Some Use Taxes

Some Use Taxes

June 01, 2004

Some use taxes are an unconstitutional burden on interstate commerce, an Indiana court suggested.

Simon Aviation leased two aircraft. It took delivery of one in Canada and the other in Connecticut. It stored both in Indiana and used them to fly around the US. Indiana collects a 5% sales tax on equipment purchased in the state or an equivalent “use” tax when equipment is bought out of state but brought into Indiana by an Indiana taxpayer for use there. The taxes are collected on lease rentals in cases where a company leases equipment rather than buys it. Indiana gives credit for sales taxes already paid to another state against the use tax, except when the sale involves “vehicles, watercraft, or aircraft that are required to be titled, registered, or licensed by Indiana.”

Simon Aviation argued that Indiana is barred by the US constitution from collecting a use tax on its aircraft. The constitution bars states from interfering with interstate commerce. Simon argued that the use taxes in this case have the potential to subject goods bought in other states to two taxes — a sales tax in the other state where the goods were purchased and a use tax when the goods are brought to Indiana for use there. This makes it more expensive to buy goods out of state since there is no possibility of a double tax when goods are purchased in Indiana.

The Indiana tax court agreed. The case is Simon Aviation v. Indiana Department of Revenue. The court released its decision in April.

Keith Martin