ATTORNEYS FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
N. KENT SMITH
CHRISTOPHER C. EADES
ATTORNEY GENERAL OF
JAMES M. SHAFER AMBER MERLAU ST.AMOUR
HALL, RENDER, KILLIAN, HEATH &
DEPUTY ATTORNEY GENERAL
LYMAN, P.S.C. Indianapolis, IN
INDIANA TAX COURT
CARNAHAN GRAIN, INC., )
v. ) Cause No. 49T10-0403-TA-14
INDIANA DEPARTMENT OF )
STATE REVENUE, )
ORDER ON PARTIES CROSS-MOTIONS
FOR SUMMARY JUDGMENT
June 1, 2005
Carnahan Grain, Inc. (Carnahan) appeals the final determination of the Indiana Department of
State Revenue (Department) assessing it with additional sales and use tax for the
1999 and 2000 tax years (years at issue). The matter is currently
before the Court on the parties cross-motions for summary judgment. The issue
for the Court to decide is whether Carnahan is entitled to a public
transportation exemption for equipment it predominantly uses to transport agricultural commodities owned by
FACTS AND PROCEDURAL HISTORY
Carnahan is a grain and agricultural commodities dealer located in Edwardsport, Indiana.
A significant portion of Carnahans operations is devoted to the public transportation of
agricultural commodities. Specifically, Carnahan hauls tomato freight, tomato plant freight and other
tomato products for Red Gold Farms, Inc., as well as crops for other
third parties such as the Hammelman and Lenderman Farms. Although Carnahan is
primarily engaged in the transportation of commodities owned by third parties, it also
transports some of its own property.
In 2002, the Department completed an audit of Carnahan, determining that Carnahan owed
use tax on the following items: semi-tractors, flatbed trailers, tub containers for
tomatoes, truck repair parts and supply items, diesel fuel, a grader, a skid
loader, repair parts for the skid loader, and tools.See footnote The Department issued
proposed assessments of $11,392.27, plus interest and a 10% negligence penalty for the
1999 tax year, and $14,531.35, plus interest and a 10% negligence penalty for
the 2000 tax year.
Carnahan protested the assessments and the Department held a hearing on August 7,
2003. On September 18, 2003, the Department issued a Letter of Findings
denying Carnahans protest. Carnahans subsequent request for rehearing was also denied.
On March 15, 2004, Carnahan initiated an original tax appeal. The parties
filed cross-motions for summary judgment on January 31, 2005. The Court conducted
a hearing on the parties motions on May 2, 2005. Additional facts
will be supplied as necessary.
STANDARD OF REVIEW
This Court reviews the Departments determinations de novo. Ind. Code Ann. §
6-8.1-5-1(h) (West 2005). Therefore, the Court is bound by neither the evidence
presented nor the issues raised at the administrative level. Snyder v. Indiana
Dept of State Revenue, 723 N.E.2d 487, 488 (Ind. Tax Ct. 2000), review
denied. A motion for summary judgment will be granted only when there
is no genuine issue of material fact and the moving party is entitled
to judgment as a matter of law. Ind. Trial Rule 56(C).
Cross-motions for summary judgment do not alter this standard. Snyder, 723 N.E.2d
Indiana imposes a state gross retail tax (sales tax) on retail transactions made
in Indiana. Ind. Code Ann. § 6-2.5-2-1(a) (West 1999). Indiana also
imposes a use tax which is the functional equivalent of the sales
tax on the acquisition of certain non-exempt tangible personal property that escapes
sales tax, usually because the property was acquired in a transaction that occurred
outside of Indiana. See Ind. Code Ann. § 6-2.5-3-2(a) (West 1999).
See also Rhoade v. Indiana Dept of State Revenue, 774 N.E.2d 1044, 1047-48
(Ind. Tax Ct. 2002).
Indiana Code § 6-2.5-5-27 provides that [t]ransactions involving tangible personal property and services
are exempt from the state gross retail tax, if the person acquiring the
property or service directly uses or consumes it in providing public transportation for
persons or property.
Ind. Code Ann. § 6-2.5-5-27 (West 1999) (footnote added).
A carrier provides public transportation when it move[s], transport[s], or carr[ies] 
persons and/or property for consideration. Ind. admin. Code tit. 45, r. 2.2-5-61
(1996) (emphasis added). Accordingly, in order to be entitled to the public
transportation exemption, a taxpayer must be predominantly engaged in transporting the property of
another, rather than its own property. See Meyer Waste Sys., Inc. v.
