Indiana Law Review


320 INDIANA LAW REVIEW [Vol. 12:320

tent of their right of contribution from the sureties released.202 Parol

evidence was admitted to establish that two of four co-makers on a
promissory note were sureties or accommodation makers who were
not discharged by a tender of the principal sum and interest when
the debtors failed to include in the tender attorney's fees required

by the note. Tender was made after suit had been filed by the
holder of the note.203 A promisee entitled to attorney's fees by agree-
ment is not entitled to enforce the provision in litigation when he
fails to win an affirmative judgment.204

XVI. Taxation

John W. Boyd*

A. Case Law Developments

During this year's survey period, the Indiana courts reported
nine noteworthy decisions in the area of state taxation. Two of those
nine cases were decided by the Indiana Supreme Court.

1. Property and Excise Taxes. — a. Ad Valorem Taxes, Com-
merce Clause Exemption. — The Indiana Supreme Court considered
the exemption to the personal property tax for property in in-
terstate commerce 1 in State Board of Tax Commissioners v. Carrier

202Carvey v. Indiana Nat'l Bank, 374 N.E.2d 1173 (Ind. Ct. App. 1978).
203
Stockwell v. Bloomfield State Bank, 367 N.E.2d 42 (Ind. Ct. App. 1977).

204Rauch v. Circle Theatre, 374 N.E.2d 546 (Ind. Ct. App. 1978).

*Member of the Indiana Bar. B.A., Northwestern University, 1973; J.D. Indiana
University School of Law — Indianapolis, 1976.

'Act of Mar. 18, 1975, Pub. L. No. 47, §§ 29-30, 1975 Ind. Acts 317 (current ver-

sion at Ind. Code 6-1.1-10-30 (1976)), provided that personal property of nonresidents of

the state who are able to show by adequate records that such personal property has
been shipped into this state and placed in the original package in a public warehouse

for the purpose of transshipment to an out-of-state destination, shall not, while so in

the original package in such warehouse, be subject to the tax imposed by Ind. Code §§
6-1-20 to 39 (1971) and that portion of a premises owned or leased by a consignor or

consignee, shall be deemed to be a public warehouse.

Personal property of nonresidents of the state shipped into this state and placed

in the original package in a public or private warehouse for the purpose of transship-

ment to an out-of-state or within-the-state destination and so designated on the original

bill of lading, or personal property of residents or nonresidents of the state placed in

the original package in a public or private warehouse for the purpose of transshipment

to an out-of-state destination and so designated on the original bill of lading, shall not,

while so in the original package in such warehouse, be subject to tax imposed by this

act. In construing this section, goods, wares and merchandise shall be exempt only to

the extent that they are exempt from ad valorem taxes under the commerce clause of

the Constitution of the United States. Id.



1979] SURVEY-TAXATION 321

Corp.
2 One of Carrier's subsidiaries manufactured products in

Indiana for Carrier upon a forecast and need basis, so that upon

manufacture there were no specific buyers for the individual units.

After manufacture, the goods were boxed and delivered by common
carrier to an independent warehouse in Indianapolis. The goods so

delivered were covered by a bill of lading which stated: "The mer-

chandise covered hereby is placed in its original package in a public

warehouse for purpose of transshipment to an out-of-state destina-

tion."
3 The ultimate destination for the goods was determined by

Carrier's shipping department in Syracuse, New York. According to
the facts, approximately ninety-five percent of the goods were even-

tually shipped out of Indiana.

Although Carrier had been allowed exemptions under the same
circumstances in 1969 and 1970, the State Board of Tax Commis-
sioners (Board) disallowed the exemption for tax year 1971 pursuant

to its expanded Regulation 16.4 The expanded regulation allows the
goods to qualify for the exemption only if the bill of lading covering

the goods shows the items' actual and ultimate destination.

The majority of the court stated that to uphold the Board's in-
terpretation of the statutory exemption would require the court to

find the legislature, in enacting the exemption for property in

warehouse for interstate transshipment, intended for the taxpayer

to have an exemption only when an exemption would be constitu-
tionally mandated by the Commerce Clause of the United States
Constitution.

5 In rejecting this argument, the court said, "This inter-

pretation would make the statute nothing more than a restatement
of the rights of the taxpayer under the Commerce Clause of the
United States Constitution. The statute would therefore serve no
purpose."6

Instead the supreme court placed primary reliance on the doc-
trine of legislative acquiescence7 established in Whirlpool Corp. v.

