ATTORNEYS FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
STEVEN D. GROTH STEVE CARTER
RONALD M. SOSKIN ATTORNEY GENERAL OF INDIANA
BOSE McKINNEY & EVANS LLP Indianapolis, IN
LINDA I. VILLEGAS
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
THOMAS R. GALLIGAN, )
v. ) Cause No. 49T10-9907-TA-172
INDIANA DEPARTMENT OF STATE )
ON APPEAL FROM A FINAL DETERMINATION OF
THE INDIANA DEPARTMENT OF STATE REVENUE
March 30, 2005
Thomas R. Galligan (Galligan) appeals the final determination of the Indiana Department of
State Revenue (Department) which assessed him with the unpaid sales and use tax
liabilities of Irish Park, Inc. (IP) for the 1993, 1994, and 1995 tax
years (years at issue). The case is before the Court on the
Whether collecting IPs tax liabilities from Galligan for the years at issue violates
his right to due process; and
Whether the Department has erred in imposing sales and/or use tax on certain
FACTS AND PROCEDURAL HISTORY
IP was an excavating and construction company located in Jeffersonville, Indiana. Galligan
founded the company in 1983 and served as its president and director from
1983 until January of 1996. Galligan resigned from those positions in January
of 1996, after he was elected mayor of Jeffersonville.
In August of 1996, the Department audited IP and determined that it had
been deficient in collecting and remitting Indiana sales and use tax during the
years at issue. Consequently, in October of 1996, the Department issued proposed
assessments to IP in the amount of $16,415.06, plus penalties and interest.
IP did not protest the assessments. In January of 1997, the Department
issued demand notices to IP for payment. In May of 1997, IP,
struggling financially, was liquidated. IPs tax liabilities, however, were still outstanding.
In October of 1997, the Department attempted to collect IPs unpaid tax liabilities
from Galligan pursuant to Indiana Code § 6-2.5-9-3. This statute, known as
the responsible officer statute, provided that [a]n individual who is an . .
. officer . . . of a corporate or partnership retail merchant 
and  has a duty to remit state gross retail or use taxes
. . . to the [D]epartment  holds those taxes in trust for
the state and is personally liable for the payment of those taxes, plus
any penalties and interest attributable to those taxes, to the state. Ind.
Code Ann. § 6-2.5-9-3 (West 1997) (emphasis added).
Galligan subsequently protested the assessment. The Department conducted a telephone hearing on
the matter. On January 19, 1999, the Department issued a Letter of
Findings (LOF) denying Galligans protest.
On July 16, 1999, Galligan initiated an original tax appeal. The Court
conducted a trial on December 20, 2000, and heard the parties oral arguments
on August 16, 2001. Additional facts will be supplied as necessary.
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 2005). Consequently, the Court is bound by
neither 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.
I. Due Process
An elementary and fundamental requirement of due process in any proceeding which is
to be accorded finality is notice reasonably calculated, under all the circumstances, to
apprise interested parties of the pendency of the action and afford them an
opportunity to present their objections[.] Ball v. Indiana Dep't of State Revenue,
563 N.E.2d 522, 524 (Ind. 1990) (quoting Mullane v. Central Hanover Bank, 339
U.S. 306, 314-15 (1950)). Galligan asserts that he was deprived of due
process in that he was not given proper notice of the assessment against
IP and thus did not have the opportunity to protest such assessment.
More specifically, Galligan explains that when the assessment was imposed against IP in
October of 1996, and, subsequently, when he personally received notice of that assessment
in October of 1997, he was no longer an officer of IP.
Consequently, he had no ability to gain access to [IP] documents nor to
adequately respond to the proposed assessment. (Petr Br. at 5.)
A. The 1993 Liability
At the outset, this Court reverses the portion of the Departments final determination
holding Galligan liable for IPs 1993 tax deficiency. Indeed, because the 1993
assessment claim against Galligan was untimely, the Court need not even address the
issue of an alleged due process violation. See Harlan Sprague Dawley, Inc.
v. Indiana Dep't of State Revenue, 605 N.E.2d 1222, 1231-32 (Ind. Tax Ct.
1992) (noting that the Court has a duty not to enter upon consideration
of a constitutional question where it can perceive another ground on which to
rest its decision).
When the Department made its assessment against Galligan, Indiana Code § 6-8.1-5-1 provided
that [i]f the [D]epartment reasonably believes that a person has not reported the
proper amount of tax due, the [D]epartment shall make a proposed assessment of
the amount of the unpaid tax[.] Ind. Code Ann. § 6-8.1-5-1(a) (West
1997). Nevertheless, the [D]epartment may not issue a proposed assessment . .
. more than (3) three years after the latest of the date the
return is filed, or . . . the due date of the
return; or  in the case of a return filed for the
state gross retail or use tax . . . the end
of the calendar year which contains the taxable period for which the return
is filed. Ind. Code Ann. § 6-8.1-5-2(a) (West 1997) (amended 2002).
When the Department provides a corporation with timely notice of a tax assessment,
personal notice to the responsible officer then in charge is not required.
Ball, 563 N.E.2d at 524. Indeed, it may be safely assumed that
[those responsible officers] are aware of [the responsible officer statute] which is the
source of their potential personal liability and that they are aware of and
privy to corporate correspondence relating to their corporate duties including notices of assessment
sent to the corporation. Id. In this case, however, when the
Department issued its October 1996 notice to IP, Galligan was no longer with
IP, let alone the responsible officer in charge. Therefore, the Court will
not presume that when IP received assessment notices from the Department in October
of 1996 for the 1993 tax year, Galligan was aware of that assessment.