Indiana Dept of State Revenue, 741 N.E.2d 1, 5 (Ind. Tax Ct. 2000),
Carnahan argues that it is entitled to the public transportation exemption for the
use of its tractor-trailers and related equipment during the years at issue.
The Department concedes that this equipment was predominantly used in transporting property for
third parties. (See [Respt] Br. in Supp. of its Mot. For Summ.
J. at 7 (hereinafter Respt Br.).) Nevertheless, the Department argues that Carnahan
is not entitled to the public transportation exemption because it is not, as
a business, predominantly engaged in transporting property for third parties.
See footnote (
Br. at 7-8) (footnote added).)
According to the Department, this Courts decision in Panhandle Eastern Pipeline Co. v.
Indiana Department of State Revenue requires it to look at both the use
of the property and the business of the taxpayer as a whole in
determining predominant use. Specifically, the Department claims that the Court set forth
a two-prong test when it stated:
If a taxpayer acquires tangible personal property for predominate use in providing public
transportation for third parties, then it is entitled to the exemption. If
a taxpayer is not predominately engaged in transporting the property of another, it
is not entitled to the exemption.
Panhandle E. Pipeline Co. v. Indiana Dept of State Revenue, 741 N.E.2d 816,
819 (Ind. Tax Ct. 2001), review denied. Under the Departments reading of
Panhandle, therefore, a taxpayer is required to: (1) predominantly use the property
for third-party hauling; and (2) be predominantly engaged, as a business, in hauling
for third parties. (See Respt Br. at 7.) The Department, however,
has misinterpreted Panhandle.
In Panhandle, the sole issue before the Court was whether a taxpayer
engaged in hauling for both itself and third parties was entitled to a
100% exemption, rather than a partial exemption based on the percentage of predominant
use. See Panhandle, 741 N.E.2d at 817. This Court held that
the public transportation exemption is an all-or-nothing exemption; therefore, if a taxpayers property
is predominantly used for hauling third-party property, the taxpayer is entitled to a
100% exemption despite the fact that the property is also used for non-exempt
purposes. See id. at 819.
Nowhere in the Panhandle opinion did the Court address whether Panhandle, as a
business, was predominantly engaged in providing public transportation for third-party property. Rather,
the Court only looked at Panhandles use of the property for which it
claimed the exemption. See id. Satisfied that the property was predominantly
used to provide transportation for third parties, the Court held that Panhandle was
entitled to the exemption. See id. In other words, the Courts
holding rested entirely on Panhandles use of the property.
Accordingly, when read in context with the rest of the Panhandle opinion, the
language cited by the Department simply does not create a two-prong test.
As Carnahan correctly posits, the second sentence (i.e., the supposed second prong) was
merely intended to reiterate the first sentence. (See Hrg Tr. at 10.)
Stated differently, the two sentences represent two sides of the same coin,
both focusing on the use of the property. If, on the one
hand, the property is used predominantly for third-party public transportation, then the taxpayer
is entitled to the exemption. Conversely, if the property is not predominantly
used for third-party public transportation (i.e., it is predominantly used to transport the
taxpayers own property), then the taxpayer is not entitled to the exemption.
Not only is the Departments reading out of step with the rest of
the Panhandle opinion, it is also inconsistent with prior cases applying the public
transportation exemption. Those cases have uniformly held that it is the predominant
use of the property that determines whether or not the taxpayer is entitled
to the public transportation exemption.
See footnote Nevertheless, the Department states that the Tax
Court has previously looked at the taxpayers total income versus the taxpayers income
from the exempt activity to determine whether the taxpayer qualifies for the public
transportation exemption. ([Respt] Br. in Resp. to [Petr] Mot. for Summ. J.
at 6 (citing
Indiana Waste Sys. of Indiana, Inc. v. Indiana Dept of
State Revenue, 644 N.E.2d 960, 962 (Ind. Tax Ct. 1994).) This statement,
while technically accurate, requires some context.
In Indiana Waste, the taxpayers only line of business was hauling garbage.
See Indiana Waste, 644 N.E.2d at 961. The taxpayer hauled both garbage
it owned and garbage owned by third parties. See id. Accordingly,
because the taxpayers income was derived solely from hauling, the Court was able
to look at its total income versus its income from third-party hauling to
determine whether the property was being used predominantly for third-party public transportation.
See id. at 962. The Court did not look at the taxpayers
total income to assess the nature of the taxpayers business as a whole.
