Richardson's RV, Inc. v. Indiana Department of State Revenue
112 N.E.3d 192 (2018)
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Rule of Law:
A transaction structured solely for the purpose of avoiding taxes, without any other legitimate business justification, will be disregarded as a sham for taxation purposes, and its substance, rather than its form, will determine its tax consequences.
Facts:
- Richardson’s RV, Inc. (Richardson’s) operated an RV dealership in Middlebury, Indiana, and sold RVs to customers, including those from states without reciprocal tax exemption agreements with Indiana.
- For customers from non-reciprocal states, Richardson’s employed an unorthodox delivery method by driving RVs to a Speedway gas station fewer than three miles north of the Indiana state border into Michigan.
- At the Michigan Speedway, customers from non-reciprocal states signed confirmations of delivery and received the keys to their new RVs, with these deliveries explicitly stated to be 'just for tax purposes.'
- Richardson’s collected no Indiana sales tax on these 'Michigan Deliveries' or on four 'Non-Michigan Deliveries' made to other distant locations (California, North Dakota, Nova Scotia, and Buchanan, Michigan).
- Prior to these deliveries, customers typically inspected RVs, completed financing and title/registration documents at the Indiana dealership, and received temporary Indiana license plates.
Procedural Posture:
- The Indiana Department of State Revenue conducted an audit of Richardson’s RV, Inc. for several years and issued proposed assessments totaling nearly $250,000 in unpaid taxes and interest on disputed RV sales.
- Richardson’s unsuccessfully appealed these proposed assessments to the Indiana Department of State Revenue.
- Richardson’s filed a petition for review with the Indiana Tax Court.
- The Indiana Tax Court granted summary judgment for Richardson’s RV, Inc., ruling that it owed no Indiana sales tax for the transactions.
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Issue:
Does Indiana sales tax apply to sales of recreational vehicles delivered to out-of-state purchasers if the delivery method was structured solely to avoid Indiana sales tax with no other legitimate business purpose?
Opinions:
Majority - Justice Massa
Yes, Indiana sales tax applies to sales of recreational vehicles delivered to out-of-state purchasers when the delivery method was structured solely to avoid Indiana sales tax with no other legitimate business purpose. The Indiana Supreme Court reversed the Tax Court, holding that the 'Michigan Deliveries' constituted a sham transaction. The Court reiterated that the substance, rather than the form, of a transaction determines its tax consequences, and a transaction structured solely for tax avoidance without a legitimate business purpose is a sham. Richardson’s asserted justifications (ensuring proper jurisdiction for tax, avoiding double taxation, maintaining competitive pricing) were deemed tax-based, not independent business purposes. The Court affirmed that Indiana Code § 6-2.5-5-39(c) mandates sales tax for non-reciprocal state customers purchasing RVs in Indiana. The case was remanded for the Tax Court to calculate the owed tax and to determine if the four 'Non-Michigan Deliveries' had any independent, non-tax-related business purposes.
Dissenting - Justice David
No, Indiana sales tax should not apply to these out-of-state deliveries because Richardson’s followed the plain language of the law. Justice David argued that 45 Ind. Admin. Code § 2.2-5-54(b) explicitly states that sales delivered to a purchaser in another state for use in that state are not subject to gross retail or use tax. Since the RVs were physically delivered in Michigan, Richardson's complied with the letter of the regulation. Justice David contended that if the Department of State Revenue wishes to alter this outcome, the remedy should come through legislative revision of the regulation, not through judicial interference by labeling a compliant transaction a 'sham'.
Dissenting - Justice Slaughter
No, a taxpayer that structures its affairs to satisfy the law's strict letter should not be penalized for violating its spirit, and thus, Indiana sales tax should not be imposed. Justice Slaughter joined Justice David's dissent, asserting that complying with the explicit terms of 45 Ind. Admin. Code 2.2-5-54(b) (delivery outside Indiana for use outside Indiana) is not a 'sham,' even if the motivation is tax avoidance. He stressed that the Court, as the final arbiter of Indiana law, should reaffirm its supremacy in interpreting statutes and not defer to the Tax Court's legal conclusions, despite its subject-matter expertise.
Analysis:
This case significantly reinforces the 'sham transaction' doctrine within Indiana's tax jurisprudence, making it clear that manipulating the physical location of delivery solely for tax avoidance will not circumvent state sales tax obligations. It establishes that courts will look beyond the mere form of a transaction to its underlying substance, especially when the asserted 'business purposes' are inextricably linked to tax savings. The decision serves as a warning to businesses against engaging in purely tax-motivated maneuvers without genuine, independent business justifications, and it provides guidance on how courts will evaluate the validity of out-of-state deliveries in sales tax disputes.
