ATTORNEYS FOR PETITIONER:                         ATTORNEYS FOR RESPONDENT:
MARK J. RICHARDS                                  GREGORY F. ZOELLER
MATTHEW J. EHINGER                                ATTORNEY GENERAL OF INDIANA
ICE MILLER LLP                                    EVAN W. BARTEL
Indianapolis, IN                                  DEPUTY ATTORNEY GENERAL
                                                  Indianapolis, IN



                              IN THE
                        INDIANA TAX COURT
                                                                   Aug 20 2015, 12:49 pm


R.R. DONNELLEY & SONS COMPANY,                )
                                              )
      Petitioner,                             )
                                              )
             v.                               )     Cause No. 49T10-1203-TA-00014
                                              )
INDIANA DEPARTMENT OF                         )
STATE REVENUE,                                )
                                              )
      Respondent.                             )


       ORDER ON PARTIES’ CROSS-MOTIONS FOR SUMMARY JUDGMENT

                                 FOR PUBLICATION
                                  August 20, 2015
WENTWORTH, J.

      R.R. Donnelley & Sons Company has appealed the Indiana Department of State

Revenue’s assessments of Indiana use tax on its purchases of shipping pallets for the

2007, 2008, and 2009 tax years (the years at issue). The matter is currently before the

Court on the parties’ cross-motions for summary judgment, which present one issue for

the Court to decide: whether RR Donnelley’s purchases of shipping pallets are exempt

from use tax under Indiana Code § 6-2.5-5-9(d) (“Nonreturnable Container
Exemption”).1 The Court finds that they are not.

                          FACTS AND PROCEDURAL HISTORY

       The following facts are not in dispute. RR Donnelley is a Delaware corporation

headquartered in Chicago, Illinois. (Pet’r Des’g Evid., Ex. 1 ¶ 3.) Among other things,

RR Donnelley prints advertising inserts and other materials for its retailer customers.

(Pet’r Des’g Evid., Ex. 2 (hereinafter “Taylor Aff.”) ¶¶ 3-4.) RR Donnelley then ships

these printed materials for its retailer customers to approximately 2000 newspaper

companies throughout the United States. (Taylor Aff. ¶¶ 4, 12.) In turn, the newspaper

companies distribute the printed materials on behalf of the retailers. (Taylor Aff. ¶ 4.)

       During the years at issue, RR Donnelley purchased pallets from Perfect Pallets,

Inc. as containers for shipping the printed materials.         (Taylor Aff. ¶¶ 6, 12.)      RR

Donnelley provided Perfect Pallets with sales and use tax exemption certificates for the

pallets it purchased. (See Pet’r Confd’l Des’g Evid., Ex. B at 0177.) RR Donnelley was

under no obligation to return the pallets to Perfect Pallets, under no obligation to require

its retailer customers to return the pallets, and under no obligation to restrict the

subsequent use of the pallets.       (See Taylor Aff. ¶¶ 9-11; Pet’r Des’g Evid., Ex. 7

(hereinafter “Haag Aff.”) ¶¶ 5-7.) Further, RR Donnelley was under no obligation to

track the pallets or notify Perfect Pallets as to their location after shipment. (See Pet’r

Des’g Evid., Ex. 5 (hereinafter “Haag Dep.”) at 42; Taylor Aff. ¶¶ 12-13; Ex. 6

(hereinafter “Taylor Dep.”) at 10, 30-32, 36.) RR Donnelly subsequently sold the pallets

to its retailer customers or attempted to recover the cost of the pallets from its retailer


1
  Portions of the parties’ designated evidence are confidential. Consequently, this order will
provide only the information necessary for the reader to understand its disposition of the issue
presented. See generally Ind. Administrative Rule 9.


                                               2
customers in the freight charge. (See Pet’r Des’g Evid., Ex. 2B at 0112, 0122, 0133,

0146; Taylor Dep. at 27; Resp’t Des’g Evid., Ex. B at 5.)

         Generally speaking, Perfect Pallets successfully recovers more than 50 percent

of the pallets it sells nationwide.   (See Haag Dep. at 38-39.)     With respect to the

newspaper companies, Perfect Pallets retrieved those pallets in one of two ways. First,

Perfect Pallets knows the newspaper companies’ schedules and therefore would

regularly send a truck to pick up the pallets from the newspaper companies. (Haag

Dep. at 23-24.) Second, because the pallets were affixed with Perfect Pallet’s name

and phone number, the newspaper companies could call Perfect Pallets and request

that the pallets be picked up. (Haag Dep. at 9-10, 21, 23.)

         In September of 2010, the Department completed an audit of the years at issue.

