G:\28243 Ind Law Rev 45-4\45masthead.wpd RECENT DEVELOPMENTS IN INDIANA TAXATION SURVEY 2011 LAWRENCE A. JEGEN, III* THERESA A. SEARLES** JAMES R. SMERBECK*** INTRODUCTION: SOME REFERENCES USED IN THIS ARTICLE This Article highlights the major tax developments that occurred during the calendar year of 2011. Whenever the term “GA” is used in this Article, the term refers only to the 117th Indiana General Assembly. Whenever the term “Tax Court” is referred to, such term refers only to the Indiana Tax Court. Whenever the term “Court of Appeals” is referred to, the term refers only to the Indiana Court of Appeals. Whenever the term “DLGF” is used, the term refers only to the Indiana Department of Local Government Finance. Whenever the term “IBTR” is used, the terms refers only to the Indiana Board of Tax Review. Whenever the terms “Department” or “DOR” are used, these terms refers only to the Indiana Department of State Revenue. Whenever the terms “IC” or “Indiana Code” are used in this Article, these terms refer only to the Indiana Code in effect at time of the publication of this Article, unless otherwise explicitly stated. Whenever the term “ERA” is used, the term refers only to an Indiana Economic Revitalization Area. Whenever the term “CAGIT” is used, the term refers only to the Indiana County Adjusted Gross Income Tax. Whenever the term “COIT” is used, the term refers only to the Indiana County Option Income Tax. Whenever the term “LOIT” is used, the term refers only to the Local Option Income Tax. Whenever the term “IEDC” is used, the term refers only to the Indiana Economic Development Corporation. Whenever the term “CEDIT” is used, the term refers only to the Indiana County Economic Development Income Taxes. Whenever the terms “IRC” or “Code” are used, these terms refer only to the Internal Revenue Code in effect at the time of the publication of this Article. Whenever the term “section” is used in this Article, the term only refers to a section of the Indiana Code, unless it is a reference to the Internal Revenue Code. Whenever the term “Public Law” is used, the term only refers to legislation passed by the Indiana General Assembly and assigned a Public Law number. Whenever the term “PTABOA” is used, the term refers only to a Property Tax Assessment Board of Appeals. * Thomas F. Sheehan Professor of Tax Law and Policy, Indiana University Robert H. McKinney School of Law. L.L.M., 1963, New York University; M.B.A., J.D., 1959, University of Michigan; B.A., 1956, Beloit College. ** J.D. Candidate, 2012, Indiana University Robert H. McKinney School of Law; B.A., 2007, Purdue University. *** J.D. Candidate, 2012, Indiana University Robert H. McKinney School of Law; M.A., 2007, University of North Carolina-Chapel Hill; B.A., 2005, University of Dayton. 1342 INDIANA LAW REVIEW [Vol. 45:1341 I. INDIANA GENERAL ASSEMBLY LEGISLATION The 117th General Assembly passed several pieces of legislation affecting various areas of state and local taxation. The most significant changes were in the area of property taxes. This section highlights the majority of the GA’s changes from 2011 in the areas of local finance, tax procedure, sales and other excise taxes, income tax, and inheritance tax. A. Property Taxes Unlike previous years, where the amendments were esoteric and technical,1 in 2011 there were many legislative amendments with wide-ranging implications for taxpayers. Indiana Code section 6-1.1-2-8 is a new code section applying to all property taxes due and payable starting in 2002. It requires that for any levy, distribution, or budget appropriation based on property taxes, the assessed value must be increased from 33.33% to 100% of true tax value (TTV).2 However, the IBTR and DLGF must adjust the tax rates of all jurisdictions so as to make the change from partial to full TTV neutral, both in terms of payments by taxpayers3 and revenue collected by government units.4 Similar changes will be made to neutralize any assessed value limitations on the amount of aggregate bonds a taxing jurisdiction may issue.5 Indiana Code section 6-1.1-2-10 makes most actions taken by a county or the DLGF to stop collecting taxes, among other things before November 21, 2007, retroactively valid.6 It also validates the same actions after November 21, 2007.7 To help adjustment with the transition to full TTV and the property tax caps now existing in the Indiana Constitution,8 the time to file an amended property tax return was extended from six to twelve months beginning on May 15, 2011.9 Noting northern Indiana’s reliance on the petrochemical and steel industries, the GA devised an alternative scheme for property tax assessment of petrochemical and steel properties by amending Indiana Code section 6-1.1-3- 23.10 The 2003 laws allowing abnormal reporting for severely obsolete property had the effect of drastically reducing northern Indiana’s tax base, and absent statutory modification, would have continued to do so for the foreseeable future.11 To compensate for this, the GA developed an alternative valuation scheme for 1. See generally Lawrence A. Jegen III et al., Recent Developments in Indiana Taxation, 42 IND. L. REV. 1215, 1216-19 (2010). 2. IND. CODE § 6-1.1-2-8(b)(2) (2011). 3. Id. § 6-1.1-2-8(d). 4. Id. § 6-1.1-2-8(g). 5. Id. § 6-1.1-2-8(h). 6. Id. § 6-1.1-2-10(a). 7. Id. § 6-1.1-2-10(d). 8. IND. CONST. art. 10, § 1. 9. IND. CODE § 6-1.1-3-7.5(a). 10. Id. § 6-1.1-3-23(a). 11. Id. § 6-1.1-3-23(a)(6). 2012] TAXATION 1343 any steel mill owned at least 50% by an integrated steel mill.12 This method recognizes that obsolescence of steel and petrochemical plants is caused by different forces than those causing normal obsolescence.13 The goal of the statute is to eliminate abnormal obsolescence deduction claims, which can deprive counties of needed revenue and increase uncertainty.14 This plan gives the taxpayer the option of taking a set depreciation schedule for their equipment, accounting for all types of depreciation and obsolescence, including abnormal obsolescence.15 If the taxpayer elected this scheme, it would be precluded from adopting any other schedule.16 There were also changes in the statutes regarding the distribution of funds. Indiana Code section 6-1.1-8-35.2 removed the restrictions on commuter transportation district’s allocation of funds received between July 1, 1999 and December 31, 2000.17 Also, houses for fraternities and sororities that are tax exempt under Internal Revenue Code §§ 501(c)(2), (c)(3), or (c)(7) may now have their property exempt greater than one acre in size.18 It also makes it more flexible because the definition of being used for fraternity or sorority purposes may now include land that is used for headquarters or to support the administrative or executive functions of the Greek organization.19 Moreover, it allows for multiple exempt fraternities and sororities to share the same property, and the property will still be tax exempt.20 Any tangible property owned by an exempt fraternity or sorority does not require an exemption application to be exempt for property tax purposes.21 The GA provided added flexibility for taking the homestead deduction. It amended Indiana Code section 6-1.1-12-37 so that a married couple, in which each spouse has a separate primary residence, may now take two homestead deductions so long as the non-resident spouse does not have an ownership interest in the resident spouse’s homestead.22 It also added Indiana Code section 6-1.1- 12-46 for enhanced deduction schedules for the rehabilitation or redevelopment of real property in economic development areas.23 If the property is at least 50,000 square feet, is in an area where the county unemployment rate exceeds the state unemployment rate by at least 2%, and the total investment by the taxpayer exceeds $10 million, the taxpayer can take a 100% property tax deduction for three (3) years on the gross assessed value of any tangible personal property 12. Id. § 6-1.1-3-23(a)(7). 13. Id. § 6-1.1-3-23(a)(7)(B). 14. Id. § 6-1.1-3-23(a)(9). 15. Id. § 6-1.1-3-23(a)(8). 16. Id. § 6-1.1-3-23(a)(8). 17. Id. § 6-1.1-8-35.2. 18. Id. § 6-1.1-10-24(a)(1). 19. Id. § 6-1.1-10-24(c). 20. Id. § 6-1.1-10-24(d). 21. Id. § 6-1.1-11-4(d)(1)(D). 22. Id. § 6-1.1-12-37(n). 23. Id. § 6-1.1-12-46. 1344 INDIANA LAW REVIEW [Vol. 45:1341 located on the redevelopment site.24 The GA also modified section 6-1.1-12- 17(a) and established an alternative schedule for property owners taking a tax abatement for economic development properties. This schedule is based on the amount of the investment, the number of full time equivalent jobs created, average wages for those employees, and the infrastructure investment in the property.25 Due to the housing bust, there are many completed or partially completed residential properties unsold. Therefore, the GA passed a new tax code section for property builders to take deductions on these properties, termed residence in inventory.26 These are single-family residences (homes, condominiums, or townhouses) that are either fully or partially completed,27 which have never been inhabited and are not model homes.28 An owner is allowed a deduction of 50% of assessed value, depending on whether the residence is fully or partially completed.29 The GA has made provisions for tax credits during the years in which the property tax caps had been passed by the GA but had not yet been enshrined in the Indiana Constitution.30 For taxes due and payable in 2008, assessed on March 1, 2006 or January 15, 2007, homeowners can get a tax credit of up to $2500. There is also a new chapter added to the Indiana Code for property tax credits applying to taxes due and payable in 2010, assessed on March 1, 2008 and January 15, 2009.31 The GA allotted $140,000,000 in homestead tax credits to be distributed pro rata to the counties based on pre-2008 total property tax levies.32 The distributions are determined by the DLGF through a complex formula.33 An additional $80,000,000 is allocated for property taxes due and payable on March 1, 2009 and January 15, 2010, using the same formula.34 B. Local Finance The GA also provided for specific flexibility for one county and one township in their property tax levies to ensure that each has adequate revenue. This has taken on heightened importance since implementing the property tax caps.35 Jefferson County is allowed to increase its levy up to $300,000 “if the [DLGF] finds that the county experienced a property tax revenue shortfall that 24. Id. §§ 6-1.1-12.1-16(a)-(b). 25. Id. § 6-1.1-12.1-17(a). 26. Id. § 6-1.1-12.8-1. 27. Id. § 6-1.1-12.8-3(b). 28. Id. § 6-1.1-12.8-1(a). 29. Id. § 6-1.1-12.8-3(b). 30. Id. § 6-3-2-25(c). 31. Id. § 6-1.1-20.1. 32. Id. §§ 6-1.1-20.1-1(e)-(f). 33. Id. §§ 6-1.1-20.1-1(g)-(h). 34. Id. § 6-1.1-20.1-2. 35. IND. CONST. art. 10, § 1. 2012] TAXATION 1345 resulted from an erroneous estimate of the effect of the supplemental deduction under [Indiana Code section] 6-1.1-12-37.5 on the county’s assessed valuation.”36 The legislature also amended Indiana Code section 6-1.1-18.5-13.7.37 Fairfield Township in Tippecanoe County is allowed to petition the DLGF for the right to increase its levy, but it must have done so by September 1, 2011.38 This amount is capped at $130,000 per year, but its levy may be increased annually for up to four years, or until July 1, 2016, whichever is the lesser.39 Finally, the GA amended Perry County’s income tax structure under Indiana Code section 6-3.5- 7-27.5.40 While Perry County is allowed to impose a CEDIT, capped at 0.5%,41 the sum of that tax and its COIT must be capped at 1.75%.42 C. Tax Procedure One of the most important developments in tax procedure has been in citizen appeals of property tax assessments. The GA eliminated subsection (p) from Indiana Code section 6-1.1-15-1, moved the material to later in the chapter, and gave it its own section: Indiana Code section 6-1.1-15-17.43 This provision shifts the burden on an appeal from the taxpayer to the county assessor if there was an increase of more than 5% in the assessed value of the property.44 There has also been a change to Indiana Code section 6-1.1-20-3.6(e), the procedure for governments seeking to put a bond issuance before voters in a referendum.45 Beginning May 1, 2011, the DLGF must review and approve the ballot language for it to be placed on the ballot.46 The DLGF must respond to the local government agency within ten days, either approving the language or making changes.47 If the DLGF makes changes, the local government agency must revise and resubmit its ballot language to the DLGF.48 Only upon DLGF approval may it be approved by the county auditor and go on the ballot.49 Through Indiana Code section 6-1.1-22.5-8(e)(1), DLGF has also received new oversight responsibilities over the county auditors’ adjustment authority.50 The DLGF may now authorize the following types of adjustments: 36. IND. CODE § 6-1.1-18.5-14. 37. Id. § 6-1.1-18.5-13.7. 38. Id. § 6-1.1-18.5-13.7(a). 39. Id. §§ 6-1.1-18.5-13.7(b)-(d). 40. Id. § 6-3.5-7-27.5(d). 41. Id. 42. Id. § 6-3.5-7-5(z). 43. Id. § 6-1.1-15-17 (Version a). 44. 2011 Ind. Acts 1969, 2014. 45. IND. CODE § 6-1.1-20-3.6(e). 