ATTORNEYS FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
RONALD C. SMITH STEVE CARTER
GLENN M. SERMERSHEIM ATTORNEY GENERAL OF INDIANA
DAVID I. RUBIN Indianapolis, IN
STEWART & IRWIN, P.C.
Indianapolis, IN JOEL SCHIFF
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
LINVILLES OLDS-CADILLAC, INC., )
v. ) Cause No. 49T10-9910-TA-202
INDIANA DEPARTMENT OF )
STATE REVENUE, )
ON APPEAL FROM A FINAL DETERMINATION OF
THE INDIANA DEPARTMENT OF STATE REVENUE
NOT FOR PUBLICATION
April 2, 2004
Linvilles Olds-Cadillac, Inc. (LOC) challenges the final determination of the Indiana Department of
State Revenue (Department) denying its claim for refund of sales tax paid for
the 1995, 1996, and 1997 tax years (years at issue). While LOC
raises multiple issues for this Courts consideration, the Court finds the following issue
dispositive: whether, in lease transactions with its customers, LOC was required to
collect sales tax on the values attributable to vehicle trade-in credits.
FACTS AND PROCEDURAL HISTORY
LOC is an Indiana corporation that operates an automobile dealership in Elkhart, Indiana.
During the years at issue, LOC leased vehicles it owned to its
customers. As part of the lease transactions at issue, its customers traded
in vehicles they owned (trade-ins) for which they received credit against the lease
principal. LOC did not collect sales tax from its customers on the
amount credited to the customer for the trade-ins.
The Department subsequently audited LOC and determined that, for the years at issue,
LOC should have collected sales tax on the vehicle trade-in credits. As
a result, the Department issued proposed assessments on that deficiency. LOC protested
the assessment; the Department issued a Letter of Findings upholding the assessment on
February 17, 1999. LOC paid the sales tax and filed a claim
for refund on August 30, 1999. On September 10, 1999, the Department
denied LOCs claim for refund.
LOC initiated an original tax appeal on October 14, 1999. A trial
was held on July 10, 2000, and the Court heard the parties oral
arguments on February 9, 2001. Additional facts will be supplied as necessary.
ANALYSIS AND OPINION
Standard of Review
Final determinations of the Department are subject to de novo review. Snyder
v. Indiana Dep't of State Revenue, 723 N.E.2d 487, 488 (Ind. Tax Ct.
2000), review denied. The Court is therefore not bound by either the
evidence presented or the issues raised at the administrative level. Id.
Indiana imposes an excise tax, known as the state gross retail tax (sales
tax), on retail transactions made in Indiana. Ind. Code Ann. §
6-2.5-2-1 (West 2003). The parties do not dispute that LOC made retail
transactions when it leased vehicles to its customers.
Sales tax is measured by the gross retail income received by a retail
Ind. Code Ann. § 6-2.5-2-2(a) (West Supp. 2003). During the
years at issue, gross retail income was defined as the total gross receipts,
of any kind or character, received in a retail transaction, except that part
of the gross receipts attributable to  the value of any tangible personal
property received in a like kind exchange in the retail transaction[.] Ind.
Code Ann. § 6-2.5-1-5(a)(1) (West 1995) (amended 2003) (emphasis added). In turn,
Indiana Code § 6-2.5-1-6(a)(1) defined a like kind exchange as the reciprocal exchange
of personal property between two (2) persons  when  the property exchanged
is of the same kind or character, regardless of grade or quality[.]
Ind. Code Ann. § 6-2.5-1-6(a)(1) (West 1995)
LOC contends that the Department erroneously determined that the amounts attributable to the
trade-in vehicles and credited in its lease transactions constituted gross retail income subject
to sales tax. Specifically, it asserts that the trade-ins constituted a like
kind exchange and therefore the amount of the credits should be excluded from
its gross retail income under Indiana Code § 6-2.5-1-5(a)(1). The Department claims,
on the other hand, that LOCs customers merely received a contract (the lease)
in exchange for their trade-in. Accordingly, it asserts that the exchange of
property is not of the same kind or character and the value credited
for the trade-ins is taxable. (See Oral Argument Tr. at 16, 26.)