As a result of the audit, the Department issued proposed assessments of use tax,

interest, and penalties against RR Donnelley because it failed to pay sales tax on its

purchase of the pallets. (See Pet’r Confd’l Des’g Evid., Ex. B at 0172-0175.) The

Department determined that because the pallets RR Donnelley purchased were later

returned to Perfect Pallets, the pallets were not entitled to the Nonreturnable Container

Exemption and therefore subject to use tax. (See Pet’r Confd’l Des’g Evid., Ex. B at

0178.)

         On December 15, 2010, RR Donnelley timely protested the Department’s

proposed assessments. (See Pet’r Confd’l Des’g Evid., Ex. C.) On January 5, 2012,

after conducting an administrative hearing, the Department issued a Letter of Findings

denying RR Donnelley’s protest. (See Pet’r Des’g Evid., Ex. D.) On January 23, 2012,

RR Donnelley requested a rehearing. (See Pet’r Des’g Evid., Ex. E.) The Department



                                            3
denied RR Donnelley’s request on February 7, 2012. (See Pet’r Des’g Evid., Ex. F.)

      On March 9, 2012, RR Donnelley filed this original tax appeal. RR Donnelley

and the Department subsequently filed motions for summary judgment. The Court held

a hearing on the motions on November 12, 2013. Additional facts will be supplied when

necessary.

                               STANDARD OF REVIEW

      Summary judgment is appropriate when there are no genuine issues of material

fact and the moving party is entitled to judgment as a matter of law. Ind. Trial Rule

56(C). In reviewing a motion for summary judgment, this Court will construe all properly

asserted facts and reasonable inferences drawn therefrom in favor of the non-moving

party. See Scott Oil Co. v. Indiana Dep’t of State Revenue, 584 N.E.2d 1127, 1128-29

(Ind. Tax Ct. 1992). Cross-motions for summary judgment do not alter this standard.

Horseshoe Hammond, LLC v. Indiana Dep’t of State Revenue, 865 N.E.2d 725, 727

(Ind. Tax Ct. 2007), review denied.

                                         LAW

      Indiana imposes both a sales tax and a use tax. Sales tax is imposed on all retail

transactions made in Indiana. See IND. CODE § 6-2.5-2-1(a) (2007). Use tax is imposed

“on the storage, use, or consumption of tangible personal property in Indiana if the

property was acquired in a retail transaction, regardless of the location of that

transaction or of the retail merchant making that transaction.” IND. CODE § 6-2.5-3-2(a)

(2007).   “The use tax is complementary to the sales tax in that it applies only to

transactions that would have been subject to the sales tax but for some reason have




                                           4
escaped it.” Lowe’s Home Ctrs., LLC v. Indiana Dep’t of State Revenue, 23 N.E.3d 52,

54-55 (Ind. Tax Ct. 2014), review denied.

      Indiana’s   Legislature,   however,   has   expressly    exempted    certain   retail

transactions from the imposition of sales and use tax. See generally IND. CODE §§ 6-

2.5-5-1 to -46 (2007). See also IND. CODE § 6-2.5-3-4(a)(2) (2007) (explaining that the

sales tax exemptions also apply to the use tax). For instance, certain retail transactions

involving nonreturnable containers are exempt as follows:

             Sales of wrapping material and empty containers are exempt
             from [sales and use] tax if the person acquiring the material
             or containers acquires them for use as nonreturnable
             packages for:
                    (1) selling the contents that the person adds; or
                    (2) shipping or delivering tangible personal property
                    that:
                            (A) is owned by another person;
                            (B) is processed or serviced for the owner; and
                            (C) will be sold by that owner either in the
                            same form or as a part of other tangible
                            personal property produced by that owner in
                            the owner’s business of manufacturing,
                            assembling,     constructing,      refining,  or
                            processing.

I.C. § 6-2.5-5-9(d). In addition, the Department’s regulation states that “[t]he receipt

from a sale by a retail merchant of . . . [n]onreturnable containers and wrapping

materials including steel strap and shipping pallets to be used by the purchaser as

enclosures for selling tangible personal property” is exempt from sales and use tax. 45

IND. ADMIN. CODE 2.2-5-16(c)(1) (2007) (see http://www.in.gov/legislative/iac/).      The

Department defines the term “nonreturnable containers” as “all containers which are not

returnable containers.” 45 I.A.C. 2.2-5-16(e)(2). “Returnable containers” are defined as

“containers customarily returned by the buyer of the contents for reuse as containers.”



