ATTORNEYS FOR PETITIONER:
STEPHEN H. PAUL
JANET MADDEN CHARLES
Indianapolis, IN
DAVID E. OTERO
PETER O. LARSEN
AKERMAN SENTERFITT & EDISON
Jacksonville, FL
ATTORNEYS FOR RESPONDENT:
STEVE CARTER
ATTORNEY GENERAL OF INDIANA
Indianapolis, IN
DEPUTY ATTORNEY GENERAL
Indianapolis, IN
_____________________________________________________________________
IN THE
INDIANA TAX COURT
_____________________________________________________________________
CHRYSLER FINANCIAL CO., LLC, )
COMPANY, Successor in Merger with
)
Petitioner, )
)
v. ) Cause No. 49T10-9903-TA-21
)
INDIANA DEPARTMENT OF )
STATE REVENUE, )
)
Respondent. )
OF THE INDIANA DEPARTMENT OF STATE REVENUE
_____
FOR PUBLICATION
January 25, 2002
FISHER, J.
Chrysler Financial Company, LLC (Chrysler), as successor by merger to Chrysler Financial Corporation,
appeals the final determination of the Indiana Department of State Revenue (Department) that
denied Chrysler a refund of state gross retail tax (sales tax) pursuant to
Indiana’s “Bad Debt” statute, Indiana Code Section 6-2.5-6-9. In their cross-motions for
summary judgment, the parties raise various issues, which the Court consolidates and restates
as:
Whether Chrysler is entitled to a sales tax refund pursuant to the Bad
Debt statute.
A. Whether an auto dealership may assign to Chrysler its rights to a
sales tax deduction under Indiana’s Bad Debt statute;
See footnote
Whether Chrysler as assignee of an auto dealership’s installment contracts qualifies for the
sales tax deduction under Indiana’s Bad Debt statute;See footnote and
Whether a refund of sales tax on the purchase of motor vehicles is
calculated by multiplying the unpaid principal of the bad debt by the sales
tax rate.See footnote
For the reasons stated below, the Court GRANTS Chrysler’s motion for summary judgment
and DENIES the Department’s cross motion for summary judgment.
FACTS AND PROCEDURAL HISTORY
No material facts are in dispute. Chrysler finances the sale of motor
vehicles from Indiana motor vehicle dealers (Dealers) to purchasers of vehicles (Consumers).
When a Consumer buys a vehicle, the Consumer—typically financing its purchase over several
years—enters into an installment contract with the Dealer. The amount financed includes
the price of the vehicle and the sales tax imposed on the sale.
The contracts grant the Dealers a security interest in each vehicle.
In the instant case, immediately after the Dealers and Consumers executed the contracts,
the Dealers assigned to Chrysler all rights, title, and interest in the contracts
without recourse.See footnote As consideration for the assignment, Chrysler paid the Dealers all
amounts due under the contracts, including the sales tax. The Dealers then
remitted the full amount of sales tax to the Department.
Some Consumers ultimately defaulted on the contracts. When possible, Chrysler repossessed and
sold the Consumers’ vehicles and applied the proceeds to their delinquent accounts; nevertheless,
unpaid balances often remained. After repeated attempts to collect on the defaulted
loans, Chrysler wrote the remaining unpaid balances off as uncollectible debts for federal
income tax purposes.
On June 18, 1998, Chrysler filed a claim for a refund of sales
tax proportional to the sum of unpaid balances in the Consumers’ accounts.See footnote
The Department denied Chrysler’s request. Chrysler filed an original tax appeal with
this Court on March 17, 1999. Thereafter, the parties filed cross motions
for summary judgment. The Court held a hearing on the motions.
Additional facts will be supplied as needed.
ANALYSIS AND OPINION
Standard of Review
This Court hears appeals from denials of refunds by the Department de novo
and is not bound by the evidence or the issues raised at the
administrative level. Ind. Code § 6-8.1-9-1(d); Jack Gray Transport, Inc. v. Dep’t
of State Revenue, 744 N.E.2d 1071, 1074 (Ind. Tax Ct. 2001), reh’g granted
in part, 757 N.E.2d 242 (Ind. Tax Ct. 2001). Summary judgment is
appropriate only when the pleadings, depositions, answers to interrogatories, admissions, matters of judicial
notice, and any other matters on which the Court relies for purposes of
the motion show there are no genuine issues of material fact and the
moving party is entitled to judgment as a matter of law. Ind.