Consequently, in order for the Department to issue an assessment against Galligan
personally for any outstanding 1993 liability, it was required to do so by
January of 1997. See A.I.C. § 6-8.1-5-2(a); Ind. Code Ann. § 6-2.5-6-1
(West 1997) (amended 2002) (stating that sales/use tax returns for a particular month
are due no later than 20 to 30 days after the end of
The evidence indicates that Galligan did not receive personal notice that he was
being assessed with IPs 1993 tax liability until October of 1997. Thus,
the Department failed to give Galligan timely notice of the assessment. The
Court therefore REVERSES the portion of
the Departments final determination holding Galligan
personally liable for IPs outstanding 1993 sales and use tax liability.See footnote
B. The 1994 and 1995 Liabilities
The Court now turns its analysis to whether Galligan can be held personally
liable for IPs 1994 and 1995 tax liabilities. For the 1994 and 1995
tax years, the Department timely issued personal assessment notices to Galligan within the
three-year statute of limitations.
See A.I.C. § 6-8.1-5-2(a). Therefore, Galligan received
adequate notice to apprise [him] of the pendency of the action [against him].
See Ball, 563 N.E.2d at 524 (citing Mullane, 339 U.S. at 314-15).
Galligan claims that the Departments collection efforts must, nevertheless, fail because any opportunity
he had to present his objection to the assessment was meaningless. (Petr
Reply Br. at 2.) More specifically, Galligan explains that [i]n between [his]
resignation as an officer and his receipt of notice regarding the assessment, the
audit had been conducted, an assessment had been made against [IP], and [IP]
had been liquidated through a distressed sale. (Petr Reply Br. at 3.)
These events virtually guaranteed that in 1998, after he finally did receive
notice, [he] would be unable to locate and produce the documents that would
verify his position on the challenged items. (Petr Reply Br. at 2.)
While this is an unfortunate series of events, the Court finds that
they do not alter the legal outcome of the case.
It is undisputed that, during the years at issue, Galligan was the president
of IP. Pursuant to statute, he can be held personally liable for
the taxes incurred during those years if he had the duty, at that
time, to remit the taxes to the State. See A.I.C. § 6-2.5-9-3.
See also Hunt v. Indiana Dep't of State Revenue, 790 N.E.2d 630,
632 (Ind. Tax Ct. 2003). Given his position as president of IP,
the presumption is that Galligan had the duty to remit the taxes incurred
during the years at issue. See Indiana Dep't of State Revenue v.
Safayan, 654 N.E.2d 270, 273 (Ind. 1995). This presumption has not been
As a result, it does not matter that Galligan received personal notice of
the assessment when he was no longer a responsible officer of IP.
Indeed, as a responsible officer from 1993 to 1996, Galligan was put on
notice, via Indiana Code § 6-2.5-9-3, of his personal liability for any taxes
incurred and due during those years.
See Ball, 563 N.E.2d at 524.
Galligan was subsequently afforded an opportunity to contest his liability as a
responsible officer in a hearing before the Department. He was given another
opportunity to contest his liability as a responsible officer, as well as an
opportunity to present his objections to the actual assessment itself, at his trial
before this Court. Thus, Galligan was afforded all the due process that
See Ball, 563 N.E.2d at 524 (quoting Mullane, 339 U.S.
at 314-15) (footnote added).
II. Specific Audit Challenges
In the course of auditing IP, the Department determined that IP owed sales
and/or use tax on various retail transactions during 1994 and 1995 and issued
proposed assessments thereon. Galligan now challenges several of those findings.
A. Assessment of Sales Tax on Delivery Charges
Indiana imposes an excise tax, known as the state sales tax, on retail
transactions made within the state.
Ind. Code. Ann. § 6-2.5-2-1 (West 2005).
During 1994 and 1995, 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 . . . or that is described in any other
section of IC 6-2.5-4. Ind. Code Ann. § 6-2.5-1-2(a) (West 1994).
In turn, selling at retail was defined as follows:
A person is engaged in selling at retail when, in the ordinary course
of his regularly conducted trade or business, he:
(1) acquires tangible personal property for the purpose of resale; and
(2) transfers that property to another person for consideration.
Ind. Code Ann. § 6-2.5-4-1(b)(1),(2) (West 1994) (amended 2003). Thus, because selling
at retail requires the transfer of tangible personal property, the sale of services
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).
In its audit report, the Department assessed sales tax on approximately 15 different
transactions in which it believed IP sold dirt, sand, and rock to its
customers, but failed to collect sales tax thereon (i.e., at the time of
sale). To support its assessment, the Department cites to the 15 IP
invoices which merely state 1 ton sand; 145 loads of dirt; 4 loads
topsoil. (See Respt Ex. 1 at 5, 8-10.) In addition, the
Departments auditor testified at trial that the way the invoices read led him
to believe that IP was selling sand, dirt, and topsoil. (See Trial
Tr. at 95.)
At trial, however, Galligan testified that IP did not sell such items to
its customers, but merely delivered them. More specifically, Galligan explained that during
the years at issue, IP was in the business of digging sewer lines,
water lines, streets and roads. (Trial Tr. at 17.) As part
of that process, it was necessary for IP to dispose of the dirt
that it had excavated. (Trial Tr. at 27.) The dirt was
available to anyone for the taking. (Trial Tr. at 27.) IP
never purchased the dirt for resale. (Trial Tr. at 29.) In
those instances where someone wanted the dirt but was unable to transport it,
IP would haul the dirt for them to the desired location. (See
Trial Tr. at 28-29.) IP would charge these customers a hauling fee
per load, but there was never a charge for the dirt. (Trial
Tr. at 29.) Consequently, Galligan claims that the subject transactions do not
constitute selling at retail, but rather a service, and are therefore not taxable.
As the Department correctly asserts, Galligan bears the burden of proving the proposed
assessment is wrong.
