Schilli Leasing, Inc. v. Indiana Department of State Revenue
82 N.E.3d 934
| Ind. T.C. | 2017

Background

  • Schilli Leasing, a truck-leasing and maintenance company owned by Thomas Schilli, leased vehicles and provided services (fuel purchases, repairs, temporary freight storage, bunkhouses) to several related companies owned by Schilli (WVT, SSI, SST, MSS).
  • The Indiana Department of Revenue audited Schilli Leasing for 2008–2010 and issued proposed assessments (~$223,041.48) for unpaid sales and use taxes on intercompany charges and certain purchases and shop supplies.
  • Schilli Leasing protested, claiming the transactions were exempt under Indiana Code § 6-2.5-5-27 (public transportation exemption); the Department denied the protest and Schilli appealed to the Indiana Tax Court.
  • Schilli Leasing stipulated it does not transport third-party property for consideration (i.e., it does not itself provide public transportation); the related companies perform transportation services.
  • Schilli Leasing advanced two primary defenses: (1) the exemption covers all transportation-related transactions (broad reading), and (2) the unitary business principle allows treating the related corporations as a single enterprise for exemption purposes.
  • The court reviewed the Department’s determination de novo and considered an alternative attack on the audit’s statistical sampling (which Schilli failed to substantiate).

Issues

Issue Plaintiff's Argument Defendant's Argument Held
Whether Schilli Leasing’s sales/use-taxed transactions are exempt under the public transportation exemption Exemption covers all transportation-related transactions and services that are part of the transportation process; Schilli’s services are necessary/integral to moving freight Exemption applies only when the purchaser (user) directly uses property/services in providing public transportation; Schilli does not itself provide public transportation Held for Department: exemption requires the acquirer to provide public transportation; Schilli Leasing does not, so transactions are taxable
Whether the Department’s regulation defining "public transportation" impermissibly narrows the statutory exemption Regulation improperly narrows the statute by requiring actual hauling of freight; exemption should cover the broader bundle of transportation-related services Regulation is consistent with statutory text tying exemption to providing public transportation and is not an impermissible narrowing Held for Department: regulation is consistent with the statute and valid
Whether related Schilli entities should be treated as a unitary business so intercompany transactions are exempt Apply unitary business principle to treat affiliated entities as one enterprise for sales/use tax exemption purposes Unitary business principle applies to income/value-apportioned taxes, not to sales/use taxes; no legal basis to apply it here Held for Department: unitary business principle inapplicable to sales/use tax; entities remain separate
Whether the Department’s audit using statistical sampling was faulty enough to reverse assessments Schilli alleged sampling issues (inclusion of intercompany transfers, out-of-state fuel) yielded an inflated base Department’s sampling methodology challenged only by vague testimony; Schilli did not show how sampling produced faulty results Held for Department: Schilli failed to prove sampling was faulty; assessments affirmed

Key Cases Cited

  • Horseshoe Hammond, LLC v. Indiana Dep’t of State Revenue, 865 N.E.2d 725 (Ind. Tax Ct. 2007) (de novo review of Department determinations)
  • Morton Bldgs., Inc. v. Indiana Dep’t of State Revenue, 819 N.E.2d 913 (Ind. Tax Ct. 2004) (use tax complements sales tax to prevent avoidance)
  • Wendt LLP v. Indiana Dep’t of State Revenue, 977 N.E.2d 480 (Ind. Tax Ct. 2012) (public transportation exemption confined to property used within continuous process of furnishing public transportation)
  • DeKalb Cnty. E. Cmty. Sch. Dist. v. Dep’t of Local Gov't Fin., 930 N.E.2d 1257 (Ind. Tax Ct. 2010) (statutory interpretation avoids absurd results)
  • Carnahan Grain, Inc. v. Indiana Dep’t of State Revenue, 828 N.E.2d 465 (Ind. Tax Ct. 2005) (exemption requires entity be predominantly engaged in transporting third-party property)
  • Indiana Waste Sys. Ind., Inc. v. Indiana Dep’t of State Revenue, 644 N.E.2d 960 (Ind. Tax Ct. 1994) (methodologies to show predominant carriage of others’ property)
  • Galligan v. Indiana Dep’t of State Revenue, 825 N.E.2d 467 (Ind. Tax Ct. 2005) (practical guidance on presenting exemptions at point of sale)
  • Oklahoma Tax Comm’n v. Jefferson Lines, Inc., 514 U.S. 175 (U.S. 1995) (sales tax treats a sale as a discrete event; apportionment not part of sales tax)
  • Mobil Oil Corp. v. Comm’r of Taxes of Vermont, 445 U.S. 425 (U.S. 1980) (unitary business principle is central to apportionability in state income taxation)
  • Allied Signal, Inc. v. Dir., Div. of Taxation, 504 U.S. 768 (U.S. 1992) (unitary business tests in income tax context)
  • Container Corp. of Am. v. Franchise Tax Bd., 463 U.S. 159 (U.S. 1983) (unitary business and apportionment principles)
  • Exxon Corp. v. Wisconsin Dep’t of Revenue, 447 U.S. 207 (U.S. 1980) (unitary business discussions)
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