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Indiana Supreme Court Denies Review of Lowes Case

Posted 2:38 PM by

The Indiana Tax Court issued a decision Dec. 19, 2014, in Lowes Home Centers, LLC v. Indiana Department of State Revenue that may radically change the sales tax landscape for Indiana real property contractors.
The Indiana Department of Revenue (IDR) has had a long-standing policy of applying a different tax treatment, depending on the underlying real property construction contract. The historic treatment has been as follows:

  • Contractors operating under a lump-sum contract — treated as the end user of materials, and thus taxed on the cost of materials they purchase
  • Contractors operating under a time and materials (T&M) contract — treated as sellers of materials, and thus have a responsibility to collect sales tax on materials transferred to customers

The Indiana Tax Court held that this distinction between T&M and lump-sum contractors does not exist in the Indiana Code, and the IDR has inappropriately created an artificial distinction via regulations it has adopted. As a result, it was determined that Lowes should owe use tax on its costs of materials incorporated into realty via a T&M contract (i.e., be treated as a lump-sum contractor would historically have been treated).

The IDR petitioned the Indiana Supreme Court for review of this case, and the petition was denied June 4, 2015.

The effect of this decision could mean that there is now one Indiana standard for all real property construction contractors, regardless of the type of contract entered into with its customer. Having a uniform standard – in which the contractor would owe use tax on its purchases of all materials incorporated into realty in Indiana – could significantly decrease the recordkeeping/compliance burden of contractors utilizing multiple types of contracts.

We expect the IDR to issue guidance for taxpayers, both on past and future transactions, in response to the denial and its indirect affirmation of the sales tax treatment as outlined by the Indiana Tax Court. An update will be provided outlining IDR’s response.

About the Author
Donna Niesen is a partner in Katz, Sapper & Miller’s State and Local Tax Group. Donna helps keep clients up-to-date on the multitude of tax rules and requirements in all 50 states. She guides them in the right direction as they address the complex issues that emerge on both the state and local levels. Connect with her on LinkedIn.