State Board of Tax Commissioners.* Whirlpool, a case reviewed in a
previous Survey,9 was based upon facts similar to those in Carrier.
In both Whirlpool and Carrier, the taxpayers relied on the statute

and claimed the exemption without being questioned by the Board.
In Whirlpool, after allowing the exemption for at least three years,

2
365 N.E.2d 1385 (Ind. 1977), rehearing denied, 368 N.E.2d 1153 (Ind. 1978).

3365 N.E.2d at 1386.
4
Ind. Admin. R. & Regs. §§ 6-1.1-3-9 to 32 (Burns 1976).

5365 N.E.2d at 1386.
6
Id.

"Id. at 1387.
8338 N.E.2d 501 (Ind. Ct. App. 1975).
9
Allington, Taxation, 1976 Survey of Recent Developments in Indiana Law, 10

Ind. L. Rev. 340, 358-59 (1976).



322 INDIANA LAW REVIEW [Vol. 12:320

the Board challenged the taxpayer's claim under a then-new amend-

ment to the statute; but, after a series of meetings and hearings,
ruled that Whirlpool was entitled to the exemption. Nonetheless,
three years later, the Board again challenged Whirlpool's claimed

exemption with the appropriate township assessor and notified the

legislature must be deemed to have acquiesced in the exemption as
applied and found such deemed acquiescence binding and control-
ling.

In Carrier, the supreme court somewhat broadened this doctrine
of legislative acquiescence by ruling that privity to an ad-

ministrative ruling is not a prerequisite for the invocation of the

doctrine.
10 The court noted further that factual foundation for use of

the doctrine was present notwithstanding the lack of privity
because Carrier was allowed to use the exemption in 1969 and 1970
with the Board's acquiescence.11 It was not until 1971, when the
Board issued the more restrictive regulation challenged in Carrier,
that a more than literal compliance with the statute providing the
exemption was required of Carrier. The court stated:

44

[I]t is clear

that the legislature intended to provide for exemption under the

facts stated in this case."
12

The court's concluding comments in Carrier were to the effect
that the exemption covers only what the state could constitutionally
tax in the area of ad valorem taxation and not in any other possible

area of taxation.13 Considering this rejection based on constitutional

grounds in tandem with the court's rejection of the statute's con-
struction as a restatement of federal constitutional principles, the

only meaning which could be assigned to the last sentence of the ex-
emption statute was one enunciating the provision as a limitation on
the statute's applicability. This ruling and dicta, therefore, cast

doubt on the currency of much of the court of appeals decision in
State Board of Tax Commissioners v. Philco-Ford Corp.,

1 * discussed

in last year's Survey.15

b. Exemptions, Industrial Waste Control Facilities. — The
statutory procedure for determining the allowability of a property

tax exemption for industrial waste control facilities 16 was upheld by

10365 N.E.2d at 1387.
n
Id.

12
Id.

nId at 1388.
14356 N.E.2d 1379 (Ind. Ct. App. 1976).
15Boyd, Taxation, 1977 Survey of Recent Developments in Indiana Law, 11 Ind.

L. Rev. 292, 300-01 (1977).
16Act of Mar. 18, 1975, Pub. L. No. 47, § 4, 1975 Ind. Acts 466 (repealing Ind. Code

§§ 6-1-8-1 to 4 (1971)). Current law on industrial waste control facilities is codified at

Ind. Code §§ 6-1.1-10-9 to 11 (1976).



1979] SURVEY-TAXATION 323

the court of appeals in Levy Co. v. State Board of Tax Commis-
sioners.

11 That procedure called for the Indiana Stream Pollution

Control Board to review and certify a taxpayer's claim for exemp-

tion.
18 The pollution Board was to determine whether property

qualifies for the statutory exemption after the taxpayer filed for the

exemption with the appropriate township assessor and notified the

pollution Board of the claim. The statute required the assessor to
follow the pollution Board's determination in allowing or denying

the claim for exemption. As noted in Levy: "The statute . . .
delegates the technical determination to the expertise of the Stream
Pollution Control Board." 19

In Levy, the attack on the statute was based on the argument
that, if the tax Board could not review and reverse a pollution

board's determination, the statute would amount to an unconstitu-
tional delegation of the state taxing authority to the pollution

