ATTORNEYS FOR PETITIONER
RANDALL J. KALTENMARK
LARRY J. STROBLE
BARNES & THORNBURG
ATTORNEYS FOR THE RESPONDENT
ATTORNEY GENERAL OF INDIANA
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
BRADLEY J. RHOADE, )
COMPANY, Successor in Merger with
v. ) Cause No. 49T10-9902-TA-6
INDIANA DEPARTMENT OF )
STATE REVENUE, )
ON APPEAL FROM A FINAL DETERMINATION OF
THE INDIANA DEPARTMENT OF STATE REVENUE
September 6, 2002
Bradley J. Rhoade appeals the December 29, 1998 order of the Indiana Department
of State Revenue (Department) that denied his claim for a refund of Indianas
use tax in the amount of $878.27. This matter is before the
Court on Rhoades motion for summary judgment and the Departments motion for judgment
on the pleadings. The parties raise various issues, which the Court restates
I. Whether Rhoade is exempt from paying Indianas use tax because he already paid
Floridas sales tax on the purchase price of his vehicle; and
II. Whether imposition of the Indiana use tax on a vehicle for which another
states sales tax has been paid violates the Commerce Clause.
For the reasons stated below, the Court DENIES Rhoades motion for summary judgment
as to Issues I, but GRANTS Rhoades motion for summary judgment as to
Issue II. The Court DENIES the Departments motion for judgment on the
FACTS AND PROCEDURAL HISTORY
No material facts are in dispute. On January 31, 1998, Rhoade, an
Indiana resident, purchased a motor vehicle for $17,265.50 in Florida. At that
time, Rhoade paid 6% Florida sales tax on the purchase price of the
vehicle, or $1,035.93. On April 20, 1998, when Rhoade titled the vehicle
in Indiana, Rhoade was assessed 5% Indiana use tax on the purchase price,
See footnote On October 22, 1998, Rhoade filed a Claim for Refund
of Indiana Use Tax with the Department for $878.27 and statutory interest.
On December 29, 1998, the Department denied Rhoades claim.
On February 1, 1999, Rhoade initiated an original tax appeal. On July
14, 1999, Rhoade filed a motion for summary judgment. On that same
date, the Department filed a motion for judgment on the pleadings. On
November 24, 1999, the parties presented oral arguments. Additional facts will be
supplied as necessary.
ANALYSIS AND OPINION
Standard of Review
This Court reviews final determinations of the Department de novo and is therefore
bound by neither the evidence nor the issues raised at the administrative level.
Ind.Code § 6-8.1-9-1(d); Anderson v. Indiana Dept of State Revenue, 758 N.E.2d
597, 600 (Ind. Tax Ct. 2001), review denied, petition for cert. filed, 71
U.S.L.W. 3137 (U.S. Aug. 2, 2002) (No. 02-184). This Court will grant
a motion for summary judgment only when there are no genuine issues of
material fact and the moving party is entitled to judgment as a matter
of law. Ind. Trial Rule 56(C); Anderson, 758 N.E.2d at 600.
A party moving for judgment on the pleadings admits, for the purposes of
the motion, all facts well pleaded and the untruth of his own allegations
which have been denied. Riley at Jackson Remonstrance Group v. Indiana State
Bd. of Tax Commrs, 642 N.E.2d 562, 565 (Ind. Tax Ct. 1994) (internal
quotation marks omitted). Further, all reasonable intendments and inferences are to be
taken against the movant. Id. (internal quotation marks and punctuation omitted).
Accordingly, a motion for judgment on the pleadings should be granted only when:
1) the pleadings present no material issues of fact, and 2) the
facts as shown by the pleadings entitle one party to judgment. Id.
I. Indianas Use Tax
The first issue is whether Rhoade is exempt from paying Indianas use tax
because he has already paid Floridas sales tax on the purchase price of
his vehicle. Rhoade argues that Indiana Code Section 6-2.5-3-6(d) entitles him to
such an exemption because he has offered proof that he paid Floridas sales
tax. Indiana Code Section 6-2.5-3-6(d) provides that:
a person liable for the use tax imposed in respect to a vehicle,
watercraft, or aircraft under section 2(b) of this chapter shall pay the tax:
(1) to the titling agency when the person applies for a title for
the vehicle or the watercraft; or
(2) to the registering agency when the person registers the aircraft;
unless the person presents proof to the agency that the use tax or
state gross retail tax has already been paid with respect to the purchase
of the vehicle, watercraft, or aircraft or proof that the taxes are inapplicable
because of an exemption under this article.
