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Zimmer, Inc. v. Indiana Department of State Revenue

Tax Court of Indiana

April 13, 2017

ZIMMER, INC., Petitioner,
v.
INDIANA DEPARTMENT OF STATE REVENUE, Respondent.

          ATTORNEY FOR PETITIONER: BRETT J. MILLER BINGHAM GREENEBAUM DOLL LLP Indianapolis, IN

          ATTORNEYS FOR RESPONDENT: CURTIS T. HILL, JR. ATTORNEY GENERAL OF INDIANA WINSTON LIN DEPUTY ATTORNEY GENERAL Indianapolis, IN

          ORDER ON PARTIES' CROSS-MOTIONS FOR SUMMARY JUDGMENT

          Martha Blood Wentworth, Judge

         Zimmer, Inc. has challenged the Indiana Department of State Revenue's assessments of use tax for the 2009, 2010, and 2011 tax years (the "years at issue"). The matter is currently before the Court on the parties' cross-motions for summary judgment.[1] The dispositive issue is whether Zimmer's Indiana activities regarding its exhibition booth components constituted a taxable use or non-taxable storage for use outside the state during the years at issue. Upon review, the Court grants the cross-motions in part and denies them in part.

         FACTS AND PROCEDURAL HISTORY

         Zimmer is a domestic corporation headquartered in Warsaw, Indiana.[2] (Resp't Des'g Evid. Supp. Mot. Summ. J. ("Resp't Des'g Evid."), Ex. 7 ¶ 1; Pet'r Des'g Evid. Supp. Cross-Mot. Summ. J. & Opp'n Resp't Mot. Summ. J. ("Pet'r Des'g Evid."), Ex. C at 8.) Zimmer designs, manufactures, and distributes a wide variety of medical products, including orthopedic reconstructive devices; spine, cranial maxillofacial, and thoracic devices; dental implants; and related surgical products. (Pet'r Des'g Evid., Ex. C at 8; Resp't Des'g Evid., Ex. 6 at 6.) Consequently, Zimmer's customer base consists of numerous entities, such as large multi-national enterprises, hospitals, dentists, orthopedic surgeons, and neurosurgeons. (See Pet'r Des'g Evid., Ex. C at 8.)

         During the years at issue, Zimmer marketed its products at approximately 80 to 120 out-of-state trade shows and conventions. (See Resp't Des'g Evid., Ex. 1 at 36-39; Pet'r Des'g Evid., Ex. G ¶¶ 3, 11.) In preparation for one of the largest of these conventions, the American Association of Orthopedic Surgeons ("AAOS"), Zimmer hired Catalyst Exhibits, an Illinois-based exhibit house, to annually design and manufacture a new exhibition booth. (See Resp't Des'g Evid., Ex. 1 at 37-40, 96, Ex. 7 ¶ 10; Pet'r Des'g Evid., Ex. C at 9, Ex. D at 13.) Each year this exhibition booth incorporated some of the original, repaired, refurbished, or modified components of prior exhibition booths (e.g., counters, double-deck structures, structural beams, or walls). (See Resp't Des'g Evid., Ex. 1 at 92-101, Ex. 2 at 34-36, 38, 52-54, 63.) As a result, Zimmer arranged for some of its former exhibition booth components that it kept in its Indiana warehouse to be shipped to Catalyst Exhibits for incorporation into the new AAOS exhibition booth, while others were retained in its Indiana warehouse. (See Resp't Des'g Evid., Ex. 1 at 69, Ex. 2 at 34-36, 41-45, 60-62; Pet'r Des'g Evid., Ex. G ¶ 4.)

         While the structure of the AAOS exhibition booth changed from year to year, Zimmer's process of getting the exhibition booth components to and from the convention site was relatively consistent - approximately 15 semi-trucks moved the exhibition booth components from Catalyst Exhibits's Illinois location and Zimmer's Indiana warehouse to the convention site. (See Pet'r Des'g Evid., Ex. D at 21, 31-35; Resp't Des'g Evid., Ex. 1 at 69, 71-72.) Thereafter, independent third parties set-up and dismantled the exhibition booth at the convention site. (See Pet'r Des'g Evid., Ex. D at 64-66.) After dismantling, the exhibition booth components were returned to Zimmer's Indiana warehouse for continued storage and for possible incorporation into other exhibition booths for approximately 15 other out-of-state trade shows.[3] (See, e.g., Resp't Des'g Evid., Ex. 1 at 71-73, 97-98, Ex. 3 at 33, 35-37.)

         Each time the exhibition booth components were returned to Zimmer's Indiana warehouse, its in-house carpenter inspected and sorted them based on their expected future use and the extent of any damage. (See Resp't Des'g Evid., Ex. 1 at 79, Ex. 2 at 60-61, Ex. 4 at 15, 19-22.) (See also Resp't Des'g Evid., Ex. 1 at 73-74 (stating that "there's always something that gets broken at the big AAOS annual" convention), Ex. 3 at 31 (indicating that exhibition booth components typically required repairs after use in two or three out-of-state trade shows).) If an exhibition booth component had major damage, it was shipped to Catalyst Exhibits for immediate repair or it was set aside in Zimmer's Indiana warehouse for subsequent repair, refurbishing, or modification. (See Resp't Des'g Evid., Ex. 1 at 72-74; Ex. 2 at 53.) When an exhibition booth component had minor damage, such as laminate chips, paint scratches, fabric tears, or broken doors/locks, Zimmer's in-house carpenter repaired the item at its Indiana warehouse. (See Resp't Des'g Evid., Ex. 1 at 73-74, Ex. 2 at 38; Pet'r Des'g Evid., Ex. G ¶ 16.) In instances where an exhibition booth component was intact but would not be used in another trade show that year, Zimmer kept it in its Indiana warehouse until it was to be incorporated into a future exhibition booth or permanently retired. (See Resp't Des'g Evid., Ex. 2 at 60-63.)

         On December 27, 2012, Zimmer filed a claim with the Department seeking a refund of $1, 076, 768 in sales tax remitted on purchases of items that were used to manufacture its products during the years at issue. (See Resp't Des'g Evid., Ex. 6 at 4-6, Ex. 7 ¶ 3.) The Department subsequently audited Zimmer and determined that it owed $523, 890.93 in use tax on its exhibition booth components. (See generally Resp't Des'g Evid., Ex. 6.) Thereafter, the Department granted Zimmer's refund claim in part and offset the refunded amount by the use tax liability. (See, e.g., Resp't Des'g Evid., Ex. 5 ¶ 5.) Zimmer protested the Department's use tax determination and the Department denied Zimmer's protest on April 20, 2015. (See generally Resp't Des'g Evid., Ex. 7 at Exs. A-B.)

         On July 7, 2015, Zimmer initiated this original tax appeal. On August 29, 2016, the Department filed its motion for summary judgment. On October 13, 2016, Zimmer filed its cross-motion for summary judgment. On January 12, 2017, the Court held a hearing on the cross-motions. Additional facts will be supplied as necessary.

         STANDARD OF REVIEW

         Summary judgment is proper when the designated evidence demonstrates that no genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law. Ind. Trial Rule 56(C). In reviewing a motion for summary judgment, the Court will construe all properly asserted facts and the reasonable inferences drawn therefrom in favor of the non-moving party. See Fresenius USA Mktq., Inc. v. Indiana Dep't of State Revenue, 56 N.E.3d 734, 735 (Ind. Tax Ct. 2016), review denied. Cross-motions for summary judgment do ...


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