ATTORNEY FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
MARY L. DAVIDSON STEVE CARTER
OBRIEN & DAVIDSON ATTORNEY GENERAL OF INDIANA
Noblesville, IN Indianapolis, IN
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
ERIC HOWLAND, )
v. ) Cause No. 49T10-9611-TA-168
INDIANA DEPARTMENT OF )
STATE REVENUE, )
ON APPEAL FROM A FINAL DETERMINATION
OF THE INDIANA DEPARTMENT OF STATE REVENUE
June 19, 2003
Eric Howland (Howland) appeals the Indiana Department of State Revenues (Department) imposition of
Indianas gross retail and use tax (sales tax) on money he received from
installing satellite dishes during the 1991-1993 calendar years (years at issue). The
sole issue in this case is whether Howlands sale and installation of those
satellite dishes are taxable retail unitary transactions.
FACTS AND PROCEDURAL HISTORY
During the years at issue, Howland was the sole proprietor of Total Home
Entertainment in Whiteland, Indiana. Approximately 95% of Howlands business consisted of selling
and installing satellite dish systems. Typically, a customer would select a satellite
system and then one of Howlands sales staff would visit the location where
the equipment was to be installed in order to determine the extent of
the installation services required. At that point, a sales contract was drawn
up, listing the type of system and satellite programming chosen, the total cost
to the customer, and the terms of payment. The contracts did not
separate the installation charges from the charges for the cost of the materials
or from the amount of sales tax imposed on the materials, but combined
all charges into one total price.
Furthermore, all contracts allowed for a recission period, meaning that once Howlands customers
selected their system equipment of choice and either made a down payment and/or
received financing approval, they had three days to back out of the purchase.
After three days, Howland would deliver and install the equipment. Installation
was generally completed within two days to one week after the end of
the recission period.
In 1994, after completing an audit, the Department determined that Howland had been
deficient in collecting sales tax from his customers. More specifically, the Department
determined that not only was the cost of the satellite dish equipment subject
to sales tax, but the money Howland received for his installation services was
also taxable on the basis that it was money received in a retail
unitary transaction. Consequently, the Department sent Howland a notice of proposed assessment
of approximately $150,000.
On January 13, 1995, Howland protested the proposed assessment. After holding an
administrative hearing, the Department, in a Letter of Findings dated May 24, 1996,
denied Howlands protest.
Howland initiated this original tax appeal on November 20, 1996. The Court
conducted trial on the matter on February 7, 2000. The parties presented
their oral arguments on November 9, 2000. Additional facts will be supplied
STANDARD OF REVIEW
The Court reviews final determinations of the Department de novo. Ind. Code
§ 6-8.1-5-1(h). 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.
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 Dept
of Revenue, 748 N.E.2d 449, 452 (Ind. Tax Ct. 2001).
DISCUSSION AND ANALYSIS
Indiana imposes an excise tax, known as the state sales tax, on retail
transactions made within the state. Ind. Code § 6-2.5-2-1. A taxable
retail transaction is 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 6-2.5-1-2(a).
Because selling at retail requires the transfer of tangible personal property, see Indiana
Code § 6-2.5-4-1(b)(2), the sale of services generally falls outside the scope of
taxation because no transfer of tangible personal property occurs.
As a practical matter, however, many sales transactions involve both the transfer of
tangible personal property and the provision of services. For these mixed transactions,
distinguishing the taxable sale of property from the non-taxable sale of services is
often difficult. Accordingly, the legislature set forth parameters for imposing sales tax
on mixed transactions. First, taxable property does not escape taxation merely because
it is transferred in conjunction with the provision of non-taxable services. Ind.
Code § 6-2.5-4-1(c)(2). Second, services, which generally are outside the scope of
taxation, are subject to sales 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. Ind. Code
§ 6-2.5-4-1(e)(2) (emphases added). Third, services are also subject to sales tax
when they are provided in the course of a retail unitary transaction, a
that is also a retail transaction. Ind. Code § 6-2.5-1-2(b)
(footnote added). In this case, the Department maintains that Howlands installation services
are taxable because, when rendered in conjunction with the sale of the satellite
dish equipment, they constitute a retail unitary transaction.
As this Court has previously explained, services rendered in retail unitary transactions are
taxable only if the transfer of property and the rendition of services are
inextricable and indivisible. Cowden & Sons Trucking, Inc. v. Indiana Dept of
State Revenue, 575 N.E.2d 718, 722 (Ind. Tax Ct. 1991) (citing Indiana Dept
of State Revenue v. Martin Marietta Corp., 398 N.E.2d 1309, 1312 (Ind. App.
Ct. 1979)). In turn, 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 Ind. Code § 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); Frame Station, Inc. v. Indiana Dept of State Revenue, 771 N.E.2d
129, 131 (Ind. Tax Ct. 2002). Services provided after a transfer of
property, however, indicate a divisible transaction in which the sale is taxed but
the services are not. Accordingly, the issue in this case turns on
whether Howlands installation services were performed before or after he transferred title to
the satellite dish equipment to his customers.
Howland argues that he installs a customers satellite dish equipment after he
transfers the property to the customer. Indeed, he testified at trial that
he generally considered a transaction to be complete upon delivery of the equipment
to the customer. (See Trial Tr. at 35.) In other words,
Howland considered title to the satellite dish equipment to transfer to the customer
once the equipment was delivered, but before it was installed and working.
Nevertheless, [i]t is a general rule . . . that in case of
sale of personal property, where any act remains to be done before the
sale is complete, the title remains in the seller. Farmers Natl Bank
of Sheridan v. Coyner, 88 N.E. 856, 858 (Ind. Ct. App. 1909).
This has been explained to mean . . . that where something is
to be done by the seller to ascertain the identity, quantity, or quality
of the thing sold, or to put it in the condition which the
terms of the contract require, the title does not pass. Id.
In the present case, the evidence shows that Howlands customers paid one price
for the purchase and installation of equipment. Howlands customers therefore expected him
to install the satellite system equipment and to put it in the condition
of workability as a term of the contract. Until that was accomplished,
title did not pass to the customers, but rather remained in Howland.
See id. Therefore, Howlands installation services were performed prior to the transfer
of the property and are subject to sales tax because they constitute retail
unitary transactions under Indiana Code § 6-2.5-4-1(e).
For the foregoing reasons, the Court AFFIRMS the Departments imposition of sales tax
against Howlands charges for installation services. Nevertheless, the Court REMANDS the
matter to the Department for a supplemental audit.
A unitary transaction is a transaction that 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 § 6-2.5-1-1(a) (emphasis added). Howlands transactions with his customers are clearly
unitary transactions because he furnished a single sales contract charging one undivided price:
a total calculated to include the combined costs of the materials, the
sales tax on the materials, and the cost of installing the materials.
When the services are provided concurrently with the transfer of property,
the Court looks 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.
Sons Trucking, Inc. v. Indiana Dept of State Revenue, 575 N.E.2d 718, 723
(Ind. Tax Ct. 1991). Such is not the case, however, in this
During trial, there was some confusion as to whether the Department,
in calculating the amount of sales tax owed by Howland, actually calculated a
tax on tax. (
See Trial Tr. at 123-25.) In other words,
the Department recognizes that it may have taken each transaction (which already represented
cost of materials, cost of labor, and applicable sales tax) and multiplied by
5% to determine the amount of sales tax due. Consequently, Howland may
have been twice charged sales on the same transactions. The Court therefore
remands case for a supplemental audit.