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Schilli Leasing, Inc. v. Indiana Department of State Revenue

Tax Court of Indiana

August 31, 2017

SCHILLI LEASING, INC., Petitioner,
v.
INDIANA DEPARTMENT OF STATE REVENUE, Respondent.

         ON APPEAL FROM A FINAL DETERMINATION OF THE INDIANA DEPARTMENT OF STATE REVENUE

          ATTORNEYS FOR PETITIONER: JEROME L. WITHERED ZACHARY T. WILLIAMS WITHERED BURNS LLP Lafayette, IN

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

          FISHER, Senior Judge

         Schilli Leasing, Inc. has appealed the Indiana Department of State Revenue's final determination assessing it with unpaid sales and use tax liabilities for the 2008, 2009, and 2010 tax years (the years at issue). Schilli Leasing's appeal presents one issue for the Court to decide: whether the retail transactions giving rise to those unpaid liabilities were exempt from sales and use taxes under Indiana Code § 6-2.5-5-27, Indiana's public transportation exemption. Upon review, the Court finds that they were not exempt.

         FACTS AND PROCEDURAL HISTORY

         Schilli Leasing, located in Remington, Indiana, is a full-service truck leasing company owned by Thomas R. Schilli. (Jt. Stip. Facts ¶¶ 2-4; Pet'r Trial Ex. 1 at 3[1].) Schilli Leasing is in the business of acquiring vehicles that it then leases to third-parties, including four other companies owned by Mr. Schilli: Wabash Valley Transportation, Inc. ("WVT"); Schilli Specialized, Inc. ("SSI"); Schilli Specialized of Texas, Inc. ("SST"); and Midwest Shuttle Services, Inc. ("MSS"). (Jt. Stip. Facts ¶ 3; Trial Tr. at 21, 31, 41-42, 60; Pet'r Trial Ex. 4 at 2.) WVT, SSI, and SST "are companies [that] haul freight for hire." (Jt. Stip. Facts ¶ 6; Trial Tr. at 10-11.) MSS is a "freight preparation" company: common carriers hire MSS to load, tarp, and secure their customers' freight onto trailers and then move those trailers a short-distance for pick-up by the motor carriers. (See Jt. Stip. Facts ¶ 7; Trial Tr. at 12-13, 33-34.)

         In conjunction with its leasing program, Schilli Leasing operates numerous garage facilities throughout the country where it provides maintenance and repair services for its vehicles. (See Trial Tr. at 11, 39-40, Pet'r Trial Ex. 1 at 3.) Schilli Leasing also provides WVT, SSI, and SST, and MSS with several services not available to its other lessees. For instance, it purchases all their fuel and it provides them with temporary freight storage services.[2] (See Trial Tr. at 17-18, 23-25, 55, 58.) Schilli Leasing also operates a "bunkhouse" at each of its garage facilities that provides overnight accommodations, showers, laundry facilities, and use of a "courtesy car" to the drivers of WVT, SSI, SST, and MSS while their vehicles are being serviced, while they are on federally-mandated rest periods, or while they are attending employment orientation/training. (Jt. Stip. Facts ¶ 4; Trial Tr. at 12, 22, 45-46, 55, 61.) While Schilli Leasing charges WVT, SSI, SST, and MSS for these services and accommodations, it appears that they do not involve an exchange of money per se but are reflected as "accounting allocations" in each company's respective financial records. (See Trial Tr. at 17-18, 21, 23-24, 33, 41-42, 58, 60-61.)

         Although Schilli Leasing, WVT, SSI, SST, and MSS are all owned by the same individual, they are separate corporate entities.[3] (Trial Tr. at 29-30.) Mr. Schilli set up his companies in this fashion - as opposed to a singular corporation or a group of companies controlled by a holding company - so that each company could take advantage of the best insurance rates available to it as well as to put its management closer to its work force and finances. (Trial Tr. at 16-17.)

         In 2012, after completing an audit, the Department determined that Schilli Leasing had been deficient in remitting sales and use taxes during the years at issue. (See Pet'r Trial Ex. 1 at 1-2.) Specifically, it found that Schilli Leasing failed to:

collect sales tax on its charges to MSS for vehicle lease payments, fuel, and repair parts;
collect sales tax on its charges to WVT, SSI, and SST[4] for vehicle lease payments, temporary freight storage, and bunkrooms;
remit use tax on its purchases of "bunkhouse improvements, " including a water softener, as well as a forklift and a laser jet printer that were used in one of its repair shops;
remit use tax on its purchases of items used in its repair shops, such as uniforms, gloves, towels, toilet ...

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