The taxpayer is an Indiana
for-profit utility company ("Utility") that offers sanitation and
sewer services to both residential and commercial customers in Indiana. Utility
is taxed as an S-corporation and has been incorporated since the 1980s.
...
In the course of the Department's
URT audit, Utility provided URT returns for the years at issue. According to
the Department's audit summary, the returns showed that Utility had remitted
URT on sewer service user fees it received from its residential and commercial
customers. However, a review of Utility's revenue accounts in its general
ledger showed that there were receipts from other ledger accounts that should
have been included in the URT returns. The additional taxable receipts fell into
two categories, as determined by Utility: "Connection Fees," and
"Contributions in Aid of Construction" ("CIAC").
...
The particular "connection
fees" at issue in this protest are fees that Utility collects from housing
developers. Utility is responsible for providing access to sewer lines so that
individual and commercial residents have sewer services at their locations.
Developers actually install those lines. For the years at issue, Utility
collected $305 from developers for each residential or commercial location to
cover the cost of a sewer permit and the fee Utility paid to an engineering
firm to inspect and approve the sewer pipes (installed by developers) that run
from the locations where the sewer services will be used to the main sewer
line. The engineering firm was responsible for ensuring the pipes were
connected correctly according to Utility's specifications.
The Department's audit subjected
these fees to URT under IC § 6-2.3-1-4, the URT definition of "gross
receipts."
...
Even if, for the sake of argument,
these "connection fees" were not in and of themselves subject to URT,
under IC § 6-2.3-3-2 they would be taxable because Utility did not separate
taxable receipts from non-taxable receipts in its records or returns.
Therefore, the protested
"connection fees" were properly subjected to URT.
...
The Department's audit imposed URT
on fees the audit called "Contributions in Aid of Construction"
("CIAC") and which Utility referred to as "System Development
Charges" ("SDC")...
According to Utility, the SDC
implicated in this protest was a $2,400 fee that Utility collected from
developers for each household that was provided or was to be provided sewer
service. Utility explained that of that amount, $1,050 was remitted to the
local municipality (hereinafter referred to as the "Town") to cover
the additional sewer capacity needed to accommodate the anticipated additional
households that would be included in the Town's sewage system as the Town grew.
In its letter to the Department dated November 11, 2010, Utility refers to this
amount as the "Town Portion" and states that it "is collected on
behalf of and as an agent for the Town pursuant to a Wholesale Sewer Agreement
between [Utility] and the Town...." The remaining portion of the fee,
Utility explains, was money Utility itself used, or would use, in its own plant
to upgrade sewer pumps and to expand its own sewer capacity to accommodate
residential growth and the resulting additional demand placed on its
infrastructure.
The Department's audit subjected these receipts to URT also pursuant to IC § 6-2.3-1-6 which states that payment of a taxpayer's expenses, debts, or other obligations by a third party for the taxpayer's direct benefit is subject to URT.
Again, in light of the Indiana
legislature's imposition of URT on a broad definition of taxable gross receipts
and the fact that the legislature clearly stated exemptions and deductions from
URT that did not include the sort of exclusion Utility proposes, the Department
takes a different view of these SDCs. The SDCs are "in consideration"
for the permitting and inspection of tangible personal property installed to
directly provide utility services to new specific, individual delivery points;
i.e., the existing locations at which the retail sale by Utility of the utility
services will occur. IC § 6-2.3-1-4; IC § 6-2.3-3-10. These SDCs are therefore
"in consideration of the retail sale of utility services for
consumption."
Utility further argues that these
are not retail but wholesale transactions. IC § 6-2.3-3-5 is the only URT statute
that references "wholesale" sales and the reference to wholesale
sales is to those sales that take place between two utilities. This is not the
case in this instances. All of the protested transactions are connected to the
retail sale of utility services.
Based on all of the above, the SDCs
were properly subjected to URT.