46. Id. 47. Id. 48. Id. 49. Id. 50. Id. § 6-1.1-22.5-8(e)(1). 1346 INDIANA LAW REVIEW [Vol. 45:1341 (C) adjustments to include current year special assessments or exclude special assessments payable in the year of the assessment date but not payable in the current year; (D) adjustments to include delinquent: (i) taxes; and (ii) special assessments; (E) adjustments to include penalties that are due and owing; and (F) adjustments to include interest that is due and owing.51 The GA now requires DOR to publish a notification informing taxpayers of their obligation to remit use tax on their state income tax returns.52 DOR is also now prohibited from renewing the retail merchant certificate for any entity delinquent on its taxes.53 The GA authorized counties to impose COITs, retroactive to 200954 and changed the filing deadline for such taxes from October 1 to December 1 of the taxable year.55 Counties now also have additional flexibility of when to pass ordinances affecting tax rates, specifically when those ordinances take effect. Previously, an ordinance raising taxes, lowering taxes, or rescinding an ordinance doing either of the first two had to be passed between March 31 and August 1 to be effective that taxable year.56 This restriction has been removed for all three circumstances.57 Additionally, the statutory provisions mandating an effective date of the increase, decrease, or rescission of October 1 of that year has been removed.58 Presumably, since no alternative date was included, an ordinance will become effective immediately upon passage. Motor carrier fuel tax returns now must be filed electronically,59 and DOR can revoke a taxpayer’s license to operate if the taxpayer fails to file the electronic return.60 For a CEDIT, the deadline for a change in the tax to be effective on January 1 of the next calendar year has been extended from July 1 to August 2.61 The deadline for paying DOR’s assessment or filing a written tax protest has been extended from forty-five to sixty days.62 If a tax warrant issued is erroneous, the circuit court clerk is now responsible for expunging the warrant from the 51. Id. 52. Id. § 6-2.5-3-10. 53. Id. § 6-2.5-8-1(g). 54. Id. § 6-3.5-0.8. 55. Id. § 6-3.5-1.1-2(a). 56. 2011 Ind. Acts 699, 703-05 (2011). 57. IND. CODE §§ 6-3.5-1.1-3(a); 6-3.5-1.1-3.1(a); 6-3.5-1.1-4(b). 58. 2011 Ind. Acts 699, 703-05. 59. IND. CODE § 6-6-4.1-10(e)-(f) (Version b). 60. Id. § 6-6-4.1-17(5)-(6) (Version b). 61. Id. § 6-3.5-7-12(c)(1). 62. Id. § 6-8.1-5-1(d). 2012] TAXATION 1347 taxpayer’s record.63 Finally, there have been changes in the jurisdiction and procedure for appeals made to the Tax Court. Under Indiana Code section 6-8.1-8-16, no levy or other court-approved action may be taken by DOR against a taxpayer until after the appeal period has expired or there is a final decision made by the Indiana Tax Court (Tax Court).64 Additionally, the Tax Court loses jurisdiction for an appeal if a taxpayer does not appeal within ninety days of the later of a denial of claim by DOR or a final DOR decision.65 D. Sales and Other Excise Taxes The GA passed Indiana Code chapter 6-2.3-0.1 for the Utility Receipts Tax, making it retroactively effective for taxable years starting after 2002.66 It provides for a short taxable year for some entities for the first year of the tax credit, starting January 1, 2003 and ending at the end of the fiscal year, as registered with the Internal Revenue Service (IRS).67 The $1,000 deduction and resource recovery system depreciation will be prorated retroactively from January 1, 2003 to the end of the entity’s fiscal year.68 Modifying section 6-6-4.1-2, nine- passenger vans are now exempt from the motor carrier fuel tax.69 Also, the additional excise tax for the purchase of a boat has been reduced from 10% to 8.33%, pursuant to new language in section 6-6-11-17(a).70 The GA also took steps to expand the definition of what constitutes a retail transaction subject to sales tax. A vendor selling prepaid phone cards is now considered a retail merchant and thus, must collect and remit sales tax.71 Additionally, the exemption for sales of durable medical equipment has been repealed.72 Finally, the GA amended Indiana Code section 6-2.5-10-10(a)(2) and increased the percentage of sales and other excise taxes going into the state general fund. The percentage of sales tax revenue going into the state general fund has increased from 99.178% to 99.848%,73 and the 0.67% contribution into the state mass transit revenue fund has been eliminated.74 The GA made several changes to the hotel and innkeeper’s taxes as well by amending Indiana Code sections 6-9-7-7(a)(1) and 6-9-10.5-6(b). Normally, 30% of the innkeeper’s tax is allotted to the Department of Natural Resources (DNR) 63. Id. § 6-8.1-8-2(h) (Version a). 64. Id. § 6-8.1-8-16(b). 65. Id. § 6-8.1-9-1(c)(2). 66. Id. § 6-2.3-0.1-1. 67. Id. § 6-2.3-0.1-2(c). 68. Id. § 6-2.3-0.1-2(d). 69. 2011 Ind. Acts 492. 70. IND. CODE § 6-6-11-17(a) (2011). 71. Id. § 6-2.5-4-13. 72. Id. § 6-2.5-5-18(a). 73. 2011 Ind. Acts 3316, 3618. 74. IND. CODE § 6-2.5-10-10(a)(2). 1348 INDIANA LAW REVIEW [Vol. 45:1341 “for the development of projects in the state park on the county's largest river, including its tributaries.”75 However, from July 1, 2015 until June 30, 2017, this 30% is to go in the county’s general fund.76 The maximum hotel tax a county may levy was increased from 3% to 5% as of July 1, 2011.77 If the rate increases during the middle of the year, this increase shall be applied pro rata to the lake fund for the rest of the year;78 in other words, it would not be a retroactive increase in the deposit of funds. Also, any increase in the hotel and innkeeper’s tax must be accompanied by the establishment of a county promotion fund79 and economic development commission.80 The Nashville (Indiana) food and beverage tax was extended ten years, until January 1, 2022.81 Also, the sunset provision for the Allen County Supplemental Food and Beverage Tax was modified. Whereas before it was to terminate two years after the debt incurred was retired, it now terminates on the later of that date or two years after the retirement of the debt by the Capital Improvement Board of Directors.82 Finally, the GA modified section 6-9-39-9 to create a narrow exception for any county that enacted an ordinance authorizing a dog licensing system—but without a county option dog tax—in January 2007.83 The ordinance is retroactively valid.84 E. Income Taxes There have been several significant changes to the calculation of Indiana corporate adjusted gross income (AGI). Many of these changes are due to the implementation of the E-Verify program, in which employers must ensure the workers they hire are legally authorized to work in the United States. Indiana Code chapter 6-3-1 has been amended such that employers who do not participate in E-Verify are prohibited from deducting the reasonable wages of undocumented immigrant employees as a business expense to arrive at AGI.85 Employers are also similarly prohibited from claiming Economic Development for a Growing Economy Tax Credits on the wages of undocumented immigrants, for which the employers would otherwise be eligible, unless they participated in E-Verify.86 An employer who deducted these wages on its federal income tax returns as a 75. Id. § 6-9-7-7(a)(1)(A) (Version b). 76. Id. § 6-9-7-7(a)(1)(B). 77. Id. § 6-9-10.5-6(b). 78. Id. § 6-9-10.5-7(c). 79. Id. § 6-9-10.5-8(a). 80. Id. § 6-9-10.5-9(a)(1). 81. Id. §§ 6-9-24-9(a)-(b). 82. Id. § 6-9-33-3(d). 83. Id. §§ 6-9-39-9(a)-(b). 84. Id. 85. Id. § 6-3-1-3.5(a)(35) (Version b). 86. Id. §§ 6-3.1-13-5(b)(1)-(2). 2012] TAXATION 1349 business expense must add them back for Indiana tax purposes unless the employer participated in E-Verify.87 In addition to these sanctions, the GA also provided an important incentive for businesses; if they willingly participated in E-Verify, the ten-year limit on the above-mentioned tax credits would not apply to their businesses.88 There were also other changes to the calculation of individual AGI. The required addback of IRC § 221, the federal tax deduction for married couples, for taxable years 1986 and prior has been eliminated.89 Interest income under IRC § 128 has been eliminated for taxable years prior to and including 1984 has been eliminated.90 However, out-of-state state or municipal bond income is now added to AGI.91 Eighteen additional addbacks have been added to the AGI calculation92: (35) Add the amount deducted from gross income under Section 198 of the Internal Revenue Code for the expensing of environmental remediation costs. (36) Add the amount excluded from gross income under Section 408(d)(8) of the Internal Revenue Code for a charitable distribution from an individual retirement plan. (37) Add the amount deducted from gross income under Section 222 of the Internal Revenue Code for qualified tuition and related expenses. (38) Add the amount deducted from gross income under Section 62(2)(D) of the Internal Revenue Code for certain expenses of elementary and secondary school teachers. (39) Add the amount excluded from gross income under Section 127 of the Internal Revenue Code as annual employer provided education expenses. (40) Add the amount deducted from gross income under Section 179E of the Internal Revenue Code for any qualified advanced mine safety equipment property. (41) Add the monthly amount excluded from gross income under Section 132(f)(1)(A) and 132(f)(1)(B) that exceeds one hundred dollars ($100) a month for a qualified transportation fringe. (42) Add the amount deducted from gross income under Section 221 of the Internal Revenue Code that exceeds the amount the taxpayer could deduct under Section 221 of the Internal Revenue Code before it was amended by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312). (43) Add the amount necessary to make the adjusted gross income of any 87. Id. § 6-5.5-1-2(a)(2)(H) (Version b). 88. Id. § 6-3.1-13-18(c). 89. Id. § 6-3-1-3.5(a)(10) (Version a). 90. Compare id. § 6-3-1-3.5(a)(11) (Version c), with id. § 6-3-1-3.5(a)(10) (Versions a & b). 91. Compare id. § 6-5.5-1-2(c) (Version c), with id. § 6-5.5-1-2(c) (Version a & b). 92. Unless explicitly stated otherwise, “section” in this list refers to the Internal Revenue Code section, and “P.L.” refers to the federal Public Law number, not Indiana. 1350 INDIANA LAW REVIEW [Vol. 45:1341 taxpayer that placed any qualified leasehold improvement property in service during the taxable year and that was classified as 15-year property under Section 168(e)(3)(E)(iv) of the Internal Revenue Code equal to the amount of adjusted gross income that would have been computed had the classification not applied to the property in the year that it was placed into service. (44) Add the amount necessary to make the adjusted gross income of any taxpayer that placed a motorsports entertainment complex in service during the taxable year and that was classified as 7-year property under Section 168(e)(3)(C)(ii) of the Internal Revenue Code equal to the amount of adjusted gross income that would have been computed had the classification not applied to the property in the year that it was placed into service. (45) Add the amount deducted under Section 195 of the Internal Revenue Code for start-up expenditures that exceeds the amount the taxpayer could deduct under Section 195 of the Internal Revenue Code before it was amended by the Small Business Jobs Act of 2010 (P.L. 111-240). (46) Add the amount necessary to make the adjusted gross income of any taxpayer for which tax was not imposed on the net recognized built-in gain of an S corporation under Section 1374(d)(7) of the Internal Revenue Code as amended by the Small Business Jobs Act of 2010 (P.L. 111-240) equal to the amount of adjusted gross income that would have been computed before Section 1374(d)(7) of the Internal Revenue Code as amended by the Small Business Jobs Act of 2010 (P.L. 111-240).93 (R) Add the amount necessary to make the adjusted gross income of any taxpayer that placed any qualified leasehold improvement property in service during the taxable year and that was classified as 15-year property under Section 168(e)(3)(E)(iv) of the Internal Revenue Code equal to the amount of adjusted gross income that would have been computed had the classification not applied to the property in the year that it was placed into service. (S) Add the amount deducted from gross income under Section 198 of the Internal Revenue Code for the expensing of environmental remediation costs. (T) Add the amount deducted from gross income under Section 179E of the Internal Revenue Code for any qualified advanced mine safety equipment property. (U) Add the amount necessary to make the adjusted gross income of any taxpayer that placed a motorsports entertainment complex in service during the taxable year and that was classified as 7-year property under Section 168(e)(3)(C)(ii) of the Internal Revenue Code equal to the amount of adjusted gross income that would have been computed had the classification not applied to the property in the year that it was placed 93. IND. CODE §§ 6-3-1-3.5(a)(35)-(46) (Version a). 