In 2015, the Tax Court of Indiana ruled that sewer system development charges and connection fees that are paid by a developer or builder and not by the retail customer are not gross receipts subject to the utility receipts tax (URT). Hamilton Southeastern Utils., Inc. v. Indiana Dept. of State Revenue, 40 N.E.3d 1284 (Ind. Tax 2015). The Indiana Department of State Revenue completed an audit of Hamilton Southeastern Utilities, Inc. proposing URT assessments on receipts from sewer system development charges and connection fees. Hamilton Southeastern protested, and after an administrative hearing denied the protest, Hamilton Southeastern appealed.
In determining that the sewer system development charges and connection fees paid by a developer or builder and not by the retail customer were not subject to the URT, the court examined I.C. 6-2.3-1-4 and I.C. 6-2.3-3-10. Under I.C. 6-2.3-1-4, the court determined that ‘utility services for consumption’ simply refers to the removal of sewage and does not give indication of a broader definition. The Department of State Revenue argued that because the fees are necessary, they should be included in the URT; however, the court found that was not grounded in the words of the statute. Under I.C. 6-2.3-1-10, gross receipts “are: 1) received for an enumerated service, 2) the enumerated service is provided to a consumer, and 3) the enumerated service is directly related to the delivery of utility services to the (same) consumer.” At 1288 (emphasis in original). In the case of system development and connection fees, the charges are not paid by the retail consumer, but by the developer and builder.
The court granted summary judgment to Hamilton Southeastern under I.C. 6-2.3-1-4 and I.C. 6-2.3-1-10, but decided the issue of needing to separate receipts on records and returns of the taxpayer under I.C. 6-2.3-3-2 separately. Later, the court determined that the system development and connection fees were separated from the taxable receipts in accordance with the statute. Hamilton Southeastern Utils., Inc. v. Indiana Dept. of State Revenue, Cause No. 49T10-1210-TA-00068 (Ind. Tax April 29, 2016). Although Hamilton Southeastern did not report the amount of fees that was not required – simply separating the fees from the taxable receipts was sufficient. This was accomplished by only reporting the taxable receipts.