ATTORNEY FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
JOSEPH P. MURDOCK STEVE CARTER
SMITH & MURDOCK ATTORNEY GENERAL OF INDIANA
Indianapolis, IN Indianapolis, IN
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
MID-AMERICA PUBLISHING, INC., )
v. ) Cause No. 49T10-9912-TA-239
INDIANA DEPARTMENT OF )
STATE REVENUE, )
ON APPEAL FROM A FINAL DETERMINATION
OF THE INDIANA DEPARTMENT OF STATE REVENUE
NOT FOR PUBLICATION
March 16, 2004
Mid-America Publishing, Inc. (Mid-America) appeals the Indiana Department of State Revenues (Department) final
determination imposing Indianas gross retail and use tax (sales tax) on money it
received from selling calendars during the 1995 and 1996 calendar years (years at
issue). The issue in this case is whether sales of custom printed
calendars bearing a business logo, with the licensed image of the Indiana University
Mens basketball team, are taxable retail transactions.
For the reasons explained below, the Court AFFIRMS the decision of the Department.
FACTS AND PROCEDURAL HISTORY
Mid-America is the official licensed publisher of Indiana University Mens Basketball schedule-calendars (calendars).
During the years at issue, Mid-America solicited orders for, and took payment
from, businesses (customers) that wished to advertise on the calendars. Mid-America then
purchased the calendars from a third-party that imprinted them with the customers logos
and contact information. Mid-America then delivered the calendars, without alteration, to its
customers, who in turn gave them to their patrons as promotional items.
Mid-America did not collect sales tax from its customers on those transactions during
the years at issue.
The Department audited Mid-America for the years at issue and determined that Mid-America
was selling calendars and that those transactions were subject to sales tax.
The Department issued a proposed notice of assessment for $24,801.41.
Mid-America protested the proposed assessment, which the Department denied. On December
13, 1999, Mid-America filed an original tax appeal. This Court held a
trial on January 29, 2001 and an oral argument on June 7, 2001.
Additional facts will be supplied as needed.
ANALYSIS AND OPINION
Standard of Review
The Court reviews final determinations of the Department de novo. Ind. Code
Ann. § 6-8.1-5-1(h)(West 2000). Consequently, the Court is neither bound by
the evidence nor the issues presented at the administrative level. Snyder v.
Indiana Dept of State Revenue, 723 N.E.2d 487, 488 (Ind. Tax Ct. 2000),
review denied. Although a statute that imposes a tax is strictly construed
against the State, the burden of proving the proposed assessment is wrong rests
with the person against whom the proposed assessment is made. Clifft v.
Indiana Dept of State Revenue, 748 N.E.2d 449, 452 (Ind. Tax Ct. 2001).
Indiana imposes an excise tax, known as the state gross retail tax, on
retail transactions made within the state. Ind. Code Ann. § 6-2.5-2-1(West 2000).
For the years at issue, a taxable retail transaction was defined as a
transaction of a retail merchant that constitutes selling at retail as is described
in IC 6-2.5-4-1. Ind. Code Ann. § 6-2.5-1-2(a)(West 1995). Indiana Code
section 6-2.5-4-1 describes selling at retail as:
A person is engaged in selling at retail when, in the ordinary course
of his regularly conducted trade or business, he:
acquires tangible personal property for the purpose of resale; and
transfers that property to another person for consideration.
Ind. Code Ann. § 6-2.5-4-1(b)(1),(2)(West 1995).*****
Because selling at retail requires the transfer of tangible personal property,
the sale of services alone generally falls outside the scope of taxation because
no transfer of tangible personal property occurs. Howland v. Indiana Dept of
State Revenue, 790 N.E.2d 627, 628 (Ind. Tax Ct. 2003). However, mixed
transactions can occur where tangible personal property is sold in order to complete
a service contract, or where services are provided in order to complete the
sale of tangible personal property. [F]or [the] purposes of determining what constitutes
selling at retail, it does not matter whether . . . the property
is transferred alone or in conjunction with . . . services[.] A.I.C.
§ 6-2.5-4-1(c)(2)(West 1995). See Chrome Deposit Corp. v. Indiana Dept of State
Revenue, 557 N.E.2d 1110, 1114 (Ind. Tax Ct. 1990), affd, 578 N.E.2d 643
(Ind. 1991) (finding that a customers purpose determines whether a mixed transaction is
for services or for sales of goods). Mid-America argues that it sells
advertising, an intangible service, and therefore, any tangible personal property exchanged is merely
incidental to the sale of the service. Mid-America is incorrect.
Mid-America bases its argument in part on Samper v. Indiana Department of State
Revenue. Samper v. Indiana Dept of State Revenue, 106 N.E.2d 797 (Ind.
1952). In Samper, the Indiana Supreme Court held that parts sold
as a necessary incident to the repair of a radio were exempt from
sales tax because the actual purpose of the transaction, later characterized as the
true object, was to have the radio repaired, a service, and not the
retail sale of parts. Id. at 803. More specifically, the Samper
court held that:
The nature and purpose of such a contract contemplates and intends that, if
new parts are needed in the repair, this part of the contract is.
. . [dependent on] that part of the contract which calls for labor
and services[.] Such a contract could not be completed in part only
. . . by performing the labor and services required without furnishing .
. . necessary [parts].
When measured by the intention of the parties, the [repair contract] includes the
furnishing of labor, services and any parts or materials necessary to restore the
item to a usable and workable condition, and such a contract is entire
Id. See also Indiana Dept of State Revenue, Gross Income Tax Div.
v. Klink, 112 N.E.2d 581, 583 (Ind. 1953) (finding that the services of
hauling and spreading soil lime and marl on farmers fields were incidental to
the actual purpose of the transaction - the sale of lime and marl).
More recently, this Court announced a but for test to determine the true
object of a mixed transaction. Chrome Deposit Corp., 557 N.E.2d at 1114.
In determining whether a chrome replating company provided a service or manufactured
a product, this Court stated [b]ut for its customers desire to purchase the
chromium sleeve, Chrome Deposit would not render the incidental services of attaching the
sleeve to the work roll . . . on behalf of its customers.
Id. Thus, this Court found that the contract was for the
sale of a chromium sleeve and services provided to attach that sleeve to
iron rolls were merely incidental to the sale. Id.
Mid-America protests that but for its customers desire to advertise, it would not
have purchased calendars in the first place. (Petr Br. at 13.)
However, the facts and evidence reveal that but for Mid-Americas customers desire to
advertise on the calendars, Mid-America would not furnish calendars. Mid-Americas own testimony
shows that the calendars, with the images of Indiana Universitys basketball team and
the customers logos, are absolutely critical to the transaction there would be
no transaction but for the customers desire to associate with the basketball program.
(See Trial Tr. at 10, 33, 40.) (See also Petr Br. at
13-14.) Therefore, any services provided by Mid-America are incidental to the purpose
of the transaction the sale of calendars.
For the foregoing reasons, the Court AFFIRMS the Departments imposition of sales tax
Mid-America argues that even if it is selling at retail, under Indiana
section 6-2.5-4-1, it qualifies for the exemption for servicemen in . .
. an occupation which primarily furnishes and sells services [ ]. Ind.
Admin. Code tit. 45, r. 2.2-4-2(a)(1)(1996). However, the Courts analysis shows that
it is engaged in retail sales. The service persons exemption only applies
when services are offered by a service person with incidental sales of tangible
property. Cowden & Sons Trucking, Inc. v. Indiana Dept of State Revenue,
575 N.E.2d 718, 724 (Ind. Tax Ct. 1991). Mid-America has not demonstrated
it is a service provider incidentally selling tangible personal property.