ATTORNEYS FOR PETITIONERS:    ATTORNEYS FOR RESPONDENT:
LARRY J. STROBLE    STEVE CARTER    
JENNIFER A. DUNFEE    ATTORNEY GENERAL OF INDIANA
BARNES & THORNBURG    Indianapolis, IN
Indianapolis, IN     
     TED J. HOLADAY
    DEPUTY ATTORNEY GENERAL
    Indianapolis, IN

_____________________________________________________________________

    IN THE INDIANA TAX COURT _____________________________________________________________________

COMDISCO, INC., AND AFFILIATES,                                           )
                                                                               )
    Petitioners,                                                               )
                                                                               )
    v.                                                                         )   Cause No. 49T10-9903-TA-19
                                                                               )
INDIANA DEPARTMENT OF STATE                                                    )
REVENUE,                                                                       )
             
                                                                              
                                                                              
                                                                              
                                                                 

continental United States. See footnote
    The Petitioners managed and serviced all lease agreements from Illinois. The Petitioners conducted all accounting, billing and all other administrative activities in Illinois. Lease payments were sent to the Petitioners in Illinois, or placed in various lock boxes located throughout the United States. See footnote The terms of the lease payments were not contingent on where the leased equipment was located, used, or stored.
    All lessees were contractually responsible for property taxes assessed against the leased equipment, as well as for the costs associated with repairing, storing, and insuring the leased equipment. The Petitioners assigned all manufacturer warranties to the lessees for the duration of the leases and provided no additional or independent warranties for the leased equipment.
    At the expiration of a lease agreement, Petitioners’ sales personnel would contact the lessee to determine whether it intended to buy the leased equipment, extend the term of the lease agreement, or return the leased equipment. If a lessee intended to buy the leased equipment or extend the term of the lease agreement, the purchase agreement or extended lease agreement was submitted to one of Petitioners’ officers in Illinois for final approval. If a lessee decided to return the leased equipment, the lessee was responsible for all costs associated with the dismantling and transportation of, as well as the in-transit insurance on, the leased equipment.
    During the years at issue, the Petitioners classified their leasing agreements into two categories. The first, “Class A” agreements, were negotiated with the assistance of the Petitioners’ sales personnel in Indianapolis. The second, “Class B” agreements, were negotiated without the involvement of Petitioners’ sales personnel in Indianapolis. For purposes of the Petitioners’ motion for partial summary judgment, only the “Class B” agreements in which the leased equipment was located in Indiana are at issue (leases at issue). See footnote
    In 1996, as a result of both an audit and a supplemental audit, the Department issued notices to Comdisco proposing an additional assessment of $357,941.97 in gross income tax, penalties, and interest for the taxable years ending September 30, 1989, 1990, and 1991. Comdisco paid the assessment and subsequently filed with the Department three amended corporate income tax returns in which it claimed refunds of Indiana gross income tax for the years ending September 30, 1989, 1990, and 1991. See footnote As the basis for its claims, Comdisco asserted that the gross income it received from the leases at issue was not subject to Indiana’s gross income tax because it was not derived from an Indiana source.
    On March 18, 1998, the Petitioners filed with the Department four amended corporate income tax returns in which they claimed refunds of Indiana gross income tax for the years ending September 30, 1993, 1994, 1995, and 1996. See footnote Again, the Petitioners believed the income it received from the leases at issue was not subject to Indiana’s gross income tax because it was not derived from an Indiana source.
    On December 16, 1998, the Department, asserting that the Petitioners’ gross income from the leases at issue was derived from an Indiana source, denied all seven claims for refund. See footnote The Petitioners subsequently filed an original tax appeal with this Court on March 10, 1999.
    On March 15, 1999, Comdisco and CHG filed with the Department claims for refund of Indiana gross retail tax (sales tax) for the years 1996 through 1998, See footnote asserting that because the gross receipts derived from the leases at issue are exempt from the gross income tax, the gross retail income from the same transactions is exempt from the state sales tax under Indiana Code § 6-2.5-5-24(b). On June 3, 1999, after the Department denied their claims for refund, Comdisco and CHG filed an original tax appeal with this Court.
    On October 15, 1999, Comdisco and Affiliates filed a motion with this Court to consolidate their gross income tax and sales tax appeals. The Court granted the motion on October 28, 1999. On February 24, 2000, the Petitioners filed their motion for partial summary judgment. On September 22, 2000, the Department filed its cross motion for partial summary judgment. This Court conducted a hearing on the parties’ motions on October 10, 2000. Additional facts will be supplied as necessary.

