SANCHEZ & DANIELS    Indianapolis, IN
Chicago, IL
    Indianapolis, IN

    IN THE INDIANA TAX COURT _____________________________________________________________________

DAIMLERCHRYSLER CORPORATION,                                              )
    Petitioner,                                                                )
    v.                                                                         )   Cause No. 49T10-0307-TA-38
INDIANA DEPARTMENT OF                                                          )                
STATE REVENUE,                                                                 )
    Respondent.            )    


November 10, 2004

FISHER, J.     

    DaimlerChrysler Corporation (DaimlerChrysler) challenges the Indiana Department of State Revenue’s (Department) final determinations that it is not entitled to a refund of Indiana gross retail (sales) tax that it paid in 1999 and 2000 (the years at issue). The matter is currently before the Court on the parties’ cross-motions for summary judgment. The sole issue for the Court to decide is whether, pursuant to Indiana’s sales tax statutes, DaimlerChrysler is entitled to a refund of sales tax that it reimbursed to purchasers of its automobiles pursuant to Indiana’s “Lemon Law.”

The material facts as they relate to this case are undisputed. DaimlerChrysler is a Delaware corporation with its principal place of business located in Auburn Hills, Michigan. DaimlerChrysler manufactures vehicles that are distributed to automobile dealers where they are offered for sale to the public.
During the years at issue and pursuant to Indiana’s Lemon Law, DaimlerChrysler “bought-back” numerous vehicles from their purchasers because the vehicles were, in some way, impaired. DaimlerChrysler also reimbursed the purchasers for the sales tax they paid when they purchased the vehicles.
In 2002 and 2003, DaimlerChrysler timely filed four claims for refund of sales tax with the Department. See footnote Specifically, DaimlerChrysler sought to recover the sales tax it reimbursed to the purchasers during the years at issue. The Department denied DaimlerChrysler’s claims.
    DaimlerChrysler initiated this original tax appeal on July 25, 2003. The Department filed a motion for summary judgment on April 12, 2004. DaimlerChrysler filed its motion for summary judgment on May 19, 2004. The Court conducted a hearing on the parties’ motions on July 30, 2004. Additional facts will be supplied as necessary.


    This Court reviews the Department’s denial of refund claims de novo. Ind. Code Ann. § 6-8.1-9-1(d) (West Supp. 2004). Accordingly, the Court is bound by neither the evidence nor the issues presented at the administrative level. See Williams v. Indiana Dep’t of State Revenue, 742 N.E.2d 562, 563 (Ind. Tax Ct. 2001).
    Summary judgment is only appropriate where no genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law. Ind. Trial Rule 56(C); Williams, 742 N.E.2d at 563. Cross-motions for summary judgment do not alter this standard. Id.

Because resolution of the issue in this case involves the interpretation of both Indiana’s sales tax refund statutes and its Lemon Law statutes, the Court will briefly highlight the relevant provisions of those statutes before addressing the parties’ arguments.
Indiana’s Gross Retail (Sales) Tax Act

    Indiana imposes an excise tax, known as the state gross retail (sales) tax, on retail transactions made within the state. Ind. Code Ann. § 6-2.5-2-1 (West 2004). A person who acquires property in a retail transaction is liable for the sales tax on the transaction and shall pay the tax to the retail merchant as a separate added amount to the consideration in the transaction. Id. The retail merchant collects the tax as an agent for the state. Id.
A person is entitled to a refund of sales tax from the Department if: 1) the tax was erroneously or illegally collected by a retail merchant; 2) the retail merchant remitted the tax to the Department; 3) the retail merchant did not refund the taxes to the person; and 4) the person properly applied for the refund with the Department. See Ind. Code Ann. § 6-2.5-6-13 (West Supp. 2004). A retail merchant is entitled to a refund of sales tax from the Department if the retail merchant - who erroneously or illegally collected the tax - makes a refund of the sales tax to the person who initially paid it. See Ind. Code Ann. § 6-2.5-6-14 (West 2004) (repealed 2004). See footnote
Indiana’s Motor Vehicle Protection Act

