Gross Income Leasing Vehicles In Indiana
The Petitioners petition this Court to set aside the final determinations of the Indiana Department of State Revenue (Department), which assessed the Petitioners $ 218,878.35 in Indiana gross income tax, adjusted gross income tax, supplemental net income tax, and penalties and interest for the fiscal years ending July 31, 1984 through July 31, 1993 (years at issue).
The matter is currently before the Court on the Petitioners' motion for summary judgment, in which they raise the following issues:
I. Whether Petitioners' gross income from leasing vehicles to customers who titled, registered, and located the vehicles in Indiana is derived from "sources within Indiana" within the meaning of Indiana Code 6-2.1-2-2.
II. Whether, for purposes of calculating its Indiana adjusted gross income tax and supplemental income tax liabilities, the numerator of Petitioners' property factor should include the leased vehicles that were located, titled, and registered in Indiana?
FACTS AND PROCEDURAL HISTORY
The material facts as they relate to this motion for summary judgment are undisputed. the Petitioners are nonresident corporations with corporate headquarters located outside Indiana.
With one exception not relevant in this case, none of the Petitioners has ever had an office, warehouse, distribution center, or any type of business location in Indiana. None of the Petitioners has ever had employees in Indiana.
The Petitioners are in the business of leasing motor vehicles to the general public. They engage in two relevant types of leasing activity. First, they lease vehicles to individual members of the public for periods of more than one year ("long-term retail leases").
Second, they lease multiple vehicles to business entities for periods of more than one year ("fleet leases").
Under the terms of the fleet and long-term retail leases, the lessees exercise complete control over the use and location of the leased vehicles, including the right to designate an independent automobile dealer from which they can pick-up their vehicles. the lessees can use the leased vehicles anywhere within the continental United States and Canada.
The lessees are responsible for repairing, maintaining, and insuring the leased vehicles. Petitioners make no independent warranty or guaranty with respect to the leased vehicles, and the lessees agree to pursue any claim for breach of a manufacturer's warranty directly against the manufacturer at their own expense. Furthermore, the lessees are responsible for licensing and registering the vehicles.
To the extent a lessee chooses not to handle these matters, the Petitioners will, via mail, license and register the vehicles in whatever state the lessee desires. the lessee, however, is responsible for all licensing and registration costs.
All fleet and long-term retail leases are drafted, negotiated, and executed by the Petitioners in their out-of-state headquarters.
Petitioners make all billings and collections for these leases from their out-of-state headquarters. All lease payments are sent to the Petitioners' out-of-state corporate headquarters.
The terms of the lease payments are not contingent on where the leased vehicles are used.
During the years at issue, the Petitioners entered into, and received income from, various fleet and long-term retail leases (leases at issue).
The lessees to these leases directed the Petitioners to deliver the vehicles to Indiana, where they were subsequently titled and registered.
The Petitioners, believing the gross income it received from these leases was not subject to Indiana's gross income tax because it was not derived from an Indiana source, did not file Indiana corporate income tax returns for the years at issue.
In March of 1995, however, the Department issued notices of proposed assessment to the Petitioners, assessing them for gross income tax, adjusted gross income tax, supplemental net income tax, and interest and penalties for the years at issue.
Specifically, the Department determined that the Petitioners gross income from the leases at issue was taxable because the income was derived from an Indiana source.
The Department also determined that, for purposes of Indiana's adjusted gross income tax and supplemental income tax, the leased vehicles that were titled and registered in Indiana should have been included in the numerator of the Petitioners' property factor for apportionment purposes.
On May 30, 1995, each of the Petitioners filed a protest with the Department. After holding a joint administrative hearing, the Department denied the Petitioners' protests on February 4, 1998.
The Petitioners filed an original tax appeal with this Court on July 1, 1998. on March 25, 1999, the Petitioners filed this motion for summary judgment.
This Court conducted a hearing on the Petitioners' motion for summary judgment on July 13, 1999. Additional facts will be supplied as necessary.
The first issue in this case is whether or not Indiana can tax the Petitioners' gross income earned as a result of the leases at issue. More specifically, the parties dispute whether the Petitioners' gross income is derived from "sources within Indiana" as required by Indiana Code 6-2.1-2-2(a).
For the foregoing reasons, this Court hereby grants the Petitioners' motion for summary judgment.