See Clifft v. Indiana Dept of State Revenue, 748
N.E.2d 449, 452 (Ind. Tax Ct. 2001). Here, the Department claims that
Galligan failed to meet his burden. Indeed,
[Galligan] claimed in conclusory fashion that [the transactions at issue] represented hauling of
the tangible personal property and no sale occurred. There is nothing to
corroborate [Galligans] testimony. Therefore, [having] submitted no documentation to verify that the
transaction was not the sale of tangible personal property, the auditor correctly assessed
(Respt Br. at 7 (internal citation omitted).) The Court disagrees.
When a taxpayer claims he is not within the ambit of taxation, he
must present a prima facie case in order to meet his burden of
proof. Longmire v. Indiana Dept of State Revenue, 638 N.E.2d 894, 898
(Ind. Tax Ct. 1994). A prima facie case is one in which
the evidence is " 'sufficient to establish a given fact and which if
not contradicted will remain sufficient.' " Id. (internal citation omitted). In
this case, Galligans testimony at trial constituted direct and reasonable evidence that the
subject transactions did not involve a retail sale of tangible personal property.
Indeed, Galligan, as IPs president, possessed first-hand knowledge as to what the nature
of IPs business was as well as how it conducted that business.
See Indiana Sugars, Inc. v. State Bd. of Tax Commrs, 683 N.E.2d 1383,
1387 (Ind. Tax Ct. 1997) (holding that the sworn testimony of a witness
who had personal knowledge of corporate procedures regarding the mailing of documents and
who stated that he personally placed a return in the mail on or
before the due date constituted sufficient evidence to prove timely mailing).
Once the taxpayer has presented a prima facie case, the duty to go
forward with that evidence may shift several times. Longmire, 638 N.E.2d at
898 (citation omitted). Thus, it was incumbent on the Department to rebut Galligans
prima facie case. Instead, the Department merely argues that more evidence was
required from Galligan.
See footnote This does not constitute a rebuttal.
The Court finds that on the basis of the evidence presented, the subject
transactions are not retail sales subject to taxation. The Departments audit report,
as it relates to this issue, is therefore REVERSED. Accordingly, on remand,
is instructed to remove these transactions from its audit report.See footnote
B. Assessment of Use Tax on Hauling Charges
Galligans next challenge focuses on the Departments imposition of use tax on delivery
charges IP paid on certain purchases of stone. While the audit report
does not explain the basis for the Departments assessment, the Departments written brief
indicates that it relied on Indiana Administrative Code title 45, rule 2.2-4-3, in
making the assessment. (
Cf. Respt Ex. 1 with Respt Br. at 7.)
That regulation provides:
(a) Separately stated delivery charges are considered part of selling at retail and
subject to sales and use tax if the delivery is made by or
on behalf of the seller of property not owned by the buyer.
(b) [To that end, t]he following guidelines have been developed:
(1) Delivery charge separately stated with F.O.B. destination
See footnote taxable.
(2) Delivery charge separately stated with F.O.B. origin non[-]taxable.
(3) Delivery charge separately stated where no F.O.B. has been established non[-]taxable.
(4) Delivery charges included in the purchase price are taxable.
Ind. Admin. Code tit. 45, r. 2.2-4-3 (1992) (footnote added).
C. Credit for Sales Tax Paid in Other States
Neither party disputes the fact that the subject delivery charges were separately stated
on the invoices listed in the audit report. (See Trial Tr. at
59.) (See also Respt Br. at 7.) Rather, the parties dispute the
delivery terms of the stone. Galligan, on the one hand, provided detailed
testimony at trial that the stone in the subject transactions was delivered to
IP by common carriers that were hired by the quarries themselves, that the
stone was delivered to IP F.O.B. origin and, because the title to the
stone passed upon transfer of the material from the quarries to the common
carriers, if the common carrier had an accident and lost the stone, the
common carrier was required to reimburse IP for the stone. (Trial Tr.
at 59-60.) The Department, on the other hand, claims that
because there is nothing [o]ther than [Galligans] own self-serving testimony to corroborate the
fact that the delivery terms were F.O.B. origin, the assessments must therefore stand.
(Respt Br. at 8.)
As stated earlier, Galligan, as IPs president, is personally knowledgeable as to how
IP conducted its business. Accordingly, Galligans testimony that IP received its shipments
of stone F.O.B. origin constitutes reasonable evidence that
such was the
case. The Department failed to rebut this evidence.
See footnote Accordingly, the Departments
audit report finding that these transactions are taxable is REVERSED. The Department
is instructed, on remand, to remove these transactions from its audit report.
The next issue before the Court involves those transactions in which the Department
assessed IP with use tax on purchases it made in Kentucky and on
which IP paid Kentucky sales tax. Galligan argues that, pursuant to Indiana
Code § 6-2.5-3-5, IP is entitled to a credit against the Indiana use
tax in the amount of the sales tax it paid to Kentucky.
The Department argues, on the other hand, that Kentucky erroneously collected sales tax
from IP and, as a result, it (the Department) will not give a
credit for those taxes previously paid.
Indiana imposes a use tax on goods purchased outside of the state and
brought into the state for use. See Rhoade v. Indiana Dept of
State Revenue, 774 N.E.2d 1044, 1047 (Ind. Tax Ct. 2002). The imposition
of this tax is based on two general theories: (1) that Indiana
merchants will lose business if taxpayers purchase goods out-of-state to avoid sales tax
liability and (2) that the state will lose tax revenue if taxpayers purchase
goods out-of-state. See id. Consequently, Indianas use tax is functionally equivalent
to its sales tax and is imposed on the storage, use, or consumption
of tangible personal property in Indiana if the property was acquired in a
retail transaction, regardless of the location of that transaction or of the retail
merchant making that transaction. Ind. Code Ann. § 6-2.5-3-2(a) (West 1994).
