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Tax exemption doesn't apply to hotel utilities

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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.

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  • 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.

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  1. It appears the police and prosecutors are allowed to change the rules halfway through the game to suit themselves. I am surprised that the congress has not yet eliminated the right to a trial in cases involving any type of forensic evidence. That would suit their foolish law and order police state views. I say we eliminate the statute of limitations for crimes committed by members of congress and other government employees. Of course they would never do that. They are all corrupt cowards!!!

  2. 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?

  3. 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?

  4. 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.

  5. 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?

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