2012] TAXATION 1351 into service. (V) Add the amount deducted under Section 195 of the Internal Revenue Code for start-up expenditures that exceeds the amount the taxpayer could deduct under Section 195 of the Internal Revenue Code before it was amended by the Small Business Jobs Act of 2010 (P.L. 111-240). (W) Add the amount necessary to make the adjusted gross income of any taxpayer for which tax was not imposed on the net recognized built-in gain of an S corporation under Section 1374(d)(7) of the Internal Revenue Code as amended by the Small Business Jobs Act of 2010 (P.L. 111-240) equal to the amount of adjusted gross income that would have been computed before Section 1374(d)(7) of the Internal Revenue Code as amended by the Small Business Jobs Act of 2010 (P.L. 111-240).94 There were also five new addback provisions in computing taxable income. As with computing AGI, these changes are made retroactive to January 1, 2011: (19) Add the amount deducted from gross income under Section 198 of the Internal Revenue Code for the expensing of environmental remediation costs. (20) Add the amount deducted from gross income under Section 179E of the Internal Revenue Code for any qualified advanced mine safety equipment property. (21) Add the amount necessary to make the adjusted gross income of any taxpayer that placed any qualified leasehold improvement property in service during the taxable year and that was classified as 15-year property under Section 168(e)(3)(E)(iv) of the Internal Revenue Code equal to the amount of adjusted gross income that would have been computed had the classification not applied to the property in the year that it was placed into service. (22) Add the amount necessary to make the adjusted gross income of any taxpayer that placed a motorsports entertainment complex in service during the taxable year and that was classified as 7-year property under Section 168(e)(3)(C)(ii) of the Internal Revenue Code equal to the amount of adjusted gross income that would have been computed had the classification not applied to the property in the year that it was placed into service. (23) Add the amount deducted under Section 195 of the Internal Revenue Code for start-up expenditures that exceeds the amount the taxpayer could deduct under Section 195 of the Internal Revenue Code before it was amended by the Small Business Jobs Act of 2010 (P.L. 111-240).95 For life insurance companies, there are five new addbacks in computing AGI: (18) Add the amount necessary to make the adjusted gross income of any taxpayer that placed any qualified leasehold improvement property in 94. Id. §§ 6-5.5-1-2(c)(1)(R)-(W) (Version a). 95. Id. §§ 6-3-1-3.5(b)(19)-(23) (Versions a & c). 1352 INDIANA LAW REVIEW [Vol. 45:1341 service during the taxable year and that was classified as 15-year property under Section 168(e)(3)(E)(iv) of the Internal Revenue Code equal to the amount of adjusted gross income that would have been computed had the classification not applied to the property in the year that it was placed into service. (19) Add the amount necessary to make the adjusted gross income of any taxpayer that placed a motorsports entertainment complex in service during the taxable year and that was classified as 7-year property under Section 168(e)(3)(C)(ii) of the Internal Revenue Code equal to the amount of adjusted gross income that would have been computed had the classification not applied to the property in the year that it was placed into service. (20) Add the amount deducted under Section 195 of the Internal Revenue Code for start-up expenditures that exceeds the amount the taxpayer could deduct under Section 195 of the Internal Revenue Code before it was amended by the Small Business Jobs Act of 2010 (P.L. 111-240). (21) Add the amount deducted from gross income under Section 198 of the Internal Revenue Code for the expensing of environmental remediation costs. (22) Add the amount deducted from gross income under Section 179E of the Internal Revenue Code for any qualified advanced mine safety equipment property.96 Finally, six new addbacks were added to compute AGI for trusts and estates: (16) Add the amount necessary to make the adjusted gross income of any taxpayer that placed any qualified leasehold improvement property in service during the taxable year and that was classified as 15-year property under Section 168(e)(3)(E)(iv) of the Internal Revenue Code equal to the amount of adjusted gross income that would have been computed had the classification not applied to the property in the year that it was placed into service. (17) Add the amount necessary to make the adjusted gross income of any taxpayer that placed a motorsports entertainment complex in service during the taxable year and that was classified as 7-year property under Section 168(e)(3)(C)(ii) of the Internal Revenue Code equal to the amount of adjusted gross income that would have been computed had the classification not applied to the property in the year that it was placed into service. (18) Add the amount deducted under Section 195 of the Internal Revenue Code for start-up expenditures that exceeds the amount the taxpayer could deduct under Section 195 of the Internal Revenue Code before it was amended by the Small Business Jobs Act of 2010 (P.L. 111-240). (19) Add the amount deducted from gross income under Section 198 of the Internal Revenue Code for the expensing of environmental 96. Id. §§ 6-3-1-3.5(c)(18)-(22) (Versions a & c). 2012] TAXATION 1353 remediation costs. (20) Add the amount deducted from gross income under Section 179E of the Internal Revenue Code for any qualified advanced mine safety equipment property. (21) Add the amount necessary to make the adjusted gross income of any taxpayer for which tax was not imposed on the net recognized built-in gain of an S corporation under Section 1374(d)(7) of the Internal Revenue Code as amended by the Small Business Jobs Act of 2010 (P.L. 111-240) equal to the amount of adjusted gross income that would have been computed before Section 1374(d)(7) of the Internal Revenue Code as amended by the Small Business Jobs Act of 2010 (P.L. 111-240).97 While the above addbacks were, in many cases, attempts by the GA to keep Indiana in compliance with changes to the Internal Revenue Code, the GA did make several exceptions to 2010 changes to the Code: (d) The following provisions of the Internal Revenue Code that were amended by the Tax Relief Act, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312) are treated as though they were not amended by the Tax Relief Act, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312): (1) Section 1367(a)(2) of the Internal Revenue Code pertaining to an adjustment of basis of the stock of shareholders. (2) Section 871(k)(1)(c) and 871(k)(2)(C) of the Internal Revenue Code pertaining the treatment of certain dividends of regulated investment companies. (3) Section 897(h)(4)(A)(ii) of the Internal Revenue Code pertaining to regulated investment companies qualified entity treatment. (4) Section 512(b)(13)(E)(iv) of the Internal Revenue Code pertaining to the modification of tax treatment of certain payments to controlling exempt organizations. (5) Section 613A(c)(6)(H)(ii) of the Internal Revenue Code pertaining to the limitations on percentage depletion in the case of oil and gas wells. (6) Section 451(i)(3) of the Internal Revenue Code pertaining to special rule for sales or dispositions to implement Federal Energy Regulatory Commission or state electric restructuring policy for qualified electric utilities. (7) Section 954(c)(6) of the Internal Revenue Code pertaining to the look-through treatment of payments between related controlled foreign corporation under foreign personal holding company rules.98 97. Id. §§ 6-3-1-3.5(e)(16)-(21) (Versions a & c). 98. Id. §§ 6-3-1-11(d)(1)-(7). 1354 INDIANA LAW REVIEW [Vol. 45:1341 Despite the property tax caps being implemented—and the uncertainty of how the caps will affect county, township, and municipality revenues—the GA also passed a gradual reduction in the Indiana corporate income tax through an amendment to Indiana Code section 6-3-2-1(b). Starting July 1, 2012, the income tax will be reduced by 0.5% annually until it reaches 6.5% on July 1, 2015.99 However, with this reduction comes an expansion of the scope of AGI through several amendments to Indiana code chapter 6-3-2. Intangible personal property that can be sourced or apportioned to Indiana is now included in AGI,100 and the net operating loss carryback for both individuals101 and corporations102 has been eliminated, effective January 1, 2012. Also, employers are no longer exempt from withholding taxes from employees simply because the employee qualifies for the Earned Income Tax Credit.103 In addition to these state-level changes, there have been several changes to the county income and COITs via amendments to Code chapter 6-3.5-6. The county option income tax a county may impose is now capped at 1% per annum, up from 0.6%.104 However, this must be increased by increments of no more than 0.1% annually.105 Additionally, if both a CAGIT and COIT are in effect by ordinance, the COIT will take effect and the CAGIT will not.106 Counties also have the option to permanently freeze their COIT rates as of December 1 of a particular tax year.107 If a county chooses not to freeze its COIT rate, it will automatically increase by 0.1% annually until it reaches 1%.108 The legislature greatly modified Code article 6-3.1. An eight-year moratorium has also been placed on the tax credits for teachers’ summer employment.109 Also, the tax credit for operating a maternity home was altered under Code chapter 6-3.1-9. It may not be awarded for a period beginning on January 1, 2012 and ending December 31, 2019,110 but a taxpayer may carry forward any awarded but unclaimed credits and use them in the 2014 and 2015 tax years.111 Eligibility for the Indiana Earned Income Tax Credit (EITC) is based on eligibility for the federal EITC before the passage of the federal Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which 99. Id. §§ 6-3-2-1(b)(1)-(5). 100. Id. § 6-3-2-2(a)(5). 101. Id. §§ 6-3-2-2.5(b), (f). 102. Id. §§ 6-3-2-2.6(b), (f). 103. 2011 Ind. Acts 1969, 2092-2096. 104. IND. CODE § 6-3.5-6-9(a) (2011). 105. Id. 106. Id. § 6-3.5-6-10. 107. Id. § 6-3.5-6-11(b). 108. Id. § 6-3.5-6-11(e). 109. Id. § 6-3.1-2-8. 110. Id. §§ 6-3.1-14 to -10. 111. Id. § 6-3.1-14-9. 2012] TAXATION 1355 altered the eligibility for the federal EITC.112 There have been several other important changes to the law surrounding tax credits as well. The cap on funds for the venture capital investment tax credit has increased from the lesser of 20% of all qualifying venture capital or $500,000, to the lesser of 20% of all qualifying venture capital or $1,000,000.113 The tax credits are also extended for an additional two years, through the end of the 2014 taxable year.114 Funds for the school scholarship tax credit have similarly been doubled to $5,000,000.115 On the other hand, the GA imposed an eight-year moratorium on employers receiving new tax credits for their employee health benefit plans.116 It also imposes a moratorium for 2012 on awarded but unclaimed credits; these must be carried forward to tax years between 2013 and 2016.117 Similarly, an eight-year moratorium has been imposed on the Small Employer Qualified Wellness Program Tax Credit.118 The GA added new sections to Code chapter 6-3.5-9. Among them, it created a new hiring incentive, in which qualifying entities can receive a credit on their COIT or LOIT.119 This incentive may last for up to ten years120 and applies only to jobs either newly created or relocated from outside Indiana.121 An annual compliance report must be submitted to the IEDC for a taxpayer to continue receiving the tax incentive.122 The amount allowed to be withheld may be stated as either a percentage of the payroll taxes withheld or as a fixed dollar amount, but it may not exceed the total amount of payroll taxes withheld on behalf of employees.123 For the EDIT, counties now have additional flexibility in how they spend revenue generated from the tax as a result of modifications to Indiana Code chapter 6-3.5-7. At any time, the counties may transfer money from the economic development fund to the county general fund or the fund of any county, township, or municipality in the county.124 However, there is an additional requirement: if the revenues collected exceed 150% of projected revenues, and there are no mandatory distributions to a rainy day fund, the county must distribute the funds exceeding 150%.125 All counties and municipalities that have already imposed an economic development income tax may impose an additional 112. Id. § 6-3.1-21-6(a). 113. Id. §§ 6-3.1-24-8(b)-(c). 114. Id. § 6-3.1-24-9(b). 115. Id. § 6-3.1-30.5-13. 116. Id. §§ 6-3.1-31-14(a) to -15. 117. Id. 118. Id. §§ 6-3.1-31.2-11 to -12. 119. Id. § 6-3.5-9-1. 120. Id. § 6-3.5-9-13(a). 121. Id. § 6-3.5-9-12. 122. Id. § 6-3.5-9-17(a). 123. Id. §§ 6-3.5-9-13(b)-(c). 124. Id. § 6-3.5-7-12.7. 125. Id. § 6-3.5-7-17.3(a). 