Nevertheless, [a] person is entitled to a credit against the use tax imposed
on the use, storage, or consumption of a particular item of tangible personal
property equal to the amount, if any, of sales tax, purchase tax, or
use tax paid to another state, territory, or possession of the United States
for the acquisition of that property.
Ind. Code Ann. § 6-2.5-3-5(a) (West
1994) (amended 2004).
The words of a statute are given their plain, ordinary, and usual meaning
unless the legislative intent reveals a contrary purpose.
Williams v. Indiana Dept
of State Revenue, 742 N.E.2d 562, 564 (Ind. Tax Ct. 2001) (internal citation
omitted). Here, IP paid Kentucky sales tax on various items it purchased
from Kentucky vendors. (See Respt Ex. 1 at 11, 14-15, 17, 18-20.)
(See also Trial Tr. at 102 (Departments auditor admitting that Kentucky sales
tax had been paid).) The plain language of Indiana Code § 6-2.5-3-5(a)
provides that IP is entitled to a credit against its Indiana use tax
liability in the amount of sales tax paid to Kentucky. See A.I.C.
Despite this unambiguous language, the Department argues that the credit provided for in
Indiana Code § 6-2.5-3-5(a) does not apply to the subject transactions because they
consisted of tangible property delivered to [IP] in Indiana from Kentucky. (Respt
Br. at 8.) Instead, the Department argues that the credit applies only
in those situations where a taxpayer has purchased property in another state and
personally brings it back to Indiana. (See Respt Br. at 8.)
To support its claim, the Department refers to two of its own administrative
regulations. First, it cites to Indiana Administrative Code title 45, rule 2.2-3-20,
All purchases of tangible personal property which are delivered to the purchaser for
storage, use, or consumption in the state of Indiana are subject to the
use tax. The use tax must be collected by the seller if
he is a retail merchant described in  45 IAC 2.2-3-19 or if
he has Departmental permission to collect the tax. If the seller is
not required to collect the tax . . . the purchaser must
remit the use tax directly to the Indiana Department of Revenue.
Ind. Admin. Code tit. 45, r. 2.2-3-20 (1992). The second regulation the
Department cites to is Indiana Administrative Code title 45, rule 2.2-3-16, which provides
that [l]iability for Indiana use tax shall be reduced by a credit for
the amount of any sale, purchase, or use tax paid to any other
state, territory or possession of the United States with respect to the tangible
personal property on which Indiana use tax applies. Ind. Admin. Code tit.
45, r. 2.2-3-16 (1992). Based on the terms of these regulations, the
Department asserts that IPs only remedy is to file for a refund of
the Kentucky tax taken in error. (Respt Br. at 8.)
See footnote The
Department is incorrect.
D. Assessment of Use Tax on Charges for Services
The Department may issue rules and regulations to implement a statute, and those
rules and regulations have the force of law.
C & C Oil
Co. v. Indiana Dept of State Revenue, 570 N.E.2d 1376, 1381 (Ind. Tax
Ct. 1991) (internal citation omitted). The Department cannot, however, enlarge or vary
by its rules and regulations the power conferred on it by the legislature
or create a rule out of harmony with the statute. Id. (internal
citation omitted). Indiana Code § 6-2.5-3-5(a) makes no mention that the credit
against Indiana use tax is only applicable to situations in which a taxpayer
has purchased property in another state and personally brings it back to Indiana.
To the extent that the restriction is contained in the Departments administrative
regulations, the restriction is inharmonious with the plain and ordinary meaning of Indiana
Code § 6-2.5-3-5(a). The Departments audit report with respect to the taxability
of these subject transactions is therefore REVERSED.
See footnote The Department is instructed, on
remand, to remove these transactions from its audit report.
The Court now turns to the Departments assessment of use tax on various
charges IP paid for services such as the machining and repair of its
equipment, asphalt paving, material testing, and the construction of concrete curbs. Galligan
asserts the assessments are in error because services are not taxable. (See
Petr Br. at 16.) The Department, however, asserts that because IPs service-providers
transferred tangible personal property to IP in the course of providing their services,
the transactions, in their entirety (i.e., both the materials and the service), are
taxable as retail unitary transactions.See footnote (See Respt Br. at 8-9 (footnote added).)
As mentioned earlier, the provision of services is, generally, not taxable. As
a practical matter, however, mixed transactions often 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. For these
mixed transactions, distinguishing the taxable sale of property from the non-taxable sale of
services is often difficult. Accordingly, the legislature has set forth several parameters
for imposing tax on these transactions. First, taxable property does not escape
taxation merely because it is transferred in conjunction with the provision of non-taxable
services. Ind. Code Ann. § 6-2.5-4-1(c)(2) (West 1994) (amended 2004). Second,
services, generally outside the scope of taxation, are subject to tax to the
extent the income represents any bona fide charges which are made for preparation,
fabrication, alteration, modification, finishing, completion, delivery, or other service performed in respect to
the property transferred before its transfer and which are separately stated on the
transferors records. A.I.C. § 6-2.5-4-1(e)(2) (emphasis added). Finally, the legislature imposes
tax on services that are provided in a retail unitary transaction, a unitary
transaction that is also a retail transaction. Ind. Code Ann. § 6-2.5-1-2(b)
(West 1994). A unitary transaction is one which includes all items of
personal property and services which are furnished under a single order or agreement
and for which a total combined charge or price is calculated. Ind.
Code Ann. § 6-2.5-1-1(a) (West 1994).