Board.20 The argument was "[s]ince the Legislature delegated to the
tax board the administrative duties of construing the tax laws of the

State and seeing that all assessments of property are made accor-
ding to law, the tax Board must also have the power to make an in-
dependent decision as to whether certain property satisfies the
definition of an industrial waste control facility." 21 The court made
short shrift of this argument, finding that the delegation of taxing

duties to the tax board did not preclude the legislature from

delegating a specific factual determination to an agency which

possessed the technical expertise necessary for making such specific
factual determination.22

The validity of the Indiana Aircraft Excise Tax Act of 1975, In-
diana Code section 6-6-6.5-1 to 2223 was upheld over multi-pronged
state and federal constitutional challenges by the Indiana Supreme
Court in Indiana Aeronautics Commission v. Ambassadair, Inc. 24

This tax removes the property tax burden from aircraft and imposes
an excise tax on aircraft based upon the age, maximum landing
weight, and classification. In Ambassadair, the burden imposed by
the excise tax, on airplanes owned by the two travel clubs, was
nearly twice what it would have been had the property tax been ap-
plicable. The challenge to the tax structure was based upon article

17365 N.E.2d 796 (Ind. Ct. App. 1977).
18
Ind. Code § 6-1-8-3 (repealed 1975).

19365 N.E.2d at 800.
20I& at 801.
21
Id.

22
I<L

23
Ind. Code §§ 6-6-6.5-1 to 22 (Supp. 1978).

24368 N.E.2d 1340 (Ind. 1977), cert, denied sub nom., Four Winds, Inc., v. Indiana

Aeronautics Comm'n, 98 S. Ct. 2235 (1978).



324 INDIANA LAW REVIEW [Vol. 12:320

4, section 23 of Indiana Constitution (Equal Privileges) and the Equal

Protection and Due Process Clauses of the fourteenth amendment to
the United States Constitution.

In relating the equal protection and due process issues to state

taxation, the court said those constitutional concepts: (1) Impose no
specific limitation on the power of the states to make classifications
for tax purposes other than to prohibit arbitrary classifications, (2)

require the maintenance of no particular scheme of property or ex-
cise taxes, and (3) impose no particular classification requirements.25

The court noted that the state constitutional requirement of equali-
ty in property taxation26 was not mandated by federal equal protec-
tion.

27

In view of the principal that equal protection neither condemns
nor approves specific criteria for tax classifications in the abstract

but, rather, must be measured in context, the court found that the
aircraft excise tax "is not invalid as a denial of equal protection

simply because it utilizes the criteria of age and maximum landing
weight, or simply because it may not utilize value, as none of these
three criteria are required or rejected, per se." 28 Instead, the court

proceeded to analyze the tax scheme as it applied and proffered the
legislative objectives for the act: to raise revenues to support air-

ports and governmental services rendered to operational aircraft

and to distribute the resulting tax burden upon aircraft owners.29

Distribution of the tax burden according to weight and age was
found to be a reasonable means of accomplishing the legislative
end.30 Classifying aircraft differently from other property for pur-

poses of taxation was, then, not offensive to the Equal Protection

Clause.

The other prong of the equal protection attack was directed at
two exemptions in the Aircraft Excise Tax Act. Those provisions ex-
empted regularly scheduled airlines and granted a temporary three-
year tax reduction in the case of aircraft assessed for 1974 property

taxes payable in 1975.31 Concluding that "the great deference given

to tax legislature and the classification they may employ by the
Fourteenth Amendment and Article 1, Section 23 of the Indiana
Constitution,"

32
the court had little trouble finding justifications for

the exemptions sufficient to withstand the challenge.33

25
368 N.E.2d at 1343-44.

26
Ind. Const, art. 10, § 1.

27
368 N.E.2d at 1344.

28/d

"Id
30
Id. at 1345.

81
Ind. Code §§ 6-6-6.5-9(f), -13(c) (1976) (amended §§ 6-6-6.5-9(b), -13(c) (Supp. 1978)).

32368 N.E.2d at 1347.
33See id.



1979] SURVEY- TAXATION 325

In their due process challenge the travel clubs contended the ex-
cise tax was confiscatory. The court rejected this claim by indicating
other statutes in which the effective tax rate per dollar value of the
property taxes was significantly higher than that in issue in Am-
bassadair.