1356 INDIANA LAW REVIEW [Vol. 45:1341 tax of 0.05%.126 However, if “a county or municipality that becomes a member of a development authority after June 30, 2011, and before July 1, 2013,”127 it may only impose a tax of 0.025%.128 The legislature expanded the scope of its cigarette and tobacco taxes through amendments to Code chapter 6-7-2. Moist snuff is now included under the scope of cigarette and tobacco taxes,129 but it will be taxed by weight, rather than by a percentage of the sale price.130 For cigarette taxes in general, there is a two-year moratorium on distributions to the state retiree health benefit fund due to changes to Indiana Code subsection 6-7-1-28.1.131 Instead, that revenue will go into the state’s general fund. F. Inheritance Taxes The most significant change in Indiana inheritance tax law is a modification to Indiana Code section 6-4-1-3. This provision relating to stepchildren is now made retroactively valid for the estate of any decedent who died after June 30, 2004.132 A stepchild of a decedent is now classified as a Class A beneficiary, regardless of whether the decedent legally adopted the stepchild before his or her death.133 There are also additional clarifications on the effective dates of previous statutory modifications.134 II. INDIANA TAX COURT DECISIONS The Tax Court rendered a variety of opinions from January 1, 2011 to December 31, 2011. Specifically, the Tax Court issued sixteen published opinions and decisions: five concerned the Indiana real property tax, two concerned the Indiana inheritance tax, two concerned the Indiana sales and use tax, one concerned the Indiana personal property tax, three concerned the Indiana personal income tax, and three concerned the Indiana corporate income tax. A summary of each opinion and decision appears below. A. Real Property Tax 1. Truedell-Bell v. Marion County Treasurer.135—Brenda Truedell-Bell owned real property in Marion County.136 Truedell-Bell filed four petitions with 126. Id. § 6-3.5-7-28(b)(2) (Version b). 127. Id. § 36-7.6-4-2(b)(2). 128. Id. § 6-3.5-7-28(b)(1) (Version b). 129. Id. § 6-7-2-5(a)(2) (Version b). 130. Id. § 6-7-2-7(a)(2) (Version b). 131. Id. §§ 6-7-1-28.1(3), (7). 132. Id. § 6-4.1-1-3(a)(3). 133. Id. 134. 2011 Ind. Acts 3316, 3735-53. 135. 955 N.E.2d 872 (Ind. T.C. 2011). 136. Id. at 873. 2012] TAXATION 1357 the Marion County Assessor which challenged her real property assessment for 2007.137 The Marion County PTABOA never scheduled a hearing on her appeal, and Truedell-Bell did not pay the tax liability to keep the property out of the tax sale while her appeals were pending.138 Because Truedell-Bell did not pay the taxes, the Marion County Treasurer and Auditor listed the property in the 2009 tax sale for delinquent taxes.139 On March 8, 2010, Truedell-Bell filed a petition for an injunction to prevent her property from being sold prior to the resolution of her appeals.140 The Circuit Court conducted a hearing and “denied Truedell- Bell’s petition on the basis that it did not have subject matter jurisdiction.”141 Truedell-Bell appealed to the Court of Appeals, which affirmed the Circuit Court’s denial of her petition.142 The Court of Appeals explained that the Tax Court possessed “exclusive jurisdiction to grant the type of relief [Truedell-Bell] sought.”143 Truedell-Bell filed her petition with the Tax Court, stated that her property had been sold in the Marion County tax sale, and asked “the Court to enjoin the issuance of the tax deed on the property pending the PTABOA’s determination an her appeal.”144 Indiana Code section 33-26-3-1 provides that “[t]he [T]ax [C]ourt has exclusive jurisdiction over any case that arises under the tax laws of Indiana and that is an initial appeal of a final determination made by” either the Department or the IBTR.145 Truedell-Bell argued that the Tax Court had jurisdiction because the Indiana Court of Appeals had explicitly made this determination,146 but the Tax Court disagreed. The Court of Appeals stated that the “petition for injunctive relief met the first of the Tax Court’s jurisdictional requirements,” that is, the issue arises under Indiana’s tax laws.147 The Court of Appeals, however, stated that a final determination from the IBTR was required before the Tax Court had jurisdiction.148 The legislature has provided that if the PTABOA fails to timely conduct a hearing, the taxpayer may “bypass the PTABOA and go directly to the [IBTR] for resolution.”149 Because the statute uses “may” instead of “shall,”150 Truedell-Bell argued she was not required to remove her case to the IBTR. However, a taxpayer “cannot circumvent the IBTR final determination 137. Id. 138. Id. 139. Id. 140. Id. 141. Id. 142. Id. 143. Id. 144. Id. at 874. 145. IND. CODE § 33-26-3-1 (2011). 146. Truedell-Bell, 955 N.E.2d at 874. 147. Id. 148. Id. 149. Id. at 875 (citing IND. CODE § 6-1.1-15-1(o) (2008)). 150. Id. 1358 INDIANA LAW REVIEW [Vol. 45:1341 requirement that is a basis for [the Tax] Court’s exclusive jurisdiction.”151 The Tax Court held that the Indiana statute did, in fact, mandate that Truedell-Bell obtain a final determination from the [IBTR] before she appealed to the Tax Court.152 Thus, the Tax Court ruled that it lacked subject matter jurisdiction to hear the case.153 2. Grant County Assessor v. Kerasotes Showplace Theatres, LLC.154— Kerasotes Showplace 12 (“Kerasotes”) owned real property in Grant County consisting of a twelve-screen multiplex movie theater situated on seven acres of land.155 Kerasotes built the facility in 2000 at a cost of $6,487,110.156 In 2005, it sold the property in a portfolio transaction for $7,821,835.157 In 2006, the Assessor assigned the property an assessed value of $6,137,800.158 Kerasotes appealed to the Grant County PTABOA, alleging that the assessed value was too high.159 The PTABOA, however, further increased the assessment to $7,821,000160 causing Kerasotes to file an appeal with the IBTR.161 On appeal, the IBTR conducted an administrative hearing, and Kerasotes and the Assessor each presented appraisals162 which consisted of significantly discrepant values.163 Each appraisal arrived at substantially different values. The cause of the variation was attributed to “how much their appraisers relied on the subject property’s allocated sales price and contract rent in their income approach analyses.”164 According to Kerasotes’ appraisal, the property had a “market value-in-use” of $4,200,000 and accorded little weight to the “property’s allocated sale’s price and contractment.”165 The Assessor’s appraisal, which was reliant on the “property’s allocated sales price and contractual rent,” estimated the market value-in-use of the subject property at $7,450,000.166 The IBTR issued its final determination and stated “that based on what the evidence did, and did not, show, it could not conclude that the subject property’s allocated sales price [or] contract rent reflected the value of the subject’s real property alone.”167 The IBTR concluded that the Kerasotes’ appraisal was more probative as to the 151. Id. 152. Id. at 876. 153. Id. 154. 955 N.E.2d 876 (Ind. T.C. 2011). 155. Id. 156. Id. 157. Id. 158. Id. 159. Id. 160. Id. 161. Id. 162. Id. 163. Id. at 878. 164. Id. 165. Id. 166. Id. 167. Id. at 880. 2012] TAXATION 1359 subject property’s market value-in-use than the Assessor’s appraisal”168 and thus reduced the 2006 assessment to $4,200,000.169 The Assessor subsequently initiated a tax appeal with the Tax Court.170 On appeal, the Assessor argued that the IBTR failed to value the property in accordance with Indiana’s statutory mandate, Kerasotes’ appraisal “ignored the data representing the ‘realities’ of the movie-theater industry . . . [and] failed to consider and value the actual utility gained from the use of the subject property.”171 The Tax Court disagreed with the Assessor and stated that the issue presented to the IBTR was whether the “property should be valued according to the terms of its lease . . . or according to what other similar properties would garner in rent.”172 Furthermore, the IBTR “explained that one should approach the rental data from such transactions with caution, taking care to ascertain whether the sales prices/contract rents reflect real property value alone or whether they include the value of certain other economic interests.”173 The Tax Court agreed with the IBTR that by using the income approach Kerasotes’ appraiser exercised caution, unlike the Assessor’s appraiser.174 Additionally, the Assessor assumed that “sale was an arm’s length transaction,” but this conclusion was not supported by any facts.175 The IBTR is responsible for deciding which of the appraiser’s values “is more probative.”176 Here, the IBTR concluded that Kerasotes’ appraisal was more probative.177 The Assessor’s claim on appeal hinged on the Tax Court reweighing the evidence, which the court refused to do.178 The Tax Court upheld the IBTR determination.179 3. Idris v. Marion County Assessor.180—After the IBTR upheld the Jaklin Idris and assessment of Dariana Kamenova’s (collectively “Idris”) real property, they initiated an appeal of the final determination in the office of the Clerk of the Tax Court.181 The Marion County Assessor moved to dismiss Idris’ appeal claiming that IC 33-26-6-2 and 6-1.1-15-5(b) and Tax Court Rule 16(C) bar the appeal.182 Indiana Code section 33-26-6-2 requires a taxpayer to file a petition asking 168. Id. 169. Id. at 880-81. 170. Id. at 880. 171. Id. 172. Id. at 881. 173. Id. at 882. 174. Id. 175. Id. 176. Id. at 882-83. 177. Id. at 882. 178. Id. at 883. 179. Id. 180. 956 N.E.2d 783 (Ind. T.C. 2011). 181. Id. at 784. 182. Id. 1360 INDIANA LAW REVIEW [Vol. 45:1341 the Tax Court to set aside the final determination of the IBTR.183 According to the statute, “If a taxpayer fails to comply with any statutory requirement for the imitation of an original tax appeal, the tax court does not have jurisdiction to hear the appeal.”184 Furthermore, Indiana Code section 6-1.1-15-5(b) specifies that a “party must: (1) file a petition with the Indiana tax court; (2) serve a copy of the petition on (A) the county assessor; (B) attorney general; and (C) any entity that filed an amicus curiae brief with the [IBTR]; and (3) file a written notice of appeal with the [IBTR] informing the [IBTR] of the party’s intent to obtain judicial review.”185 Although the above statutes do not say how a party must serve the petition, Indiana Tax Court Rule 16 specifies the manner of service required. Tax Court Rule 16 states that “[a] copy of the notice of claim shall be served upon the Attorney General by registered or certified mail, return receipt requested.”186 The Marion County Assessor argued that Idris failed to comply with the statutory requirements because “the Clerk served a copy of the Petition on the Attorney General when Idris was required to do so.”187 In response, Idris maintained that she left four copies of the Petition, IBTR final determination, letter from the Assessor, and other relevant documents with the Clerk’s office.188 Idris argued that the Clerk’s office that it would distribute the documents, and the Clerk mailed a copy of the Petition to the Attorney General on the same day.189 The Tax Court held that Idris compiled with the requirements of IC 6-1.1-15-5.190 Although the statute does not specify how a party is to serve the Attorney General, the Court concluded that “the statute’s silence as to the method of service indicates its concern is not how service is accomplished, but rather that it is made.”191 Furthermore, the Tax Court held that dismissal is not appropriate under Tax Court Rule 16 because “[t]he purpose of [the] Rule is to ensure that there is evidence of both service and receipt. This evidence is present here in both the Transmittal Letter and the Assessor’s own acknowledgement.”192 Therefore, Idris’ method of service was within the purpose of the rule, and the Assessor’s motion to dismiss was denied.193 4. Fuller v. Cass County Assessor.194—Maurice and Craig Fuller (the “Fullers”) owned real property in Cass County, Indiana.195 The Fullers 2008 183. IND. CODE § 33-26-6-2(1) (2011). 184. Id. 185. Id. § 6-1.1-15-5(b). 186. Ind. T.C. R. 16(C) (2011). 187. Idris v. Marion Cnty. Assessor, 956 N.E.2d 783, 785-86 (Ind. T.C. 2011). 188. Id. at 786. 189. Id. 190. Id. 191. Id. (citing Whetzel v. Dep’t of Local Gov’t Fin., 761 N.E.2d 904, 908 (Ind. T.C. 2002)). 192. Id. at 787. 193. Id. 194. No. 49T10-1011-TA-68, 2011 WL 5431823 (Ind. T.C. Nov. 9, 2011). 195. Id. at *1. 