Consumers pay sales tax on just about everything. But which state’s sales tax do we pay? The answer can be much more complicated than you’d expect as illustrated by the Indiana RV sales tax case discussed here.
Playing Fast and Loose with the Indiana RV Sales Tax
For the vast majority of transactions, we simply pay the state tax for the state in which the transaction occurred. Under Indiana Code § 6-2.5-2-1(a), Indiana sales tax, also called state gross retail tax, applies to “retail transactions made in Indiana.”
Some transactions, however, aren’t so simple.
For example, when it comes to RV sales, many purchasers reside outside of Indiana, even if the dealer is located here. And under Indiana Code § 6-2.5-5-39, non-resident RV purchasers are exempt from paying Indiana sales tax if any of the following apply:
- The RV will be delivered outside the state within 30 days;
- The RV will be titled or registered in another state; and
- The RV will be registered in a state that has reciprocity with Indiana for sales tax exemption.
Indiana has reciprocity agreements with all but nine other states, one of which is Michigan. Customers from these nine states could choose to pay sales tax at either Indiana’s rate or the rate of their home state.
Was the Sale Structured Solely to Avoid Paying Tax?
No surprises here—if you buy something in Indiana, you’re probably paying Indiana sales tax.
Not surprisingly, sellers and consumers sometimes try to arrange their transaction so as to pay a lower tax rate. In Richardson’s RV, Inc. v. Indiana Department of Revenue, an Indiana RV dealership tried to allow its customers to pay lower sales taxes by driving the RVs across the Michigan state line before physically handing the keys over to customers. Richardson’s argued that the transaction was “completed” in Michigan and, therefore, that the customers could therefore pay Michigan’s lower sales tax rate rather than the Indiana RV sales tax. The Indiana Department of Revenue, however, felt that the transactions had taken place in Indiana and should have been subject to Indiana’s sales tax.
The Indiana Supreme Court sided with the Department of Revenue, stating that “a transaction structured solely for the purpose of avoiding taxes with no other legitimate business purpose will be considered a sham for taxation purposes.” The substance of a transaction, rather than the form it takes, is what Indiana courts consider for tax consequences.
Here, all of the ordering, financing, inspections, and filling out documents for registration were completed in Indiana. The only steps that occurred in Michigan were the signing of a document confirming receipt of the RV and handing the keys to the customer. The supreme court found no legitimate business purpose for these Michigan deliveries and required Richardson’s to pay Indiana sales tax on the transactions.
What if I Have a Question about Indiana Business Sales Tax?
All businesses in Indiana have to pay sales tax. As seen above, some situations need an experienced Indiana business sales tax lawyer.
It’s no secret that tax law is an incredibly complex area and that it’s easy to make a costly mistake. Contact the tax lawyers at Camden & Meridew today for any questions you may have about the Indiana RV Sales Tax or other business or taxation issues by calling our office at (317) 770-0000 or by completing our online contact form.