Ind. Code § 6-2.5-3-6(d) (1998). The Department argues, on the other hand,
that Indiana Code Section 6-2.5-3-5(b) indicates the Legislatures intent to impose the Indiana
use tax on vehicles purchased in other states that are required to be
titled for use in Indiana. Indiana Code Section 6-2.5-3-5(b) provides that:
[t]he credit [against the use tax imposed on the use, storage, or consumption
of a particular item of tangible personal property equal to the amount, if
any, of sales tax, purchase tax, or use tax paid to another state
for the acquisition of that property] does not apply to the use tax
imposed on the use, storage, or consumption of vehicles . . . that
are required to be titled, registered, or licensed by Indiana.
Ind. Code § 6-2.5-3-5(b) (1998).
In general, states impose a use tax out of two concerns: (1)
that local merchants will lose business if taxpayers purchase goods out-of-state to avoid
sales tax liability and (2) that the state will lose tax revenue if
taxpayers purchase goods out-of-state. Jerome R. Hellerstein & Walter Hellerstein, 2 State
Taxation § 16.01 (3d ed. 2000). To deal with this potential loss
of business and revenue, states enacted complementary or compensating use taxes on the
use of goods purchased outside of the state and brought into the state
for use. Id. (footnote deleted). A use tax is functionally equivalent
to a sales tax and is typically levied upon the use, storage, or
other consumption in the state of tangible personal property that has not been
subjected to a sales tax. Id.
Indianas use tax
(a) . . . is imposed on the storage, use, or consumption of
tangible personal property in Indiana if the property was acquired in a retail
transaction, regardless of the location of that transaction or of the retail merchant
making that transaction.
(b) The use tax is also imposed on the storage, use, or consumption
of a vehicle, an aircraft, or a watercraft, if the vehicle, aircraft, or
watercraft: II. Commerce Clause
(1) is acquired in a transaction that is an isolated or occasional sale;
(2) is required to be titled, licensed, or registered by this state for
use in Indiana.
Ind. Code § 6-2.5-3-2 (1998). The rate of Indianas use tax is
the same as Indianas sales tax rate. Ind. Code § 6-2.5-3-3 (1998).
See also Ind. Code § 6-2.5-2-2(a) (1998) (imposing a 5% sales tax
rate on purchases of $0.90 or more). Accordingly, Indianas use tax complements
Indianas sales tax to ensure that non-exempt retail transactions (particularly out-of-state retail transactions)
that escape sales tax liability are nevertheless taxed. See USAir, Inc. v.
Indiana Dept of State Revenue, 623 N.E.2d 466, 46869 (Ind. Tax Ct. 1993).
The parties have relied on two different statutes for their respective positions:
Rhoade cites to Indiana Code Section 6-2.5-3-6(d) for the proposition that he is
exempt from Indianas use tax, whereas the Department cites to Indiana Code 6-2.5-3-5(b)
for the proposition that the Legislature did not intend for taxpayers such as
Rhoade to be relieved from paying Indianas use tax. When the Court
considers two or more statutes that relate to the same general subject matter,
it will not read the statutes piecemeal, but rather will read them in
pari materia and construe them harmoniously. Roehl Transport, Inc. v. Indiana Dept
of State Revenue, 653 N.E.2d 539, 542 (Ind. Tax Ct. 1995); Mechanics Laundry
& Supply, Inc. v. Indiana Dept of State Revenue, 650 N.E.2d 1223, 1232
(Ind. Tax Ct. 1995). Moreover, [t]his Court presumes that the Legislature did
not intend to enact a statute that is meaningless or a nullity.
Chrysler Financial Co., LLC v. Indiana Dept Of State Revenue, 761 N.E.2d 909,
916 (Ind. Tax Ct. 2002), review denied.
Indiana Code Section 6-2.5-3-6(d) exempts a taxpayer from Indianas use tax if he
proves that he has already paid the use tax or state gross retail
tax on the purchase of his vehicle. I.C. § 6-2.5-3-6(d). The
statute, however, does not expressly indicate whether the taxes mentioned are any states
taxes or just Indianas. See id. On the other hand, Indiana
Code Section 6-2.5-3-5(b) denies any use tax credit for the payment of another
states sales or use tax when a taxpayer purchases a vehicle out-of-state but
is required to title the vehicle for use in Indiana. I.C. §
6-2.5-3-5(b); Williams v. Indiana Dept of State Revenue, 742 N.E.2d 562, 564 (Ind.
Tax Ct. 2001). Although Rhoade contends that section 6(d) exempts him from
Indianas use tax, an exemption in this instance would be the functional equivalent
of a use tax credit, which Indiana Code Section 6-2.5-3-5(b) does not permit
in the present circumstance. See I.C. § 6-2.5-3-5(b). Indeed, the plain language of
Indiana Code Section 6-2.5-3-5(b) clearly evinces the Legislatures intent not to afford a
use tax credit to taxpayers such as Rhoade, regardless of whether another states
sales or use tax has already been paid. See id.
