Indiana Supreme Court Cites Business Purpose Requirement in Holding RV Dealership Liable for Uncollected Sales Tax

On December 5, 2018, the Indiana Supreme Court in a 3-2 split decision held that an RV dealership was liable for uncollected sales tax on RV sales even though it delivered the RVs to buyers at out-of-state locations.

The RV dealership’s protocol for transferring possession of its RVs to customers depended on the customer’s state of residence. Customers from Indiana—or from one of the 40 states with reciprocal tax exemption agreements under Indiana Code section 6-2.5-5-39(c)—drove their RVs directly off the dealership lot and paid Indiana sales tax. Customers from the nine states without reciprocal tax exemption agreements, however, could choose to pay sales tax either at Indiana’s rate or at their home state’s rate, with customers ostensibly choosing the lesser of the two.

The RV dealership is based in Middlebury, Indiana, which is approximately eight miles from the Michigan border. When the RV dealership made sales to Michigan customers, it would drive the RVs to a Michigan gas station approximately three miles north of the Indiana border that functioned as the delivery location. At the gas station, the customers would sign confirmations of delivery and receive the keys to their new RVs. The Indiana Tax Court ruled that these transactions were not subject to Indiana sales tax because the transactions were made outside of the state. The Indiana Supreme Court reversed the tax court’s decision, holding that Indiana sales tax was due on the Michigan sales because the RV dealership delivered the RVs in Michigan solely to avoid paying Indiana sales tax with no other independent, non-tax-related business purpose. (Richardson’s RV, Inc. v. Indiana Dep’t of State Revenue, 112 N.E.3d 192, (Ind. 2018)).