A northern Indiana recreational vehicle dealer who tried to avoid paying Indiana sales tax on out-of-state transactions by moving the RVs into Michigan before handing over the keys to customers must repay those taxes after a divided Indiana Supreme Court entered summary judgment in favor of the Indiana Department of Revenue.
Justice Mark Massa, writing a majority opinion joined by Chief Justice Loretta Rush and Justice Christopher Goff, reversed an August ruling from the Indiana Tax Court on Wednesday in Richardson’s RV, Inc. v. Indiana Department of State Revenue, 18S-TA-22. The case centers around Middlebury-based Richardson’s RV, which sells recreational vehicles both onsite and online.
Customers who lived in Indiana or in one of the 40 states with reciprocal tax exemption agreements with the Hoosier state would take possession of their RVs directly at the dealership. But the remaining out-of-state customers were given the option of either paying Indiana’s sales tax rate or their home state’s rate.
“For the non-reciprocal-state customers choosing to pay their home state’s rate, the delivery method Richardson’s employed was unorthodox,” Massa wrote. Specifically, Richardson’s would drive the RV across the state line into Michigan, a non-reciprocal state, before giving customers their keys, thereby avoiding Indiana sales tax.
After discovering this practice in an audit, the Department of Revenue issued proposed assessments of nearly $250,000 in unpaid taxes. On appeal, the Tax Court granted summary judgment to Richardson’s, but after hearing oral argument in March, the majority of the Indiana Supreme Court reversed.
“When personal property is delivered to the purchaser in a state other than Indiana solely to avoid paying sales tax — with no other legitimate business purpose — we will not ‘exalt artifice above reality,’” Massa wrote. “… Instead, we will consider these deliveries part of ‘retail transactions made in Indiana’ subject to Indiana sales tax. I.C. section 6-2.5-2-1(a).”
Determining the purpose of the Michigan deliveries was tax-related, not business-related, the majority determined those deliveries were “a sham for taxation purposes.” Massa said Indiana Code section 6-2.5-5-39(c) requires non-reciprocal-state customers to pay Indiana sales tax, and “Indiana businesses cannot absorb — or completely ignore — sales tax to entice customers.”
The issue of the Michigan deliveries was, thus, remanded for the Tax Court to determine how much Richardson’s owes in taxes. The case was also remanded for the Tax Court to determine if four other non-reciprocal-state deliveries — in California, North Dakota, Nova Scotia and Buchanan, Michigan — were taxable.
“Even though these deliveries outwardly differ from the typical Michigan Deliveries, Richardson’s designated no evidence showing any independent, non-tax-related business purpose that motivated them,” Massa wrote. “So we remand to the Tax Court to determine that.”
But in a dissenting opinion, Justice Steven David said Richardson’s “followed the letter of the law” under 45 Ind. Admin. Code section 2.2-5-54(b), which holds that “(s)ales of tangible personal property which are delivered to the purchaser in a state other than Indiana for use in a state other than Indiana are not subject to gross retail tax or use tax.” David said the appropriate remedy for the DOR is not in the courts, but rather in a revised sales tax regulation.
Justice Geoffrey Slaughter joined David’s opinion and also penned his own dissent, finding similarly that the DOR “does not claim that buyers of the disputed RVs intend to use their vehicles in Indiana.”
“I would hold that complying with the law is never a ‘sham,’ even if the result is to deprive the Department of tax dollars it would prefer to collect,” Slaughter wrote in his opinion, which was joined by David.
Slaughter ended his dissent by challenging the Supreme Court’s deference to the Tax Court on matters of tax law as “unwarranted within our hierarchical judiciary.”
“In addition to the tax court, our state judiciary is replete with various specialized courts …,” he wrote. “Do we likewise owe deference to the legal conclusions of these tribunals? Surely, the answer is no, and not because the judges who populate these courts lack subject-matter expertise … .
“…As Indiana’s court of last resort, we should reaffirm our supremacy to ‘say what the law is’, and that includes Indiana’s tax law.”