Sales Tax State Activity Update - June 2004

Lease Payments Not Subject To Use Tax in Indiana

Indiana Tax Court agreed with the lessee in finding that imposition of use tax on lease payments for aircraft used in interstate commerce violates the Commerce Clause.

The lessee, Simon Aviation, Inc. appealed the Indiana Department of Revenue’s imposition of use tax on aircraft lease payments. The lessee challenged whether use tax is due on lease payments for aircraft when Department of Revenue had previously issued a letter ruling clarifying that lease payments were exempt. The issue before the Court is whether these lease payments are subject to Indiana’s use tax.

The lessee claims that the lease payments it made during the years at issue are not subject to use tax because:

• The lease payments are not taxable under DRS87-10 and the Department’s 1992 LOF
• The 1992 LOF constitutes a “retroactive change” in the Department’s policy, which is prohibited under Indiana Code § 6-8.1-3-3
• The lease payments are not taxable pursuant to the Commerce Clause
  
  

The Court found that the imposition of Indiana’s use tax against the lease payments does indeed discriminate against interstate commerce and therefore violates the Commerce Clause because the Departments imposition of use tax results in a greater tax burden on aircraft purchased out-of-state than aircraft purchased in-state, discriminating against interstate commerce, thereby granting summary judgment in favor of the lessee and against the Department.

The case is available at: http://www.in.gov/judiciary/opinions/archive/04020401.tgf.html

(Indiana Tax Court, Simon Aviation, Inc., v Indiana Department Of State Revenue {Cause No. 49T10-003-TA-31} April 2, 2004) 06/04

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