Trial Rule 56(C). Cross motions for summary judgment do not alter this
standard. White River Envtl. P'ship v. Department of State Revenue, 694 N.E.2d
1248, 1250 (Ind. Tax Ct. 1998).
Discussion
The issue is whether Chrysler is entitled to a sales tax refund pursuant
to the Bad Debt statute. This issue is dependent on the resolution
of three sub-issues: (1) whether the Dealers may assign to Chrysler their
rights to a sales tax deduction under the Bad Debt statute; (2) if
so, whether Chrysler as the assignee qualifies for the sales tax deduction under
the Bad Debt statute; and (3) whether a refund of sales tax on
the purchase of the motor vehicles is calculated by multiplying the unpaid principal
of the bad debt by the sales tax rate. The Court will
analyze each sub-issue in turn.
A. Assignment under Indiana’s Bad Debt statute
The first sub-issue is whether the Dealers may assign to Chrysler their statutory
right to a sales tax deduction under Indiana’s Bad Debt statute.
See footnote Chrysler
contends that because Indiana’s Bad Debt statute does not expressly forbid assignment, Indiana
common law, which favors assignment, should control. The Department in effect argues
that assignment is generally forbidden in this instance because the Legislature did not
write the Bad Debt statute to expressly benefit assignees.See footnote The Department is
incorrect.
A retail merchant must remit the entire amount of sales tax during the
reporting period in which a retail sale occurs, even if the price and
sales tax are financed over time.
See Ind. Code § 6-2.5-6-7; Ind.
Admin. Code tit. 45, rr. 2.2-6-1, -8 (1996). Indiana’s Bad Debt statute
allows retail merchants to deduct from their gross retail income an amount equal
to any receivables on which a merchant has remitted sales tax to the
Department but has not collected the sales tax from the purchaser. See
Ind. Code § 6-2.5-6-9(a)(1)–(2). Additionally, the Department routinely grants sales tax refunds
to retail merchants. (Answer at ¶ 15.) The Bad Debt statute
says nothing, however, about whether a retail merchant may assign its rights to
a deduction.
When a statute is silent as to the issue before a court, the
court may look to the common law for guidance and interpret the statute
in conformity to common law principles. See McKnight v. State, 658 N.E.2d
559, 560 (Ind. 1995). Indiana common law recognizes the assignment of contractual
rights, statutory rights, and causes of action. See Picadilly, Inc. v. Raikos,
582 N.E.2d 338, 340 (Ind. 1991) (finding that contract-based and tort-based choses in
action are assignable); Chicago, St. L. & P. R. Co. v. Wolcott, 39
N.E. 451, 453 (Ind. 1895) (holding that a statutory right to property damages
may be assigned); Brownlee v. Board of Comm’rs of Madison County, 81 Ind.
186, 187–88 (1881) (recognizing the assignability of a promissory note for a property
tax refund). Furthermore, the courts presume that the Indiana Legislature understands and
acquiesces in the common law of assignment absent a clear expression of contrary
intent. See McKnight, 658 N.E.2d at 562; General Motors v. Indiana Dep’t
of State Revenue, 578 N.E.2d 399, 406 (Ind. Tax Ct. 1991), aff'd, 599
N.E.2d 588 (Ind. 1992).
As for the assignment of statutory rights, the Indiana Legislature has demonstrated its
understanding of the common law by expressly forbidding assignment in numerous instances.
