ATTORNEYS FOR PETITIONERS: ATTORNEYS FOR RESPONDENT:
BARTON T. SPRUNGER STEVE CARTER
MARK J. RICHARDS ATTORNEY GENERAL OF INDIANA
ICE MILLER Indianapolis, IN
LINDA I. VILLEGAS
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
U-HAUL CO. OF INDIANA, INC., et al.
v. ) Cause No. 49T10-9801-TA-1
INDIANA DEPARTMENT OF )
STATE REVENUE, )
ORDER ON PETITIONERS MOTION FOR SUMMARY JUDGMENT
AND JUDGMENT ENTRY PURSUANT TO IND. TRIAL RULE 58
December 20, 2002
The Petitioners challenge the Indiana Department of State Revenues (Department) finding that they
are liable for gross income tax plus interest on 100% of certain rental
receipts for the tax years ending March 31,
1988, 1989, 1993, 1994, and
1995 (tax years at issue).
The Court restates the issue for review
as whether the Petitioners are liable for gross income tax on 100% of
rental amounts when they did not receive 100% of these amounts.
For the reasons stated below, the Court GRANTS
the Petitioners motion for summary
FACTS AND PROCEDURAL HISTORY
The Petitioners are part of the U-Haul Rental System (U-Haul System), which rents
moving equipment (such as trucks, trailers, and associated rental equipment) to the public
for use throughout the United States. The U-Haul System is composed of
four groups: (1) Fleet Owners; (2) Rental Companies; (3) Rental Dealers; and (4)
U-Haul International (UHI).
These four groups are bound together through a series of contractual relationships between
UHI and Fleet Owners (Fleet Owner Contracts), between UHI and Rental Companies (which
includes the Petitioners) (Rental Company Contracts), and between Rental Companies and Rental Dealers
(Rental Dealer Contracts). The form, terms, and conditions of all contracts are
controlled by UHI. Under the terms of these contracts, each member of
the U-Haul System receives only a percentage of the total rental receipts collected
by the Rental Dealers from the public.
The Fleet Owners are corporations, partnerships, or individuals that own and supply the
moving equipment to the U-Haul System for rental purposes. Pursuant to a
contract with UHI, all Fleet Owners entrust their equipment to the U-Haul System
in exchange for a percentage of the rental amounts collected by the Rental
Dealers from the public.
The Rental Companies (which includes the Petitioners) are separate corporations that merchandise and
supervise the maintenance and repair of the rental equipment. The Rental Companies
contract with UHI, and UHI assigns a territory wherein the Rental Companies are
responsible for establishing and servicing Rental Dealers for the U-Haul System.
to those contracts, the Rental Companies receive a standard percent of the gross
rental income collected by Rental Dealers located in their territories.
The Rental Dealers are business entities that display and rent the U-Haul moving
equipment to the public. Typically, the Rental Dealers have been local gas
stations and are unrelated to other members of the U-Haul System.
to their contracts with the Rental Companies, the Rental Dealers make weekly deposits
of all rental income collected from the public to a depository bank account
belonging to UHI. Rental Dealers are entitled to a contractual percentage of
the gross rental amounts which they collect from the public upon the leasing
of the moving equipment.
UHI is a service company located in Phoenix, Arizona. UHI provides clearing
house, accounting, computer, management analysis, and other services to the U-Haul System in
accordance with its contracts with the Fleet Owners and Rental Companies. Upon
receipt of the rental amounts collected by the Rental Dealers, UHI is responsible
for distributing the contractual shares of the rental amounts to the Fleet Owners,
Rental Companies, and Rental Dealers.
UHI retains the rental amounts that remain
after the contractual percentages are distributed to the other U-Haul System members.
For the tax years at issue, the Petitioners reported and paid
gross income tax only on their contractual percentage of the rental amount collected
by the Rental Dealers located in their Indiana territories (Indiana Rental Dealers).
In 1991, however, after an audit of the 1988 and 1989 tax years,
the Department issued proposed assessments to the Petitioners for gross income tax, interest,
and a penalty on 100% of the rental amounts collected by Indiana Rental
Dealers for those tax years. The Petitioners protested the proposed assessments.