2012] TAXATION 1361 property tax bill was higher than any of the prior property owner’s was required to pay.196 The Cass County Assessor valued the Fullers’ property at $101,800.197 The Fullers claimed tax liability was too high because the homestead credit, homestead standard deduction, and mortgage deduction were not applied.198 Although the Fullers attempted to have them reinstated, the Auditor’s office informed them that they had missed the application deadline.199 The Fullers filed an appeal with the Cass County PTABOA, seeking a review of both the assessment and their eligibility for the credits and deductions.200 The PTABOA reduced the assessment to $79,100 but failed to address the Fullers’ claims concerning credits and deductions.201 The Fullers timely filed an appeal with the IBTR, seeking a determination regarding the credits and deductions.202 In its final determination, the IBTR concluded that the Fullers “failed to establish that [they] met the statutory requirements for the credits and deductions.”203 The Fullers then filed an original tax appeal.204 On appeal, the Fullers argued that it was inequitable to require them to pay higher taxes because they had purchased the home “after the statutorily imposed deadlines” for the credits and deduction had passed.205 In order to prove that they qualified for the homestead credit and the homestead standard deduction, the Fullers were required to establish ownership of the property on the assessment date.206 The Tax Court held that the Fullers failed to establish that they were entitled to the credit or the deductions.207 Furthermore, to be eligible for the mortgage deduction, the Fullers had to have a mortgage and “file the requisite application for the deduction on or before October 15, 2007.”208 Although the certified administrative record indicates that the Fullers had a mortgage, they could not comply with the application deadline because the deadline had lapsed before the Fullers even purchased the home.209 Therefore, the Tax Court affirmed the IBTR’s final determination that the Fullers “did not establish that [they were] entitled to the homestead credit, the homestead standard deduction, or the mortgage deduction.”210 Furthermore, the Fullers argued that the invested a “great deal of time, effort, 196. Id. 197. Id. 198. Id. 199. Id. 200. Id. 201. Id. 202. Id. at *2. 203. Id. 204. Id. 205. Id. 206. Id. at *3. 207. Id. 208. Id. 209. Id. 210. Id. 1362 INDIANA LAW REVIEW [Vol. 45:1341 and money” in representing themselves, and they were thus entitled to the same compensation an attorney would have received.211 The Tax Court held that, “in the absence of a statute [or] rule . . . providing otherwise, litigants must pay their own fees and costs.”212 Therefore, the Fullers’ claim for fees and costs was denied.213 5. Metropolitan School District of Pike Township v. Department of Local Government Finance.214—The Metropolitan School District of Pike Township (“the School District”), a public school corporation in Marion County, adopted its annual budget for 2011, in which it “estimated the property tax rate necessary to generate its [capital projects fund (CPF)] levy.”215 The School District submitted its proposed budget to the DLGF for approval.216 The DLGF made a decision to reduce, and subsequently certified it as a final order, the School District’s “estimated CPF levy property tax rate” according to IC 6-1.1-18-12.217 In March 2011, the School District appealed to the Tax Court.218 By statute, public schools’ CPF levy rates are “capped at $0.4167 per each $100 of assessed valuation within the taxing district.”219 The legislature codified a formula for the DLGF to use in determining the annual adjustments of assessed values. IC 6-1.1-18-12(e) provides: STEP ONE: Determine the maximum rate for the political subdivision levying a property tax . . . under the statute for the year preceding the year in which the annual adjustment or general reassessment takes effect. STEP TWO: . . . [D]etermine the actual percentage (rounded to the nearest one-hundredth percent (0.01%)) in the assessed value . . . of the taxable property from the year preceding the year the annual adjustment or general reassessment takes effect to the year that the annual adjustment or general reassessment takes effect. STEP THREE: Determine the three (3) calendar years that immediately precede the ensuing calendar year and in which a statewide general reassessment of real property does not first take effect. STEP FOUR: . . . [C]ompute separately, for each of the calendar years determined in STEP THREE, the actual percentage change . . . in the assessed value . . . of the taxable property from the preceding year. STEP FIVE: Divide the sum of the three (3) quotients computed in STEP FOUR by three (3). STEP SIX: Determine the greater of the following: 211. Id. 212. Id. 213. Id. at *4. 214. 962 N.E.2d 705 (Ind. T.C. 2011). 215. Id. at 706. 216. Id. at 705. 217. Id. 218. Id. 219. Id. (citing IND. CODE § 20-46-6-5 (2010)). 2012] TAXATION 1363 (A) Zero (0). (B) The result of the STEP TWO percentage minus the STEP FIVE percentage. STEP SEVEN: Determine the quotient of the STEP ONE tax rate divided by the sum of one (1) plus the step six percentage increase.220 The Tax Court determined “that steps two and four . . . require the use of a zero value when there is no increase in a school district’s assessed value from one year to the next.”221 The DLGF used zeros in Steps Two and Four of the formula when it calculated the 2011 CPF levy property tax rate.222 The School District argued that because a CPF levy property tax rate calculation . . . is necessarily affected by previous years’ rate calculations, the DLGF should have accounted for its [improper] use of negative numbers in [steps two and four of] its calculations for 2007-2010 by re-running those calculations. . . . This w[ould have] . . . produce[d] a rate of .3100 for Step 1 for 2011.223 The DLGF countered that because the School District only protested the 2011 budget, it would have been “improper to go back and recalculate step seven rates for prior ‘closed’ years.”224 Further, the DLGF argued that the School District’s appeal asked the court to “determine the accuracy of [its] CPF tax rate calculations” for 2007-2010.225 Because the School District never protested the rate calculations for earlier years, the DLGF never made any final determinations regarding the accuracy of the calculations.226 Accordingly, the DLGF argued that the tax court lacked subject matter jurisdiction and did not possess the authority to modify DLGF valuations and did not have discretion to “order the DLGF to provide the retroactive cumulative relief” the School District sought.227 The DLGF argued that the School District sought retroactive application of DeKalb’s zero value formula for years that were not in dispute.228 The Tax Court disagreed.229 The Tax Court held that “when the 2010 DeKalb decision explained why steps two and four of the formula . . . required zero values as opposed to negative values, that meant that the DLGF should have been using those zero values since 220. IND. CODE § 6-1.1-18-12(e) (2011). 221. Metro Sch. Dist. of Pike Twp., 962 N.E.2d at 706-07 (citing DeKalb Cnty. E. Cmty. Sch. Dist. v. Dep’t of Local Gov’t Fin., 930 N.E.2d 1257, 1260-62 (Ind. T.C. 2010)). 222. Id. at 707. 223. Id. at 707-08 (alterations in original). 224. Id. at 708. 225. Id. (internal citation omitted). 226. Id. 227. Id. 228. Id. 229. Id. 1364 INDIANA LAW REVIEW [Vol. 45:1341 2007 when Indiana Code § 6-1.1-18-12(e) first became applicable to public school corporations.”230 The Tax Court added that DLGF’s argument did not comport with “the plain and ordinary meaning of the statute” and would produce an absurd result.231 Relying on a logical interpretation, the Tax Court determined that any errors in previous CPF levy property calculations “should not be allowed to corrupt [the] accuracy of current and future years’ calculations.”232 The Tax Court held that “the DLGF’s use of negative numbers in steps two and four . . . to produce a CPF levy property tax rate calculation for 2011 [was] wrong” because it should have, instead, used zeros according to the statutory requirements.233 B. Inheritance Tax 1. Indiana Department of State Revenue v. Estate of Biddle.234—In March 2005, Deloras Biddle died intestate, survived by her son and sole heir, Curtis Biddle, who was appointed the personal representative of her estate (the “Estate”).235 The Estate “filed an inventory, a final accounting, and a verified closing statement”236 but because the sole heir “received a distribution that was less than [the] statutory exemption,”237 the Estate did not file an inheritance tax return. After the probate court approved the closing statement in April 2006, it released Curtis Biddle from his personal representative responsibilities.238 In 2008, the Department discovered that the insurance company paid death claim proceeds from Deloras’ annuity contract to her brother, Richard Fine.239 The Department stated that the “annuity proceeds paid to Fine were subject to Indiana’s inheritance tax.”240 Thus, the Department argued that the Estate was “required to file an inheritance tax return” because the payments were life insurance proceeds—not annuity payments.241 The probate court ruled that the statute did not require Richard Fine or the Estate’s Personal Representative to file an Indiana Inheritance Tax Return.242 When the probate court denied the Department’s motion to correct the error, the Department filed an appeal with the Tax Court.243 230. Id. 231. Id. 232. Id. at 709 (citing IND. CODE 6-1.1-18-12(e) (2008)). 233. Id. 234. 943 N.E.2d 932 (Ind. T.C. 2011). 235. Id. 236. Id. 237. Id. 238. Id. 239. Id. at 932-33. 240. Id. at 933. 241. Id. at 934. 242. Id. at 933. 243. Id. 2012] TAXATION 1365 Indiana law provides “[a]n inheritance tax is imposed at the time of the decedent’s death on certain property interest transfers made by him.”244 Not all property transfers are subject to the inheritance tax, such as life insurance proceeds and annuity payments.245 Annuity payments are exempt “only ‘to the same extent that the annuity . . . is excluded from the decedent’s federal gross estate under [IRC §] 2039.’”246 Therefore, the annuity payment is subject to Indiana’s inheritance tax if: (1) the annuity contract was entered into after March 3, 1931; and (2) the annuity was payable to the decedent, or the decedent possessed the right to receive the payment either for his life, for any period not ascertainable without reference to his death, or for any period which does not in fact end before his death.247 The Tax Court held that “[t]he probate court erred when it determined that the Estate was not required to file an inheritance tax return because the Metlife payments were life insurance proceeds and therefore not subject to Indiana’s inheritance tax.”248 2. Estate Neterer v. Indiana Department of State Revenue.249—Christine Neterer (“Neterer”) died testate in September 2006.250 When she died, Neterer owned an undivided one-half interest in real property in Elkhart County (the “Subject Property”) as a tenant in common with her sister.251 A month after Neterer’s death “an unsupervised estate was opened, Neterer’s will was admitted to probate, and her nieces, Deborah Pollock and Marilyn Humbarger, were appointed as co-personal representatives.”252 A year later, Pollock filed the Estate’s Inheritance Tax Return, which included an appraisal estimating the fair market value of the property to be $855,250, “and a document titled ‘Valuation of Decedent’s Interest in Real Estate’” with the probate court, which “stated that it was necessary to reduce the subject property’s appraised value by one-half, and then apply an aggregated discount of 30 percent (30%) to account for both a lack of marketability and a lack of control.”253 Therefore, the fair market value of the subject property was only $300,000.254 In her Report of Appraiser, the County Assessor stated that “the return ‘correctly’ valued the subject property.”255 Pollock subsequently submitted an amended return, and the Assessor accepted all 244. Id. at 933-34 (alteration in original) (quoting IND. CODE § 6-4.1-2-1 (2011)). 245. Id. at 934. 246. Id. (quoting IND. CODE § 6-4.1-3-6.5 (2005)). 247. Id. (citing IRC § 2039 (2005)). 248. Id. at 934-35. 249. 956 N.E.2d 1214 (Ind. T.C. 2011). 250. Id. at 1215. 251. Id. 252. Id. 253. Id. 254. Id. at 1215-16. 255. Id. at 1216. 1366 INDIANA LAW REVIEW [Vol. 45:1341 of the valuations reported therein.256 Based on these accepted valuations, the probate court entered an order establishing that “the Estate’s inheritance tax liability was $31,937.98.”257 However, a month later the Department provided the Estate with a “Notice of Additional Tax Due,” which stated [t]he value of the subject property was $427,625 and the Estate’s actual inheritance tax liability was actually $45,224.48 because: 1. it had not reported the value of a life insurance policy in the return; 2. its deduction for monument expenses exceeded the statutory allowance for such deductions; and 3. it had not substantiated the propriety of the 30% discount.258 Based on these assertions, the Department informed the Estate that it owed another $13,278.64 in inheritance taxes plus interest.259 In January 2008, the Estate responded to the Department and explained that while there was no dispute regarding the life insurance and monument deduction adjustments, “it disagreed with the disallowance of the 30% discount . . . [but] offered to reduce the 30% discount by five percent.”260 The Department rejected the Estate’s offer, and in February 2008, the Estate paid the requested amount in full.261 Approximately a year and a half later, “the Estate filed a claim with the Department contending that it was entitled to a refund of the additional inheritance tax it paid. . . . The Department denied the Estate’s refund claim.”262 The Estate next filed a Complaint with the probate court “challenging the Department’s denial of its refund claim.”263 The Estate argued that the Department “was required to timely file with the probate court either a petition for rehearing or a petition for reappraisal” if it disagreed with the tax liability imposed by the probate court.264 Because the Department did not follow the established procedure, the Estate argued the Department had “no authority to disallow the 30% discount because the probate court’s [o]rder . . . established ‘for all time’ the amount of tax owed by the Estate.”265 The Department countered that the probate court’s order was only an estimate of the taxes owed, which the Department could accept or reject.266 The Department also explained that the Estate’s appraisal was the best indicator of the subject property’s fair market value because the Valuation of Decedent’s Interest in Real Estate was unverified, unsigned, prepared by an anonymous person, and failed to disclose how the 30% 256. Id. 257. Id. 258. Id. 259. Id. 260. Id. 261. Id. 262. Id. 263. Id. 264. Id. 265. Id. 266. Id. at 1217. 