See id. (The question of [the taxpayers] predominant use of the equipment
is the only material factual question in this case) (emphasis added). Consequently,
the Departments position derives no support from this case.
A more apt comparison can be drawn between the case at hand and
a 1979 decision of the Indiana Court of Appeals. See Indiana Dept
of State Revenue v. Calcar Quarries, Inc., 394 N.E.2d 939 (Ind. Ct. App.
1979). In that case, the taxpayer, like Carnahan, was engaged in multiple
lines of business. In addition to hauling road construction materials, Calcar also
operated a stone quarry, a hot mix asphalt plant, and a ready mix
concrete facility. See Calcar, 394 N.E.2d at 940. Calcars evidence demonstrated
that approximately 90% of the crushed stone it hauled went to the job
sites of third parties rather than to its own job sites. See
id. at 941. Accordingly, the court held that it was entitled to
the exemption. Id.
In reaching its decision in Calcar, the court focused solely on the use
of the property, stating that when an item has been used for several
purposes and only some of the purposes qualify the item for exemption, the
taxpayer can gain exemption for the total amount of the purchase price of
the item by showing that the item was used predominantly in an exempt
manner. Id. at 941 n.1. The court did not consider or
address the taxpayers other lines of business in that case. This Court
will not do so here either.
See footnote Accordingly, because Carnahan predominantly used the
property at issue for transporting agricultural commodities owned by third parties, it is
entitled to the public transportation exemption.
For the above stated reasons, the Court GRANTS Carnahans motion for summary judgment
and DENIES the Departments motion for summary judgment.
SO ORDERED this 1st day of June, 2005.
Thomas G. Fisher, Judge
Indiana Tax Court
N. Kent Smith
Christopher C. Eades
James M. Shafer
Hall, Render, Killian, Heath & Lyman, P.S.C.
One American Square, Suite 2000
Indianapolis, IN 46282
Attorney General of Indiana
By: Amber Merlau St.Amour
Deputy Attorney General
Indiana Government Center South, Fifth Floor
302 West Washington Street
Indianapolis, IN 46204
Based upon total miles traveled, Carnahan hauled property owned by third parties
82% of the time during the 1999 tax year and 72% of the
time during the 2000 tax year.
Footnote: The Department also determined that Carnahan owed use tax on an
automobile, gasoline, and other supply items. In addition, it determined that Carnahan
was liable for sales tax on rental payments it received from Michael Carnahan,
president of the company, for the rental of pickup trucks. Although Carnahan
initially included these items in its protest, it subsequently withdrew its protest with
respect to these items. (
See [Petr] Br. in Resp. to [Respt] Mot.
for Summ. J. at 7 n.1; see also Hrg Tr. at 7-8, 35-36.)
Specifically, the items withdrawn by Carnahan are designated as items J and
K in Carnahans reply to the Departments response brief. (See [Petr] Reply
to [Respt] Resp. to Mot. for Summ. J. at 2; see also Petr
Ex. A.) Accordingly, the Court GRANTS the Departments motion for summary judgment
with respect to these items.
Likewise, tangible personal property is exempted from the use tax if the
property was acquired in a transaction that is wholly or partially exempt from
the sales tax under any part of Indiana Code § 6-2.5-5, including the
public transportation exemption set forth by Indiana Code § 6-2.5-5-27.
Code Ann. § 6-2.5-3-4(a)(2) (West 1999).
The Department argues that Carnahan received only approximately 22% of its total
income from the hauling of third parties property during the years at issue.
See [Respt] Br. in Supp. of its Mot. for Summ. J. at
See, e.g., Meyer Waste Sys., Inc. v. Indiana Dept of State Revenue,
741 N.E.2d 1, 5 (Ind. Tax Ct. 2000), review denied; Indiana Waste Sys.
of Indiana, Inc. v. Indiana Dept of State Revenue, 644 N.E.2d 960, 961
(Ind. Tax Ct. 1994); Natl Serv-All, Inc. v. Indiana Dept of State Revenue,
644 N.E.2d 954, 956 (Ind. Tax Ct. 1994); Indiana Dept of State Revenue
v. Calcar Quarries, Inc., 394 N.E.2d 939, 941 n.1 (Ind. Ct. App. 1979).
Both parties have submitted arguments regarding what business Carnahan is predominantly engaged
in and what type of analysis should be used in order to make
that determination. Because the Court holds that the relevant inquiry is the
use of the property at issue rather than the nature of the taxpayers
business, it is not necessary to address those arguments.
But see supra note 2.