Attorneys for Appellant Attorneys for Appellee
Steve Carter Jeffrey S. Dible
Attorney General of Indiana Michael T. Bindner
Indianapolis, Indiana
Joby Jerrells
Nandita G. Shepherd Amicus Curiae
Deputy Attorney General RDI/Caesars
Riverboat Casino, LLC
Indianapolis, Indiana Stephen H. Paul
Brent A. Auberry
Indianapolis, Indiana
____________________________________________________________________________
__
In the
Indiana Supreme Court
_________________________________
No. 49S10-0310-TA-484
Indiana Department Of State
Revenue,
Appellant (Respondent below),
v.
Trump Indiana, Inc.,
Appellee (Petitioner below).
_________________________________
Appeal from the Indiana Tax Court, No. 49T10-0201-TA-00005
The Honorable Thomas G. Fisher, Judge
_________________________________
On Petition for Review from the Indiana Tax Court.
_________________________________
September 21, 2004
Boehm, Justice.
The Indiana Tax Court held that a boat assembled in Florida and
transferred to Indiana for use as a casino riverboat is not personal
property and therefore not subject to sales and use taxation in Indiana.
We hold that a boat delivered to Indiana is taxable as “tangible personal
property” for purposes of the Indiana sales and use tax, even though it is
also subject to property tax as real property once it is in place as a
casino riverboat.
Factual and Procedural Background
Trump Indiana, Inc. operates a casino riverboat at Buffington Harbor
on Lake Michigan. The boat was purchased in 1996 from Atlantic Marine,
Inc., which built the boat in Florida, and delivered it to Trump in
Indiana. Trump did not pay any Florida or Indiana sales tax or use tax in
connection with its acquisition of the boat. Since 1997, Trump has paid
real property taxes on the boat in the range of $1.1 million annually.
The Indiana Department of State Revenue audited Trump and proposed a
sales and use tax assessment against Trump in excess of $2.3 million.
Approximately $1.3 million of the assessment was attributable to use tax on
the boat. The balance consisted of taxes on equipment subsequently
purchased for use on the boat and interest and penalties. The Indiana
Department of State Revenue later reduced the deficiency to approximately
$1.8 million, but affirmed the use tax on the boat. Trump paid the
deficiency under protest and appealed to the Indiana Tax Court. On cross-
motions for summary judgment, the Tax Court granted partial summary
judgment for Trump, holding that the boat was exempt from the Indiana use
tax and Trump therefore was entitled to a refund. Trump Ind., Inc. v. Ind.
Dep’t of State Revenue, 790 N.E.2d 192, 193 (Ind. Tax Ct. 2003). The
Department petitioned for review by this Court and we granted review. For
the reasons discussed below, we reverse the Tax Court and hold that the
boat is subject to the Indiana use tax.
Standard of Review
This Court extends cautious deference to decisions within the Tax
Court’s special expertise and will not set aside the findings or judgment
unless the decision is clearly erroneous. Ind. Dep’t of State Revenue v.
Safayan, 654 N.E.2d 270, 272 (Ind. 1995). Indiana Tax Court Rule 10
provides that: “[t]he Court on appeal shall not set aside the findings or
judgment of the Tax court unless clearly erroneous, and due regard shall be
given to the opportunity of the Tax Court to judge the credibility of the
witnesses.” Identical language is found in Indiana Trial Rule 52(A). See
State Bd. of Tax Comm’rs v. Indianapolis Racquet Club, 743 N.E.2d 247, 249
(Ind. 2001) (“Review of a decision of the Tax Court is subject to the same
‘clearly erroneous’ standard of review as that provided in Indiana Trial
Rule 52(A) . . . . In conducting our review, we recognize that the Indiana
Tax Court was established to develop and apply specialized expertise in the
prompt, fair, and uniform resolution of state tax cases. Therefore, with
regard to issues within the particular purview of the Tax Court, we
exercise cautious deference.”)
Tangible Personal Property Subject to Use Tax
Indiana imposes a use tax at the same rate as the sales tax. The tax
applies to the “storage, use or consumption” of “tangible personal
property” acquired in a retail transaction, but exempts property that has
been purchased in a transaction subject to Indiana sales tax and also gives
a credit for sales taxes paid to other states. Ind. Code § 6-2.5-3-2
(1998). The net result is that the tax, sometimes referred to as a
“compensating use tax”, falls only on items that are bought at retail for
use in Indiana but escape sales tax here and elsewhere.
The sales and use tax statute has no definition of “real property,”
“personal property,” or “tangible personal property.” The property tax
statute, Indiana Code section 6-1.1-1-11(a) defines personal property as
six listed categories, four of which (nursery stock, flowers for sale in
pots, billboards, and foundations for buildings), are plainly irrelevant
here. Items (4) and (6) in the list are:
(4) Motor vehicles, mobile houses, airplanes, boats not subject to the
boat excise tax under I.C. 6-6-11, and trailers not subject to the
trailer tax under I.C. 6-6-5;
(6) All other tangible property (other than real property) which is
being: (A) held for sale in the ordinary course of a trade or
business; (B) held, used, or consumed in connection with the
production of income; or (C) held as an investment.
The effect of these definitions is to exclude from the property tax
definition of “tangible personal property” some items, for example,
household goods, that plainly are tangible personal property as that term
is ordinarily understood.
The property tax statute also includes a list of items defined to be
“real property.” Item (5) of these is:
(5) notwithstanding I.C. 6-6-6-7, [which exempts commercial vessels
subject to tonnage tax from property tax] a riverboat: licensed under
the provisions of I.C. 4-33-6.5 for which the department of local
government finance shall prescribe standards to be used by township
assessors.
