DAVID I. RUBIN    Indianapolis, IN
Indianapolis, IN     JOEL SCHIFF
    Indianapolis, IN

LINVILLES’ OLDS-CADILLAC, INC.,                                   )
    Petitioner,                                                             )
    v.                                                                      )   Cause No. 49T10-9910-TA-202
INDIANA DEPARTMENT OF                                                       ) 
STATE REVENUE,                                                              )
    Respondent.                                                             )    


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 Court’s 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.

    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. See footnote
    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 LOC’s 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.

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. See footnote
Sales tax “is measured by the gross retail income received by a retail merchant[.]” 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 LOC’s 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), aff’d, 587 N.E.2d 1311 (Ind. 1992). To determine the legislature’s 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[.]” Webster’s Third New Int’l 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. See footnote

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. See footnote

Footnote: 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.

Footnote: 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”).

Footnote: 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 legislature’s 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 Comm’rs, 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).

Footnote: It appears from the Department’s 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.