                                            5
I.C. § 6-2.5-5-9(a); 45 I.A.C. 2.2-5-16(e)(1).

                                        ANALYSIS

       On appeal, RR Donnelley claims that its purchase of shipping pallets are exempt

from use tax under Indiana Code § 6-2.5-5-9(d) because they are not “returnable

containers.” To support this claim, RR Donnelley makes three arguments. First, it

argues that neither it nor its retailer customers were obligated to return the pallets to

Perfect Pallets.   Second, RR Donnelley argues that it did not return the pallets to

Perfect Pallets. Third, RR Donnelley argues that Perfect Pallet’s unilateral recovery of

pallets from the newspaper companies cannot determine the taxability of RR Donnelley.

                                             A.

       RR Donnelley first asserts that the pallets are not “returnable containers”

because neither it nor its retailer customers are obligated to return the pallets. (See,

e.g., Pet’r Br. at 11, 18-19.) This Court has previously stated that the word, “return” for

purposes of the Nonreturnable Container Exemption, means “to pass back to an earlier

possessor” and “to bring, send, or put (a person or thing) back to or in a former

position.” Brambles Indus., Inc. v. Indiana Dep’t of State Revenue, 892 N.E.2d 1287,

1291 (Ind. Tax Ct. 2008) (citing W EBSTER’S THIRD NEW INT’L DICTIONARY 1941 (2002

ed.).) Nothing in that definition indicates that the word “return” means more precisely

“obligated to return.” Moreover, the fact that the taxpayer in Brambles was contractually

obligated to return the pallets, but neither RR Donnelley nor its retailer customers are

here, is immaterial. Indeed, the import of the obligation in Brambles was simply to

answer the question “to whom the pallets must be returned,” not to determine whether

there was an obligation to return them. Id. Accordingly, RR Donnelley’s argument is



                                                 6
unpersuasive.

                                               B.

       Next, RR Donnelley contends that the pallets are not returnable containers

because it did not return the pallets to Perfect Pallets. (See, e.g., Pet’r Br. at 11, 18-19.)

RR Donnelley explains that the statutory definition of a “returnable container” requires

RR Donnelley itself – as the buyer of the pallets – to return them for reuse as

containers. (See Pet’r Reply Resp’t Resp. Pet’r Mot. Summ. J (“Pet’r Reply Br.”) at 3.)

RR Donnelley has misread Indiana Code § 6-2.5-5-9(a).

       The plain language of Indiana Code § 6-2.5-5-9(a) indicates that “returnable

containers” are those containers that are returned by the buyer of the contents, not by

the buyer of the containers themselves.            See I.C. § 6-2.5-5-9(a); 45 I.A.C. 2.2-5-

16(e)(1). Because RR Donnelley is not the buyer of the contents of the pallets, the fact

that it does not return the pallets to Perfect Pallets itself is not relevant to determining

whether the pallets are returnable containers.           See, e.g., Indiana Dep’t of State

Revenue v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014) (explaining that clear and

unambiguous statutes are given their plain and ordinary meaning).

                                               C.

       Finally, RR Donnelley argues that the act of returning pallets requires more than

a “passive acquiescence” to their retrieval. (See Pet’r Br. at 20-21.) More specifically,

RR Donnelley contends that under Indiana Code § 6-2.5-5-9(a), the newspaper

companies must act affirmatively to return the pallets, not simply acquiesce to Perfect

Pallets’ unilateral retrieval of them. (See, e.g., Pet’r Br. at 14.)

       Although the newspaper companies are not the buyers of the contents of the



                                               7
pallets, they have a consignment relationship with the retailers that buy the pallets’

contents.   (See Hr’g Tr. at 88-89.)       As the retailers’ consignees, the newspaper

companies therefore act as agents on their behalf. See, e.g., McEwen v. Jeffersonville,

Madison & Indianapolis R.R. Co., 33 Ind. 368, 376 (Ind. 1870); Reynolds Metals Co. v.

Indiana Dep’t of State Revenue, 433 N.E.2d 1, 18 (Ind. Ct. App. 1982). The designated

evidence establishes that the newspaper companies do act affirmatively in the recovery

of the pallets. For example, the newspaper companies customarily coordinate with

Perfect Pallets by either placing the pallets in a location for Perfect Pallets to pick up or

by calling Perfect Pallets and scheduling a pickup time. (See Haag Dep. at 20-21, 23-

24.) As a result, RR Donnelley’s final argument is also unpersuasive.

                                      CONCLUSION

       For the reasons stated above, RR Donnelley’s pallets are returnable containers,

and RR Donnelley’s purchases of those pallets do not qualify for the Nonreturnable

Container Exemption. Accordingly, the Court GRANTS summary judgment in favor of

the Department and against RR Donnelley.

       SO ORDERED this 20th day of August 2015.



                                                         __________________________
                                                         Martha Blood Wentworth
                                                         Judge, Indiana Tax Court



DISTRIBUTION:

Mark J. Richards, Matthew J. Ehinger, Evan W. Bartel




                                             8