I.C. § 6-1.1-1-15 (5) (2004). The Department represents that a riverboat
is subject to tonnage tax as a commercial vessel, and Trump does not
dispute that. A boat subject to tonnage tax (basically a larger vessel) is
exempt from the boat excise tax which is analogous to the motor vehicle
excise tax. I.C. § 6-6-6-7 (1998). The net result is that a casino
riverboat, even if subject to tonnage tax, is nevertheless “real property”
as that term is defined for purposes of the property tax statutes. Thus,
like the property tax definition of personal property, the property tax
definition of real property is not wholly consistent with the ordinary
meaning of the term. Presumably in recognition of these somewhat
artificial definitions designed to effect specific property tax policies,
the first section of the chapter of the property tax statute that supplies
these definitions, Indiana Code section 6-1.1-1-1, expressly provides that
they apply to “this article”, i.e. to property taxes.
“Real property” is exempt from use taxation by the express terms of
the use tax statute. Grand Victoria v. Indiana Department of State
Revenue, 789 N.E.2d 1041, 1047 (Ind. Tax Ct. 2003), was handed down the
same day as the Tax Court decision in this case, and controlled the
decision of the Tax Court in this case. In Grand Victoria, the Tax Court
looked to the property tax definition of casino riverboats as “real
property.” Applying that definition to the use tax, the Tax Court held
that casino riverboats were exempt from use tax. Id.
Certainly in some circumstances it is appropriate in interpreting one
statute to look to definitions from another. But it is equally true that
in some cases it is not. We do not agree that property tax statutory
definitions apply to use tax statutes. First, as already noted, by the
express terms of the property tax statute, these definitions apply to the
property tax provisions. This in itself is inconclusive because the
statute does not expressly provide that the definitions apply only to
property tax provisions. More significantly, if those unusual definitions
are applied to the use tax, a number of anomalous results are generated.
For example, most types of personal property, including household items
such as furniture, are captured as “other property” in item (6) of the
property tax list of items that are “tangible personal property” and
therefore subject to tax. The property tax definitions are designed to
impose property taxes on furniture held in inventory by a retailer, but to
exempt furniture in a home. This is accomplished by the requirement in
item (6) that “other property” be “held for sale” before it is considered
“tangible personal property.” I.C. § 6-1.1-1-11(a)(6). If the property tax
definition were imported into the sales and use tax statute, furniture
purchased in another state by an Indiana resident for use in the home would
not be subject to use tax because it is not “held for sale.” This result
would directly controvert the basic purpose of the use tax to compensate
for unpaid sales tax and avoid incentives to purchase outside the state.
Apart from whether the statutory definitions for property tax purposes
are applicable to the use tax provisions, the characterization of property
as personalty or realty may vary from time to time. The same physical item
can be transformed from personalty to realty in many contexts. A
rudimentary example is that of a fixture bought at a retail store and later
installed in a building. The purchaser of the fixture is subject to sales
tax (or use tax if bought outside Indiana) because the item is personalty
at that point. However, once the fixture is installed permanently in the
structure, it becomes part of the realty and is taxed as real property.
Real property for purposes of property taxation is judged as of the
assessment date, which is March 1 of every year for taxes payable in May
and November of the following year. It is undisputed that, in its current
state, as of March 1 each year the boat is realty for purposes of the
property taxes. I.C. § 6-1.1-1-15(5). However, at the time the Florida
manufacturer delivered the vessel in Indiana it was plainly a “boat,” which
is, in ordinary usage, personal property. When the boat was placed in
service as a casino riverboat, by virtue of the definition in the property
tax law it became real property subject to property tax. The General
Assembly has the power to classify a single piece of property, in this
case, a casino riverboat, first as realty and then as personalty to
effectuate independent statutory schemes of taxation. See, e.g., United
States Lines, Inc. v. State Bd. of Equalization, 182 Cal. App. 3d 529, 535
(1986) (classification of affixed equipment as realty does not exclude
classification of the same equipment as tangible personal property for
sales tax purposes). Here, we have a casino riverboat that the Department
properly taxed as personalty for purposes of the use tax when it entered
Indiana, but which, once installed in service, became realty for purposes
of property taxes.
For the reasons already given, we think the property tax definitions
are inappropriate to interpretation of the sales and use tax provisions.
When the Indiana General Assembly chooses a word without defining it, the
court “must examine the statute as a whole and attribute the common and
ordinary meaning to the undefined word, unless doing so would deprive the
statute of its purpose or effect.” Consolidation Coal Co. v. Ind. Dep’t of
State Revenue, 583 N.E.2d 1199, 1201 (Ind. 1991) (citations omitted).
Indeed, the statutes direct us that “words and phrases shall be taken in
their plain, or ordinary and usual, sense.” I.C. § 1-1-4-1 (1998). See
also Ind. Dep’t of State Revenue v. Hardware Wholesalers, 622 N.E.2d 930,
932-33 (Ind. 1993); Cf. UACC Midwest, Inc. v. Ind. Dep’t of State Revenue,
667 N.E.2d 232, 237 (Ind. Tax Ct. 1996). Because the General Assembly did
not define “tangible personal property” for purposes of the sales and use
tax, we apply the ordinary meaning of the phrase. Black’s Law Dictionary
defines personal property as “any movable or intangible thing that is
subject to ownership and not classified as real property.” Black’s Law
Dictionary 1254 (8th ed. 2004). By this rather ordinary definition, a
casino riverboat, like any other boat, is “tangible personal property.” As
such, its purchase rendered it subject to use tax.
Conclusion
The decision of the Tax Court is reversed.
Shepard, C.J. and Dickson, Sullivan and Rucker, JJ., concur.