Opinion
Cause No. 49T10-0209-TA-105.
September 18, 2006.
B. KEITH SHAKE, ROBERT L. HARTLEY, LOCKE REYNOLDS LLP, Indianapolis, IN, ATTORNEYS FOR PETITIONER
STEVE CARTEREY ATTORNEY GENERAL OF INDIANA, ANDREW W. SWAIN, SPECIAL COUNSEL, TAX SECTION, Indianapolis, IN, ATTORNEYS FOR RESPONDENT.
FOR PUBLICATION
On April 20, 2006, this Court issued an order in the case of Dreaded, Inc. v. Indiana Department of State Revenue, No. 49T10-0209-TA-105, slip. op. (Ind.Tax Ct. April 20, 2006). In Dreaded, the Court determined that V-Line's charges for delivery services during the 1994-1996 tax years were subject to Indiana gross retail tax (sales tax) pursuant to Indiana Code § 6-2.5-4-1. Therefore, the Court granted summary judgment to the Indiana Department of State Revenue (Department), and required V-Line to pay proposed assessments totaling $98,754 (tax at issue). In so holding, the Court held that the administrative regulation upon which V-Line relied in not collecting sales tax from its customers, Indiana Administrative Code, title 45, rule 2.2-4-3(b)(3), was invalid. V-Line now requests that the Court reconsider its decision to retroactively apply the invalidation to V-Line. After reviewing V-Line's motion and having held argument thereon, the Court now GRANTS the motion for the following reasons.
That statute provides in pertinent part:
[s]ervices are subject to sales tax to the extent the income from the service represents "any bona fide charges which are made for preparation, fabrication, alteration, modification, finishing, completion, delivery, or other service performed in respect to the property transferred before its transfer and which are separately stated on the transferor's records."
IND. CODE ANN. § 6-2.5-4-1(e)(2) (West 1995) (emphasis added).
The regulation provides guidelines as to when a separately stated delivery charge is subject to sales tax based on an F.O.B. designation. While subsection (b)(3) of the regulation stated "[d]elivery charge[s] separately stated where no F.O.B. has been established [are] non-taxable[,]" see Indiana Administrative Code, title 45, rule 2.2-4-3(b)(3) (1996), the Court held this language not only conflicted with Indiana Code § 6-2.5-4-1, but with the remainder of the regulation itself. See Dreaded, No. 49T10-0209-TA-105, slip. op. at 6-7.
ANALYSIS AND ORDER
In Dreaded, the Court acknowledged that V-Line did not collect sales tax from its customers because the Department's invalid regulation indicated that it was not required to do so. Nevertheless, the Court held V-Line was still taxable for the tax at issue because the governing statute required V-line to collect the tax. V-Line now asserts the Court's decision in Dreaded is erroneous to the extent it retroactively applies the invalidation of 45 IAC 2.2-4-3(b)(3) to its case. More specifically, V-Line argues:
[r]etail merchants are not the taxpayers of sales tax, but only the collection agents for the State. It is the State that adopted the regulations instructing retail merchants [as to] when, and when not, to collect sales tax. If a retail merchant, in fulfilling its obligations as collection agent, follows the instructions of its principal, the State, any financial harm that results from the State's faulty or invalid instructions should fall on the State, not the merchant.
(Pet. for Reh'g at 4.) The Court agrees.
The legislature did not intend for V-Line to pay sales tax; it was only required to collect the tax. Rather, V-Line's customers were liable for the tax. See IND. CODE ANN. § 6-2.5-2-1(b) (West 1995) (stating that [t]he person who acquires property in a retail transaction is liable for the tax on the transaction and . . . shall pay the tax to the retail merchant[, who] . . . collect[s] the tax as agent for the state). By its holding, however, the Court is requiring V-Line to pay its customers' sales tax liabilities on transactions that occurred over ten years ago merely because it relied on the Department's regulation that was subsequently invalidated. In the interest of fairness and equity, V-Line's reliance on the Department's inaccurate regulation should not be deemed an erroneous failure to collect sales tax nor result in a penalty for V-Line.
During the oral argument on the merits of its case, V-Line stated:
by the time [the Department] decides to conduct an audit on V-Line it's far too late for V-Line to go back to its customer and say `I know I [should have] invoiced you for $6 back [in the mid 1990's], we didn't, will you now give us that $6?'
(Oral Argument Tr. at 5.) Indeed, in 2006, not only would it be impractical for V-Line to contact its numerous customers from 1994, 1995 and 1996, its impractical to think V-Line would even be able to locate all of its customers from that period.
CONCLUSION
Because the retroactive application of the regulation's invalidation produces a result the legislature did not intend, this Court now amends its decision. The invalidation of the regulation is given prospective effect only and V-Line is not liable for the tax at issue. Accordingly, the Court GRANTS V-Line's motion to correct error.
SO ORDERED this 18th day of September, 2006.
________________________ Thomas G. Fisher, Judge Indiana Tax CourtDistribution:
B. Keith Shake, Robert L. Hartley, LOCKE REYNOLDS, LLP, P.O. BOX 44961 Indianapolis, IN 46244-0961
Steve Carter, Attorney General of Indiana, By: Andrew W. Swain, Special Counsel, Tax Section, Indiana Government Center South, Fifth Floor 302 West Washington Street, Indianapolis, IN 46204