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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. Poor Judge Brown probably thought that by slavishly serving the godz of the age her violations of 18th century concepts like due process and the rule of law would be overlooked. Mayhaps she was merely a Judge ahead of her time?

  2. in a lawyer discipline case Judge Brown, now removed, was presiding over a hearing about a lawyer accused of the supposedly heinous ethical violation of saying the words "Illegal immigrant." (IN re Barker) http://www.in.gov/judiciary/files/order-discipline-2013-55S00-1008-DI-429.pdf .... I wonder if when we compare the egregious violations of due process by Judge Brown, to her chiding of another lawyer for politically incorrectness, if there are any conclusions to be drawn about what kind of person, what kind of judge, what kind of apparatchik, is busy implementing the agenda of political correctness and making off-limits legit advocacy about an adverse party in a suit whose illegal alien status is relevant? I am just asking the question, the reader can make own conclsuion. Oh wait-- did I use the wrong adjective-- let me rephrase that, um undocumented alien?

  3. of course the bigger questions of whether or not the people want to pay for ANY bussing is off limits, due to the Supreme Court protecting the people from DEMOCRACY. Several decades hence from desegregation and bussing plans and we STILL need to be taking all this taxpayer money to combat mostly-imagined "discrimination" in the most obviously failed social program of the postwar period.

  4. You can put your photos anywhere you like... When someone steals it they know it doesn't belong to them. And, a man getting a divorce is automatically not a nice guy...? That's ridiculous. Since when is need of money a conflict of interest? That would mean that no one should have a job unless they are already financially solvent without a job... A photographer is also under no obligation to use a watermark (again, people know when a photo doesn't belong to them) or provide contact information. Hey, he didn't make it easy for me to pay him so I'll just take it! Well heck, might as well walk out of the grocery store with a cart full of food because the lines are too long and you don't find that convenient. "Only in Indiana." Oh, now you're passing judgement on an entire state... What state do you live in? I need to characterize everyone in your state as ignorant and opinionated. And the final bit of ignorance; assuming a photo anyone would want is lucky and then how much does your camera have to cost to make it a good photo, in your obviously relevant opinion?

  5. Seventh Circuit Court Judge Diane Wood has stated in “The Rule of Law in Times of Stress” (2003), “that neither laws nor the procedures used to create or implement them should be secret; and . . . the laws must not be arbitrary.” According to the American Bar Association, Wood’s quote drives home this point: The rule of law also requires that people can expect predictable results from the legal system; this is what Judge Wood implies when she says that “the laws must not be arbitrary.” Predictable results mean that people who act in the same way can expect the law to treat them in the same way. If similar actions do not produce similar legal outcomes, people cannot use the law to guide their actions, and a “rule of law” does not exist.

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