On December 31, 1996, the Department issued a Letter of Findings in which
it denied the Petitioners protest, reasoning that the Indiana Rental Dealers were the
agents for the Petitioners and that the distribution payments made by UHI to
other members of the U-Haul System represented payment of the Petitioners expenses for
their direct benefit. The Department, however, waived the penalty. The Petitioners
filed for a rehearing. On July 11, 1997, the Department issued a
Letter of Finding on the rehearing, upholding its determination.
In 1996, after another audit, the Department issued proposed assessments for gross income
tax, interest, and a penalty on 100% of the rental income collected by
the Indiana Rental Dealers for the 1993-1995 tax years. The Petitioners protested
the proposed assessments. On July 14, 1997, the Department issued a Letter
of Finding, again denying Petitioners protest but waiving the penalty. The Department
found that Petitioners were liable for gross income tax on 100% of the
rental amounts collected by the Indiana Rental Dealers.
The Department then issued Notices for Payment and assessed Petitioners for additional gross
income tax and interest for the tax years at issue.
assessments were paid, the Petitioners filed claims for refund. The Department denied
those refund claims on December 19, 1997.
On January 6, 1998, the Petitioners filed an original tax appeal. On
September 8, 1998, the Petitioners moved for summary judgment. This Court held
a hearing on the Petitioners motion on November 23, 1998. Additional facts
will be supplied as needed.
ANALYSIS AND OPINION
Standard of Review
This Court reviews final determinations of the Department de novo. Ind. Code
§ 6-8.1-9-1(d). Therefore, it is not bound by either the evidence presented
or issues raised at the administrative level. Allison Engine Co., Inc. v.
Indiana Dept of State Revenue, 744 N.E.2d 606, 608 (Ind. Tax Ct. 2001).
Summary judgment is proper only when no genuine issues of material fact
exist and the moving party is entitled to judgment as a matter of
law. See Ind. Trial Rule 56(C); Allison Engine, 744 N.E.2d at 608.
The issue is whether the Petitioners are liable for gross income tax
on 100% of rental amounts collected by the Indiana Rental Dealers when they
did not receive 100% of those rental amounts. The Department contends that
the Petitioners are liable for the gross income tax on 100% of the
rental amounts because the Rental Dealers served as the Petitioners agents and collected
the rental amounts on the Petitioners behalf. While the Petitioners do not
dispute that the Indiana Rental Dealers served in an agency capacity, they argue
that the Department ignores the fact that they too served in agency capacity
and were merely a conduit for the rental amounts going to UHI.
Thus, the Petitioners argue that they are not liable for gross income tax
on 100% of rental amounts because they themselves did not have a beneficial
interest in 100% of the rental amounts. The Petitioners are correct.
Indianas gross income tax is imposed by Indiana Code §
6-2.1-2-2, which provides:
An income tax, known as the gross income tax, is imposed upon the
the entire taxable gross income of a taxpayer who is a resident or
domiciliary of Indiana; and
the taxable gross income derived from activities or businesses or
any other sources within Indiana by a taxpayer who is not a resident
or a domiciliary of Indiana.
Ind. Code § 6-2.1-2-2(a). The term gross income is broadly defined:
[e]xcept as expressly provided in [article 2.1], gross income means all the gross
receipts a taxpayer receives[.] Ind. Code § 6-2.1-1-2(a). As applied to
a taxpayer, receipts means the gross income in cash, notes, credits, or other
property that is received by the taxpayer or a third party for the
taxpayers benefit. Ind. Code § 6-2.1-1-10 (West 1989).
taxpayer receives gross income upon (1) the actual coming into possession of, or
the crediting to, the taxpayer, of gross income; or (2) the payment of
a taxpayers expenses, debts, or other obligations by a third party for the
taxpayers direct benefit. Ind. Code § 6-2.1-1-11.
The Department argues that the Petitioners are liable for gross income tax on
100% of the rental amounts because in the Petitioners contracts with the Rental
Dealers, the Rental Dealers collected rental amounts as agents for the Rental Companies
(i.e., the Petitioners). Although that is true and income received by an
agent is not taxable to the agent,
the Department fails to see that
the Petitioners, in turn, acted in an agency capacity.
Our Supreme Court has defined agency as the relationship which results from the
manifestation of consent by one person to another that the other shall act
on his behalf and subject to his control, and consent by the other
so to act. Department of Treasury v. Ice Service, Inc., 41 N.E.2d
201, 203 (Ind. 1942) (citing Restatement of the Law of Agency, § 1).