1. Clark County Metals
Galligan testified at trial that IP hired Clark County Metals to perform various
machining services on IPs own equipment. (Trial Tr. at 46.) Galligan
admits that, on occasion, Clark County Metals provided (i.e., sold) parts, such as
pins or screws, in connection with its services. (Trial Tr. at 48.)
The invoices from Clark County Metals to IP indicate that IP was
charged one undivided price per sales contract: a total which included the
combined costs of the material, the sales tax on the materials, and the
cost of the machining services. (See Petr Exs. D, E, and F.)
Such charges clearly constitute retail unitary transactions. See A.I.C. § 6-2.5-1-1(a).
As this Court has previously explained, however, services rendered in retail unitary transactions
are taxable only if the transfer of the property and the rendition of
services are inextricable and indivisible. See Howland, 790 N.E.2d at 629 (citation
omitted). Generally, the transfer of property and the rendition of services are
inextricable and indivisible when the services are performed before the property was transferred
to the transferee. See A.I.C. § 6-2.5-4-1(e) (providing that a retail unitary
transaction is taxable to the extent that income from the transaction represents (1)
the price of the property transferred and (2) any bona fide charges which
are made for preparation, fabrication, alteration, modification, finishing, completion, delivery, or other service
performed in respect to the property transferred before its transfer (emphasis added)).
Services provided after a transfer of property, however, indicate a divisible transaction in
which the sale is taxed but the services are not.
Here, Clark County Metals machining services are provided concurrently with the transfer of
parts to IP; therefore the temporal relationship of the two events does not
indicate whether the transaction is inextricable and indivisible. Consequently, the Court must
look to other factors to determine whether the transaction is inextricable and indivisible,
such as the service-providers records, the overall nature of its business, as well
as the nature of the unitary transactions themselves. See Cowden & Sons
Trucking, Inc. v. Indiana Dept of State Revenue, 575 N.E.2d 718, 723 (Ind.
Tax Ct. 1991). Based on the only evidence presented at trial (i.e.,
the invoices from Clark County Metals to IP), this Court cannot find that
Clark County Metals intended to treat the transfer of property and the provision
of its services separately. Consequently, the Departments assessment of use tax against
these transactions is AFFIRMED.
2. Ewing Machine
At trial, Galligan testified that Ewing Machine charged IP $70.00 for a service
similar to that of Clark County Metals. (See Trial Tr. at 49-50.)
The Department notes in its audit report that the invoice from Ewing
Machine to IP indicated that, in fabricating two pins, Ewing Machine only taxed
material. (Respt Ex. 1 at 12.)
While the subject invoice has not been presented as evidence, it is clear
from the auditors comment that some type of delineation was made on the
invoice to indicate what materials were sold and the applicable sales tax charged
thereon. Obviously, then, the invoice from Ewing Machine indicated its intent to
treat the sale of its services and the sale of materials separately.
Consequently, the Departments assessment of use tax against the service component of this
transaction is REVERSED.
3. B&G Enterprises
IP hired B&G Enterprises to provide asphalt paving services. (Trial Tr. at
44-45.) In the course of providing those services, B&G also provided the
cold patch paving materials. (Trial Tr. at 44-45.) At trial, Galligan
submitted seven invoices from B&G Enterprises to IP that simply listed the amount
of cold patch purchased by IP and the amount of sales tax B&G
charged thereon; the invoices do not provide a charge for, nor mention, the
service component of the transaction. (Petr Ex. B.) Consequently, it is
clear that, with respect to these seven invoices, B&G Enterprises treated the sale
of its services and the sale of the cold patch materials in a
very divisible manner. The Departments assessment of use tax against the service
component of these transactions is therefore in error.
4. J.K.G. Testing and Supply, Inc.
The Department also assessed use tax against IP for a $622.78 charge from
J.K.G. Testing and Supply, Inc. (Respt Ex. 1 at 13.) Galligan
testified at trial that this charge was for deflection and air testing; there
was no transfer of materials whatsoever. (Trial Tr. at 55.) Galligans
testimony is corroborated by the invoice from J.K.G. (
See Petr Ex. K.)
Because the transaction is pure service, it is not subject to taxation.
Accordingly, the Departments assessment of tax against this transaction is REVERSED.
5. Eberle Enterprises, Inc.
Eberle Enterprises, Inc. constructs concrete curbs. (Trial Tr. at 65-66.) Galligan
testified at trial that IP hired Eberle to slip form some curbs on
a project. (Trial Tr. at 65-66.) As part of that process,
Eberle furnished flumes and plastic. (Trial Tr. at 66.) The flumes
were used to carry concrete down into the ditches, and the plastic was
used to protect the concrete curbs from rain and freezing. (Trial Tr.
As stated earlier, when the transfer of property and the rendition of services
are concurrent, the Court must look to other factors to determine whether the
transaction is inextricable and indivisible, such as the service-providers records, the overall nature
of its business, as well as the nature of the unitary transactions themselves.
See Cowden, 575 N.E.2d at 723. Based on the only evidence
presented at trial (i.e., Galligans testimony), this Court finds that the overall nature
of Eberles business was to provide a service, and the use of flumes
and plastic in providing that service was incidental. (See Trial Tr. at
66.) Such a finding supports the divisibility of the transactions at issue.
Cf. Cowden, 575 N.E.2d at 723. Consequently, the Departments assessment of
use tax against these transactions is REVERSED.
6. Eastern Electroplate, Inc.
Finally, the Department assessed use tax on a $1,922 charge IP paid to
Eastern Electroplate, Inc. (See Respt Ex. 1 at 20.) Galligan testified
at trial that the charge was for repair services performed on IPs caterpillar
excavator. (Trial Tr. at 70.) Galligan further testified that the repair
included the rechroming of a shaft and the repacking of a shaft, as
well as the incidental furnishing of a rod piston. (Trial Tr. at
70-71.) (Respt Ex. 1 at 20.) Just like the transaction with
Eberle, the evidence in the record as to this transaction supports a finding
that Eastern Electroplates rendition of a service and the provision of material were
divisible. Cf. Cowden, 575 N.E.2d at 723. Consequently, the Departments assessment
of use tax against these transactions is REVERSED.
