Tax Court: Company doesn’t qualify for public transportation exemption

A northern Indiana truck leasing company must pay more than $220,000 in unpaid sales and use taxes after the Indiana Tax Court determined the company is not a public transportation entity and, thus, does not qualify for a related tax exemption.

Remington-based Schilli Leasing, a full-service truck leasing company, buys vehicles and leases them to third parties, including four companies owned by Thomas Schilli: Wabash Valley Transportation Inc., Schilli Specialized Inc., Schilli Specialized of Texas Inc. and Midwest Shuttle Services Inc. As part of its leasing program, Schilli Leasing operates garages that provided maintenance and repair services for its lessees, as well as fuel and storage services and overnight accommodations available only to WVT, SSI, SST and MSS drivers. The Schilli-owned company drivers are charged for these services, but the charges are reflected as “accounting allocations” in each company’s financial records.

After a 2012 audit, the Indiana Department of State Revenue determined Schilli Leasing had deficiently remitted sales and use tax during the 2008, 2009 and 2010 tax years by failing to collect sales tax on its charges to MSS for lease payments, fuel and parts. The department also found Schilli Leasing failed to collect sales tax on its charges and services to WVT, SSI and SST and to remit use tax on its purchase of “bunkhouse improvements” and items used in its repair shops. As a result, proposed assessments of $223,041.48 were issued to Schilli Leasing for the three tax years.

The company protested, claiming the retail transactions were exempt under Indiana Code 6-2.5-5-27, the public transportation exemption, but the department disagreed and denied the protest. Schilli Leasing then appealed in Schilli Leasing, Inc. v. Indiana Department of State Revenue, 49T10-1306-TA-54, but the Indiana Tax Court agreed that the purchases were not exempt.

Specifically, Senior Tax Court Judge Thomas G. Fisher wrote in the Thursday opinion that Schilli Leasing stipulated in its appeal it “does not transport property owned by third-parties for consideration.” Thus, it does not provide public transportation, so the transactions cannot qualify for the public transportation exemption. Further, “(t)he plain language of the public transportation exemption necessarily links the person who acquired property to the use or consumption of it in his provision of public transportation,” Fisher wrote.

Schilli Leasing further argued that because each of its five companies are “interdependent,” yet separate, entities, they should be treated “as a single diverse ground transportation company” under the unitary business principle. But Fisher declined to consider whether the Schilli entities constitute a unitary business, because the unitary business principle applies only to corporate income tax.