"AOL argues that
it did not acquire the CD-ROM packages and promotional materials in any retail
transactions because it merely purchased assembly and printing services.
(Resp.’s Br. at 9–13.) AOL acknowledges that it may have purchased raw
materials in retail transactions, and it may have used the CD-ROM packages and
promotional materials in Indiana. (See Resp.’s Br. at 9–10.) But, AOL argues,
its third-party contractors completely consumed the raw materials in producing
final products that were separate and distinct from the raw materials. (Resp.’s
Br. at 10–13.) In other words, AOL acquired raw materials in retail
transactions but did not use them in Indiana, it used the final products in Indiana
but did not acquire them in any retail transactions, and never the twain shall
meet.
…
The heart of
this dispute, however, seems to turn on Section 6-2.5-4-1(b)’s use of the
phrase “that property,” a phrase that suggests that a retail merchant must
acquire tangible personal property and then transfer that same property
to a purchaser for either the sales or use taxes to apply. But as in so many
other areas of law, to him who reads the entire statute go the spoils.
Subsection (c) of the very same section makes it clear that “[f]or the purposes
of determining what constitutes selling at retail, it does not matter whether .
. . the property is transferred in the same form as when it was acquired.” Ind.
Code § 6-2.5-4-1(c)(1).
…
Given the tension between the phrase "that property" and Section 6-2.5-4-1(c)(1), we think
the sole purpose of Section 6-2.5-4-1(c)(1) is to prevent a person from arguing
that a merchant was not selling at retail merely because the merchant changed
the form of property between acquiring it and transferring it.
…
Here,
we think the assembly houses and letter shops were selling at retail. The
assembly houses and letter shops acquired tangible personal property when they
took possession of the individual components. That they did so for the purpose
of resale is clear not only from the fact that neither AOL nor any third-party
contractors ever paid any sales or use taxes on the raw materials, but also—and
more importantly—from the fact that the assembly houses and letter shops completely
consumed the raw materials, regardless of who provided them, to produce a
separate and distinct final product that previously did not exist at all. AOL
may have had title in the raw materials, but it could not have title in the
final products until they came into existence. As AOL paid consideration and
received title to goods in which it previously had none, we think a sale of
goods occurred. The assembly houses and letter shops transferred that property
to a person for consideration, its changed form notwithstanding, when they
mailed the CD-ROM packages and promotional materials to AOL’s prospective and
current members at AOL’s request and in exchange for payment from AOL.
Because the
assembly houses and letter shops were selling at retail, the transactions
between AOL and its assembly houses and letter shops constituted retail
transactions that triggered Indiana’s use tax once AOL used the property in
Indiana."
http://www.in.gov/judiciary/opinions/pdf/03161201rts.doc.pdf
The Supreme Court also impliedly overturned Ameritech Publ’g, Inc. v. Ind. Dep’t of State Revenue, 916 N.E.2d 752, 752, 756 (Ind. Tax Ct. 2009) (“Ameritech II”), review denied; and Ameritech Publ’g, Inc. v. Ind. Dep’t of State Revenue, No. 49T10-0305-TA-26, at *1, *13 n.12, 855 N.E.2d 1096 (Ind. Tax Ct. 2006) (table) (“Ameritech I”), review denied, stating: “Section 6-2.5-4-1(c)(1) should have prevented decisions like Ameritech II and Ameritech I.”
Here is the
original Tax Court decision holding:
“As this Court has previously explained, two conditions must be met in order for AOL to incur a use tax liability: 1) AOL must have acquired tangible personal property (i.e., the ROM Packages and CM Packages) in retail transactions; and 2) AOL must have then used, stored, or consumed that tangible personal property in Indiana. See Morton Bldgs., 819 N.E.2d at 918. While AOL indisputably used the ROM Packages and CM Materials in Indiana, it did not acquire them in retail transactions or retail unitary transactions. Rather, in engaging the assembly houses to assemble, print, and ultimately mail the ROM Packages to its prospective members, AOL purchased a service, and not tangible personal property. See API I, No. 49T10-0305-TA-26, slip op. at 7-13. Likewise, in engaging the letter shops to print and then mail the CM Materials to its current customers, AOL again purchased a service, not tangible personal property. See id. AOL owned all of the raw materials used to produce the ROM Packages and the CM Materials; consequently, the assembly houses and letter shops had nothing to sell to AOL other than their services.7 Id. (footnote added). See also API II, 916 N.E.2d at 754-57. Accordingly, the Department’s denials of AOL’s two claims were improper.”
http://www.in.gov/judiciary/opinions/pdf/12291001tgf.pdf