See, e.g., Ind. Code §§ 4-30-9-4 (“The authority to act as a retailer
[of lottery tickets] is not assignable[.]”); 6-2.5-7-7 (“A permit [to collect prepayment of
motor fuel tax] issued under this section is not assignable[.]”); 22-3-2-17(a) (“[N]o claims
for [worker’s] compensation under IC 22-3-2 through IC 22-3-6 shall be assignable[.]”); 22-3-7-29(b)
(“Except as provided in subsection (c), no claims for [worker’s occupational disease] compensation
under this chapter shall be assignable[.]”); 29-3-7-5(b) (“The interest of [a] protected person
in guardianship property is not . . . assignable by the protected person.”);
32-8-26-3(b)(4) (providing that liens for hospital charges are not assignable); 34-18-16-3 (“A patient’s
claim for [medical malpractice] compensation under this article is not assignable.”). See
also Stout v. Board of Comm’rs of Grant County, 8 N.E. 222, 224
(Ind. 1886) (holding that courts may refer to “contemporaneous legislation not precisely in
pari materia”); Humphries v. Davis, 100 Ind. 274, 284 (1885) (holding that courts
may properly look to other statutes and the rules of the common law
to discern a statute’s meaning). The absence of an express prohibition of
assignment in this instance indicates that the Legislature did not intend to derogate
the common law of assignment in Indiana Code Section 6-2.5-6-9.
See footnote
See McKnight,
658 N.E.2d at 562; General Motors, 578 N.E.2d at 406; see also Stout,
8 N.E. at 224; Humphries, 100 Ind. at 284. Accordingly, the Dealers
may assign to Chrysler their right to a sales tax deduction under Indiana
Code Section 6-2.5-6-9.
See footnote
Cf. Ind. Code § 26-1-2-210(2) (providing that “[u]nless otherwise
agreed, all rights of either seller or buyer can be assigned”); First Nat’l
Bank of Milltown v. Schrader, 375 N.E.2d 1124, 1125–26 (Ind. Ct. App. 1978)
(holding that a retail installment contract for purchase of a motor vehicle “represented
a transaction in goods” that “may be assigned by either the seller or
the buyer,” thus, the assignee was the “real party in interest” under Indiana
Trial Rule 17).
B. Chrysler’s qualification for a sales tax deduction
The next sub-issue is whether Chrysler, as the Dealers’ assignee, qualifies for the
sales tax deduction under Indiana Code Section 6-2.5-6-9. In its cross motion
for summary judgment, the Department argues that even if Indiana’s Bad Debt statute
does not forbid assignment, Chrysler does not satisfy the definition of a “retail
merchant” under a plain reading of Indiana Code Section 6-2.5-4-1, and therefore Chrysler
does not qualify for the deduction. The Department further argues that only
the person who actually paid or owed the sales tax qualifies for the
sales tax deduction. Chrysler responds that it qualifies for the deduction as the
Dealers’ assignee because at common law an assignee “stands in the shoes” of
the assignor. Chrysler adds that the Department’s argument simply means that the
Bad Debt statute is silent as to assignment, in which case common law
should control. Chrysler is correct.
It is a “well-settled principle of contract law that a valid assignment gives
the assignee neither greater nor lesser rights than those held by the assignor.”
Pettit v. Pettit, 626 N.E.2d 444, 447 (Ind. 1993). In other
words, “the assignee stands in the shoes of the assignor.” Id.
Therefore, it does not matter whether Chrysler actually is a retail merchant, or
whether it was the person who paid or owed the sales tax; as
the assignee, Chrysler stands in the shoes of the Dealers, and the parties
do not dispute that the Dealers are retail merchants,
See footnote or that the sales
tax was paid. The Dealers assigned their rights to Chrysler when they
executed the contracts. Because Chrysler stands in the Dealers’ shoes, Chrysler has
a right to the sales tax deduction under the Bad Debt statute.
As long as the requirements of Indiana Code Section 6-2.5-6-9 are met by
the Dealers or Chrysler, then Chrysler, as the assignee, qualifies for the sales
tax deduction.
See id.
Indiana Code Section 6-2.5-6-9(a) provides that a retail merchant may deduct from his
gross retail income an amount equal to his receivables that:
resulted from retail transactions in which the retail merchant did not collect the
state gross retail or use tax from the purchaser;
(2) resulted from retail transactions on which the retail merchant has previously paid the
state gross retail or use tax liability to the department; and
(3) were written off as an uncollectible debt for federal tax purposes during the
particular reporting period.
