
Panhandle is a Texas-based company that owns a gas pipeline system that
runs through Indiana. During the tax years at issue, Panhandle mainly transported
gas that belonged to various third parties, but also transported some gas that
belonged to it. The Department completed an audit of Panhandle on August
12, 1994, when it first issued a prorated exemption based on the actual
amount of gas Panhandle publicly transported. On November 10, 1994, Panhandle protested
these findings. In its Final Determination issued on October 24, 1995, the
Department affirmed its earlier finding and prorated the exemption awarded to Panhandle to
reflect the actual percentage of gas publicly transported for third parties.
filed its original tax appeal on April 19, 1996. The Court heard
oral arguments from both parties for their respective motions on May 21, 1998.
Additional facts will be supplied where necessary.
ANALYSIS AND OPINION
Standard of Review
This Court reviews final determinations of the Department de novo and is not
bound by either the evidence presented or issues raised at the administrative level.
Ind. Code Ann. § 6-8.1-5-1(h) (West 2000); ANR Pipeline v. Indiana Dept
of State Revenue, 672 N.E.2d 91, 93 (Ind. Tax Ct. 1996). A
motion for summary judgment will be granted only when there is no genuine
issue of material fact, and the prevailing party is entitled to judgment as
a matter of law. Ind. T.R. 56(C); ANR Pipeline Co., 672 N.E.2d
at 93. Cross-motions do not alter this standard. Bulkmatic Transp. Co.
v. Indiana Dept of State Revenue, 691 N.E.2d 1371, 1373 (Ind. Tax Ct.
In its Motion, Panhandle argues that it is entitled to a 100% exemption
from Indiana use tax for the 1987-1990 tax years under section 6-2.5-5-27, while
the Department argues in its cross-motion that its final determination of a prorated
exemption was correct. The Court notes that tax exemption statutes are strictly
construed in favor of taxation. City Sec., Inc. v. Indiana Dept of
State Revenue, 704 N.E.2d 1122, 1128 (Ind. Tax Ct. 1998). To prevail,
Panhandle must prove that it met the requirements of section 6-2.5-5-27.
Ind. Code Ann. § 6-2.5-2-1(a) (West 2000) states that An excise tax, known
as the state gross retail tax, is imposed on retail transactions made in
Indiana. Section 6-2.5-2-1(b) states that The person who acquires property in a
retail transaction from a retail merchant is liable for the tax on the
transaction and . . . shall pay the tax to the retail merchant
as a separate added amount to the consideration in the transaction.
Ind. Code § 6-2.5-3-2(a) (West 2000) states that An excise tax, known as
the use tax, is imposed on the storage, use or consumption of tangible
personal property in Indiana if the property was acquired in a retail transaction.
Ind. Code § 6-2.5-5-27 states that 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.
Panhandle argues that section 6-2.5-5-27 entitles it to either a 100% exemption or
no exemption at all based on the amount of tangible personal property publicly
transported. The Department believes that since the word predominate is not listed
in the statute, it was justified in awarding a reduced exemption. (Respt.
Br. at 6.)
Although the statute does not contain the word predominate, the Departments position is
unwarranted. Both the Indiana Court of Appeals and this Court have interpreted
section 6-2.5-5-27 differently than the Department. In Department of Revenue v. Calcar
Quarries, 182 Ind. App. 84, 85, 394 N.E.2d 939, 940 (1979) the taxpayer
was an Indiana company which operated a stone quarry, as well as two
manufacturing plants. At trial, the companys manager testified that the companys hauling
of property to its own job sites constituted no more than 10% of
its crushed stone sales. Calcar Quarries Inc., 394 N.E.2d at 941.
In addition, the taxpayer testified that it hauled sand and other products that
were not of its own operations. Id. The Court of Appeals
held for the taxpayer, stating, The evidence proves that Calcar . . .
transported property for consideration by highway and satisfied the States definition of public
Also, in National Serv-All, Inc., 644 N.E.2d at 956-60, this Court dealt with
a garbage company that transported both third party garbage (which the Court called
Contract garbage) as well as its own. The Department believes that this
case established a two-part test whereby the taxpayer must first prove that its
property is being used predominately for public transportation. (Respt Br. at 5.)