In short, to adopt Rhoades construction of section 6(d) would render Indiana Code
Section 6-2.5-3-5(b) a nullity. Therefore, in construing both these statutes, the Court
holds that the Legislature intended the phrase the use tax or state gross
retail tax in Indiana Code Section 6-2.5-3-6(d) to refer to Indiana taxes only.
Consequently, Rhoade is not entitled to the relief he seeks under Indiana
Code Section 6-2.5-3-6(d). Accordingly, the Court DENIES Rhoades motion for summary judgment
on this issue.
The second issue is whether imposition of the Indiana use tax on a
vehicle purchased out-of-state for which another states sales tax has already been paid
violates the Commerce Clause of the U.S. Constitution. Rhoade argues that Indianas
use tax discriminates against interstate commerce because Indiana taxpayers who purchase vehicles outside
of Indiana and pay another states sales tax on the purchase are subject
to multiple taxation if they are required to title the vehicle for use
in Indiana. The Department, on the other hand, argues that Indianas use
tax is a facially nondiscriminatory and valid compensatory tax.
The Commerce Clause of the U.S. Constitution grants Congress the power [to] regulate
Commerce . . . among the several States[.] U.S. Const. Art. I,
§ 8 cl. 3. This Court has noted that:
[a]lthough the [Commerce Clause] is silent as to how much economic regulatory power
a state retains, it has been applied to prevent states from discriminating against
out-of-state economic interests or from benefiting in-state interests. The U.S. Supreme Court
has rejected the view, however, that interstate commerce is immune from state taxation.
Consequently, a state tax will withstand a Commerce Clause challenge if it
(1) is applied to an activity with a substantial nexus with the taxing
state, (2) is fairly apportioned, (3) does not discriminate against interstate commerce, and
(4) is fairly related to the services provided by the State.
Anderson, 758 N.E.2d at 601 (citing Complete Auto Transit, Inc. v. Brady, 430
U.S. 274, 279, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977), rehg denied) (other
Rhoade claims that Indianas use tax statute violates the third prong, or the
discrimination prong, of the four-prong test in Complete Auto Transit. A state
tax impermissibly discriminates against interstate commerce if it provides a direct commercial advantage
to local business. Boston Stock Exchange v. State Tax Commn, 429 U.S.
318, 329 (1977) (internal quotation marks omitted). In particular, a state tax
impermissibly discriminates against interstate commerce when the states taxing power effectively increases the
tax burden for out-of-state transactions, thereby coercing taxpayers to conduct intrastate rather than
interstate business. Bulkmatic Transport Co. v. Dept of State Revenue, 691 N.E.2d
1371, 1377 (Ind. Tax Ct. 1998).
In the instant case, Rhoade paid 6% Florida sales tax on the purchase
price of his vehicle. Indiana then required him to pay its use
tax at the rate of 5% on the purchase price of his vehicle.
In the end, Rhoade was effectively assessed tax on the purchase price
of his vehicle at a rate of 11%; had he purchased his vehicle
in Indiana, he would have been assessed tax at a rate of only
5% on the purchase price. Because Indiana taxpayers in Rhoades position will
pay more tax for a vehicle purchased out-of-state than the same-priced vehicle purchased
in-state, they have a direct financial incentive not to purchase vehicles out-of-state.
In other words, Indianas use tax forecloses tax-neutral decision making on the part
of Indiana taxpayers with respect to out-of-state versus in-state vehicle purchases. Concomitantly,
those who sell vehicles in Indiana have a direct commercial advantage over those
who sell vehicles in other states because of the strong financial disincentive to
purchasing a vehicle out-of-state. Cf. Barringer v. Griffes, 1 F.3d 1331, 133738
(2d Cir. 1993) (noting that a states use tax was discriminatory where it
resulted in a lower overall price for in-state vehicle purchases versus out-of-state purchases),
cert. denied, 510 U.S. 1072 (1994); Department of Revenue v. Kuhnlein, 646 So.2d
717, 724 (Fla. 1994) (holding that failure to provide a use tax credit
for a fee levied on out-of-state vehicle purchases erected a financial barrier that
[gave] Florida used-car sellers a substantial advantage over similar out-of-state sellers), cert. denied,
515 U.S. 1158 (1995); Iowa Auto. Dealers Assn v. Iowa State Appeal Bd.,
420 N.W.2d 460, 463 (Ia. 1988) (affirming holding that a states registration fee
credit directly discriminated against interstate commerce where it applied to in-state vehicle sales
but not to out-of-state sales). It is such discrimination and foreclosure of
tax-neutral decision making that the Commerce Clause prohibits. See Westinghouse Electric Corp. v.
Tully, 466 U.S. 388, 406 (1984); Boston Stock Exchange, 429 U.S. at 329;
Bulkmatic Transport, 691 N.E.2d at 1377.