Ind. Code § 6-2.5-6-9(a). The parties agree that the Dealers did not
collect the sales tax from the Consumers and that they had previously paid
the sales tax to the Department. Furthermore, Chrysler has shown that it
has written off the Consumers’ uncollectible debts for federal income tax purposes.
Accordingly, the Court finds that Chrysler, as the Dealers’ assignee, has met the
three requirements of Indiana Code Section 6-2.5-6-9(a).
See footnote Thus, Chrysler is entitled to
a sales tax deduction under Indiana’s Bad Debt statute.See footnote
See Pettit, 626
N.E.2d at 447.
C. Calculating a refund of sales tax paid on the motor vehicles
The final sub-issue is whether a refund of sales tax on the purchase
of the motor vehicles should be calculated by multiplying the unpaid principal of
the bad debt by the sales tax rate. The Department asserts that
this method of calculating a refund contradicts the plain language of the Indiana
law that requires all sales taxes to be paid on motor vehicles before
the vehicles can be titled. Chrysler, on the other hand, contends that
the Department’s practice since 1975, as indicated by its final determinations and other
agency material, has been to calculate tax refunds in this fashion.
Under Indiana Code Section 6-8.1-9-1(a), “[i]f a person
See footnote has paid more [state gross
retail or use] tax than the person determines is legally due for a
particular taxable period, the person may file a claim for a refund with
the department.”
Ind. Code § 6-8.1-9-1(a). The statute is silent, however,
as to the method by which the Department may calculate a tax refund.
Moreover, the parties cite to no applicable regulation on this matter, nor
does the Court find one.
Chrysler argues that the Department’s method of calculating a refund of sales
tax may be gleaned from three Department documents: (1) a copy of
a 1975 Department Letter of Finding in which the Department held that under
the Bad Debt statute,
See footnote a retail merchant could reduce its gross income subject
to sales tax by the amount of any bad debt written off for
federal tax purposes; (2) a 1987 Department Audit Division “Intercom”See footnote in which a
Department employee notes that to determine a retail tax credit for bad debt,
“we must apply the sales tax rate only to the unpaid principal of
the installment contract,” (Pet’r Ex. D Attach. to Pet’r Br. in Opp’n to
Resp’t Mot. for Summ. J.), and; (3) a 1996 Department Letter of Ruling
in which a Department policy analyst and the Deputy Administrator opine that a
retail merchant determines its sales tax credit under the Bad Debt law by
multiplying the sales tax rate by the amount of unpaid principal of bad
debt.See footnote In effect, Chrysler concludes from these documents that a refund of
sales tax should be calculated by multiplying the unpaid principal of the bad
debt by the sales tax rate.
In response, the Department appears to argue that the State is entitled to
the remission
and retention of all sales tax from a purchase, whether or
not a purchaser later defaults on its loan. (Oral Argument Tr. at
54–64.) The authority cited by the Department for this proposition is the
State’s vehicle, watercraft title, and aircraft registration provision at Indiana Code Section 6-2.5-9-6,
which provides:
The state may not title a vehicle or a watercraft or register an
aircraft unless the person obtaining the title or registration:
(1) presents proper evidence, prescribed by the department, showing that the state gross retail
and use taxes imposed in respect to the vehicle, watercraft, or aircraft have
been paid or that the state gross retail and use taxes are inapplicable
because of an exemption; or
(2) files the proper form and pays the state gross retail and use taxes
imposed in respect to the vehicle, watercraft, or aircraft.
Ind. Code § 6-2.5-9-6. (See also Resp’t Mem. in Supp. of Mot.
for Summ. J. at 10–11 (citing Ind. Code § 6-2.5-9-6).) The Court
need not expend energy discussing this authority; Indiana Code Section 6-2.5-9-6 says nothing
about whether the State may keep all sales tax paid on bad debt.
Thus, the Department’s argument is baseless.
See footnote
Moreover, the Department’s understanding of sales tax refunds in this instance renders the
Bad Debt statute meaningless. The Bad Debt statute provides tax relief to
merchants who have financed the sales tax for installment contract purchases on which
consumers later default.
