In Tannins of Indianapolis, LLC v. Indiana Department of State Revenue, Pet. No. 49T10-1303-SC-45 (March 31, 2014), Taxpayer (“Tastings”) sought a refund of use tax under the purchase for resale exemption, Ind. Code § 6-2.5-5-8, regarding the 2009, 2010, and 2011 purchases of programmable cards that operate its wine sample dispensing equipment.  Tastings owned and operated a wine bar in downtown Indianapolis.  It sold wine by the glass, by the bottle, and in two-ounce samples.  Tastings used specialized equipment that could dispense samples of any wine in the bar.  The equipment could only be operated by inserting a programmed card.  At the customer’s direction, Tastings loaded a dollar amount onto the card and programmed the card to operate the equipment.  Tastings charged the customer 9% tax (7% sales tax and 2% food and beverage tax).  The customer obtained a wine sample by inserting the card into the equipment, which debited the cost of the wine sample from the amount on the card and dispensed the sample.  Tastings would refund any leftover amounts on the cards, plus tax.  The Department charged use tax on the cards.

Indiana imposes both a sales tax and a use tax.  When sales tax has not been paid on a retail transaction, a complementary use tax is imposed on tangible personal property acquired in a retail transaction that is stored, used, or consumed in Indiana.  However, Indiana has adopted the purchase for resale exemption, which exempts the purchase of tangible personal property “if the person acquiring the property acquires it for resale . . . in the ordinary course of the person’s business without changing the form of the property.” See Ind. Code § 6-2.5-5-8(b) and Ind. Code § 6-2.5-3-4(a)(2) (applying sales tax exemptions to use tax).  Tastings claimed it resold the cards to customers, arguing that it accounted for the cost of the cards as inventory in its cost of goods sold and that it included the cost of the cards in the sale price of the wine samples.

The Court explained that it has consistently found that for a resale to exist, the buyer and seller must separately bargain for the property in exchange for the payment of consideration.  Slip op. at 4 (citations omitted).  Moreover, “invoices, receipts, or other indicia that distinctly identify the items for which consideration was paid are persuasive evidence that a buyer and seller actually bargained for the exchange of those items.”  Id.  Tastings did not provide its customers with receipts showing separate charges for the cards or other evidence that its customers separately bargained for the cards in exchange for their payment.

The Court rejected the distinction argued by Tastings that earlier rulings involved different facts, i.e. in those cases, according to Tastings, the purchase of the main object of the payment occurred before delivery of the secondary property at issue.  The Court reasoned:  “The separately bargained-for requirement demonstrates that the exact item was actually resold, not transferred by the retailer for another purpose (e.g., as a means to access wine samples).  Indeed, the separately bargained-for requirement is the standard against which a resale has been tested for decades, and [Tastings] did not present any legal authority or any rationale to persuade the Court that the timing of delivery changes this standard’s usefulness.”  Slip op. at 6.