Once this is met, the Department contends that it may allocate the
exemption in a percent equal to the percent of predominate use. (Respt
Br. at 5.) The Department is mistaken. In National Serv-All, 644
N.E.2d at 959, the Court stated that If [the taxpayer] predominately hauled Contract
garbage, it is entitled to the exemption; if it predominately hauled non-Contract garbage,
it is not. Although the Court ultimately found against the taxpayer (finding
that the taxpayers hauling of Contract garbage did not constitute a predominate use),
id. the case does not contain language that would support the Departments position.
Additionally, in Indiana Waste Systems of Indiana, Inc. v. Indiana Department of State
Revenue, 644 N.E.2d 960 (Ind. Tax Ct. 1994), a case similar to National
Serv-All, the taxpayer was a garbage company that used its trucks to haul
garbage for both the City of Indianapolis as well as private residents.
As in National Serv-All, the taxpayer was seeking the public transportation exemption.
In holding against the taxpayer, the Court noted that in any year, no
more than 17.7% of the taxpayers income was from its contract with the
city. Indiana Waste Systems, 644 N.E.2d at 962. The Court further
stated that, If the carrier is not predominately engaged in transporting property of
another, it is not entitled to the exemption. Indiana Waste Systems, 644
N.E.2d at 961. The Court concluded by saying, The predominant use of
Waste Managements trucks and other items, therefore, is not exempt, and Waste Management
is not entitled to the public transportation exemption.
Id. at 962.
The Court finds that the public transportation exemption provided by section 6-2.5-5-27 is
an all-or-nothing exemption. If a taxpayer acquires tangible personal property for predominate
use in providing public transportation for third parties, then it is entitled to
the exemption. If a taxpayer is not predominately engaged in transporting the
property of another, it is not entitled to the exemption. Both Panhandle
and the Department agreed that Panhandle transported a large amount of third-party gas
for the tax years at issue. Supra at 3, n.4. Unlike
the taxpayers in the National Serv-All and Indiana Waste Systems cases, Panhandle designated
evidence for each of the tax years showing that it predominately transported gas
for other third-parties. Supra at 2 n.2; (Petr. Mot. Summ. J., Ex.
A.) Finding no genuine issue of material fact, the Court holds that
Panhandle is entitled to summary judgment in its favor.
For the reasons mentioned above, the Court finds that Panhandle is entitled to
summary judgment in its favor. The Court GRANTS Panhandles Motion and DENIES
the Departments cross-motion.
The Court, sua sponte, formally consolidated this case with Cause
No. 49T10-9604-TA-34 on September 27, 1997.
Neither party disputes the fact that Panhandles equipment was used
in the distribution of natural gas.
This section is also called the public transportation exemption.
National Serv-All, Inc. v. Indiana Dept of State Revenue, 644 N.E.2d 954, 956
(Ind. Tax Ct. 1994).
The percentages of third-party gas transported by Panhandle were 70.05%
for the 1987 tax year, 90.53% for the 1988 tax year, 88.68% for
the 1989 tax year, and 86.62% for the 1990 tax year, while the
percentages for Trunkline Gas were 62.94%, 68.54%, 71.56% and 82.86% for the 1987-1990
tax years respectively. (Petr Br. at 4.) The Department does not
dispute the fact that the above-mentioned percentages reflect the amount of third-party gas
that was actually transported during the tax years at issue.
That tax currently stands at 5% if the purchase price
equals $1.10 or more. Ind. Code Ann. § 6-2.5-2-2(a) (West 2000).
The Court has recently dealt with a similar issue.
See Meyer Waste Systems, Inc. v. Department of Revenue, 2000 WL 1801376 (Ind.
Tax Ct. Dec. 7, 2000).