    The Indiana Motor Vehicle Protection Act, also known as Indiana’s “Lemon Law,” provides, generally, that if a motor vehicle suffers from a “nonconformity” within its first eighteen months or 18,000 miles, the manufacturer must correct the “nonconformity.” See Ind. Code Ann. § 24-5-13-8 (West 2004). See also Ind. Code Ann. § 24-5-13-6 (West 2004) (defining “nonconformity); Ind. Code Ann. § 24-5-13-7 (West 2004) (defining the “term of protection”). If the “nonconformity” cannot be corrected, the buyer is entitled to a replacement vehicle or a refund. Ind. Code Ann. § 24-5-13-10 (West 2004).
    If the buyer elects to receive a refund, the manufacturer must refund “the full contract price of the vehicle, including all credits and allowances for any trade-in vehicle and less a reasonable allowance for use.” Ind. Code Ann. § 24-5-13-11(a) (West 2004). In addition, the manufacturer must also reimburse the purchaser for the following costs:

(1) All sales tax.
(2) The unexpended portion of the registration fee and excise tax that has been prepaid for any calendar year.
(3) All finance charges actually expended.
The cost of all options added by the authorized dealer.

Id. at (c).
All responsibilities and liabilities under the Lemon Law rest solely with the manufacturer of the vehicles. Ind. Code Ann. § 24-5-13-24 (West 2004). Indeed, “[n]othing in [the Motor Vehicle Protection Act] imposes any liability on a dealer or creates a cause of action by a consumer against a dealer, and a manufacturer may not, directly or indirectly, expose any franchised dealer to liability” for a vehicle’s “nonconformity.” Id.

The Parties’ Arguments

Both parties admit that Indiana Code § 6-2.5-6-14 is silent with respect to whether a manufacturer is entitled to a refund of sales tax on a Lemon Law “buyback.” Consequently, the parties’ debate focuses on how, in light of Indiana’s Lemon Law, that silence should be construed to mean that manufacturers are - or are not - entitled to receive a refund under that statute.
DaimlerChrysler asserts that the intent of Indiana’s Lemon Law is to abrogate the initial sale and place all parties in pre-purchase status. (Pet’r Cross-Mot. for Summ. J. at 5 (stating that “[j]ust as the consumers are put in their pre-purchase position by receiving a full refund of incidental costs, including sales tax, [DaimlerChrysler] should also be placed in that same position”).) (See also Oral Argument Tr. at 4-5, 9.) To support this assertion, DaimlerChrysler explains that because automobile dealers cannot be sued under Indiana’s Lemon Law,
it basically says to a manufacturer . . . that if you produce a car that is not up to snuff, you must buy it back, including the sales tax, as if you were the one that directly sold th[e] car to the consumer.

(Oral Argument Tr. at 3-4 (emphasis added).) As a result, DaimlerChrysler continues, under the Lemon Law, manufacturers “step into the shoes” of the dealers who, as retail merchants, actually collected and remitted the sales tax to the Department in the first instance. (See Pet’r Cross-Mot. for Summ. J. at 5 (citing Chrysler Fin. Co., LLC v. Indiana Dep’t of State Revenue, 761 N.E.2d 909 (Ind. Tax Ct. 2002), review denied.) Because DaimlerChrysler stands in the same shoes as its dealers, it “is a retail merchant engaged in selling at retail and, therefore, [] entitled to a refund of sales tax it paid to consumers.” (Pet’r Cross-Mot. for Summ. J. at 4.) See footnote
    In contrast, the Department argues that the intent behind Indiana’s Lemon Law is not to return all involved to a pre-purchase status. Instead, the Department argues that it is clear, by the terms of Indiana’s Lemon Law, that the legislature intended for the manufacturer’s “reimbursements” of sales tax, registration fees and excise taxes, finance charges, and the costs of all options added by the authorized dealer, to be penal in nature. As a result, the refund provisions of Indiana Code § 6-2.5-6-13 and § 6-2.5-6-14 do not contain “any language that would allow a manufacturer to recoup expenses that the legislature intended . . . as a penalty for introducing defective goods into the stream of commerce.” (Resp’t Br. In Supp. of [its] Mot. for Summ. J. at 10-11.)