Thus, the parties assert different interpretations as to the meaning of a
like kind exchange.
The foremost goal of statutory construction is to determine and give effect to
the true intent of the legislature. Caylor-Nickel Clinic, P.C. v. Indiana Dep't
of State Revenue, 569 N.E.2d 765, 768 (Ind. Tax Ct. 1991), affd, 587
N.E.2d 1311 (Ind. 1992). To determine the legislatures intent, the words of
a statute must be read in their plain, ordinary, and usual sense.
Id. As previously stated, Indiana Code § 6-2.5-1-6(a)(1) defines like kind exchange
as the reciprocal exchange of personal property . . . of the same
kind[.] A.I.C. § 6-2.5-1-6(a)(1). Kind is defined as the equivalent of
what has been offered or received[.] Websters Third New Intl Dictionary 1243
(1981). Equivalent is defined as corresponding or virtually identical esp[ecially] in effect
or function[.] Id. at 769. Therefore, property of the same kind in
a like kind exchange is property that is virtually identical in effect or
function to the property offered or received.
In addition to examining the plain meaning of the words at issue, the
Court also looks to the substance of the transaction in its interpretation of
the term same kind. See Mason Metals Co., Inc. v. Indiana Dep't of
State Revenue, 590 N.E.2d 672, 675 (Ind. Tax Ct. 1992) (stating that the
substance, rather than the form, of transactions determines their tax consequences). In
so doing, the Court concludes that the exchange between the parties in this
case essentially involves vehicles: the customer receives a vehicle in exchange for
a vehicle (and money). The exchange of vehicles is merely facilitated through
a lease contract. Accordingly, the Court determines that the value attributable to
the trade-ins is nontaxable under Indiana Code § 6-2.5-1-5 and -6.
Thus, the Court REVERSES and REMANDS the final determination of the Department.
The Department is ordered to refund the amount of sales tax LOC paid
on the trade-in values for the tax years 1995-97, plus any penalties and
interest related thereto.
The Court offers this simple hypothetical: the agreed amount of the
lease is $23,000; the credit for a trade-in vehicle is $5,000. LOC
charged its customers sales tax on $18,000. The Department assessed sales tax
on the entire $23,000.
See Ind. Code Ann. § 6-2.5-4-10 (West 1995) (stating that [a]
person . . . is a retail merchant making a retail transaction when
he . . . leases tangible personal property to another person).
As additional support for this finding, the Court notes that effective July
1, 1997, the legislature enacted a statute exempting from sales tax the value
of a trade-in vehicle in a lease transaction if the trade-in vehicle is
exchanged for a like kind vehicle.
See Ind. Code Ann. § 6-2.5-5-38.2
(West 2003). While this statute was not in effect for the years
at issue in this case, the Court concludes that it evidences the legislatures
intent to clarify that the exchange of a trade-in vehicle in lease transactions
is a like kind exchange and therefore exempt. See, e.g., Monarch Steel
Co., Inc. v. State Bd. of Tax Commrs, 545 N.E.2d 1148, 1152-53 (Ind.
Tax Ct. 1989) (explaining that when a statute has been amended to define
a term, and no prior statutory definition existed, it is probable that the
legislature was clarifying the statute to express its original intent).
It appears from the Departments Letter of Findings that it imposed penalties
because [t]he taxpayer did not pay sales tax on such items as consumables
and magazines, nor did the taxpayer collect use tax[,] and not for its
failure to collect sales tax on the trade-in values at issue in this
case. (Joint Ex. 1-A.) Because these penalties relate to an issue
not presented to this Court, LOC is entitled to a refund of the
penalties and interest imposed against it with respect to the sales tax on
the trade-in vehicles only.