34

d. Personal Property Tax. — Relying on a factual determination
made by a trial court regarding a taxpayer's intent, in State Board

of Tax Commissioners v. Farmers Cooperative Co.,
35 the court of

appeals found that grain intended for shipment to out-of-state

buyers before the March 1 deadline but held beyond that date due

to circumstances beyond the taxpayer's control was exempt from

the personal property tax under the exemption for property in in-

terstate commerce.36 The court's ruling centered on the exemption
as set forth in the departmental regulations.

37

The Board argued that, since the grain in question could have,
under the terms of the contract, been shipped after March 1, the
taxpayer was not entitled to the exemption as set forth in the
regulation. The contention was that "intended shipment date" was
equivalent to the latest date for shipment allowable within the

terms of the sale contract. The word "intended" was included in the
regulation, and, in giving the regulation its plain and ordinary mean-

ing,
38 the court concluded that the terms of the contract do not

necessarily determine the "intended shipping date" within the mean-

ing of the regulation.39 As the trial court had properly determined
the "intended shipping date" was prior to the March 1 deadline, the
court of appeals found the grain in question was exempt, explaining
that if the Board desired to have the contract date controlling, it
could have so provided in the regulation.40

2. Tax Procedure.— In F.W. Woolworth Co. v. State Board of
Tax Commissioners^1 the court of appeals confronted a situation in
which the State Board of Tax Commissioners issued a defective
notice of assessment, discovered its error, and then issued a cor-
rected assessment notice after the statutory period for changes in

assessments had run. The court ruled that a defective notice which
obstructs or prohibits an effective appeal constitutes a denial of due
process.

42

M
Id. at 1348.

35370 N.E.2d 389 (Ind. Ct. App. 1977).
3
«Id. at 391.

37
Ind. Admin. R. & Regs. §§ 6-1.1-3-9 to 32 (Burns 1976).

38370 N.E.2d at 391.
39/d
i0
IcL

41
369 N.E.2d 958 (Ind. Ct. App. 1977).

i2
Id. at 961.



326 INDIANA LAW REVIEW [Vol. 12:320

The first notice in Woolworth was issued on September 29, 1971,
just before the October 1 statutory limit,43 and omitted assessments

of thirteen of Woolworth's Indiana stores but purported to be a final

assessment for all of Woolworth's Indiana stores. The first notice
stated the taxpayer had thirty days within which to institute a

statutory appeal and that the Board could take no action to extend

the period for appeal. The second "final" notice, issued on October
21 contained the same statement but added the previously omitted
assessments. Further, the second notice stated it was for corrective
purposes only and was not intended to modify the previous "final"
notice. Noting that the failure of the Board to include the

assessments for the thirteen omitted stores in the first notice effec-

tively reduced the statutory period for the filing of an appeal from

thirty to eight days,
44

the court held the corrected notice invalid as

it prejudiced Woolworth's appeal rights.45 To have upheld the
belated assessment would have amounted to a denial of due
process.

46

3. Death Taxes. — a. Flower Bonds. — The court of appeals in
Second National Bank of Richmond v. Department of State
Revenue, Inheritance Tax Division,*1 a case of first impression, ruled
that the value of "Flower Bonds"48 for purposes of Indiana in-

heritance tax was the price of such bonds on the open market, not
their redemption value.49 Face value of the "Flower Bonds" in the

decedent's estate was $200,000, but, at the time of the decedent's
death, the bonds were worth slightly more than $150,000 on the
over-the-counter bond market. By statute, these bonds may be
redeemed at face value in payment of the federal estate tax even
though they are not mature.50 The state argued that the higher face
value should apply.

The Second National Bank court did not allow the state's posi-

tion to prevail, noting the statutory basis for valuing an estate in

Indiana is the fair market value of the property in the estate at the

43Act of Mar. 18, 1975, Pub. L. No. 47, § 4, 1975 Ind. Acts 389 (current version at

Ind. Code § 6-1.1-3-20 (1976)).
44369 N.E.2d at 962.

"Id.

"Id.
47366 N.E.2d 694 (Ind. Ct. App. 1977).

"See Treas. Reg. §§ 301.6312-1, -2 (1976). See also 1978 Stand. Fed. Tax. Rep. 1

9764 for an explanation of the use of Flower Bonds.
49See 366 N.E.2d at 696. For federal estate tax purposes, such bonds must be

valued in the gross estate at par value including interest accrued at date of death to

the extent they are redeemable in payment of estate taxes, even though the bonds are

not so used. Rev. Rul. 69-489, 1969-2 C.B. 172.
50
I.R.C. § 6312 (repealed 1971 with respect to obligations issued after Mar. 3,

1971).



