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Merchandise Warehouse Co., Inc. v. Indiana Department of State Revenue

Tax Court of Indiana

January 11, 2017

MERCHANDISE WAREHOUSE CO., INC., Petitioner,
v.
INDIANA DEPARTMENT OF STATE REVENUE, Respondent.

          ATTORNEYS FOR PETITIONER: DONALD F. FOLEY TONY H. ABBOTT FOLEY & ABBOTT Indianapolis, IN.

          ATTORNEYS FOR RESPONDENT: CURTIS T. HILL, JR. ATTORNEY GENERAL OF INDIANA, EVAN W. BARTEL DEPUTY ATTORNEY GENERAL Indianapolis, IN.

          ORDER ON RESPONDENT'S MOTION FOR SUMMARY JUDGMENT

          MARTHA BLOOD WENTWORTH, JUDGE.

         Between October 2009 and September 2012 (the period at issue), Merchandise Warehouse Co., Inc. purchased certain freezer equipment and electricity to power its freezer equipment. Upon review, the Court finds that those retail transactions were not exempt from Indiana sales tax under Indiana Code § 6-2.5-5-3 and Indiana Code § 6-2.5-5-5.1.

         FACTS AND PROCEDURAL HISTORY

         Merchandise Warehouse, an Indiana corporation, operates a food storage warehouse in Indianapolis, Indiana. Merchandise Warehouse's customers are food manufacturers that deliver to, and store, their products in Merchandise Warehouse's facility. Their food products - meats, vegetables, and soups specifically prepared for businesses like Panera, Chili's, and Wendy's - arrive at Merchandise Warehouse's facility already packaged and on pallets. (First Jt. Stip. Facts, Ex. 5 at 14-15, 17, 19-20, 22-23; Second Jt. Stip. Facts ¶¶ 17, 19, Ex. 23 at 8.) Upon arrival, the food products are either at room temperature, chilled, or even frozen. (See Second Jt. Stip. Facts ¶¶ 11, 20.)

         Because some of Merchandise Warehouse's customers want their room-temperature or chilled food products stored in a frozen state, Merchandise Warehouse provides them with either "slow" or "blast" freezing services. (See, e.g., First Jt. Stip. Facts, Ex. 5 at 7; Second Jt. Stip. Facts ¶ 21.) With slow freezing, Merchandise Warehouse simply places its customers' pallets of food products in a freezer to freeze at their own pace, typically five to twelve days. (First Jt. Stip. Facts, Ex. 5 at 7; Second Jt. Stip. Facts ¶ 11.) With blast freezing, however, Merchandise Warehouse uses specialized equipment to freeze the pallets of food products within two days.[1] (Second Jt. Stip. Facts ¶¶ 12, 14, 25.) Either way, the food products are frozen to prolong their shelf-life. (See First Jt. Stip. Facts, Ex. 5 at 7 (indicating that Merchandise Warehouse's customers have a longer amount of time to store and then ship the food products when frozen); Second Jt. Stip. Facts ¶¶ 15-16.)

         Merchandise Warehouse stores the frozen food products until its customers release them to their own customers or their designated common-carriers. (See Second Jt. Stip. Facts ¶¶ 23, 26-27, 29-30.) The frozen products leave Merchandise Warehouse's facility on the same pallets upon which they arrived. (Second Jt. Stip. Facts ¶ 27.) Merchandise Warehouse never takes title to its customers' food products. (Second Jt. Stip. Facts ¶ 18.) Merchandise Warehouse bills its customers for the storage space and any freezing incident to that storage. (See, e.g., First Jt. Stip. Facts, Exs. 5 at 9-10, 6 at 6.)

         In 2011 and 2012, Merchandise Warehouse filed two Forms ST-200 ("Utility Sales Tax Exemption Applications") and three Forms GA-110L ("Claims for Refund") with the Department covering the period at issue. (See First Jt. Stip. Facts ¶¶ 3, 8, 19, Exs. 1, 5, 12.) In those Forms, Merchandise Warehouse asserted that the electricity it purchased to operate its freezer equipment, as well as certain purchases of freezer equipment, should have been exempt from sales tax because "[t]he freezing of the food constitutes the last stage in the [food's] manufacturing process." (First Jt. Stip. Facts, Exs. 1, 5 at 4, 12 at 1.)

         The Department initially denied all three of Merchandise Warehouse's Claims for Refund. (See, e.g., First Jt. Stip. Facts ¶¶ 3-13, 19-21.) After two subsequent administrative hearings, the submission of evidence, and a supplemental audit, however, the Department determined that Merchandise Warehouse was entitled to a 15% refund with respect to its electricity purchases. (See First Jt. Stip. Facts ¶¶ 11, 14-17, 21-23, Exs. 7, 9 at 3-5, 10.) The Department reaffirmed its denial of Merchandise Warehouse's claim for refund on the purchases of the freezer equipment. (See First Jt. Stip. Facts ¶ 24.)

         Merchandise Warehouse timely filed an original tax appeal. The Department subsequently moved for summary judgment, claiming that Merchandise Warehouse's purchases of electricity and freezer equipment were not exempt under either Indiana Code § 6-2.5-5-5.1 or Indiana Code § 6-2.5-5-3. (See, e.g., Resp't Br. Supp. Mot. Summ. J. ("Resp't Br.") at 4; Hr'g Tr. at 6-7, 78-82.) The Court conducted a hearing on the Department's motion on October 23, 2015. Additional facts will be provided when necessary.

         STANDARD OF REVIEW

         The Court reviews refund claim denials by the Department de novo. Ind. Code § 6-8.1-9-1(c) (2017). Accordingly, the Court is not bound by the evidence or the issues presented at the administrative level. Horseshoe Hammond, LLC v. Indiana Dep't of State Revenue, 865 N.E.2d 725, 727 (Ind. Tax Ct. 2007), review denied.

         Summary judgment is appropriate only when the designated evidence demonstrates that no genuine issues of material fact exist and that the moving party is entitled to judgment as a matter of law. See Ind. Trial Rule 56(C). "When any party has moved for summary judgment, the court may grant summary judgment for any other party upon the issues raised ...


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