Indianapolis, IN     Indianapolis, IN

    Indianapolis, IN

    IN THE INDIANA TAX COURT _____________________________________________________________________

MID-AMERICA PUBLISHING, INC.,                                             )
    Petitioner,                                                                )
    v.                                                                         )   Cause No. 49T10-9912-TA-239
INDIANA DEPARTMENT OF                                                          )

STATE REVENUE,                )
    Respondent.            )    


March 16, 2004


    Mid-America Publishing, Inc. (Mid-America) appeals the Indiana Department of State Revenue’s (Department) final determination imposing Indiana’s 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 Men’s basketball team, are taxable retail transactions.
    For the reasons explained below, the Court AFFIRMS the decision of the Department.

Mid-America is the official licensed publisher of Indiana University Men’s 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.
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 Dep’t 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 Dep’t 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 Dep’t 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 Dep’t of State Revenue, 557 N.E.2d 1110, 1114 (Ind. Tax Ct. 1990), aff’d, 578 N.E.2d 643 (Ind. 1991) (finding that a customer’s 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 Dep’t 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 and indivisible.

Id. See also Indiana Dep’t 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 farmer’s 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. (Pet’r Br. at 13.) However, the facts and evidence reveal that “but for” Mid-America’s customers’ desire to advertise on the calendars, Mid-America would not furnish calendars. Mid-America’s own testimony shows that the calendars, with the images of Indiana University’s 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 Pet’r Br. at 13-14.) Therefore, any services provided by Mid-America are incidental to the purpose of the transaction – the sale of calendars. See footnote


    For the foregoing reasons, the Court AFFIRMS the Department’s imposition of sales tax against Mid-America.

Footnote:      Mid-America argues that even if it is “selling at retail,” under Indiana Code 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 Court’s analysis shows that it is engaged in retail sales. The service person’s exemption only applies when services are offered by a service person with incidental sales of tangible property. Cowden & Sons Trucking, Inc. v. Indiana Dep’t 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.