Id. (citations omitted). Consequently, because Indiana has never been the “commercial domicile” of any of the Petitioners, the question is simply whether the Petitioners had a “business situs” in Indiana.

(Resp’t Resp. to Mot. for Partial Summ. J. at 15-16, footnote omitted.) The Department, however, is mistaken.
    First, the Department argues that because the Petitioners contractually limit who may not use the property, they actively participate in its ownership, leasing and rental. While the Petitioners admit that they prohibit certain entities from using the equipment, See footnote the Court finds that the restriction does not rise to the level of “active participation” by the Petitioners. Indeed, it was a condition the lessee had to agree to before it signed the lease. Furthermore, it was not a discretionary right of control retained by the Petitioners, as it did not give the Petitioners the right to dictate to the lessees how or where the equipment was to be used.
    Second, the Department erroneously maintains that because the Petitioners maintain a perfected security interest in the leased equipment, they actively participate in its “ownership, leasing, and rental.” As this Court explained in First National Leasing, however, mere ownership of property in Indiana is not enough to find that a taxpayer has a “tax situs” in Indiana, let alone a “business situs.” See First Nat’l Leasing, 598 N.E.2d at 645. Consequently, a security interest, which is no more of an interest than
outright ownership, See footnote is also insufficient to create a “business situs.” See footnote See id.
    Third, the Department confuses the lessees’ signing of lease agreements in Indiana and/or the mailing of their rental payments from Indiana as active participation by the Petitioners. Again, as this Court explained in First National Leasing, it is concerned with the performance of significant business activities in Indiana by the lessors (ie., the Petitioners). See First Nat’l Leasing, 598 N.E.2d at 643. Thus, the fact that the lessees may sign the leases in Indiana before returning them to the Petitioners in Illinois (whether by facsimile, mail, etc.), or that the lessees mail their rental payments from Indiana, is irrelevant to determining whether the Petitioners have established an Indiana “business situs.” See footnote
    Finally, the Department maintains that the Petitioners’ office in Indianapolis played a much more significant role in the negotiation and execution of “Class B” lease agreements. Indeed, it maintains that the Indianapolis office was staffed
with employees who were part of the [Petitioners’] team, responsible for all customer service and supporting [its] customer base. A regional sales manager was located there. Employees at the Indianapolis office clearly had responsibilities beyond soliciting business that were designed to assist [the Petitioners’] overall business without being limited to transactions credited to that particular office.

(Resp’t Resp. to Mot. for Partial Summ. J. at 15). To support its argument, the Department offered the Indianapolis marketing associate’s job responsibilities it received during discovery. See footnote (Resp’t Designation of Facts and Evidence in Resp. to Mot. for Partial Summ. J. at 52-53). Nevertheless, the job description does not state whether or not those activities are restricted to clients or prospects in Indiana. Because this a motion for summary judgment, the Court will construe the job description in a light most favorable to the Department. See Knauf Fiber Glass GmbH v. State Bd. of Tax Comm’rs, 629 N.E.2d 959, 961 (Ind. Tax Ct. 1994). However, there is simply not enough to find that, by way of the Indianapolis office’s activities, the Petitioners actively participate in the ownership, leasing, and rental of its leased equipment.

     _________________________
     Thomas G. Fisher, Judge
Indiana Tax Court

DISTRIBUTION:

Larry J. Stroble
Jennifer A. Dunfee
BARNES & THORNBURG
11 South Meridian Street
Indianapolis, IN 46204

Steve Carter
Attorney General of Indiana
By: Ted J. Holaday
Deputy Attorney General
Indiana Government Center South, Fifth Floor
402 West Washington Street
Indianapolis, IN 46204-2770