Seller of Medical Equipment had Standing to bring Sales Tax Refund Claim and was not required to pursue Appeal as a Class Action

Today, the Indiana Tax Court issued an Order denying the Indiana Department of Revenue’s motion to dismiss a Taxpayer’s appeal challenging the Department’s denial of a sales and use tax refund claim.  The Order can be viewed here:  Taxpayer, Fresenius USA Marketing, Inc. (Fresenius), is represented by Faegre Baker Daniels LLP, and this posting conveys only the facts and ruling included in the Court’s order.

During the tax period at issue (January 1, 2004 through October 31, 2007), Fresenius sold equipment used to treat patients with End Stage Renal Disease, including but not limited to dialysis machines.  Fresenius collected sales tax from its customers on the equipment sales and remitted the tax to the Department.  Fresenius filed a refund claim, asserting that the sales qualified for exemption under the durable medical equipment exemption. See Ind. Code § 6-2.5-5-18.  Once it received the refund, Fresenius indicated that it would return the proper amounts to each of its customers.  The Department issued a final determination denying the refund claim, and Fresenius filed an original tax appeal. 

The Department argued that the appeal should be dismissed because: (a) the Court lacked subject matter jurisdiction over the appeal; (b) Fresenius lacked standing to bring the appeal; and (c) Fresenius failed to certify the appeal as a class action lawsuit.  The Court rejected all three arguments.

The Court had subject matter jurisdiction over the appeal.  In finding that it had jurisdiction, the Court explained that it has exclusive subject matter jurisdiction over “original tax appeals.”  Slip op. at 3 (citing Ind. Code § 33-26-3-1 and -3).  To be an original tax appeal, the case must “arise under” the tax laws of Indiana and must be an initial appeal of a final determination by the Department with respect to a “listed tax.” Id. (citing Ind. Code § 33-26-3-1).  The Department argued that the Tax Court lacked subject matter jurisdiction because Fresenius failed to obtain a properly executed power of attorney from its customers authorizing Fresenius to represent them at the administrative level.  According to the Department, the customers’ “putative refund claims have never legally been before or addressed by the Department and thus their individual refund remedies have never been exhausted.” Slip op at 4. (omitting internal quotations and edits).  But this argument failed, the Court explained, because “it improperly focuses on Fresenius’s customers rather than Fresenius itself.” Id.  Fresenius’s case arose under Indiana’s tax laws, and Fresenius appealed from the Department’s final determination denying its refund claim.  Fresenius thus met both statutory requirements for initiating an original tax appeal. Slip op. at 4-5.

Taxpayer had standing to bring the appeal.  The Tax Court also concluded that the Department’s argument that Fresenius lacked standing was “without merit.” Slip op. at 7.  The Department asserted that Fresenius was not entitled to seek a refund of sales tax paid by its customers until it had refunded the money to the customers. But the cited statute, Ind. Code § 6-2.5-6-14.1, provides that “a retail merchant is not entitled to a refund of [sales] or use taxes unless the retail merchant refunds those taxes to the person from whom they were collected.”  The words “unless” and “until” are not synonymous, the Court reasoned.  Given its plain and unambiguous meaning, Ind. Code § 6-2.5-6-14.1 does not limit a retail merchant’s ability to seek a refund; rather, it “come[s] into play by placing a limitation on the retail merchant’s ability to receive the money.” Slip op. at 7 (emphasis added).  The Court could not construe the statute in a way that would either limit or extend its operation. Id

Taxpayer was not required to pursue a class action.  Because Fresenius “sought to litigate this matter on behalf of a class of taxpayers but has not sought class certification,” the Department contended that the appeal should be dismissed.  The Court held that this claim also failed.  Slip op. at 8.  Fresenius had a statutory right to appeal the Department’s denial of its refund claim.  Id.  “Consequently, it does not need to pursue its appeal – nor has it – as a class action.”  Id

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