Use Tax Owed on Storage of Exhibition Booth Components

The Indiana Tax Court recently ruled in Zimmer, Inc. v. Indiana Department of Revenue that Zimmer, Inc.’s Indiana activities regarding exhibition booth components constituted a taxable use and thus owed tax for some of the exhibition booth components.  Zimmer is in the business of designing, manufacturing and distributing a wide variety of medical device products.  In its activities, it participates in many out-of-state trade shows and conventions and has an elaborate system for construction storage, repair, refurbishment and modification of exhibit booth components, all of which are stored in its Indiana warehouse for use out-of-state.  The Indiana Department of Revenue argued, on four bases, that the exhibition booth components are subject to Indiana Use Tax for which the Indiana Tax Court disagreed as to three but agreed as to one basis.

First, the Indiana Department of Revenue argued that the revolving storage, out-of-state use, re-storage and reuse rendered the exhibition booth components taxable.  The Indiana Tax Court disagreed citing that the scheme is consistent with the statutory exclusion under Indiana statute allowing storage in Indiana “for subsequent use outside of the state”.

Second, the Department argued that Zimmer exercised other rights of ownership of the exhibition components while located in Indiana which constituted a taxable use.  In particular, it was argued that the selection of components for a particular convention, etc., were those ownership rights.  The Tax Court disagreed with the Department’s assertion that Zimmer’s act of decision-making in Indiana made those components taxable when none of those decisions were associated with physical actions in Indiana.

Third, the Department argued, similar to the second argument, that it was more than just decisions made, but there were internal meetings to determine the effectiveness and improvements on the components, inspecting the components when they came back to Indiana, insuring the components and arranging logistics.  The Tax Court disagreed with this argument as well, arguing that the activities were necessary, but incident to, the property’s storage and and out-of-state use.

Finally, the Department asserted that the repair of the exhibition booth components by Zimmer’s in-house carpenter at its Indiana warehouse constituted taxable use.  The Tax Court agreed that the repairing of the exhibition booth components, regardless of the extent of the damage, is a taxable exercise of ownership rights unless the repairs are incidentals to the property’s storage or for use solely outside of Indiana.  The Tax Court opined that there was no evidence to support that the repairs were necessary to store the components and concluded those exhibition booth components repaired in Indiana were subject to use tax.

James A. L. Buddenbaum has practiced law for more than 25 years with Parr Richey representing municipalities and businesses in utility, healthcare and general business sectors in both regulatory and transactional matters. Jim also has extensive experience in representing businesses in making large property damage and similar insurance claims.

The statements contained here are matters of opinion for general information purposes only and should not be considered by anyone as forming an attorney client relationship or advice for any particular legal matter of the reader. All readers should obtain legal advice for any specific legal matters.