On Dec. 5, the Indiana Supreme Court held that recreational vehicle sales delivered to Michigan customers in which the delivery occurred outside of Indiana solely for the purposes of avoiding Indiana sales tax, were considered taxable Indiana transactions. The Court’s ruling may require retailers and dealers making deliveries to out-of-state customers to collect Indiana sales tax.
The case involves Indiana’s Reciprocal Sales Tax Exemption under Indiana Code §6-2.5-5-39(c). A reciprocal sales tax exemption agreement exempts out-of-state buyers from paying Indiana’s sales tax on Indiana purchases if Indiana purchasers receive a reciprocal exemption for purchases in that other state. A non-reciprocal state is a state that does not have a reciprocal sales tax exemption agreement with Indiana. Purchasers from non-reciprocal states making Indiana purchases must first pay Indiana sales tax on Indiana purchases and then seek a credit for the Indiana taxes paid against use taxes they may owe on such purchases in their home state.
In August 2017, the Indiana Tax Court had ruled that a dealership’s physical deliveries of recreational vehicles to customers at an empty lot in Michigan did not constitute Indiana sales for Indiana sales tax purposes, even though inspection, acceptance and title exchange occurred in Indiana. Under the Tax Court’s ruling, dealers could have avoided charging Indiana sales tax by explicitly agreeing to deliver the vehicles outside of Indiana to any non-reciprocal state. That is, even if dealers arranged for a sale and passed title in Indiana, but physical delivery was subsequently completed outside the state, such transactions could have avoided Indiana sales tax.
In overturning the Tax Court, the Supreme Court found no legitimate business purpose for the structure of the dealer’s out-of-state deliveries to Michigan and considered them sham transactions for tax avoidance purposes. In its holding, the Indiana Supreme Court’s ruling left open the possibility that certain out-of-state deliveries may be exempt from Indiana sales tax, if the deliveries involved legitimate business purposes other than sales tax avoidance. See the Indiana Supreme Court’s decision in Richardson’s RV, Inc. v. Indiana Department of Revenue, Docket #18S-TA-22, Dec. 5, 2018.