1979] SURVEY-TAXATION 327

time of death.51 Additionally, a Department of Revenue regulation
sets forth the over-the-counter market price of bonds as the proper

value for inclusion in an estate.52 The court agreed with an Illinois
court's holding that if a statute specifies fair market value as the

value to be used for estate valuation, the legislature was not refer-
ring to a special or limited value which a particular asset may have
for a captive buyer's specific purpose (here, the Department of

Treasury).53 The Indiana court ruled: "The plain meaning of the
words 'fair market value' must be employed when interpreting the
statute."

54 Further noting that the commonly accepted definition of
"fair market value" is what a willing buyer, under no compulsion to
buy, would pay a willing seller, under no compulsion to sell, the

Second National Bank court held for the taxpayer inasmuch as the
federal government, in the "Flower Bonds" situation, is under a

compulsion to buy.55 The court of appeals relied on the reasoning of
Second National Bank in reaching the same conclusion in State v.
Bower.™

b. Gift in Contemplation of Death.— Under the gift in con-
templation of death statute,57 the value of gifts made in contempla-
tion of the transferor's death are includible in the transferor-

decedent's gross estate, and gifts made within two years prior to
death are presumed to have been made in contemplation of death.58

Nonetheless, as noted in Bower that presumption is not conclusive,
and it may be overcome by the showing of a substantial lifetime
motive.

59
In Bower, the lifetime motive found factually sufficient by

the trial court and upheld on review, was the elimination of property
from the estate by gift to the decedent's nieces and nephews. The
decedent had received this property from her sister's estate and she

maintained it should have been given from her sister's estate directly

to the nieces and nephews. The Bower court agreed and further but-
tressed its decision by acceptance of the argument that the gifts
were actually made to avoid a contest of the decedent's sister's
will.

60 The court said this latter fact alone could suffice as a substan-
tial lifetime motive to overcome the statutory presumption.661

51366 N.E.2d at 695.
52
Ind. Admin. R. & Regs. § 6-4-1-7 (Burns 1976).

53In re Estate of Voss, 55 111. 2d 313, 303 N.E.2d 9 (1973). See also In re Estate of

Power, 156 Mont. 100, 476 P.2d 506 (1970).
54366 N.E.2d at 696.
55
Id.

56372 N.E.2d 1227, 1229 (Ind. Ct. App. 1978).
57
Ind. Code § 6-4.1-2-4 (1976).

59372 N.E.2d at 1228-29.

«°Id.

"Id.



328 INDIANA LAW REVIEW [Vol. 12:320

k. Gross Income Tax. — The court of appeals, in Indiana Depart-
ment of State Revenue v. William A. Pope Co.*2 found that a 1955
amendment to the definition of "selling at retail"63 clearly evidenced
a legislative intent to make retail transactions having both sales and
service aspects severable for gross income tax purposes.64 The
severability factor is significant because income received from "sell-

ing at retail" is subject to gross income tax at a rate of one-half per-

cent, while income received from the rendering of services is taxed

at a two-percent rate.65 The court also ruled that the meaning of the
term "delivery" did not include installation.66 Delivery is complete
when the goods sold reach their destination; any installation work
done thereafter is the performance of services and is subject to the

higher tax rate.

5. Sales Tax. — In Department of Revenue v. Mumma Brothers
Drilling Co.,

61 the court of appeals reversed a trial court determina-

tion that certain pump and drilling equipment sold by the taxpayer
to a person engaged in a farming operation was exempt from the
state sales tax under one of the exemptions found in Indiana Code
section 6-2-l-39(b). The two particular exemptions argued to be ap-
plicable covered (1) sales to persons occupationally engaged in farm-

ing of "feed . . . , seeds, plants, fertilizers, fungicides, insecticides

and other tangible personal property to be directly used in the direct

production of food and commodities"68 and (2) "[s]ales of manufacturing

machinery, tools, and equipment to be directly used ... in the
direct . . . extraction ... of tangible personal property."