E. Tax-Exempt Purchases
Galligans next challenge focuses on certain purchases made by IP on which the
Department has assessed use tax. Galligan claims that those purchases are exempt
from tax because the property purchased became a permanent part of the improvements
on jobs performed for tax-exempt organizations.
See footnote (Petr Br. at 18 (footnote added).)
See also Ind. Code Ann. § 6-2.5-5-16 (West 1994) (amended 1996) (stating
that acquisitions of tangible personal property by a state or local government are
exempt from sales tax if the property is predominantly used in the performance
of a governmental function). Given the evidence in the record, however, the
Court must AFFIRM the Departments imposition of tax.
Indiana Administrative Code title 45, rule 2.2-3-12 states that
(a) Tangible personal property purchased to become a part of an improvement to
real estate under a contract with an organization entitled to exemption is eligible
for exemption when purchased by the contractor.
(b) In order to be exempt on such purchases, the contractor must be
registered as a retail merchant, must obtain an exemption certificate from the exempt
organization, and must issue an exemption certificate to his supplier.
Ind. Admin. Code tit. 45, r. 2.2-3-12(a) and (b) (1992). Consequently, in
order for IP to receive the exemption that Galligan claims it is entitled
to, Galligan must produce evidence that IP obtained an exemption certificate from the
exempt organization and that it issued that exemption certificate to the supplier at
the time of purchase. See id. See also Greensburg Motel Assoc.,
L.P. v. Indiana Dep't of State Revenue, 629 N.E.2d 1302, 1304 (Ind. Tax
Ct. 1994) (stating that tax exemptions are strictly construed against the taxpayer and
in favor of the state and the taxpayer bears the burden to show
that it is entitled to the exemption). There is no better way
to prove this than to submit into evidence the copies of the contested
invoices and actual exemption certificates themselves.
F. Use Tax on Miscellaneous Depreciated Items
While Galligan did not present the applicable exemption certificates at trial, he nevertheless
asserts that he has proven by a preponderance of the evidence that at
the time of these purchases, [IP] had been issued an exemption certificate, and
had provided an exemption certificate to its suppliers to obtain the exemption.
(Petr Br. at 18.) More specifically, he claims he has presented .
. . invoices,  personal knowledge, and [his testimony regarding] the customs and
practices of his vendors, all
tending to show that exemption certificates were obtained
by [IP] for the jobs described. (Petr Br. at 18 (emphasis added).)
For instance, at trial, Galligan presented copies of three invoices from vendors
on which someone had written the words tax-exempt. (Petr Exs. H, J,
and M.) In addition, he testified, generally, that any time IP wanted
to make a tax-exempt purchase from its vendors, IP was required to provide
an exemption certificate; if it did not provide the certificate, the vendors would
then charge sales tax. (Trial Tr. at 43, 54.)
This evidence is insufficient to prove that IP received exemption certificates and presented
them to its vendors at the time of purchase of the property at
issue. An invoice or testimony that states something is tax-exempt, without any
supporting factual basis, does not necessarily make it so. Such a statement
is nothing more than a conclusion. A taxpayers conclusory statements do not
constitute probative evidence and the Court will therefore not be persuaded thereby.
See Anderson v. Indiana Dept of State Revenue, 758 N.E.2d 597, 600 n.2
(Ind. Tax Ct. 2001), review denied; Sterling Mgmt.-Orchard Ridge Apartments v. State Bd.
of Tax Commrs, 730 N.E.2d 828, 833 (Ind. Tax Ct. 2000) (footnote added).
In its audit report, the Department also assessed use tax on various items
that were listed on IPs depreciation schedules. (See Respt Ex. 1 at
22-24.) More specifically, the Department assessed use tax on certain purchases of
computer equipment, radio equipment, vehicles, diesel fuel, as well as office remodeling costs.
(See Respt Ex. 1 at 22-24, 25-30.) Galligan claims that IP
acquired those items through retail transactions and therefore paid sales tax on those
items at the time of purchase. (See Trial Tr. at 57, 66-68,
71-77.) In turn, Galligan claims that because sales tax has already been
paid on the items, the Departments assessment of use tax is in error.
At trial, Galligan submitted invoices on similar purchases which he claims established the
custom and procedure of [IP] to purchase such items through retail establishments which
require the payment of sales tax at the time of purchase, and furthermore,
it shows that [IP] did pay sales tax when it purchased items similar
to those being assessed by the auditor. (Petr Br. at 21.)
See also Petr Exs. P and Q.) He also asserted that in
order to register and title the vehicles at issue, IP was required to
provide proof to the Bureau of Motor Vehicles that the sales tax had
been paid. (Petr Br. at 21.) As a result, Galligan claims
he presented persuasive evidence that the sales tax had previously been paid on
the items at issue. The Court disagrees.
The Departments regulations provide that [t]he person who stores, uses, or consumes tangible
personal property in Indiana may avoid paying the use tax to the Department
if such person retains for inspection by the Indiana Department of Revenue a
receipt evidencing payment of the [sales] tax. Ind. Admin. Code tit. 45,
r. 2.2-3-27 (1992). See also Ind. Admin. Code tit. 45, r. 2.2-3-14(1)
(1992). Thus, Galligan was required to present the original invoices on these
purchases to the Department in order to avoid paying the use tax.
He did not. The Departments assessment of tax on these
items is therefore AFFIRMED.
