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
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. Can I get this form on line,if not where can I obtain one. I am eligible.

  2. What a fine example of the best of the Hoosier tradition! How sad that the AP has to include partisan snark in the obit for this great American patriot and adventurer.

  3. Why are all these lawyers yakking to the media about pending matters? Trial by media? What the devil happened to not making extrajudicial statements? The system is falling apart.

  4. It is a sad story indeed as this couple has been only in survival mode, NOT found guilty with Ponzi, shaken down for 5 years and pursued by prosecution that has been ignited by a civil suit with very deep pockets wrenched in their bitterness...It has been said that many of us are breaking an average of 300 federal laws a day without even knowing it. Structuring laws, & civilForfeiture laws are among the scariest that need to be restructured or repealed . These laws were initially created for drug Lords and laundering money and now reach over that line. Here you have a couple that took out their own money, not drug money, not laundering. Yes...Many upset that they lost money...but how much did they make before it all fell apart? No one ask that question? A civil suit against Williams was awarded because he has no more money to fight...they pushed for a break in order...they took all his belongings...even underwear, shoes and clothes? who does that? What allows that? Maybe if you had the picture of him purchasing a jacket at the Goodwill just to go to court the next day...his enemy may be satisfied? But not likely...bitterness is a master. For happy ending lovers, you will be happy to know they have a faith that has changed their world and a solid love that many of us can only dream about. They will spend their time in federal jail for taking their money from their account, but at the end of the day they have loyal friends, a true love and a hope of a new life in time...and none of that can be bought or taken That is the real story.

  5. Could be his email did something especially heinous, really over the top like questioning Ind S.Ct. officials or accusing JLAP of being the political correctness police.

ADVERTISEMENT