2012] TAXATION 1367 discount was even calculated.267 The probate court held a hearing and entered an order of summary judgment in favor of the Department.268 The Estate appealed to the Tax Court.269 Indiana Code section 6-4.1-10-4 provides that “a person who files a claim for the refund of inheritance . . . tax may appeal any refund order which the [Department] enters with respect to his claim.”270 In order to originate an “appeal, the person must, within ninety (90) days after the department enters the order, file a complaint in which the department is named as the defendant.”271 After an appeal has been initiated, “the probate court shall determine the amount of any tax refund due.”272 On appeal, the Estate contended that “the Department had but only two avenues by which it could challenge the subject property’s valuation: a petition for rehearing . . . or a petition for reappraisal.”273 The Estate argued that the Department’s failure to utilize either method of challenge “within the statutorily prescribed time period, its collection of the additional inheritance tax from the Estate was per se erroneous or illegal as a matter of law.”274 The Tax Court disagreed.275 The Tax Court explained that “[t]he Department supervises the enforcement and collection of Indiana’s death taxes. . . . Under this grant of authority, it may investigate any facts or circumstances relevant to the imposition of inheritance tax.”276 Additionally, when the Department sent its notice to the Estate: [I]t was still well within the prescribed statutory period for filing a petition for reappraisal. . . . At that point, the Estate was free to either pay the tax or not, and it elected to pay the tax. . . . Given that the Estate paid the tax in full, just two days after receiving the Department’s second notice, it would have been both improper and absurd for the Department to file a petition for reappraisal at that point.277 The Tax Court held that it was not an error for the probate court to reconsider “the subject property’s valuation.”278 Furthermore, the Estate claimed that the probate court erred in also determining that the 30% discount was not applicable to the subject property.279 267. Id. 268. Id. 269. Id. 270. Id. at 1218 (quoting IND. CODE § 6-4.1-10-4(a) (2011)). 271. Id. (quoting IND. CODE § 6-4.1-10-4(a)). 272. Id. (quoting IND. CODE § 6-4.1-10-5). 273. Id. 274. Id. 275. Id. at 1219. 276. Id. (internal citations omitted). 277. Id. (internal citations omitted). 278. Id. 279. Id. 1368 INDIANA LAW REVIEW [Vol. 45:1341 The Department, in contrast, asserted that the probate court was correct to disallow the discount “because the personal representatives did not establish that they qualified to determine whether the application of the 30% discount to the subject property was proper and, as a result, that the Valuation of the Decedent’s Interest in Real Estate was unreliable.”280 The Tax Court explained that “experts initially determined whether the application of marketability or control discounts was proper and then quantified the applicable discount.”281 In this case, Pollock, one of the personal representatives possessed the knowledge of a layperson, not an expert, regarding the valuation of the discount.282 Additionally, Pollock signed a verification clause for each return, where she declared that to the best of her knowledge, everything in the return was correct and complete.283 Pollack’s attestation did “not establish that the information provided in the Valuation of Interest in Real Estate was based on her personal knowledge.”284 The Estate also failed to establish that Pollock possessed the competency “to render an opinion concerning the application and quantification of the 30% discount for lack of marketability.”285 Therefore, the Tax Court upheld the probate court’s order of summary judgment favoring the Department.286 C. Sales and Use Tax: Garwood v. Indiana Department of State Revenue287 In 2009, the Indiana Attorney General and the Department investigated the business activities of Virginia and Kristin Garwood (the “Garwoods”) and found that they were selling puppies without remitting Indiana sales and income tax.288 Upon this finding, the Department executed a warrant to search the Garwoods’ residence and commercial properties in Harrison County to “seize certain items related to the puppy sales.”289 The Department “generated . . . jeopardy tax assessments for the Garwoods’ purported” income and sales tax liabilities, and after the Garwoods failed to immediately pay the liabilities, the Department seized approximately 240 dogs and puppies from their property and sold them to the Humane Society for a total of $300.290 The Department applied the money to the Garwoods’ outstanding tax liabilities.291 The Garwoods timely filed a written 280. Id. at 1220. 281. Id. 282. Id. 283. Id. 284. Id. at 1221. 285. Id. 286. Id. 287. 939 N.E.2d 1150 (Ind. T.C. 2010). This is the first of two related cases between Garwood and the Indiana Department of State Revenue. The second is discussed infra at notes 293-308 and accompanying text. 288. Id. at 1151. 289. Id. 290. Id. at 1151-52. 291. Id. 2012] TAXATION 1369 protest with the Department.292 The Department did not hold a hearing on the protest and advised the Garwoods to seek relief through the Harrison Circuit Court.293 The Garwoods subsequently initiated an appeal with the Tax Court.294 On appeal, the Department argued that it properly exercised its statutory authority in issuing jeopardy assessments to the Garwoods.295 Indiana Code section 6-8.1-5-3 provides that one of four circumstances must exist for the Department to issue a jeopardy assessment. If at any time the Department: [f]inds that a person owing taxes intends to quickly leave the state, remove his property from the state, conceal his property in the state, or do any other act that would jeopardize the collection of those taxes, . . . the Department may declare the person’s tax period at an end, may immediately make an assessment for the taxes owing, and may demand immediate payment of the amount due, without providing the notice required in IC 6-8.1-8-2.296 The Tax Court held that it had subject matter jurisdiction to hear the appeal.297 On the appeal, the Garwoods maintained that the Department “exceeded statutory authority” by applying the jeopardy assessment procedure.298 The Indiana Code permits the Department to “issue a jeopardy assessment when it determines a person owing taxes intends to quickly leave the state thereby avoiding tax collection.”299 The Tax Court stated that “the Department [did] not claim that the Garwoods were flight risks. In fact, the Garwoods were community fixtures, having lived in Harrison County their entire lives.”300 Therefore, the Department could not rely on this argument as a basis for its “use of jeopardy assessments.”301 Also, the Tax Court stated that “the Department [did] not claim that the Garwoods intended to remove property from the state, [and] the nature of the Garwoods’ Indiana property” was not of the type that was easily moved.302 Therefore, this was not a justifiable basis for the Department’s jeopardy assessments. Furthermore, the “Department claim[ed] its investigation revealed evidence of this intent that is documented in its designated sales and income tax 292. Id. at 1152 (citing 45 IAC 15-5-8(c) (2007)). 293. Id. at 1152-53. 294. Id. at 1153. 295. Id. at 1153-54. 296. Id. at 1151 n.3 (internal citations omitted) (quoting IND. CODE §§ 6-8.1-5-3(a), -8-2 (2010)). 297. Id. at 1155-56. 298. See Garwood v. Ind. Dep’t of State Revenue, 933 N.E.2d 682, 687 (Ind. T.C. 2011), reviewed, 963 N.E.2d 682 (Ind. 2012), vacated, 966 N.E.2d 1258 (Ind. 2012). 299. Id. (citing IND. CODE § 6-8.1-5-3(a) (2011)). 300. Id. (internal citations omitted). 301. Id. 302. Id. 1370 INDIANA LAW REVIEW [Vol. 45:1341 Investigative Summaries.”303 The Garwoods did not permit the officers from Animal Control to access their property, but the Tax Court determined that this refusal was not “evidence of [an] attempt to conceal property in the state” under the statute.304 The Department also argued that by selling the dogs in bulk, the Garwoods could conceal them, and thus the jeopardy assessments were proper.305 The Tax Court found this assertion speculative because “there [was] no evidence that indicate[d] the Garwoods would sell all their dogs or release them to avoid paying tax.”306 Therefore, the Department could not justify using the jeopardy assessments on this basis.307 Finally, the Department argued that the Garwoods’ actions (breeding and advertising dogs for sale, failing to register as retail merchant, failing to file sales tax returns, and failing to report income) indicated that the Garwoods intended to act in a way “that would jeopardize the collection of taxes.”308 The Tax Court, however, determined that the Garwoods’ actions indicated that they “were not properly reporting and paying taxes, . . . not that they intended not to pay . . . their taxes.”309 Supporting this argument, the Tax Court articulated that the Garwoods filed professionally prepared tax returns, which “included income from the sales of dogs.”310 Therefore, this was also not a basis for the Department’s use of jeopardy assessments.311 The Tax Court held that it could not “reasonably be inferred that the jeopardy assessment procedure was used in this case to protect the State’s fiscal interests.”312 Otherwise, the Department would not have sold the seized dogs for only $300 when “logic dictate[d] that the dogs had a value far greater than just over $1.00 each.”313 Additionally, the fact that there was much media hype regarding this case suggests that the Department was using the jeopardy assessments “to eliminate a socially undesirable activity,” not to collect the tax liabilities owed to the State.314 Therefore, the Tax Court held that the jeopardy assessments were “void as a matter of law.”315 303. Id. 304. Id. at 687-88. 305. Id. 306. Id. 307. Id. 308. Id. at 689. 309. Id. 310. Id. 311. Id. 312. Id. 313. Id. at 689-90. 314. Id. at 690. 315. Id. 2012] TAXATION 1371 D. Personal Property Tax: Etzler v. Indiana Department of State Revenue316 In 2010, Dale Dodson was indebted to his attorney, Gordon Etzler, fees for legal services previously rendered. In order to pay his liability, “Dodson assigned to Etzler his right to the money he expected to receive in November 2011 from the Indiana Horse Racing Commission” (the “Commission”).317 Etzler filed a UCC financing statement to perfect the assignment, but the State Auditor notified Dodson that the funds were being “withheld to satisfy a Department tax levy.”318 Etzler made repeated attempts to the Department to have the funds released to him.319 Etzler claimed that the Department failed to provide documentation to “justify” the levy.320 Etzler asked for an administrative hearing, but the Department declined, so Etzler appealed to the Tax Court.321 On appeal, the Department argued that because it was not an original tax appeal, the Tax Court did not have subject matter jurisdiction to hear Etzler’s case.322 Furthermore, the Department claimed that tax laws were not even applicable because the case did “not principally involve the collection of a tax . . . [but was] . . . a collection matter arising from a final judgment.”323 The Department also added another argument: that there was “no tax statute that creates Etzler’s right to sue the Department in th[e] [Tax] Court regarding the validity of the . . . judgments against Dodson.”324 Additionally, the Department posited “that if Etzler’s appeal does indeed arise under Indiana’s tax laws, Etzler has not received, and therefore does not appeal from, a final determination of the Department.”325 In his response, Etzler claimed that “by seizing the funds deposited in Dodson’s account,” the Department “sought to collect a tax” and thus the case did fall within the scope of Indiana’s tax laws and qualified as an original appeal.326 Etzler also argued that he was “appealing from a final determination of the Department . . . that took form in the Department’s denial of his request for an administrative hearing.”327 Although Dodson had stopped filing state income tax returns in the 1990s, the Department continued to issue assessments, which Dodson never protested.328 When the Department began sending demand notices to Dodson, “he neither paid 316. 