ILNews

Tax exemption doesn't apply to hotel utilities

Back to TopCommentsE-mailPrintBookmark and Share

The Indiana Supreme Court was split today in its ruling on whether a hotel was entitled to a sales tax exemption on utilities it purchased during 2004 and 2005. The majority held the exemption that allows hotels to skip paying sales tax on tangible personal property - soap and shampoo - used by guests, doesn't extend to utilities because the hotel, and not the guests, uses those utilities.

The issue arose in Indiana Department of Revenue v. Kitchin Hospitality, LLC, No. 49S10-0808-TA-474, after the Indiana Tax Court held for the years at issue, the utilities consumed in Kitchin Hospitality's hotels guest rooms qualified for the tangible personal property exemption.

Indiana Code Section 6-2.5-5-35 was amended in 1992 to exempt hotels from paying sales tax on tangible items used or consumed by guests. The 1992 exemption, which the opinion refers to as the Section 35 Exemption, didn't define "tangible personal property." In 2003, while adopting the "Streamlined Sales and Use Tax Agreement" (SSUTA), the legislature included a definition of it in I.C. Section 6-2.5-1-27. The 2003 definition defined tangible personal property to include electricity, water, gas, steam, and pre-written computer software. The language of the 1992 exemption wasn't changed until 2007 when the legislature specified that the exemption doesn't apply to electricity, water, gas, or steam transactions. The change came after this litigation began.

The majority analyzed the language of the 1992 exemption differently than the Tax Court, which concluded the language of the exemption didn't require a hotel guest to directly consume the utilities. The high court ruled tangible personal property must be used up or otherwise consumed during the occupation of the rooms and must be used up or consumed by a guest. Not reading it in this manner could lead to cleaning supplies or the water used to clean the hotel sheets to become exempt from sales tax, wrote Justice Frank Sullivan for the majority.

"Reading the 2007 amendment to the Section 35 Exemption as a clarification of the law is consistent with the purpose of Indiana's adoption of the (Streamlined Sales Tax Project) and its model provisions - to simplify and modernize the administration and collection of the state's sales and use taxes," he wrote. "Thus the Legislature in all likelihood enacted the definition of "tangible personal property" in I.C. § 6-2.5-1-27 to bring the state into compliance with the SSUTA, not to render utilities eligible for the Section 35 Exemption."

The hotels had single electric, water, and gas meters for the entire facility and the hotels didn't monitor each guest's usage. The utilities are used up or consumed in the guest rooms whether they are occupied or vacant, so they are used up by the hotel and not the guests, wrote the justice.

The majority reversed the Indiana Tax Court's decision and affirmed the Indiana Department of Revenue's decision to deny Kitchin exemptions from sales tax under I.C. Section 6-2.5-5-35.

Justice Brent Dickson dissented in a separate opinion with which Justice Robert Rucker concurred, believing the facts and law of the case warrant the deferral to the determination of the Tax Court which was created to "consolidated tax-related litigation in one court of expertise," Justice Dickson wrote.

ADVERTISEMENT

  • Supreme Court Not Tax Savvy
    Well the Indiana Supreme Court just proved that its tax expertise is sorely lacking. Why is it not apparent to them that when the legislature change this applicable statute when the taxpayer filed in court, that the law must have been flawed. What would the ordinary person read here? Shame on them. When the legislature changed the definition to comply with the SST, how hard is it to read through the current law and find all instances of "Tangible personal property?" Then if that instance was not to be exempt, adjust it then. While that is what they "meant" to do, they did not and the Supreme Court in essence, sanctioned that.

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Indiana State Bar Association

Indianapolis Bar Association

Evansville Bar Association

Allen County Bar Association

Indiana Lawyer on Facebook

facebook
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. So that none are misinformed by my posting wihtout a non de plume here, please allow me to state that I am NOT an Indiana licensed attorney, although I am an Indiana resident approved to practice law and represent clients in Indiana's fed court of Nth Dist and before the 7th circuit. I remain licensed in KS, since 1996, no discipline. This must be clarified since the IN court records will reveal that I did sit for and pass the Indiana bar last February. Yet be not confused by the fact that I was so allowed to be tested .... I am not, to be clear in the service of my duty to be absolutely candid about this, I AM NOT a member of the Indiana bar, and might never be so licensed given my unrepented from errors of thought documented in this opinion, at fn2, which likely supports Mr Smith's initial post in this thread: http://caselaw.findlaw.com/us-7th-circuit/1592921.html

  2. When I served the State of Kansas as Deputy AG over Consumer Protection & Antitrust for four years, supervising 20 special agents and assistant attorneys general (back before the IBLE denied me the right to practice law in Indiana for not having the right stuff and pretty much crushed my legal career) we had a saying around the office: Resist the lure of the ring!!! It was a take off on Tolkiem, the idea that absolute power (I signed investigative subpoenas as a judge would in many other contexts, no need to show probable cause)could corrupt absolutely. We feared that we would overreach constitutional limits if not reminded, over and over, to be mindful to not do so. Our approach in so challenging one another was Madisonian, as the following quotes from the Father of our Constitution reveal: The essence of Government is power; and power, lodged as it must be in human hands, will ever be liable to abuse. We are right to take alarm at the first experiment upon our liberties. I believe there are more instances of the abridgement of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations. Liberty may be endangered by the abuse of liberty, but also by the abuse of power. All men having power ought to be mistrusted. -- James Madison, Federalist Papers and other sources: http://www.constitution.org/jm/jm_quotes.htm RESIST THE LURE OF THE RING ALL YE WITH POLITICAL OR JUDICIAL POWER!

  3. My dear Mr Smith, I respect your opinions and much enjoy your posts here. We do differ on our view of the benefits and viability of the American Experiment in Ordered Liberty. While I do agree that it could be better, and that your points in criticism are well taken, Utopia does indeed mean nowhere. I think Madison, Jefferson, Adams and company got it about as good as it gets in a fallen post-Enlightenment social order. That said, a constitution only protects the citizens if it is followed. We currently have a bevy of public officials and judicial agents who believe that their subjectivism, their personal ideology, their elitist fears and concerns and cause celebs trump the constitutions of our forefathers. This is most troubling. More to follow in the next post on that subject.

  4. Yep I am not Bryan Brown. Bryan you appear to be a bigger believer in the Constitution than I am. Were I still a big believer then I might be using my real name like you. Personally, I am no longer a fan of secularism. I favor the confessional state. In religious mattes, it seems to me that social diversity is chaos and conflict, while uniformity is order and peace.... secularism has been imposed by America on other nations now by force and that has not exactly worked out very well.... I think the American historical experiment with disestablishmentarianism is withering on the vine before our eyes..... Since I do not know if that is OK for an officially licensed lawyer to say, I keep the nom de plume.

  5. I am compelled to announce that I am not posting under any Smith monikers here. That said, the post below does have a certain ring to it that sounds familiar to me: http://www.catholicnewworld.com/cnwonline/2014/0907/cardinal.aspx

ADVERTISEMENT