A principal need merely have the right to control the alleged agent;
it does not have to actually exercise control over the agents activities.
Policy Mgmt. Sys. Corp. v. Indiana Dept of State Revenue, 720 N.E.2d 20,
24 (Ind. Tax Ct. 1999), review denied. In addition, the Departments regulations
indicate that taxpayers acting as agents are merely conduits for the passing of
Taxpayers are not subject to gross income tax on income they receive in
an agency capacity. However, before a taxpayer may deduct such income in
computing his taxable gross receipts, he must meet two (2) requirements:
The taxpayer must be a true agent [; and]
The agent must have no right, title or interest in the money or
property received or transferred as an agent.
Ind. Admin Code tit. 45, r. 1-1-54 (1992). CONCLUSION
Here, the Petitioners were members of the U-Haul System through their contracts with
UHI. The Petitioners entered into these contracts with UHI to serve as
UHIs Rental Companies within specified territories and to market the U-Haul rental equipment
to Rental Dealers. Because UHI specified the terms and conditions of the
Petitioners contracts with Rental Dealers, it also controlled the duties of the Petitioners
to the Rental Dealers. Furthermore, UHI allowed the Petitioners to market only
U-Haul rental equipment, and it required Petitioners to supervise the maintenance of equipment
within its territory and to protect the U-Haul name from infringement. UHI
also determined the percentage of rental amounts that the Petitioners would receive and
controlled the payment of contractual percentages of rental amounts to the Petitioners and
other members of the U-Haul System. The Rental Company Contracts show a
manifestation of consent between UHI and the Petitioners that the Petitioners were acting
on behalf of UHI and the U-Haul System and that Petitioners were subject
to UHIs control. Thus, the Petitioners also served in an agency capacity.
See Ice Service, 41 N.E.2d at 203. See also Policy Mgmt.,
720 N.E.2d at 26 (finding an agency relationship where signatures of contract represented
parties consent and acceptance of agency status and parties actions showed the principles
right to exercise control); Indiana Dept of Revenue, Gross Income Tax Div. v.
Waterfiled (sic) Mortgage Co., Inc., 400 N.E.2d 212, 214-15 (Ind. Ct. App. 1980)
(affirming trial courts findings that mortgage company who collected and sent mortgage payments
to banks acted as agent of banks and that mortgage payments were not
gross income to mortgage company).
Furthermore, the Court agrees that the Petitioners did not have a beneficial interest
in 100% of the rental income collected by the Indiana Rental Dealers.
This Court has previously recognized that the taxpayers beneficial interest in income is
central to the receipt of gross income. Policy Mgmt., 720 N.E.2d at
Universal Group Ltd. v. Indiana Dept of State Revenue, 609 N.E.2d
48, 50 (Ind. Tax Ct. 1993) (UGL I), supplemented by, 634 N.E.2d 891
(Ind. Tax Ct. 1994) (UGL II ), opinion on rehg, 642 N.E.2d 553
(Ind. Tax Ct. 1994) (UGL III) (affirming judgment but vacating opinion in UGL
II). [A] taxpayer is not subject to gross income tax on receipts
received on behalf of a third person. Bloomington Country Club v. Indiana
Dept of State Revenue, 543 N.E.2d 1, 3 (Ind. Tax Ct. 1989) (citation
omitted). [T]he incidents of taxation follow the beneficial interest in income.
Thus, a person who is a mere conduit for another is generally not
taxable on the income received. UGL I, 609 N.E.2d at 53.
See also Bloomington Country Club, 543 N.E.2d at 3.
Under the Fleet Owner Contracts, Rental Company Contracts, and Rental Dealer Contracts, each
member of the U-Haul System was entitled to a specified percentage of the
rental amounts collected by the Rental Dealers from the public.