957 N.E.2d 706 (Ind. T.C. 2011). 317. Id. at 707. 318. Id. 319. Id. 320. Id. 321. Id. 322. Id. at 708. 323. Id. 324. Id. at 709. 325. Id. at 708. 326. Id. 327. Id. 328. Id. 1372 INDIANA LAW REVIEW [Vol. 45:1341 the assessments nor came forward to show reasonable cause for non-payment.”329 By then recording the tax warrants with the count court, the Department caused the warrants to “bec[o]me final judgments of that court,” thus creating property liens.330 The Department had authority “to levy upon Dodson’s bank accounts, garnish his wages, or levy upon and sell his property.”331 Because “Dodson never protested his tax liability, any case that could be theoretically advanced to Dodson now no longer involves the collection of a tax, rather, it . . . involve[s] the collection and enforcement of a judgment.”332 The Tax Court determined that Etzler’s appeal “attack[ed] the validity of the . . . judgment against Dodson” and did not pertain to a tax collection.333 Furthermore, there is no tax statute that allowed Etzler to challenge the validity of a judgment in the Tax Court.334 The Tax Court therefore held that Etzler’s appeal did “not ‘arise under’ the tax laws of Indiana.”335 According to the Indiana Supreme Court, a taxpayer may receive “a final determination [from the Department] in one of two ways.”336 A “taxpayer can pay the tax, request a refund, and sue in the Tax Court if the request is denied. Alternatively, the taxpayer can protest the listed tax at the assessment stage and appeal to the Tax Court from a letter of findings denying the protest.”337 The Tax Court stated that Etzler did not receive “a final determination from the Department in either one of these ways.”338 Therefore, Etzler’s appeal was not an original tax appeal, and the court lacked subject matter jurisdiction over the case.339 E. Personal Income Tax 1. Lacey v. Indiana Department of State Revenue.340—In 2009, Lyle Lacey (“Lacey”), according to the Department’s final determination, “owed Indiana adjusted gross income tax [(AGIT)] for the 2007 tax year,”341 and Lacey appealed.342 Lacey’s 2007 W-2 statement “indicate[d] that Adecco paid him a substantial amount in wages,”343 Lacey did not attach the W-2 at the time he filed 329. Id. at 708-09. 330. Id. at 709. 331. Id. 332. Id. 333. Id. 334. Id. 335. Id. 336. Id. (quoting State v. Sproles, 672 N.E.2d 1353, 1357 (Ind. 1996)). 337. Id. 338. Id. 339. Id. 340. 948 N.E.2d 878 (Ind. T.C. 2011). 341. Id. at 878. 342. Id. 343. Id. 2012] TAXATION 1373 his 2007 taxes. Lacy instead attached a federal Form 4852 to his federal and state returns, stating “that his wages were zero.”344 Additionally, Lacey claimed a refund for “$5,034.98 in state and county income taxes that had been withheld by Adecco.”345 The Department, however, concluded “that Lacey was not entitled to a refund and that he actually owed another $1,113.21 in state income tax.”346 Lacey protested the determination, and the Department conducted a hearing in which it denied Lacey’s protest.347 Lacey subsequently appealed.348 Lacey argued his 2007 tax year compensation was “not income within the meaning of the Sixteenth Amendment to the United States Constitution or the Internal Revenue Code,”349 and “because Indiana’s adjusted gross income tax ‘piggybacks’ the federal income tax,” Lacey contended his income was not subject to the State’s income tax, and he had no state tax liability.350 Lacey maintained that only “gain or profit” constitutes income, thus excluding the “equal exchange” of his services for compensation, the Tax Court disagreed. The Supreme Court has considered the issue and has “repeatedly rejected the argument that income is limited to gain or profit.”351 Finding Lacey’s argument that income is defined by gain or loss irrelevant, the Tax Court applied the definition of gross income from the Internal Revenue Code, which includes wages as gross income.352 Therefore, the Tax Court held that Lacey’s argument, excluding the compensation from the definition of income was “incorrect as a matter of law.”353 Lacey also set for the claim that because the federal income tax “runs counter to the Supreme Court’s holding in Brushaber v. Union Pacific Railroad Co.”354 because it “is ‘an un-apportioned direct tax.’”355 Lacey proffered that Brushaber’s holding exempting a tax from apportionment “conflict[s] with the general [constitutional] requirement that all direct taxes be apportioned,”356 but the Tax Court explained that “Congressional power to tax is articulated in Article 1, Section 8 of the Constitution and ‘embraces every conceivable power of taxation,’ including the power to levy and collect income taxes.”357 Furthermore: there is no escape from the conclusion that the Amendment was drawn 344. Id. 345. Id. at 879. 346. Id. 347. Id. 348. Id. 349. Id. at 879-80. 350. Id. at 880. 351. Id. at 881. 352. Id. 353. Id. 354. Id. (quoting Brushaber v. Union P. R.R. Co., 240 U.S. 1, 12-13 (1916)). 355. Id. 356. Id. 357. Id. 1374 INDIANA LAW REVIEW [Vol. 45:1341 for the purpose of doing away . . . with the principle . . . of determining whether a tax on income was direct [or] not . . . since, in express terms, the Amendment provides that income taxes, from whatever source the income may be derived, shall not be subject to the regulation of apportionment.358 Therefore, the Tax Court held that Lacey’s employment compensation was subject to Indiana’s adjusted gross income tax. 359 2. Lacey v. Indiana Department of State Revenue.360—Lyle Lacey (“Lacey”) after unsuccessfully launching two tax appeals where he argued that he did not owe Indiana AGIT, he again petitioned the Tax Court regarding his 2008 AGIT liability.361 The Department moved to dismiss pursuant to Indiana Trial Rule 12(B)(6). Lacey argued in his previous appeals that “he had a constitutionally guaranteed right to trial by jury, that the judge of the tax court was biased, and that the Department had violated the Distribution of Powers Clause of the Indiana Constitution.”362 Lacey asserted that he owed no Indiana AGIT because the compensation he received in 2007 as a result of his employment was “not income within the meaning of the Sixteenth Amendment to the United States Constitution or the Internal Revenue Code.”363 The Tax Court dismissed Lacey’s first three claims of the Interim Order pursuant to Indiana Trial Rule 12(B)(6).364 The court held a trial and oral argument and ruled in favor of the Department.365 Lacey immediately filed a motion where he requested that the court take judicial notice of several authorities, including Miles v. Department of Treasury.366 The court granted Lacey’s motion to take judicial notice, but denied his petition for rehearing.367 While Lacey’s prior claim was pending, he filed an appeal.368 On appeal, the Department argued that Lacey failed “to state any claim upon which relief may be granted because it presents the same four claims and theories for relief as presented in [Lacey’s previous appeal.]”369 Lacey, however, maintained that his cases were substantively distinctive “because his theory of 358. Id. at 881-82 (alterations in original). 359. Id. at 882. 360. 954 N.E.2d 536 (Ind. T.C. 2011). 361. Id. at 536. 362. Id. at 537 (citing Lacey v. Ind. Dep’t of State Revenue, No. 49T10-0906-TA-25, slip op. *3-4, 2009 WL 3426348 (Ind. T.C. Oct. 26, 2009)). 363. Id. (quoting Lacey v. Ind. Dep’t of State Rev. (Lacey II), 948 N.E.2d 878 (Ind. T.C. 2011)). 364. Id. 365. Id. 366. Id. (citing Miles v. Dep’t of Treasury, 199 N.E. 372 (Ind. 1935)). 367. Id. 368. Id. 369. Id. at 537-38. 2012] TAXATION 1375 non-taxability in this case . . . hinges upon the Miles case.”370 The Tax Court disagreed, finding “Lacey’s arguments and new authorities unpersuasive.” The Tax Court thus determined that Lacey’s arguments from Miles did “not create a new substantive issue for [the Tax] Court’s review.”371 The court held that the issues in the current action were “substantially the same as those decided in [Lacey’s previous appeal]” and dismissed the case.372 Therefore, the Tax Court upheld its prior decisions and granted the Department’s motion to dismiss.373 3. Lacey v. Indiana Department of State Revenue.374—Lacey filed an original tax appeal asserting that Indiana’s adjusted gross income tax (AGIT) did not apply to his 2008 income.375 Lacey had previously filed three similar appeals, setting forth numerous arguments about why his employment compensation was not subject to AGI.376 He had also “received five written determinations” explaining that his income was subject to the AGIT.377 In August 2011, the Tax Court dismissed his appeal “because the facts, issues, and arguments that Lacey asserted were substantially the same as those presented and resolved in [a previous case].”378 The Department sought attorney fees under IC 34-52-1-1.379 In its opinion regarding Lacey’s second appeal, the Tax Court noted that it “marked the third time the Court had rejected the claim that one’s employment compensation does not constitute income subject to AGIT and that both the federal courts and the Internal Revenue Service have deemed claims similar to Lacey’s as frivolous and sanctionable.”380 In dealing with Lacey’s repetitive claims, the court stated that “in the future, when a taxpayer advances the same . . . argument, the Court will not hesitate to consider whether an award of attorney fees is appropriate.”381 Then, on June 15, 2011, Lacey filed two motions in response to which “the Court took judicial notice of Miles, but denied Lacey’s petition for rehearing.”382 Four months later, the Department filed a Motion for Attorney’s Fees.383 During the hearing, the Department argued it was “entitled to an award of attorney fees because Lacey continued to pursue his claim . . . , reiterating the same arguments that proved unsuccessful [previously].”384 Indiana Code section 370. Id. at 538. 371. Id. 372. Id. at 537. 373. Id. 374. 959 N.E.2d 936 (Ind. T.C. 2011). 375. Id. at 937. 376. Id. at 938. 377. Id. at 937. 378. Id. 379. Id. at 939. 380. Id. at 938. 381. Id. (quoting Lacey v. Ind. Dep’t of State Rev., 949 N.E.2d 878, 882 (Ind. T.C. 2011)). 382. See supra notes 354-66 and accompanying text. 383. Lacey, 959 N.E.2d at 939. 384. Id. at 939-40. 1376 INDIANA LAW REVIEW [Vol. 45:1341 34-52-1-1(b) provides that: [I]n any civil action, the court may award attorney’s fees as part of the cost to the prevailing party, if the court finds that either party: 1. brought the action or defense on a claim or defense that is frivolous, unreasonable, or groundless; 2. continued to litigate the action or defense after the party’s claim or defense clearly became frivolous, unreasonable, or groundless; or 3. litigated the action in bad faith.385 The Department stated that: Lacey should have known that his continued pursuit of this claim was improper for three reasons: (1) the same rationale was argued and resolved in [previous case], (2) the Court cautioned [in the previous case] that advancing substantially similar arguments could trigger an award of attorneys’ fees, and (3) the Court reminded Lacey of the possible consequences of pursuing previously resolved arguments during the hearing on the motion to dismiss.386 Lacey responded that his final claim, which relied upon Miles, was substantially different from that advanced by him previously.387 Furthermore, Lacey argued that an “award [of] attorney fees to the State [would] put[] a chilling effect on anybody else wanting to make the claim using that case or using Indiana Supreme Court rulings as a basis for their claim because the Department never addressed why [his claim] was frivolous.”388 The Tax Court disagreed.389 The court stated that Lacey admitted that his claim was “substantially similar to that presented in his [prior cases].”390 Thus, taking judicial notice of Miles, and determining that the prior decisions would stand, the Tax Court stated that it would have been the “reasonable” decision for Lacey to have dismissed his case.391 Rather, “Lacey chose to pursue the same claim and advance the same arguments as he [previously] did.”392 In conclusion, the Tax Court held that “Lacey’s original tax appeals have advanced classic tax protestor arguments” and granted the Department attorney fees.393 385. IND. CODE § 34-52-1-1(b) (2011). 386. Lacey, 959 N.E.2d at 940. 387. Id. 388. Id. 389. Id. 390. Id. 391. Id. 392. Id. at 940-41. 393. Id. at 941-42. 