A northern Indiana RV 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.
The case centers around Middlebury-based Richardson’s RV, which sells recreation 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,” Justice Mark 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.
“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.”
Determining the purpose of the Michigan deliveries was tax-related, not business-related, the majority of the Indiana Supreme Court 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.”
“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.”