Indiana Law Review


340 INDIANA LAW REVIEW [Vol. 10:340

XVII. Taxation

Thomas B. Ailington*

A. Death Taxes

1 . Recodification

The 1976 General Assembly adopted a new codification of
the inheritance and estate taxes, replacing Article 4 of Title 6 of
the Indiana Code with a new Article 4.1.' The enactment was
'intended to be a codification and restatement of applicable or
corresponding provisions" of the laws repealed, without any
substantive changes.^ Organization and clarity of the statute are
significantly improved.

2. Deduction for Allowance to Surviving Spouse or

Dependent Children

In one of two substantive amendments to the inheritance tax
law, the list of deductions which may be taken from the value of
property subject to the inheritance tax was expanded to include
the $8,500 allowance provided by Indiana Code section 29-1-4-1

to the surviving spouse or dependent children of a resident dece-

dent.^ While this allowance may be satisfied only from the probate
estate, the amendment also provides that any portion of the deduc-
tion not needed to reduce to zero the inheritance tax value of

probate property may be deducted from the value of nonprobate
property transferred by the decedent to those entitled to the allow-

ance/ If more than one person is entitled to the allowance, the
deduction against the nonprobate property is to be divided equally

among them.
If the probate estate is insufficient to satisfy the $8,500

allowance in full, it is not entirely clear whether the difference

* Professor of Law, Indiana University School of Law—Indianapolis.
B.S., University of Nebraska, 1964; J.D., University of Nebraska, 1966;

LL.M., New York University, 1971.
The author wishes to extend his appreciation to Marc Weinstein for his

assistance in the preparation of this article.

'Act of Feb. 18, 1976, Pub. L. No. 18, §§ 1-2, 1976 Ind. Acts 69-104.

2/<i. § 3, 1976 Ind. Acts 104.

^IND. Code § 6-4.1-3-13 (b) (10) (Burns Supp. 1976). The amendment is
effective March 1, 1976, for inheritance taxes imposed on decedents dsdng
after February 29, 1976. Act of Feb. 25, 1976, Pub. L. No. 20, § 3, 1976 Ind.

Acts 108.
^IND. Code §6-4.1-3-14 (Burns Supp. 1976).



1976] SURVEY—TAXATION 341

may be deducted from nonprobate property passing to individuals
entitled to the allowance, or whether the deduction is limited to

the amount actually passing through the probate estate. Although

the statutory language lends itself to the latter construction, pre-

sumably the former result was intended since it would have the
effect of equalizing the inheritance tax burden whether the surviv-

ing spouse or dependent children receive probate property under

the allowance or nonprobate property which is otherwise subject

to the tax. In any event, the amendment removes any possible
doubt as to whether probate property passing to a surviving

spouse or dependent children pursuant to the statutory allowance

is exempt from the inheritance tax.^

3. Exemption for Charitable Transfers

The other noteworthy amendment* replaced provisions exempt-
ing certain charitable transfers with one stating that: "Each
transfer described in section 2055(a) of the Internal Revenue

Code is exempt from the inheritance tax."^ Thus, the exemption

for charitable transfers is generally limited to the types of trans-

fers which are deductible for federal estate tax purposes. While a

full discussion of the transformation wrought by this amendment
is beyond the scope of this survey, some comments on a few of the
more striking changes are in order.

The classes of qualified recipients in section 2055 (a) ° are

^The allowance in Ind. Code § 29-1-4-1 (Burns Supp. 1976) was proposed
to the General Assembly by the Indiana Probate Code Study Commission,
which stated in a comment that the allowance would be deductible for purposes
of the inheritance tax, apparently as a claim against the estate. Indiana
Probate Code Study Commission, Probate Reform Act of 1975, at 5 (Pro-
posed Final Draft, 1974).

•^In addition to the amendments discussed in the text. Act of Feb. 25,
1976, Pub. L. No. 19, § 2, 1976 Ind. Acts 105-06 added Ind. Code § 6-4.1-9-1.5
(Burns Supp. 1976), providing that any inheritance tax imposed under id.

§ 6-4.1-7-6 as a result of a change in the fair market value of the decedent's
assets in the final determination of federal estate taxes is due 30 days after

the notice of final determination of the federal estate tax is received, with

interest accruing at the rate of 6 percent annually after such due date.
^Ind. Code §6-4.1-3-1 (Burns Supp. 1976). Act of Feb. 18, 1976, Pub.

L. No. 18, § 1, 1976 Ind. Acts 74-76, enacting and codifying Ind. Code

§§ 6-4.1-3-2 to -4 was also repealed by Act of Feb. 25, 1976, Pub. L. No. 9,
§ 3, 1976 Ind. Acts 106. See text accompanying notes 10-15 infra. The amend-
ment and repealer are effective July 1, 1976, with respect to transfers made
by individuals dying after June 30, 1976. [References to Ind. Code in roman
type are to those sections which were codified but later repealed].

^Before amendments enacted by the Tax Reform Act of 1976, Pub. L. No.
94-455, §§ 1307(d), 1313(b), 1902(a), and 2009(b), 90 Stat. 1520 (1976),
Int. Rev. Code of 1954, § 2055(a), provided as follows:

For purposes of the tax imposed by section 2001, the value of



342 INDIANA LAW REVIEW [Vol. 10:340

generally broader than those described in the repealed sections.'

