ATTORNEY FOR PETITIONER:
JOSEPH P. MURDOCK
SMITH & MURDOCK
ATTORNEYS FOR THE RESPONDENT:
ATTORNEY GENERAL OF INDIANA
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
THE FRAME STATION, INC., d/b/a/ )
FRAMEMAKERS IV, )
v. ) Cause No. 49T10-9801-TA-8
INDIANA DEPARTMENT OF )
OF STATE REVENUE, )
ON APPEAL FROM A FINAL DETERMINATION
OF THE INDIANA DEPARTMENT OF STATE REVENUE
July 15, 2002
The Frame Station, Inc., d/b/a Framemakers IV (Framemakers), appeals the December, 1, 1997
determination of the Indiana Department of State Revenue (Department) denying Framemakers claim for
a $9,155.54 sales and use tax refund for the 19931995 tax years.
The sole issue is whether Framemakers sale of custom-framed art constitutes a retail
unitary transaction and is thereby subject to Indianas gross retail and use tax
For the following reasons, the Court holds that Framemakers transactions are taxable and
therefore AFFIRMS the Departments final determination.
FACTS AND PROCEDURAL HISTORY
Framemakers provides custom framing services. Specifically, it frames its customers art in
frames that it has built or special ordered. When Framemakers bills its
customers, it records separate subtotals on the invoices: one for the service
of framing the art and the other for the frame itself.
During the tax years in question, Framemakers customers paid no money in advance
for custom framing. Rather, they paid a total price for the framing
service and frame when they picked up the completed project. At that
time, Framemakers collected sales tax only on the price of the frame itself,
not on the price for framing the art.
As a result of a subsequent audit, the Department determined that Framemakers custom
framing services were also subject to sales tax because both the sale of
the frame and the service of framing the art constituted a retail unitary
transaction under Indiana Code Section 6-2.5-4-1(e). Consequently, the Department submitted a Demand
Notice for Payment to Framemakers for sales and use tax, penalties, and interest
in the amount of $9,155.54 for the 19931995 tax years.
Framemakers protested the proposed assessment. The Department held a hearing on July
31, 1997 and subsequently denied Framemakers protest. Framemakers paid the assessment and
filed a claim for a refund, which the Department denied on December 1,
1997. Framemakers appealed the denial to this Court. A trial was
held on September 24, 1998. The parties presented oral arguments on May
24, 1999. Additional facts will be supplied as needed.
ANALYSIS AND OPINION
Standard of Review
The Court reviews final determinations of the Department de novo and is not
bound by the evidence or the issues presented at the administrative level.
Salin Bancshares, Inc. v. Indiana Dept of Revenue, 744 N.E.2d 588, 591 (Ind.
Tax Ct. 2000). Although a statute that imposes a tax is strictly construed
against the State, the burden of proving that a 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).
The sole issue is whether Framemakers custom-framing transactions constitute retail unitary transactions.
A unitary transaction 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) (1998). However,
as defined, a unitary transaction provides no basis for taxation. See id;
see also Indiana Dept of State Revenue v. Martin Marietta Corp., 398 N.E.2d
1309, 1312 (Ind. Ct. App. 1979) (citing Op. Atty Gen. No. 5, 1012
(1972)). Rather, the legislature imposes sales tax on any unitary transaction that
is a retail transaction, i.e., a retail unitary transaction. Ind. Code §§
6-2.5-1-2(b); 6-2.5-4-1(e) (1998). 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 and which are separately stated on the transferors records.
Ind. Code § 6-2.5-4-1(e) (emphasis added). In other words, Indiana Code Section
6-2.5-4-1(e) permits the imposition of sales tax on otherwise non-taxable services when the
services are performed with respect to property prior to the transfer of the
property to the transferee. Cowden & Sons Trucking, Inc. v. Indiana Dept of
State Revenue, 575 N.E.2d 718, 722 (Ind. Tax Ct. 1991) (holding that a
retail unitary transaction exists when the transfer of the property and rendition of
services are inextricable and indivisible); Martin Marietta, 398 N.E.2d at 1311.
Accordingly, the issue in the instant case turns on whether Framemakers services were
performed before or after it transferred property to its customers. Framemakers argues
that it frames a customers art after it transfers the frame to the
customer, and therefore its services are not subject to sales tax. The
Department, however, contends that Framemakers frames a customers art before it transfers the
frame to the customer.
At trial, Framemakers owner, Uldis E. Augenberg, testified that he considers a transaction
to be made when customers order a custom frame for their art.
(Trial Tr. at 14.) Hence, Framemakers claims that it performs its services
after it transfers the frame to the customer. (See Petr Reply Br.
at 4.) The Court disagrees.
The transfer of property occurs when the buyer (1) agrees to buy property
from a seller, (2) pays the purchase price, and (3) takes ownership and
possession of the property.
See Webb v. Clark County, 159 N.E. 19,
2021 (Ind. Ct. App. 1927). In this case, the evidence shows that
customers pay the total price for their framed art when they pick it
up, after all framing services have been performed.
See footnote (Petr Exs. 13, 10,
13; Trial Tr. at 25, 37.) Therefore, Framemakers services are performed prior
to the transfer of property and constitute taxable retail unitary transactions under Indiana
Code Section 6-2.5-4-1(e).
See I.C. § 6-2.5-4-1(e); see also Cowden, 575 N.E.2d
at 722; Martin Marietta, 398 N.E.2d at 1311. Thus, the Court AFFIRMS
that the Departments imposition of sales tax against Framemakers service charges.
For the foregoing reasons, the Court AFFIRMS the Departments final determination.
Framemakers also argues that its custom frames are not retail unitary transactions
because it computes separate subtotals for its frames and its services on its
customer invoices. The Court finds no merit in Framemakers argument. The
legislature did not intend to subject transactions to taxation depending on a method
Indiana Dep't of State Revenue v. Martin Marietta Corp., 398
N.E.2d 1309, 1312 (Ind. Ct. App. 1979). Accordingly, Framemakers method for computing the
total price of a custom frame job is irrelevant to whether its services
are part of a retail unitary transaction.
Framemakers introduced into evidence an invoice for the repair of a customers
damaged frame. (Petr Ex. 4.) The Department, however, concedes that the repair
of a customers frame is a non-taxable service. (Oral Argument Tr. at