The Court’s Holding

     As the parties have agreed, resolution of this case hinges on the intent behind Indiana’s Lemon Law. This presents a question of statutory construction. The primary goal of statutory construction is to ascertain the legislature’s intent. Johnson County Farm Bureau Co-op Ass’n, Inc. v. Indiana Dep’t of State Revenue, 568 N.E.2d 578, 580 (Ind. Tax Ct. 1991), aff’d, 585 N.E.2d 1336 (Ind. 1992). To do so, the Court examines the language of the statute and its context, history, subject matter, and purpose. See id. at 581. See also Sangralea Boys Fund, Inc. v. State Bd. of Tax Comm’rs, 686 N.E.2d 954, 956-58 (Ind. Tax Ct. 1997), review denied.
    As Indiana’s Court of Appeals has explained:
[l]emon [l]aws have been enacted across the country in response to the problem that once the buyer has bought a lemon, the dealer or manufacturer, for any number of reasons, is either unwilling or unable to take all steps necessary toward giving the buyer what the dealer and the manufacturer promised: a defect free, safe and reliable automobile reasonably worth its purchase price.

Gen. Motors Corp. v. Zirkel, 602 N.E.2d 1069, 1071 (Ind. Ct. App. 1992) (internal quotation and citation omitted), rev’d on other grounds by 613 N.E.2d 30 (Ind. 1993). Thus, lemon laws are “policy-driven statute[s] aimed at the long-standing problems resulting from the unequal playing field between consumers and manufacturers.” Church v. Chrysler Corp., 585 N.W.2d 685, 689 (Wis. Ct. App. 1998). Consumer protection statutes like Indiana’s Lemon Law are to be liberally construed in favor of the consumer. See, e.g., Johnson v. Scandia Assocs., Inc., 641 N.E.2d 51, 56 (Ind. Ct. App. 1994) (stating that “[i]mplied warranties are imposed by operation of law for the protection of the consumer, and they must be liberally construed in favor of the consumer”), rev’d on other grounds by 717 N.E.2d 24 (Ind. 1999); Ind. Code Ann. § 24-5-0.5-1 (West Supp. 2004) (providing that because the statutes contained within Indiana’s Deceptive Consumer Sales Act serve to protect consumers, they shall be liberally construed).
    It is clear from its language that the primary purpose of Indiana’s Lemon Law is to make consumers whole by returning them to pre-purchase status. A.I.C. § 24-5-13-11. Tangential to this purpose, however, is the goal of getting vehicle manufacturers’ to improve quality control. DaimlerChrysler’s position that manufacturers, like consumers, should be allowed to return to pre-purchase status defeats this goal.
    Lemon laws “must have teeth in order to be effective.” See Royster v. Toyota Motor Sales, USA, Inc., 750 N.E.2d 531, 535 (Ohio 2001) (stating that to work well, lemon laws “need[] a harsh remedy at a time certain”). Consequently, “the fact that a manufacturer may experience some financial discomfort as a result of its Lemon is inconsequential.” Collins v. Mullinax East, Inc., 795 N.E.2d 68, 72 (Ohio Ct. App. 2003). Under Indiana’s Lemon Law, the consumer gets back exactly what it paid as a result of the transaction. The manufacturer, however, must pay out more than it ever received originally. This financial discomfort is intended for a reason: it provides the incentive - or the “teeth” - for manufacturers to improve the quality of their product.
    In light of this, DaimlerChrysler’s argument that it has “stepped into the shoes” of its dealers is incorrect for two reasons. First, DaimlerChrysler’s reliance on this Court’s holding in Chrysler Financial is misplaced. In that case, this Court held that when several automobile dealers assigned to Chrysler all their rights and interests in installment contracts with their consumers, they also assigned their statutory rights to sales tax deductions under Indiana’s Bad Debt statute. Chrysler Fin. Co., LLC v. Indiana Dep’t of State Revenue, 761 N.E.2d 909, 911-13 (Ind. Tax Ct. 2002), review denied. Specifically, this Court explained that
It is a “well-settled principle of contract law that a valid assignment gives the assignee neither greater nor lesser rights than those held by the assignor.” In other words, “assignee stands in the shoes of the assignor.” Therefore, it does not matter whether Chrysler actually is a retail merchant, or whether it was the person who paid or owed the sales tax; as the assignee, Chrysler stands in the shoes of the Dealers, and the parties do not dispute that the Dealers are retail merchants, or that the sales tax was paid. The Dealers assigned their rights to Chrysler when they executed the contracts. Because Chrysler stands in the Dealers’ shoes, Chrysler has a right to the sales tax deduction under the Bad Debt Statute.