Indiana Rental Dealers collect rental amounts from the public and each week send
the entire rental amount, dollar for dollar, to a depository account maintained by
UHI. Thereafter, UHI distributes a contractually specified share of the rental amounts
to the Petitioners and other members of the U-Haul System. UHI the retains
the rental amounts that remain after the contractual percentages are distributed to the
other U-Haul System members. The Petitioners do not have any right or
beneficial interest in the rental amounts collected by the Indiana Rental Dealers beyond
their contractually specified percentage. The Petitioners are merely a conduit for the
rental amounts to pass to UHI and did not have a beneficial interest
in 100% of the rental amounts. Thus, the Petitioners are not liable
for gross income tax on 100% of the rental amounts collected by the
Indiana Rental Dealers. See Policy Mgmt., 720 N.E.2d at 23; UGL I,
609 N.E.2d at 53; Bloomington Country Club, 543 N.E.2d at 3. Accordingly,
this Court GRANTS the Petitioners motion for summary judgment.
For the aforementioned reasons, this Court GRANTS the Petitioners motion for summary judgment.
The parties shall bear their own costs.
IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that judgment be and is entered
in favor of the Petitioners and against the Department.
SO ORDERED this 20th day of December, 2002.
Thomas G. Fisher, Judge
Indiana Tax Court
Barton T. Sprunger
Mark J. Richards
One American Square, Box 82001
Indianapolis, IN 46204-0002
Attorney General of Indiana
By: Linda I. Villegas
Deputy Attorney General
Indiana Government Center South, Fifth Floor
402 West Washington Street
Indianapolis, Indiana 46204-2770
U-Haul Company of Indiana, Inc. (formerly U-Haul
Company of Central Indiana, Inc.); U-Haul Company of Illinois (as successor in interest
to U-Haul Company of Chicago Metroplex); U-Haul Company of Kentucky (formerly U-Haul Company
of Louisville); U-Haul Company of Ohio (as successor in interest to U-Haul Company
of Northwestern Ohio and U-Haul Company of Southwestern Ohio); and U-Haul Company of
Michigan (as successor in interest to U-Haul Company of Western Michigan) (collectively referred
to as the Petitioners).
The Departments finding of liability for the 1988 and 1989 tax
years was issued to all Petitioners. The Departments finding of liability for
the 1993-1995 tax years was issued to
U-Haul Company of Indiana only.
In the alternative, the Petitioners argue that summary judgment should
be granted in their favor because the Departments assessment of gross income tax
on 100% of the rental amounts was a change in its regulatory or
policy interpretation, thereby increasing their gross income tax liability without prior notification.
(Petrs Summ. J. Br. at 37-43) (citing
Ind. Code § 6-2.1-8-3).) Because
this Court finds that Petitioners are entitled to summary judgment on their first
issue, see infra, it will not address this second issue.
For the tax years at issue, the Petitioners territories included
either portions of, or all of, Indiana.
Over the years, however, some subsidiaries of UHI have acquired
property to serve as retail locations to lease moving equipment. Thus, some
Rental Companies also serve as Rental Dealers at company-owned locations within their territories.
Footnote: The Department assessed the Petitioners with following amount of additional
gross income and interest for the tax years at issue: 1988, $64,002.48;
1989, $91,937.26; 1993, $91,927.24; 1994, $95,839.05; and 1995, $101,429.33.
Footnote: This statute was amended in 1997.
See Ind. Code
§ 6-2.1-1-10 (West Supp. 1999).
See Universal Group Ltd. v. Indiana Dept of State Revenue,
642 N.E.2d 553, 557 (Ind. Tax Ct. 1994) (UGL III) (citation omitted).
During the tax years at issue, the Department chose to define
agency as a relationship which results from the manifestation of consent by one
person to another authorizing the other to act on his behalf and subject
complete control, and consent by the other to so act.
Policy Mgmt. Sys. Corp. v. Indiana Dept of State Revenue, 720 N.E.2d 20,
23 n.4 (Ind. Tax Ct. 1999), review denied (quoting Ind. Admin. Code tit.
45, r. 1-1-54 (1988) (emphasis added)). However, this Court struck the adjective
complete because it improperly added an element to the test for agency.
See Policy Mgmt., 720 N.E.2d at 23 n.4 (citing UGL III, 642 N.E.2d
More specifically, Fleet Owners are entitled to a percentage of the
rental amounts collected from the rental of their equipment in the U-Haul System,
Rental Companies are entitled to a standard percent of the rental income from
the rental of U-Haul equipment in their territories, and Rental Dealers are entitled
to receive a percentage of the rental income transacted at the dealership location.