69

The court noted that the drilling and pump equipment was clearly
not within the first exemption because it was not directly used in

the direct production of food. As the court stated: "[T]he pump
equipment was essential . . . but it was not directly used"70 in the

production of food. The pump was only indirectly used in the pro-
duction of food because it directly produced the water which in turn

was directly used in the production of food.
In regard to the other claimed ground, the court opined that the

taxpayer was probably entitled to a exemption because it sold equip-

ment directly used in the direct extraction of tangible personal prop-

62367 N.E.2d 47 (Ind. Ct. App. 1977).
63Act of Mar. 11, 1955, ch. 263, § 1, 1955 Ind. Acts 703. That amendment is now

reflected in Ind. Code § 6-2-l-l(j), (k) (Supp. 1978).
64367 N.E.2d at 50.
65
Ind. Code § 6-2-1-37 (1976).

66367 N.E.2d at 50.
97
364 N.E.2d 167 (Ind. Ct. App. 1977).

68
IND. Code § 6-2-l-39(b)(l) (1976 & Supp. 1978).

67d § 6-2-l-39(b)(6).
70364 N.E.2d at 171.



1979] SURVEY- TAXATION 329

erty.
71 The decision of the trial court in favor of the taxpayer,

however, was reversed on procedural grounds.72

Mumma Brothers, is also instructive on a point of Indiana tax
procedure. The court noted that a timely filed petition for refund
pursuant to section 6-2-1-19 is a jurisdictional condition precedent to

the bringing of a refund suit in an Indiana trial court.73 For one of

the years in question, the taxpayer in Mumma Brothers had not filed
a petition for refund within the three-year period set forth in the

statute and was, therefore, barred as a matter of subject matter

jurisdiction from testing its claim in court.

B. Legislative Developments

Several bills of greater or lesser note to Indiana tax law were
enacted by the 1978 General Assembly. This Survey Article will

endeavor to give a brief sketch of the scope of those bills and the

changes they have made in Title 6 of the Indiana Code.
The General Assembly enacted special bills under the Local Tax

article of Title 6 pertaining to the promotion of convention and

tourism in counties having population of between 88,000 and
108,000

74 and pertaining to the development of convention and
visitor industries in counties with populations ranging from 107,000

to 113,000.
75

Practitioners in affected counties should be alert to

these statutes which create new bureaucracies and levy innkeepers'
taxes.

1. Income Taxation. — a. Gross Income Tax. — The general
definition of gross income76 has been amended to exclude from its
sweep "the amounts received by a corporation or by a division of a
corporation owned, operated, or controlled by its member electric
cooperatives for electrical energy to be resold to their member-
owner consumers."77

Further, an exemption from gross income taxation has been ex-
tended to include the gross receipts from transportation charges, or

77d at 172.
72The trial court granted summary judgment for the taxpayer. Ind. R. Tr. P. 56.

The appellate court felt genuine issues of material fact remained in regard to the
number of transactions and amount of money involved, notwithstanding the fact that,
it was "clear" certain of the transactions were exempt. The case was remanded for the
purpose of making the necessary fact-finding. 364 N.E.2d at 172.

13
Id. at 170 (quoting Marhoefer Packing Co. v. Indiana Dep't of State Revenue,

157 Ind. App. 505, 519-20, 524-25, 301 N.E.2d 209, 216, 218-19 (1973)).
74
Ind. Code §§ 6-9-6-1 to 8 (Supp. 1978).

77d §§ 6-9-7-1 to 8.
77d § 6-2-l-l(m).
71
Id.



330 INDIANA LAW REVIEW [Vol. 12:320

other charges, directly related to the interstate transportation of

the property from which the receipts were derived.78

Taxpayers may now deduct from their gross income amounts
paid for the return of empty returnable containers.79

b. Adjusted Gross Income Tax. — Under a 1978 amendment to
the definition of adjusted gross income, individual taxpayers may
now subtract from their baseline figure of adjusted gross income, as
determined pursuant to section 62 of the Internal Revenue Code,
any amounts of supplemental railroad retirement annuities80 which
were included by the taxpayer in federal gross income, and which
were not already deducted as being exempt from taxation by reason
of the United States Constitution or federal statutes.81

Two new legislative provisions allow tax relief to the state's
"senior citizens." First, taxpayers over age 65 may subtract $1,000
from their baseline adjusted gross income in order to arrive at their

Indiana adjusted gross income.82 This $1,000 subtraction is available

for each "senior citizen" exemption available to the taxpayer under

section 151(c) of the Internal Revenue Code83 and is in addition to
the standard $1,000 subtraction provided to each taxpayer.