Moreover, merely to characterize Indianas use tax as facially nondiscriminatory, as the Department
has done, does not save the use tax from violating the Commerce Clause.
See American Trucking Assns., Inc. v. Scheiner, 483 U.S. 266, 281 (1987)
(holding that the Commerce Clause may be implicated even though state provisions do
not allocate tax burdens in a facially discriminatory manner). Thus, the Departments
argument that the same tax rate applies equally to all Indiana taxpayers is
unavailing; the use tax directly discriminates against interstate commerce regardless of whether the
same rate uniformly applies to all taxpayers. Nor is the Court persuaded
that Indianas use tax is a valid compensatory tax. Indianas use tax
does not provide taxpayers such as Rhoade an exemption from or credit for
Indianas use tax in the event that another states sales or use tax
has been paid; this Courts research finds no instance where the U.S. Supreme
Court has upheld a state tax in the face of such facts. See,
e.g., Oklahoma Tax Commn v. Jefferson Lines, Inc., 514 U.S. 175, 192 n.6
(1995), rehg denied. Indeed, the Supreme Court has held that
[s]ince any use tax would have to comply with Commerce Clause requirements, [a
States use] tax scheme could not apply differently to goods and services purchased
out of state from those purchased domestically. Presumably, then, it would not
apply when another States sales tax had previously been paid, or would apply
subject to credit for such payment.
Id. at 194.
Because Indianas use tax results in a greater effective tax burden on vehicles
purchased out-of-state than vehicles purchased in-state, the Court holds that it discriminates against
interstate commerce and so violates the Commerce Clause.
See footnote Consequently, the Court GRANTS
Rhoades motion for summary judgment as to this issue and DENIES the Departments
motion for judgment on the pleadings. The Court REMANDS the case to
the Department and ORDERS the Department to refund Rhoade the amount of use
tax stipulated herein with applicable interest.See footnote
For the aforementioned reasons, the Court Denies Rhoades motion for summary judgment as
to issue I. The Court GRANTS Rhoades motion for summary judgment as
to Issue II and DENIES the Departments motion for judgment on the pleadings.
Footnote: Rhoade also argues that Indianas use tax violates Article I, Section 23
of the Indiana Constitution and the Equal Protection Clause of the 14th Amendment
to the U.S. Constitution. Because the Court finds the Commerce Clause dispositive
of the issue, it does not reach Rhoades Indiana constitutional claim or his
federal Equal Protection claim.
Footnote: The Court notes that 5% of $17,265.50 equals $863.27. The parties, however,
have stipulated to the amount of $878.27.
Footnote: The Department also argues that Indianas use tax does not discriminate against
interstate commerce because the statute does not tax the purchase of the vehicle
in another state but rather taxes the subsequent use of the motor vehicle
by the purchaser within the state. (Respt Response to Petr Mot. for
Summ. J. at 7.) The Court disagrees with the Departments suggestion
that Indianas use tax does not implicate interstate commerce. Indianas use tax
is imposed on the use of tangible personal property in Indiana if the
property was acquired in a retail transaction,
regardless of the location of that
transaction[.] Ind. Code § 6-2.5-3-2(a) (1998) (emphasis added). The plain language
of section 2(a) indicates the Legislatures intent to impose the use tax on
the use of property purchased in Indiana as well as on property purchased
in other states that is then transported back to Indiana. The out-of-state
purchase of property that is then transported back to Indiana clearly implicates the
Commerce Clause. See Gross Income Tax Division of State v. W. B.
Conkey Co., 90 N.E.2d 805, 808 (Ind. 1950), cert. denied, 340 U.S. 941
(1951) (stating that whether commerce is interstate or intrastate depends on its essential
character). Cf. Nuckols v. Athey, 138 S.E.2d 344, 348 (W. Va. 1964)
(holding that the transportation of two automobiles across the state line, and the
transfer of ownership of both motor vehicles, presents a clear case of interstate
commerce even though the new automobile purchased by the defendant, upon its transportation
to West Virginia, ceased to be involved in interstate commerce and became a
part of the mass of property in this state). Consequently, the Court
finds that Indiana Code Section 6-2.5-3-2(a) implicates interstate commerce.
Rhoade argues in the alternative that Indianas use tax violates the second
prong of the test in
Complete Auto Transit. Because the Court holds
that Indianas use tax violates the third prong of that test, it does
not reach Rhoades argument under the second prong.
The Court notes that in the future, an exemption from or credit
for Indianas use tax will depend on the amount of sales or use
tax already paid to another state by an Indiana taxpayer. The payment
of another states sales or use tax, however, will not necessarily exempt an
Indiana taxpayer from the entire amount of Indiana use tax or entitle the
taxpayer to a use tax credit equal to the out-of-state sales or use
tax already paid.