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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. I will continue to pray that God keeps giving you the strength and courage to keep fighting for what is right and just so you are aware, you are an inspiration to those that are feeling weak and helpless as they are trying to figure out why evil keeps winning. God Bless.....

  2. Some are above the law in Indiana. Some lined up with Lodges have controlled power in the state since the 1920s when the Klan ruled Indiana. Consider the comments at this post and note the international h.q. in Indianapolis. http://www.theindianalawyer.com/human-trafficking-rising-in-indiana/PARAMS/article/42468. Brave journalists need to take this child torturing, above the law and antimarriage cult on just like The Globe courageously took on Cardinal Law. Are there any brave Hoosier journalists?

  3. I am nearing 66 years old..... I have no interest in contacting anyone. All I need to have is a nationality....a REAL Birthday...... the place U was born...... my soul will never be at peace. I have lived my life without identity.... if anyone can help me please contact me.

  4. This is the dissent discussed in the comment below. See comments on that story for an amazing discussion of likely judicial corruption of some kind, the rejection of the rule of law at the very least. http://www.theindianalawyer.com/justices-deny-transfer-to-child-custody-case/PARAMS/article/42774#comment

  5. That means much to me, thank you. My own communion, to which I came in my 30's from a protestant evangelical background, refuses to so affirm me, the Bishop's courtiers all saying, when it matters, that they defer to the state, and trust that the state would not be wrong as to me. (LIttle did I know that is the most common modernist catholic position on the state -- at least when the state acts consistent with the philosophy of the democrat party). I asked my RCC pastor to stand with me before the Examiners after they demanded that I disavow God's law on the record .... he refused, saying the Bishop would not allow it. I filed all of my file in the open in federal court so the Bishop's men could see what had been done ... they refused to look. (But the 7th Cir and federal judge Theresa Springmann gave me the honor of admission after so reading, even though ISC had denied me, rendering me a very rare bird). Such affirmation from a fellow believer as you have done here has been rare for me, and that dearth of solidarity, and the economic pain visited upon my wife and five children, have been the hardest part of the struggle. They did indeed banish me, for life, and so, in substance did the the Diocese, which treated me like a pariah, but thanks to this ezine ... and this is simply amazing to me .... because of this ezine I am not silenced. This ezine allowing us to speak to the corruption that the former chief "justice" left behind, yet embedded in his systems when he retired ... the openness to discuss that corruption (like that revealed in the recent whistleblowing dissent by courageous Justice David and fresh breath of air Chief Justice Rush,) is a great example of the First Amendment at work. I will not be silenced as long as this tree falling in the wood can be heard. The Hoosier Judiciary has deep seated problems, generational corruption, ideological corruption. Many cases demonstrate this. It must be spotlighted. The corrupted system has no hold on me now, none. I have survived their best shots. It is now my time to not be silent. To the Glory of God, and for the good of man's law. (It almost always works that way as to the true law, as I explained the bar examiners -- who refused to follow even their own statutory law and violated core organic law when banishing me for life -- actually revealing themselves to be lawless.)

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