84 Former-

ly, senior citizens were allowed a $500 subtraction for the Indiana

adjusted gross income computation.85

Second, a credit provision was added to the adjusted gross in-
come tax law which provides tax relief to low- and middle-income
senior citizens.

86 This twenty-five dollar credit against adjusted

gross income tax liability is available to individuals age 65 or over

who have resided in Indiana for at least six months of the relevant
taxable year and whose "household federal adjusted gross income"
for the taxpayer and his spouse, if they live together, is less than

$15,000 for that year. It is important to realize that the credit is also

available in the form of a refund for taxpayers having insufficient

tax liability against which to apply the credit or having no tax

liability whatsoever. The legislature noted that the new credit "is
intended to provide relief to the individual for the state gross retail

sales and use taxes that he pays on his utilities."*
'87

18
Id. § 6-2-l-7(q).

79/d § 6-2-l-6(b).

*°See 45 U.S.C. § 231 (Supp. V 1975).
81
Ind. Code § 6-3-l-3.5(a)(8) (Supp. 1978).

82/d § 6-3-l-3.5(a)(4).
83/d
M
I<L § 6-3-l-3.5(a)(3).

85/d § 6-3-l-3.5(a)(4).
86/d § 6-3-3-8.
61Id § 6-3-3-8(b). The term "household federal adjusted gross income" means the

total adjusted gross income, pursuant to section 62 of the Internal Revenue Code, of
the taxpayer and his spouse, if they live together, for the relevant taxable year.



1979] SURVEY- TAXATION 331

Another credit against adjusted gross income tax for charitable

contributions to colleges and universities has been increased to $100

for individual taxpayers and $200 for joint taxpayers. Corporate tax-

payers may now have a credit of up to ten percent of their adjusted
gross income, or $1,000, whichever is less.

88 Both credits are on the

basis of one dollar of credit for each two dollars of contribution.

The legislature also enacted an energy-conservation related ad-
justed gross income tax deduction for tax years beginning after

December 31, 1978. The deduction is for amounts up to $1,000 ex-
pended by resident individual taxpayers who install new insulation,
weather stripping, double pane windows, storm windows, or storm

doors in their residences.89 The deduction is only available for in-
stallations made on parts of residences constructed at least three
years before the taxable year for which the deduction is claimed.90

2. Sales and Use Taxes. — The provisions of the state gross
retail sales tax act,

91
as they apply to the sale of petroleum in

Indiana, have been amended,92 and a new section has been added to
the Indiana Code clearly setting forth the manner in which these
sales are covered by the act.93

The "transactions included" section of the act94 was further
amended in its "public utilities furnishing energy" subsection to pro-
vide that a corporation producing power exclusively for the use of
one or more public utilities and which is owned or controlled by a
public utility shall be considered a retail merchant and subject to
tax except on sales to other public utilities or to owned or controlled
corporations producing power exclusively for the use of such
utilities.

95 Transactions constituting sales to corporations which pro-

duce power exclusively for the use of public utilities and which are
owned or controlled by such utilities are extended sales tax exemp-
tions by an amendment to the exemption statute.96

The legislature also extended sales tax exemptions to include
sales of equipment or devices used to administer insulin,97

necessities for colostomy or ileostomy, and medical equipment, sup-

plies, or devices used in conjunction with the aforementioned ar-

ticles.
98

88
Ind. Code § 6-3-3-5 (1976 & Supp. 1978).

89/d § 6-3-2-5 (Supp. 1978).
90M § 6-3-2-5(b).
91Id §§ 6-2-1-37 to 53 (1976).
92See id § 6-2-l-38(c) (Supp. 1978).
93Id § 6-2-1-37.5. See also id. §§ 6-6-1-2, -22.1 for additional new legislation relating

to the taxation of fuels.
94ta § 6-2-1-38 (1976).
95
Ia\ § 6-2-l-38(c) (Supp. 1978).

96ta § 6-2-l-39(b)(16).
97d § 6-2-l-39(b)(13).
98/d § 6-2-l-39(b)(28).