2012] TAXATION 1377 F. Corporate Income Tax 1. Miller Brewing Co. v. Indiana Department of State Revenue.394—Miller Brewing Company (“Miller”) “manufactures and sells malt beverages” to customers throughout the country, including customers in Indiana.395 Indiana customers submitted their purchase orders to Miller’s headquarters in Milwaukee, Wisconsin, and Miller then produced and prepared the order for pick up in Trenton, Ohio.396 Indiana customers then had to arrange for “third-party common carriers to pick up the products at the brewery” and transport them.397 Miller filed tax returns in Indiana, but when it calculated its adjusted gross income tax liabilities, “Miller did not allocate the income it received from the carrier-pickup sales to Indiana.”398 The Department audited Miller’s tax returns and determined the income from the carrier-pickup sales should have been allocated to Indiana.399 After paying the proposed assessments, Miller filed a refund claim with the Department.400 The Department conducted an administrative hearing and denied Miller’s claim.401 Miller initiated a tax appeal with the Tax Court.402 Indiana requires corporations to pay taxes on a portion of their AGI “that is ‘derived from sources within Indiana.’”403 For the tax years in dispute, “income was allocated to Indiana on the basis of a three-factor formula, reflecting a corporation’s payroll, property, and sales attributed to this state, with the sales factor receiving the greater percentage of weight.”404 To determine whether a corporation’s sales should be attributed to Indiana under this formula, IC 6-3-2- 2(e)(1) states that “sales of tangible personal property are in this state if: (1) the property is delivered or shipped to a purchaser that is within Indiana, other than the United States government . . . regardless of the [free on board] point or other conditions of the sale.”405 The Department asserted that the language of the Indiana Code mandates the application of the destination rule because: (1) the legislature adopted statutory language that tracks the language of section 16 of the Uniform Division of Income for Tax Purposes Act (“UDITPA”), which incorporates the destination rule; (2) Indiana rejoined the Multistate Tax Commission (“MTC”) in 2007 after a thirty year absence; and (3) other states with statutory language similar to [Indiana’s code] have 394. 955 N.E.2d 865 (Ind. T.C. 2011), reviewed by 963 N.E.2d 1120 (Ind. Feb. 29, 2012). 395. Id. at 866. 396. Id. 397. Id. 398. Id. 399. Id. 400. Id. at 866-67. 401. Id. at 867. 402. Id. 403. Id. (quoting IND. CODE § 6-3-2-1(b) (2011)). 404. Id. (citing IND. CODE § 6-3-2-2(b) (amended 2006)). 405. Id. (citing IND. CODE § 6-3-2-2(e)(1)). 1378 INDIANA LAW REVIEW [Vol. 45:1341 construed their statutes as requiring the destination rule.406 Miller, however, argued that the legislature drafted the Indiana Code with “language that can reasonably be construed in two different ways.”407 First, Miller explained, “the statutory language can be construed to mean that a sale is an Indiana sale if the property’s purchaser is domiciled or has a business situs in Indiana, no matter where the merchandise is shipped or delivered.”408 Alternatively, “the statutory language can be construed to mean that sale is an Indiana sale if the property is delivered or shipped to this state, whether or not the purchaser has an Indiana domicile or business situs.”409 Miller argued that the Department’s regulation for interpreting the legislature’s intent regarding the statute should govern, rather than UDITPA, the MTC, or other states.410 Therefore, sales would not be considered in Indiana “if the purchaser picks up the goods at an out-of-state location and brings them back into Indiana in his own conveyance.”411 The Tax Court “will construe and interpret a statute only if it is unclear and ambiguous,” to interpret an ambiguity, “it is appropriate for the Court to look to a clarifying regulation or one indicating the method of [the statute’s] application.”412 In determining how the legislature intended IC 6-3-2-2 to be applied, the court found “the Department’s interpretation . . . to be more persuasive than UDITPA, Indiana’s membership in the MTC, or how other states construe their statutory language.”413 The court reasoned that although the language of Indiana Code section 6-3-2-2(e)(1) does track the language of the UDITPA, Indiana has not adopted UDITPA.”414 Similarly, the Tax Court did not “impute the MTC’s goal of uniform taxation of multistate businesses . . . to the legislature’s intent in enacting [IC] 6-3-2-2(e)(1).”415 Even though other state courts have established “that statutory language similar to that contained in Indiana Code § 6-3-2-2(e)(1) requires the application of the destination rule, the holdings from those jurisdictions are not binding on [the Tax] Court.”416 The Department, meanwhile, argued “that if the carrier-pickup sales are not deemed Indiana sales, not only will Miller be excused from complying with Indiana law requiring the consistent apportionment of income between states, but inequity will prevail.”417 The Department explained that “a taxpayer’s 406. Id. at 867-68. 407. Id. at 868. 408. Id. 409. Id. at 868-69. 410. Id. at 869. 411. Id. 412. Id. (alteration in original). 413. Id. at 870. 414. Id. (internal citation omitted). 415. Id. 416. Id. 417. Id. at 871. 2012] TAXATION 1379 apportionment of sales income between Indiana and other states must be consistent.”418 Furthermore, the Department stated that because both the Ohio and Wisconsin statutes “are substantially similar to Indiana’s in that they apply the destination rule, those states would apportion Miller’s carrier-pickup sales to Indiana.”419 The Department claimed that by avoiding sales tax in Indiana, Miller had an advantage over his competitors, who were taxed in Ohio and Wisconsin.420 The Tax Court disagreed and stated that an “inconsistency by the Department with respect to how Miller reported its income from the carrier-pickup sales to Indiana as compared to Ohio and Wisconsin is irrelevant.”421 The court held Miller’s carrier-pickup sales were not Indiana sales and were thus not allocable to Indiana.422 2. Rent-A-Center East, Inc. v. Indiana Department of State Revenue.423— Rent-A-Center East, Inc. (“RAC East”) appealed the Department’s final determination requiring RAC East to use a combined income tax return with two affiliates for reporting its AGI tax liability.424 Rent-A-Center, Inc. (“RAC Inc.”), formerly Renter’s Choice, acquired its largest competitor and transferred the Rent-A-Center trademarks “to its new affiliate, Advantage Companies, Inc. (“Advantage”).”425 In 2003, the RAC family reorganized its corporate structure with RAC Inc., assuming the name RAC East and Advantage changing its name to Rent-A-Center West, Inc. (“RAC West”).426 Additionally, Rent-A-Center Holdings, Inc. (“RAC Holdings”) and Rent-A-Center Texas, LP (“RAC Texas”).427 The matter before the Tax Court arose because: In 2003, RAC East filed its 2003 Indiana corporate AGI tax return on a separate company basis reporting that it owed no tax. The Department audited RAC East for the 2001, 2002, and 2003 tax years, proposing an additional $513,272.60 in AGI tax liability, penalties, and interest for the 2003 tax year based on its determination that RAC East should have filed a combined AGI tax return with RAC West and RAC Texas.428 RAC East disputed the determination, but the Department upheld its original finding.429 RAC East subsequently filed an original tax appeal.430 In Indiana, corporations must pay taxes on their “AGI that is derived from 418. Id. 419. Id. 420. Id. 421. Id. 422. Id. at 872. 423. 952 N.E.2d 387 (Ind. T.C. 2011), rev’d, 963 N.E.2d 463 (Ind. 2012). 424. Id. at 388. 425. Id. 426. Id. 427. Id. 428. Id. 429. Id. 430. Id. 1380 INDIANA LAW REVIEW [Vol. 45:1341 sources within Indiana.”431 Generally, “[e]ach corporation . . . must report on a separate company basis.”432 There is a limited exception, however, which gives “the Department discretionary authority to grant prospectively or require retroactively that a taxpayer determine its Indiana source income using an alternative method.”433 According to the statute: If the allocation and apportionment provisions . . . do not fairly represent the taxpayer’s income derived from sources within the state of Indiana, the taxpayer may petition for or the [D]epartment may require, in respect to all or any part of the taxpayer’s business activity, if reasonable: (1) separate accounting; (2) the exclusion of any one (1) or more factors; (3) the inclusion of one (1) or more additional factors which will fairly represent the taxpayer’s income derived from sources within the state of Indiana; or (4) the employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer’s income.434 The Department argued “that requiring a combined filing was a reasonable and fair alternative.”435 To require a combined filing, the Department must “designate[] facts to show that RAC East’s separate return did not fairly represent its income from Indiana sources” and that mandating that RAC East file a combined return was “reasonable and equitable.”436 The Department claimed that it disallowed using separate company basis reporting because it would actually have “increase[d] RAC East’s Indiana tax liability.”437 The Tax Court stated, however, that the “information provided [was] insufficient to establish that the Department considered alternatives to assessing tax based on a combined return.”438 The Court held that the Department failed to make “a prima facie case that it [was] entitled to judgment as a matter of law . . . the Court . . . . grant[ed] summary judgment in favor of RAC East.”439 3. AE Outfitters Retail Co. v. Indiana Department of State Revenue.440—AE Outfitters Retail Co. (“AE Outfitters”), assessed with adjusted gross income (AGI) tax liability for the tax years 2004 through 2007, appealed the Department’s final determination.441 After AE Outfitters filed its corporate AGI 431. Id. 432. Id. at 389 (citing IND. CODE §§ 6-3-2-2(a)-(k) (2011)). 433. Id. 434. Id. (quoting IND. CODE § 6-3-2-2(l) (2011)). 435. Id. at 390. 436. Id. at 390-91. 437. Id. at 391. 438. Id. 439. Id. at 392. 440. No. 49T10-1012-TA-66, 2011 WL 5059896 (Ind. T.C. Oct. 25, 2011). 441. Id. at *1. 2012] TAXATION 1381 tax returns, the Department audited AE Outfitters.442 The Department concluded that AE Outfitters’ “separate returns did not fairly reflect its Indiana income,” and therefore it needed to report its Indiana “AGI liability via a combined income tax return.”443 Proposing eight assessments, the Department determined that AE Outfitters’ total tax liability was $2,060,239.41, in addition to penalties and interest.444 AE Outfitters filed its protest of the proposed assessments, and the Department affirmed the assessments and required AE Outfitters to use the combined return.445 AE Outfitters subsequently filed an original tax appeal with the Tax Court.446 AE Outfitters argued that before the Department can compel the use of a combined tax return to report AGI liability it “must apply each of the methodologies listed in” IC 6-3-2-2(l)-(m).447 Indiana Code section 6-3-2-2(p) provides: The [D]epartment may not require that income, deductions, and credits attributable to a taxpayer and another entity not described in subsection (o)(1) or (o)(2) be reported in a combined income tax return for any taxable year, unless the [D]epartment is unable to fairly reflect the taxpayer’s adjusted gross income for the taxable year through use of other powers granted to the [D]epartment by subsections (l) and (m).448 AE Outfitters argued that the statute curtained “the Department’s ability to mandate the filing of combined income tax returns” because it first had to “determine whether a taxpayer’s income could be fairly reflected through use of all of the other methodologies listed in Indiana Code section 6-3-2-2(l) and (m).”449 The Department replied that it was only required to “apply any one of the methodologies . . . before issuing a combined return mandate.”450 The Tax Court ambiguity in the statute because it “plainly conveys that the Department may not require a taxpayer to file a combined income tax return unless [it] is unable to fairly reflect the taxpayer’s adjusted gross income for the taxable year through use of other powers granted to [it].”451 Therefore, prior to demanding that a taxpayer file a combined tax return, the Department “must ascertain whether application of each of the . . . methodologies would result in an equitable allocation and apportionment of the taxpayer’s income.”452 The Indiana Code provides: 442. Id. 443. Id. 444. Id. 445. Id. 446. Id. 447. Id. at *2; see also IND. CODE § 6-3-2-2(p) (2011). 448. AE Outfitters Retail Co., 2011 WL 5059896, at *1 (quoting IND. CODE § 6-3-2-2(p)). 449. Id. at *2 (citing IND. CODE § 6-3-2-2(p)). 450. Id. 451. Id. (alterations in original). 452. Id. 1382 INDIANA LAW REVIEW [Vol. 45:1341 When two (2) or more organizations, trades, or businesses are owned or controlled directly or indirectly by the same interests, however, “the [D]epartment [must] distribute, apportion, or allocate the income derived from [Indiana] sources . . . between and among those organizations, trades, or businesses in order to fairly reflect and report the income derived from [Indiana] sources . . . by various taxpayers.”453 Thus, the Tax Court held that the Department was required to “apply all of the methodologies . . . before it may require a taxpayer to report its AGI liability via a combined income tax return.”454 453. Id. (second, third, and fourth alterations in original) (quoting IND. CODE § 6-3-2-2(l)). 454. Id. at *3.