Based on the foregoing reasons, this Court finds that Galligan is not liable
for IPs 1993 tax liabilities. Galligan can be held liable, however, for
IPs unpaid sales/use taxes for the 1994 and 1995 years. Nevertheless, Galligan
has presented prima facie evidence that the Departments assessments as discussed in Issues
II(A), II(B), II(C), and II(D)(2),(3),(4),(5), and (6) were in error. Consequently, those
audit findings are REVERSED and the Court REMANDS those matters to the Department
to recalculate the amount of tax due. The Departments assessments as discussed
in Issues II(D)(1), II(E), and II(F) are AFFIRMED.
It appears from the record that the issue of responsible officer
liability was the only issue discussed during the Departments hearing. (
Ex. 2; Trial Tr. at 24, 83.) It was only after Galligan
initiated his original tax appeal that he presented his objections to the actual
In other words, IPs sales/use tax return for 1993 was due
no later than the end of January, 1994.
See Ind. Code Ann.
§ 6-2.5-6-1 (West 1997) (amended 2002). In turn, the Department had three
years from that point, or until January of 1997, to issue an assessment
against Galligan for that liability. See Ind. Code Ann. § 6-8.1-5-2(a) (West
1997) (amended 2002); Ind. Code Ann. § 6-2.5-6-1 (West 1997) (amended 2002).
Footnote: Had Galligan remained an officer of IP, however, the result would have
been different. Indeed, the Departments collection efforts would not have been untimely,
as the statute of limitations would have tolled with respect to Galligan when
IP received its assessment notices. See Hunt v. Indiana Dep't of State
Revenue, 790 N.E.2d 630, 633 n.4 (Ind. Tax Ct. 2003).
Galligan attempts to rebut this presumption by claiming that from 1994
(when he began his Jeffersonville mayoral campaign) through 1995 (at which time he
was elected mayor), and ending in January of 1996 (when he formally resigned
as president of IP), his involvement in IPs business was minimal. (Trial
Tr. at 18.) In other words, Galligan claims that he basically resigned
in late 1994, leaving several others in charge because he was not there
very often. (
See Trial Tr. at 19.)
The Department is not required, however, to prove that Galligan was the only
responsible person. Indiana Dep't of State Revenue v. Safayan, 654 N.E.2d 270, 274
(Ind. 1995). Indeed, [a] party may be liable for trust taxes without
having exclusive control over the corporations funds. Id. (citation omitted). While
Galligan claims he did not exercise his position of authority during the years
at issue, he did not officially relinquish his position as the president of
IP until January 1996 and therefore possessed the requisite authority to pay the
taxes. See id. at 274 (citing Van Orman v. State, 416 N.E.2d
1301, 1304 (Ind. Ct. App. 1981)). See also Ball v. Indiana Dept
of State Revenue, 563 N.E.2d 522, 525 (Ind. 1990).
Galligans claim that he was prejudiced by his inability to access
IP documents warrants no special legal consequence. Indeed, the issue is not
really whether his inability to access IP documents deprived him of due process,
but whether he adequately protected his interests before he resigned and later, in
preparation for litigation.
First, as already noted, it is presumed that Galligan, before he resigned from
IP in 1996, was aware of his personal liability for any potential deficiencies
incurred during those years.
See Ball, 563 N.E.2d at 524. Consequently, Galligan
should have insured that all IP documents and records were in order before
he left. Second, it appears that during the litigation process Galligan simply
used polite efforts to access IP documents: I cant get records.
Ive asked people to go look at they tell me theyll try.
Someone told me the records are gone. I dont have any
records, so I really cannot [challenge the proposed assessment]. (Trial Tr. at
35, 106.) Efforts with more muscle, however, were required. IP was
under a statutory duty to keep its records pertaining to any taxes due
during 1994 and 1995 for at least three years after the date the
final payment of the particular tax liability was due[.] See Ind. Code
Ann. § 6-8.1-5-4 (West 1994 & 1995). Consequently, when IP stonewalled Galligan, he
could have - and should have - utilized the arsenal of discovery tools
available under Indiana Trial Rules 26 through 37 to either gain access to
the documents or to procure a sworn statement that the records had indeed
Both Galligan and the Department have indicated that their dispute as
to the taxability of some of the transactions has been resolved. (
Petr Br. at 8; Respt Br. at 6.) The Court therefore instructs
the Department, on remand, to remove these transactions from the audit report.
In his written brief, Galligan claims that 12 of the 15
transactions are non-taxable. (Petr Br. at 7-8.) The Court notes that
in his reply brief, however, Galligan states that all 15 transactions are non-taxable.
See Petr Reply Br. at 10.)
In the Indiana and United States legal systems, witnesses are sworn
to tell the truth. Criminal defendants are often sentenced to prison based
on little more than the sworn testimony of a witness. Here, however,
the Department is not willing to accept Galligans sworn testimony as direct and
reasonable evidence as to the nature of IPs business and how it transacted
that business. In essence, the Department has apparently adopted the position that
taxpayers such as Galligan will simply lie under oath in order to avoid
paying taxes. (
See Oral Argument Tr. at 30-31.) The Court
is not so jaded.
In its written brief filed with the Court, the Department makes
an alternative argument to support the taxability of the subject transactions:
even if [IP] did secure [the dirt, etc.] without cost, when [it] disposes
of this property [it] is accountable . . . for the [sales] tax,
unless the ultimate recipient could have purchased it exempt. (Respt Br. at
7 (relying on
Ind. Admin. Code tit. 45, r. 2.2-4-22 (1992)).) The
Department misses the point. The regulation to which it refers addresses [p]rocedure
when a tax is not paid on construction material when purchased by a
contractor. 45 IAC 2.2-4-22 (emphasis added). The evidence in this case
reveals that IP never purchased the dirt in the first place.