See I.C. § 6-2.5-6-9. If the State could
keep all sales tax from a financed purchase regardless of whether a consumer
later defaults on the purchase, then there would be no reason for the
Bad Debt statute. This Court presumes that the Legislature did not intend
to enact a statute that is meaningless or a nullity. Indiana Waste
Systems of Indiana, Inc. v. Indiana Dep’t of State Revenue, 633 N.E.2d 359,
366 (Ind. Tax Ct. 1994). Therefore, the Department’s position with regard to
sales tax refunds is without merit.
Rather, the Court is persuaded that it would be reasonable to calculate a
sales tax refund in this instance by multiplying the unpaid principal of the
bad debt by the sales tax rate. Accordingly, the Court GRANTS Chrysler’s
motion for summary judgment and DENIES the Department’s cross motion for summary judgment.
CONCLUSION
For the reasons stated, the Court GRANTS Chrysler’s motion for summary judgment and
DENIES the Department’s cross motion for summary judgment. The Court REMANDS this
case to the Department and ORDERS the Department to refund Chrysler the sales
tax owed to it.
See footnote
Footnote:
Chrysler argues that it is entitled to summary judgment on this
issue.
Footnote: The Department raises this issue in its cross motion for summary
judgment.
Footnote: The Department also raises this issue in its cross motion for summary
judgment.
Footnote: The time period for the assignments at issue is from 1995 through
the second quarter of 1997.
Footnote: The requested refund totals $388,439. Chrysler calculated this amount by multiplying
the unpaid principal—excluding any non-taxable charges—by the 5% Indiana sales tax.
Footnote:
Ind. Code § 6-2.5-6-9.
Footnote:
The Court notes that the Department’s cites to “
Indiana Department of State
Revenue v. Food Marketing Corporation, 403 N.E.2d 1093, 1102 (Ind. Tax Ct. [sic]
1980),” for the proposition that “[t]ax deductions . . . are to be
strictly construed against the taxpayer” are incorrect for two reasons. (See Resp’t
Resp. to Pet’r Mot. for Summ. J. at 6, 12.) First, the
Court of Appeals, not this Court, handed down the decision in Food Marketing
six years before the Tax Court was created. See generally Indiana Dep’t
of State Revenue v. Food Marketing Corp., 403 N.E.2d 1093 (Ind. Ct. App.
1980). Second, the Department’s pinpoint cite is to the dissenting opinion in
Food Marketing, not to the majority opinion. In fact, Food Marketing stands
for the opposite proposition of the one suggested by the Department. The
court in Food Marketing affirmed the trial court’s ruling that upheld a retail
merchant’s broad reading of a deduction under Indiana’s Gross Income Tax Act and
rejected the Department’s narrow reading of the deduction. Food Marketing, 403 N.E.2d
at 1096–97. In short, the Department has misstated the holding of case
law that appears to cut against its position in the instant case.
See Bulkmatic Transp. Co. v. Department of State Revenue, 715 N.E.2d 26, 32
n.12 (Ind. Tax Ct. 1999) (stating “[i]t is hoped that the Department will
not repeat its deficient briefing in future cases.”).
Footnote:
The Department claims that no rights are assignable under Indiana Code §
6-2.5-6-9 because “rights which are personal in nature cannot be assigned.” (Resp’t
Mem. in Supp. of Summ. J. at 9.) The Department does not
explain
why it believes that rights under the Bad Debt statute are personal.
Consequently, the Court will not analyze the Department’s contention. See Fleet
Supply, Inc. v. State Bd. of Tax Comm’rs, 747 N.E.2d 645, 650 (Ind.
Tax Ct. 2001) (stating that “[t]he Court will not make [a party’s] argument
and analysis for it”).
Footnote:
Allowing the assignment of installment contracts in this instance promotes the free
exchange of commercial paper.
See Picadilly, Inc. v. Raikos, 582 N.E.2d 338,
341 (Ind. 1991) (stating that “[a]ssignment should be permitted or prohibited based on
the effect it will likely have on modern society”). Cf. Puget Sound
Nat’l Bank v. State Dep’t of Revenue, 868 P.2d 127, 131 (Wash. 1994)
(finding that assignment should be permitted under Washington's bad debt statute to “ensure
that commercial paper continues to travel freely in the marketplace” and to avoid
confusion and uncertainty over “what rights and liabilities transfer in assignment”).
