An Indiana recreational vehicle (RV) retailer was liable for Indiana sales tax where it delivered RVs to out-of-state customers at a gas station in Michigan. The company only delivered in Michigan when:
- customers were residents of a state that didn’t have a tax exemption reciprocity agreement with Indiana; and
- the RV purchase was not exempt from Indiana sales tax.
The Indiana Supreme Court held that structuring RV sales for out-of-state residents so that RVs are delivered to customers in Michigan had no legitimate business purpose.
Choice of State for Receiving Delivery
When selling RVS to out-of-state residents, the company offered customers from states without reciprocity agreements the choice to pay Indiana sales tax or the sales tax of their home state. When customers chose their home state’s tax, the company drove the RVs to a gas station three miles over the border into Michigan. Michigan and Indiana do not have a reciprocity agreement. The customers followed the RV from the company location to the Michigan gas station. Once there, the customers signed delivery confirmations and received the keys for the RVs. The company did not collect Indiana sales tax on these sales.
Substance, Not Form, Controls in Tax Transactions
The company argued that its business purposes for these Michigan deliveries were:
- making sure customers paid tax to the proper taxing authority;
- avoiding double taxation; and
- keeping its pricing competitive.
The high Court found that each of these purposes was tax-based, not business-based. Indiana follows the destination principle that tax is owed in the jurisdiction where a product or good is delivered. In this case, the company artificially shifted the delivery destination to avoid Indiana sales tax. Further, the company cannot help customers avoid paying a double tax by failing to collect Indiana sales tax as required by law. Third, Indiana business cannot ignore Indiana sales tax to entice customers.
The Court concluded the Michigan deliveries were a sham since the company had no business purpose for delivering RVs to Michigan for select customers.
Richardson’s R.V. v. Indiana Dept. of Revenue, Indiana Supreme Court, No. 18S-TA-22, December 5, 2018, ¶403-023