State tax court grants partial summary judgment to UPS over language of Indiana’s special fuel tax statute

The Indiana Tax Court on Wednesday granted partial summary judgment to United Parcel Service Inc. in a case against the Indiana Department of State Revenue involving the plain language of the state’s special fuel tax statute.  

In the April 22 order, Judge Justin McAdam granted UPS partial summary judgment on the basis that private roads are included within the statute’s “nonhighway purposes” exemption. McAdam wrote, however, that the court will not decide whether and to what extent UPS is entitled to a refund for the tax years they submitted to the department.  

Attorneys for UPS could not comment on the matter. The Indiana Attorney General’s Office, which represented the Department of State Revenue in this case, did not immediately respond to a request for comment.

Indiana’s special fuel tax statute applies to “all special fuel sold or used in producing or generating power for propelling motor vehicles” but exempts fuel that’s “used for nonhighway purposes,” according to Indiana Code.  

In 2018 and 2019, UPS paid a special fuel tax on the fuel consumed by the company’s package cars, which are the large brown vans often seen in communities delivering packages to customers. During those tax years, the company’s package cars consumed “undyed special fuel” while navigating both public highways and private property.  

In August 2020, UPS submitted four separate refund claims for the special fuel tax, totaling $201,097.08. The state revenue department’s Special Tax Division denied the claims, stating that UPS didn’t meet the requirements of the special fuel tax’s “nonhighway purposes” exemption. 

After the revenue department’s legal team affirmed the refund denials, UPS appealed to the tax court.  

At issue for the tax court was whether, as a matter of law, the special fuel bought by UPS is exempt from the fuel tax statute.  

UPS argued that the statute focuses on the actual use of the fuel (the locations where the fuel is physically consumed) and not on the overall business operations of a taxpayer.  

The department of revenue based its argument on three points: 

1. that the statute taxes based on the business operations of a taxpayer 
2. that the exemption applies only to vehicles that aren’t registered for highway use 
3. that the exemption only applies to dyed fuel.

Addressing the department of revenue’s points, the court determined 1) that the language of the “nonhighway purposes” exemption doesn’t draw a distinction between the fuel user’s commercial and noncommercial purposes; 2) that the department failed to prove that the exemption applies only to vehicles not registered for highway use and; 3) that the statute does not specifically require fuel to be dyed, but instead imposes a requirement on fuel once it has been exempted.  

To summarize, the court said, the resolution of the case relies on the plain and ordinary language of the broad “used for nonhighway purposes” exemption.  

“The plain meaning of the language demonstrates that uses of special fuel unrelated to or not involving public roads are exempt from the Special Fuel Tax, which includes special fuel used to propel motor vehicles along private, nonhighway surfaces,” McAdam wrote.  

The case is United Parcel Service, Inc. v. Indiana Department of State Revenue, 24T-TA-00018.