Footnote:
Indiana Code § 6-2.5-4-1(a) states: “A person is a retail merchant
making a retail transaction when he engages in selling at retail.”
Ind.
Code § 6-2.5-4-1(a). The Department argues in effect that this definition of
“retail merchant” constricts the common law of assignment under the Bad Debt statute
by requiring all assignees to be retail merchants. Section 1(a), however, is
silent on the issue of assignment. This Court has held that “an
implication derived solely from legislative silence is not expandable to the unmistakable implication
necessary to show the legislature intended the statute to change the common law.”
General Motors v. Indiana Dep’t of State Revenue, 578 N.E.2d 399, 406
(Ind. Tax Ct. 1991), aff'd, 599 N.E.2d 588 (Ind. 1992) (emphasis in original).
In this instance, the common law grants any assignee the same rights
as the assignor. See Pettit v. Pettit, 626 N.E.2d 444, 447 (Ind.
1993). Thus, Indiana Code § 6-2.5-4-1(a), by its silence on the issue
of assignment, does not give rise to the unmistakable implication that the Legislature
intended only retail merchants be assignees of retail merchants. See General Motors,
578 N.E.2d at 406. Accordingly, the Department’s argument is without merit.
Footnote:
The Department also argues that Chrysler does not qualify for the Bad
Debt deduction because the Dealers had no bad debt after Chrysler paid them
in full for the motor vehicles. The Department’s argument merely restates the
fact that the Dealers assigned their contracts to Chrysler for consideration that included
the amount of the purchase and the sales tax. Thus, the Department’s
argument suggests nothing more remarkable than the assignor Dealers relinquished all their rights
to the assignee Chrysler.
See Pettit, 626 N.E.2d at 447.
Footnote:
The parties raise the alternative issue of whether Chrysler qualifies for the
Bad Debt deduction because it is a retail merchant required to hold a
retail merchant’s license under Indiana Code § 6-2.5-8-1. Because the Court has
determined Chrysler’s eligibility for the Bad Debt deduction on common law grounds of
assignment, it need not discuss this alternative issue.
Footnote: For the purpose of Article 8.1, a “person” includes an “assignee.”
Ind. Code § 6-8.1-1-3.
Footnote:
Ind. Code § 6-2-1-49 (codified as amended at Ind. Code § 6-2.5-6-9).
Footnote:
The term “Intercom” appears to refer to an internal memorandum.
Footnote: Chrysler’s second and third examples refer to credits rather than to refunds.
The Court notes that the Department may first credit excess tax payments
against a taxpayer’s current tax liabilities, then refund or credit the remaining excess
at the taxpayer’s request.
See Ind. Code § 6-8.1-9-2(a).
Footnote:
The Department further argues that a taxpayer seeking the Bad Debt deduction
“must
show that the debt became wholly or partially worthless [for federal income
tax purposes] within a taxable year.” (Resp’t Mem. in Supp. of Mot.
for Summ. J. at 11 (citing to 26 U.S.C.S. §166) (emphasis added).)
With regard to federal income taxes, the Bad Debt statute only requires that
the bad debt be deducted for federal income tax purposes, not that the
taxpayer demonstrate the validity of the deduction. Ind. Code § 6-2.5-6-9(a)(3).
The parties already stipulate that Chrysler deducted its bad debt for federal
income tax purposes. Thus, the Department’s suggestion that this Court should scrutinize
the validity of Chrysler’s federal income tax deduction is without merit.
Footnote:
The record does not reflect that any of Chrysler’s contracts were assigned
with recourse. Nevertheless, should the Department determine that such contracts exist, then
Chrysler should receive a refund for contracts that were assigned
without recourse only.
The Court further notes that during the hearing on the motions for
summary judgment, Chrysler agreed that if the Department disputed the amount of refund
due, then Chrysler would submit to a refund audit to determine the amount
owed to it.