Id. at 914 (internal citations, quotations, and footnote omitted).
    DaimlerChrysler has taken the holding of Chrysler Financial out of context. In that case, there was an actual assignment of rights between the parties from which another right subsequently flowed. In this case, there is no assignment of any rights or interests from the dealers to DaimlerChrysler. There being no assignment in the first instance, there cannot be a subsequent right which flows therefrom. In other words, DaimlerChrysler does not step into the shoes of the dealer just because it wants to.
    Even assuming the dealers assigned a right to DaimlerChrysler in this case, under Indiana Code § 6-2.5-6-13 and § 6-2.5-6-14 they could only assign the right to a refund if the sales tax was either erroneously or illegally collected in the first instance. Such is not the case here: at the point and date of sale, the sales tax was properly and legally collected. Allowing DaimlerChrysler a refund of sales tax reimbursed under the terms of the Lemon Law expands the language of the refund statutes to include situations that surpass retail transactions between a retail merchant and a buyer.


    For the above stated reasons, DaimlerChrysler is not entitled to a refund of sales tax that it reimbursed purchasers of its vehicles under Indiana’s Lemon Law. Consequently, the Court GRANTS summary judgment in favor of the Department and against DaimlerChrysler. See footnote
SO ORDERED this 10th day of November, 2004.
     Thomas G. Fisher, Judge
Indiana Tax Court


Timothy V. Hoffman
Camille Cribaro-Mello
333 West Wacker Drive, Suite 500
Chicago, IL 60606

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

Footnote: DaimlerChrysler filed four claims for refund of sales tax for the following periods: 1) October thru December of 1999 in the amount of $25,000; 2) January thru March of 2000 in the amount of $26,500; 3) April thru September of 2000 in the amount of $36,060.93; and 4) July thru December of 2000 in the amount of $29,000. ( See Resp’t Designation of Evidence [] In Supp. of [Its] Mot. for Summ. J. at Exs. 3 - 10.)

Footnote: In conjunction with its sales tax, Indiana also imposes a use tax on goods that are used, stored or consumed within the state. See Ind. Code Ann. § 6-2.5-3-2 (West 2004). Indiana’s use tax complements Indiana’s sales tax in that it ensures that non-exempt retail transactions (particularly out-of-state retail transactions) that escape sales tax liability are nevertheless taxed. See USAir, Inc. v. Indiana Dep’t of State Revenue, 623 N.E.2d 466, 468–69 (Ind. Tax Ct. 1993). The responsibility of payment and collection of use tax is similar to that of the sales tax. See Ind. Code Ann. § 6-2.5-3-6(c) (West 2004). Use tax, however, is not at issue in this case.

Footnote: To hold otherwise, DaimlerChrysler complains, penalizes DaimlerChrysler and results in a windfall to the Department: “[w]ithout granting a refund of the sales tax amount, it is as if that amount has been paid twice - first by the dealer, who remitted the amount pursuant to the sale of the vehicle, and second by [DaimlerChrysler], who is mandated by statute to refund the sales tax amount to the consumer.” (Pet’r Cross-Mot. for Summ. J. at 5-6.)

Footnote: The Court notes that when DaimlerChrysler filed its initial complaint in this case, it also alleged that the Department’s denial of its claims for refund violated the U.S. and Indiana Constitutions, constituted unjust enrichment and conversion, and that it (DaimlerChrysler) was equitably subrogated to the rights of the purchasers of its vehicles. ( See Pet’r Pet. for Judicial Review at 4-11.) The Department seeks summary judgment with respect to these issues. (See Resp’t Mot. for Summ. J.; Resp’t Br. In Supp. of [its] Mot. for Summ. J. at 13-16.) DaimlerChrysler admits that these issues can be determined as a matter of law. (Pet’r Cross Mot. for Summ. J. at 2; Pet’r Resp. to [Resp’t] Mot. for Summ. J. at 5.)
Statutes are clothed with the presumption of constitutionality until clearly overcome by a contrary showing. State Bd. of Tax Comm’rs v. Town of St. John, 702 N.E.2d 1034, 1037 (Ind. 1998). Based on the parties’ briefs filed with Court, summary judgment is GRANTED in favor of the Department and AGAINST DaimlerChrysler with respect to these additional issues.