F.O.B. (i.e., free on board) is [a] mercantile-contract term allocating the
rights and duties of the buyer and the seller of goods with respect
to delivery, payment, and risk of loss[.]
Blacks Law Dictionary 690 (8th
ed. 2004). Generally, it stands for the proposition that the sellers delivery
is complete (and the risk of loss passes to the buyer) when the
goods pass the transporters rail[; t]he buyer is responsible for all costs of
carriage. Id. An F.O.B. destination denotes that the seller is required
to pay the freight charges as far as the buyers named destination.
Id. at 691.
Rather, the Department attempts to convince the Court that taxability is
the default under Indiana Administrative Code title 45, rule 2.2-4-3. (
Br. at 7.) Indeed, the Department asserts that unless and until the
taxpayer provides documentation stating separate delivery charges with an F.O.B. origin, the delivery
charges will always be taxable. (See Respt Br. at 7-8.) This
assertion, however, ignores the provision of the regulation that states that in instances
where an invoice indicates a separate delivery charge but no F.O.B., the transaction
is non-taxable. See Ind. Admin. Code tit. 45, r. 2.2-4-3(b)(3) (1992).
In other words, Indianas use tax complements Indianas sales tax to ensure
that non-exempt retail transactions (particularly out-of-state retail transactions) that escape sales tax liability
are nevertheless taxed.
See USAir, Inc. v. Indiana Dept of State Revenue,
623 N.E.2d 466, 46869 (Ind. Tax Ct. 1993).
This credit is intended to prevent multiple taxation of interstate commerce,
which is prohibited by the Commerce Clause of the United States Constitution.
See Simon Aviation, Inc. v. Indiana Dept of State Revenue, 805 N.E.2d 920,
927-28 (Ind. Tax Ct. 2004).
The Department takes a
very cursory approach in explaining its position
on this issue. (See Respt Br. at 8.) The Court therefore
interprets the gist of its argument as this: because the Kentucky vendors
knew that IP intended to use, store, or consume the property it purchased
from them in Indiana (by the fact that they were delivering the property
to IP in Indiana), it should have been clear to them that Indiana
had the right to charge use tax on the subject transactions, and therefore
the Kentucky vendors were not entitled to collect Kentucky sales tax from IP.
An exemption from or credit for Indianas use tax will depend
on the amount of sales or use tax already paid to another state
by an Indiana taxpayer.
Rhoade v. Indiana Dept of State Revenue, 774
N.E.2d 1044, 1051 n.5 (Ind. Tax Ct. 2002). The payment of another
states sales or use tax, however, will not necessarily exempt an Indiana taxpayer
from the entire amount of Indiana use tax or entitle the taxpayer to
a use tax credit equal to the out-of-state sales or use tax already
The Court has had to fill in the blanks with respect
to the Departments position on this issue. Indeed, the Departments whole argument
is the assertion that Galligan failed to meet the requirements of 45 IAC
2.2-4-2; nevertheless, the Department failed to develop any independent argument to support its
See Respt Br. at 9.) Given the fact that this
Court is not in the business of making a partys argument for it,
as well as the fact that this Court has previously questioned the validity
of regulation 45 IAC 2.2-4-2, the Court will not address the applicability of
the regulation to the instant case. See Meyer Waste Sys., Inc. v.
Indiana Dept of State Revenue, 741 N.E.2d 1, 11 n.12 (Ind. Tax Ct.
2000), review denied; Cowden & Sons Trucking, Inc. v. Indiana Dept of State
Revenue, 575 N.E.2d 718, 725 n.7 (Ind. Tax Ct. 1991).
The Court notes, however, that the Departments audit report lists another
five invoices from B&G to IP, totaling $5,233.60. (Respt Ex. 1 at
11.) Because these invoices were not submitted as evidence, it is impossible
for the Court to determine whether the sale of services was divisible from
the sale of materials. The Court must therefore uphold the imposition of
use tax against those five invoices.
Footnote: More specifically, Galligan states that IP purchased items such as concrete
and plumbing supplies for jobs . . . for the Town of Clarksville
at Lincoln Heights , the construction of a sanitary sewer system for the
Town of Corydon , the installation of a manhole valve pit for a
school in Kentucky , and work for the City of Jeffersonville on a
sewer system located at Truckers Boulevard. (Petr Br. at 17.) (
also Trial Tr. at 42-43, 53, 57-58, 62-64.)
Consequently, the Departments auditor testified at trial that, in performing the
audit, he did not impose tax on those purchases for which IP could
produce the exemption certificate and on which he could verify that the property
was indeed used in an exempt job. (Trial Tr. at 91.)
Nevertheless, the auditor also stated that as long as IP could provide the
exemption certificate number and the name and description of the job, he could
cross-reference them to verify that the purchases were eligible for the exemption. (
Trial Tr. at 89-91; see also Respt Br. at 10.)
As an aside, the Court notes that two of the three invoices
submitted by Galligan had sales tax computed and added to the total amount
due; at some subsequent point, however, the sales tax amount was scribbled out.
See Petr Exs. H and J.) No explanation was provided by
Galligan regarding these subsequent scribbles. While the scribbles have not caused this
Court to discredit the invoices entirely, it does call into question their veracity.
Galligan also claims that [t]he assessment of use taxes based on
depreciation schedules is improper[.] (Petr Br. at 20.) Galligans claim, however,
is raised in a general manner and [is] not supported by specific argument
or citation of authority."
See In re Kesler, 397 N.E.2d 574, 576
(Ind. 1979). Therefore, Galligans claim "do[es] not present an issue for determination
by this Court." See id.