332 INDIANA LAW REVIEW [Vol. 12:320

3. Exempt Organizations. — The tangible personal property of
an exempt organization which is used by the organization in a trade
or business not substantially related to the exercise or performance

of the organization's exempt purpose is no longer exempt from the
personal property tax." Further, the income from unrelated trades

or businesses of exempt organizations is no longer exempt from the
gross income tax,100 or the adjusted gross income tax.101 The defini-
tion of "unrelated trade or business" is keyed to the definition of
that term in the Internal Revenue Code. 102

4. Property and Excise Taxes. — The 1978 legislature deferred
for one year, to March 1, 1979, all counties' general reassessment of
real property.103

One provision of the personal property tax exemption extending
to property in interstate commerce104 has been rewritten to provide
that personal property is exempt from property taxation if: (1) The
property has been placed in the original package in a public or

private warehouse for transshipment to an out-of-state destination

as evidenced by an original bill of lading covering the goods, (2) the

property remains in the original package in such a warehouse, and

(3) the property had been ordered and is ready for shipment in in-

terstate commerce to a specific known destination to which the prop-
erty is subsequently shipped.105 If the property is not shipped to

that destination, the taxpayer claiming the exemption must file an
amended return.106

The reworked exemption statute also provides that personal
property is exempt from property taxation if the property: (1) Is
placed in the original package in a public warehouse, (2) was
transported to that warehouse by common carrier, (3) is held in the
warehouse for transshipment to an out-of-state destination and is so

labeled, and (4) remains in the warehouse in the original package.107

Both of those exemptions, as well as a similar one for

nonresidents,108 are subject to the limitation discussed in connection

with Carrier. 109 That limitation stipulates application "only to the

extent the property is exempt from taxation under the commerce
clause of the Constitution of the United States." 110

"Id. § 6-1.1-10-36.5.
100ta § 6-2-1-7.5.
m

Id, § 6-3-2-3.1.
102
I.R.C. § 513.

103
Ind. Code § 6-1.1-4-4 (Supp. 1978).

104/d § 6-1.1-10-30.
105/d § 6-l.l-10-30(b).
m

Id.

m
IcL § 6-l.l-10-30(c).

108/d § 6-l.l-10-30(a).
109For a discussion of this case, see notes 1-15 supra and accompanying text.
uo
Ind. Code § 6-l.l-10-30(d) (Supp. 1978).



1979] SURVEY-TAXATION 333

A new personal property tax exemption was extended to property
held in a foreign trade zone established under federal law

111 which

was either imported into the foreign trade zone from a foreign coun-

try or placed in that zone exclusively for export to a foreign coun-

try.
112 The statute further provides the foreign trade zone exemption

applies only to the extent required by the commerce clause of the
United States Constitution. Taxpayers claiming foreign trade zone

exemptions are required to include the true cash value of the

exempt property on their personal property tax return.113

Tangible personal property owned by an Indiana not-for-profit
corporations and used by that corporation in a residential health

facility or Christian Science home or sanitorium is exempt from prop-
erty taxation.

114

The $1,000 deduction from assessed value of residential real prop-

erty belonging to certain low-income senior citizen property

owners115 has been broadened in scope. Formerly, the deduction ap-

plied only to such taxpayers whose gross income, combined with

that of his spouse, did not exceed $6,000 and the assessed value of

the property did not exceed $6,500. Those figures, under the 1978

amendment, are now $10,000 and $9,000, respectively. A new provi-
sion also extends the deduction to a surviving spouse of a senior

citizen, who is more than sixty years old and has not re-
married.116

Other related property actions by the 1978 legislature include:

(1) Extension of real property tax relief to surviving spouses of

veterans117 and to World War I veterans,118 (2) increase of the penalty
for unpaid property taxes from eight percent of the deficiency to ten

percent of the deficiency,119 (3) amendment of the Motor Vehicle Ex-
cise Tax to exclude vehicles owned or leased and operated by an in-
stitution of higher learning from the definition of "vehicles" covered

by the act,120 and (4) amendment of the Saving and Loan Association
Tax121 and establishment of a new rate schedule.122

niSee 19 U.S.C. § 81 (1978).
u2
Ind. Code § 6-1.1-10-30.5 (Supp. 1978).

113/d § 6-1.1-10-31.
114/d § 6-1.1-10-18.5.

™Id. § 6-1.1-12-9.
116/d § 6-l.l-12-9(d).
niId § 6-1.1-12-16.
n
»I<L § 6-1.1-12-17.4.

U9
Id. § 6-1.1-37-10.

120/d § 6-6-5-l(a)(5).
mId § 6-5-8-5.
122Id § 6-5-8-5.1.