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ATTORNEYS FOR APPELLANT Gregory F. Zoeller Attorney General of Indiana Andrew W. Swain Chief Counsel, Tax Section Indianapolis, Indiana Jessica E. Reagan Deputy Attorney General Indianapolis, Indiana

ATTORNEYS FOR APPELLEE Randal J. Kaltenmark Larry J. Stroble Ziaaddin Mollabashy Indianapolis, Indiana

FILED
In the
of the supreme court, court of appeals and tax court

Jun 17 2009, 1:18 pm ______________________________________________________________________________

CLERK

Indiana Supreme Court
_________________________________ No. 49S10-0808-TA-474 INDIANA DEPARTMENT OF REVENUE, Appellant (Respondent below), v. KITCHIN HOSPITALITY, LLC, Appellee (Petitioner below). _________________________________ Appeal from the Indiana Tax Court, No. 49T10-0604-TA-35 The Honorable Thomas G. Fisher, Judge _________________________________ On Petition for Review Pursuant to Appellate Rule 63(A) _________________________________ June 17, 2009

Sullivan, Justice. Indiana tax law was amended in 1992 to exempt hotels from paying sales tax on "tangible personal property" purchased by hotels that guests use up or otherwise consume such as soap, shampoo, tissue paper, and plastic cups. Kitchin Hospitality, LLC, a hotel operator, contends

that a 2003 amendment to the tax law had the effect of extending this exemption to its purchases of electricity, water, and gas as well. We find that the exemption does not extend to utilities because it is the hotel itself, and not its guests, that uses up and consumes electricity, water, and gas. Background

Kitchin Hospitality, LLC, is a wholly-owned subsidiary of Jameson Inns, Inc., a Georgia corporation. During the taxable periods ending December 31, 2004, and October 31, 2005, the years at issue in this case, Kitchin operated 14 hotels in Indiana. Each hotel had an identical floor plan, with guest rooms and guest-accessible common areas comprising approximately 72% and 22%, respectively, of a hotels square footage. During the years at issue, Kitchin rented the guest rooms and the accessible common areas in exchange for the rental rates paid by its guests.

Under the lease agreement between Kitchin and Jameson, Kitchin was responsible for all utility costs incurred in connection with operating the hotels. For the years at issue, Kitchin purchased utilities for the hotel. Each hotel had a single utility meter; the guest rooms had separate thermostats and were equipped with various electrical amenities including televisions, alarm clocks, coffee makers, irons, and hair dryers. Kitchin allocated all utility costs from the common areas and guest rooms into the rental rate for its guest rooms, but guests were not billed separately for utilities. Kitchin paid gross retail tax on its electric, water, and gas ("utilities") purchases during the years at issue. Kitchin subsequently filed two claims with the Indiana Department of State Revenue seeking a refund of approximately $89,700 in gross retail tax paid on utility purchases. Kitchin based its claim on a statutory exemption from gross retail tax, to be discussed in detail in this opinion, available to hotels for "tangible personal property" that guests use up, remove, or otherwise consume while staying at a hotel. The Department denied both claims; Kitchin appealed. The Tax Court held that for the years at issue, the utilities consumed in the guest rooms, but not in the common areas, qualified for the tangible personal property exemption. Kitchin

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Hospitality, LLC v. Ind. Dept of State Revenue, 881 N.E.2d 1124 (Ind. Tax Ct. Mar. 3, 2008) (table).

The Department sought, and we granted, review, 898 N.E.2d 1221 (table). Ind. Appellate Rule 63(A).

We note two collateral matters related to this litigation. First, the Department notes that since the Tax Courts decision, many hotels have filed refund claims for utility purchases. Second, in 2007, the Legislature amended the law to provide that that the exemption at issue here "does not apply to transactions involving electricity, water, gas, or steam." 2007 Ind. Acts 3031, Pub. L. No. 211,

Download Indiana Department of Revenue v. Kitchin Hospitality, LLC.pdf

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