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Supreme Court rules AOL required to pay online use taxes

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The Indiana Supreme Court has held that companies purchasing online promotional materials from outside the state must pay a use tax when those materials are distributed within Indiana.

In Indiana Department of State Revenue v. AOL, LLC, No. 49S10-1108-TA-514, the court unanimously reversed a decision by former Indiana Tax Court Judge Tom Fisher.

The case involves online service provider AOL that mailed software and promotional materials to new and prospective clients. AOL didn’t physically manufacturer the CD or final promotional packages, but contracted with third-party vendors outside Indiana to produce and assemble the individual components and final packages. None of the out-of-state vendors paid sales or use taxes on the CD packages or promotional materials, and once completed the final packages were sent to customers throughout the United States, including Indiana.

AOL paid use taxes to the Indiana Department of Revenue between January 2003 and June 2007, based on the number of CD packages and promotional materials sent to prospective Indiana customers. In 2006 and 2007 AOL asked for two refunds totaling $371,464 for use taxes it had paid. After an investigation, the state agency denied both requests and AOL appealed. The Tax Court reversed the department’s determinations in 2011, finding the company owned all the raw materials provided and had not purchased any tangible personal property in a retail transaction with the out-of-state providers.

The revenue department argued that AOL purchased the CD packages and promotional materials in retail transactions and later used them in Indiana, while AOL argued it did not acquire those items in any retail transaction because it merely purchased the assembly and printing services.

Chief Justice Randall T. Shepard wrote that the heart of this case turns on provisions of Indiana Code 6-2.5-4-1, specifically, I.C. 6-2.5-4-1(b)’s use of the phrase “that property” which the chief justice said suggests that a retailer must acquire tangible personal property and then transfer that same property to a purchaser for either sales or use taxes to apply. The following provision (c)(1) goes on to say that “for the purposes of determining what constitutes selling at retail, it does not matter whether… the property is transferred in the same form as when it was acquired.”

The chief justice wrote that given the tension between the phrase “that property” and I.C. 6-2.5-4-1(c)(1), the court believes the sole purpose of I.C. 6-2.5-4-1(c)(1) is to prevent a person from arguing that a merchant was not selling at retail merely because the merchant changed the form of the property between acquiring it and transferring it.

Finding that the materials were being sold at retail, the court determined the transactions between AOL and its assembly houses and letter shops constituted retail transactions that triggered Indiana’s use tax once AOL used that property in Indiana.


 

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  1. Call it unauthorized law if you must, a regulatory wrong, but it was fraud and theft well beyond that, a seeming crime! "In three specific cases, the hearing officer found that Westerfield did little to no work for her clients but only issued a partial refund or no refund at all." That is theft by deception, folks. "In its decision to suspend Westerfield, the Supreme Court noted that she already had a long disciplinary history dating back to 1996 and had previously been suspended in 2004 and indefinitely suspended in 2005. She was reinstated in 2009 after finally giving the commission a response to the grievance for which she was suspended in 2004." WOW -- was the Indiana Supreme Court complicit in her fraud? Talk about being on notice of a real bad actor .... "Further, the justices noted that during her testimony, Westerfield was “disingenuous and evasive” about her relationship with Tope and attempted to distance herself from him. They also wrote that other aggravating factors existed in Westerfield’s case, such as her lack of remorse." WOW, and yet she only got 18 months on the bench, and if she shows up and cries for them in a year and a half, and pays money to JLAP for group therapy ... back in to ride roughshod over hapless clients (or are they "marks") once again! Aint Hoosier lawyering a great money making adventure!!! Just live for the bucks, even if filthy lucre, and come out a-ok. ME on the other hand??? Lifetime banishment for blowing the whistle on unconstitutional governance. Yes, had I ripped off clients or had ANY disciplinary history for doing that I would have fared better, most likely, as that it would have revealed me motivated by Mammon and not Faith. Check it out if you doubt my reading of this, compare and contrast the above 18 months with my lifetime banishment from court, see appendix for Bar Examiners report which the ISC adopted without substantive review: https://www.scribd.com/doc/299040839/2016Petitionforcert-to-SCOTUS

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