For example, section 2055(a) (1) includes transfers to the United

the taxable estate shall be determined by deducting from the value of
the gross estate the amount of all bequests, legacies, devises, or
transfers (including the interest which falls into any such bequest,
legacy, devise, or transfer as a result of an irrevocable disclaimer of
a bequest, legacy, devise, transfer, or power, if the disclaimer is
made before the date prescribed for the filing of the estate tax
return)

—

(1) to or for the use of the United States, any State, Territory,
any political subdivision thereof, or the District of Columbia, for
exclusively public purposes;

(2) to or for the use of any corporation organized and operated
exclusively for religious, charitable, scientific, literary, or edu-

cational purposes, including the encouragement of art and the
prevention of cruelty to children or animals, no part of the net
earnings of which inures to the benefit of any private stockholder
or individual, no substantial part of the activities of which is
carrying on propaganda, or otherwise attempting, to influence

legislation, and which does not participate in, or intervene in
(including the publishing or distributing of statements), any pol-
itical campaign on behalf of any candidate for public office;

(3) to a trustee or trustees, or a fraternal society, order, or
association operating under the lodge system, but only if such
contributions or gifts are to be used by such trustee or trustees,
or by such fraternal society, order, or association, exclusively
for religious, charitable, scientific, literary, or educational pur-

poses, or for the prevention of cruelty to children or animals,

no substantial part of the activities of such trustee or trustees,
or of such fraternal society, order, or association, is carrying

on propaganda, or otherwise attempting, to influence legislation,
and such trustee or trustees, or such fraternal society, order,
or association, does not participate in, or intervene in (including

the publishing or distributing of sitatements) , any political cam-
paign on behalf of any candidate for public office; or
(4) to or for the use of any veterans' organization incorporated
by Act of Congress, or of its departments or local chapters or
posts, no part of the net earnings of which inures to the benefit
of any private shareholder or individual.
For purposes of this subsection, the complete termination before

the date prescribed for the filing of the estate tax return of a power
to consume, invade, or appropriate property for the benefit of an indi-
vidual before such power has been exercised by reason of the death
of such individual or for any other reason shall be considered and
deemed to be an irrevocable disclaimer with the same full force and
effect as though he had filed such irrevocable disclaimer.
'An exception, however, is a nonprofit cemetery corporation not owned

by a church or municipality, which was recognized as a qualified transferee
under the former statute in Ind. Admin. R. & Regs. Ann. Rule (6-4-1-3) -3
(Burns 1976), but which has been held not to qualify under I.R.C. § 2055(a).

See Child v. United States, [1976] Fed. Taxes Est. & Gift (P-H) (38 Am.
Fed. Tax Rep. 2d) 1[148A04 (2d Cir. Aug. 19, 1976) ; Rev. Rul. 67-170, 1967-1
Cum. Bull. 272.



1&76] SURVEY—TAXATION 343

States, any state or territory thereof, any political subdivision of
the foregoing, and the District of Columbia, and section 2055(a)

(4) covers transfers to veterans' organizations incorporated by
Act of Congress and their local chapters and posts. The repealed
statute exempted only transfers to municipal corporations of
Indiana,'" and to "public institutions."" In addition, section 2055
(a) (3) includes transfers to trusts and certain fraternal organiza-
tions if they are required to use such contributions solely for

charitable and related purposes, whereas the prior Indiana law
exempted such transfers only if the transferee was organized for
charitable or related purposes,'^ or if the transfer was to a trust
for the sole benefit of such an organization.'^ The new act also
eliminates the prior law's restrictions on how much of the property
or income therefrom must be used for charitable or related pur-
poses in the state of Indiana as opposed to out-of-state localities,"*

as well as the requirement of reciprocity for transfers to organiza-

tions in other states.'^ On the other hand, except for governments
or qualified veterans' organizations, section 2055(a) disqualifies

transferees who engage in a substantial way in propaganda or
lobbying activities, or who participate or intervene in any political
campaign on behalf of a candidate for public office. These dis-
qualifications were not previously imposed under the inheritance

tax.

Since the amendment adopted only subsection (a) of section
2055, it does not include the disallowance in section 2055(e) (1)

of transfers to certain private foundations and nonexempt trusts'^

'°Act of Feb. 18, 1976, Pub. L. No. 18, § 1, 1976 Ind. Acts 74, enacting and

codifying Ind. Code §6-4.1-3-1(1).
"Act of Feb. 18, 1976, Pub. L. No. 18, § 1, 1976 Ind. Acts 74, enacting and

codifying Ind. Code §6-4.1-3-1(2).
'=Feb. 18, 1976, Pub. L. No. 18, § 1, 1976 Ind. Acts 74, enacting and codi-

fying Ind. Code §6-4.1-3-1(4).
'^Act of Feb. 18, 1976, Pub. L. No. 18, § 1, 1976 Ind. Acts 74, enacting and

codifying Ind. Code §6-4.1-3-1(3).
'^Act of Feb. 18, 1976, Pub. L. No. 18, § 1, 1976 Ind. Acts 74-75, enacting

and codifying Ind. Code § 6-4.1-3-2.
'^Act of Feb. 18, 1976, Pub. L. No. 18, § 1, 1976 Ind. Acts 76, enacting and

codifying Ind. Code § 6-4.1-3-4.

'^Section 2055(e)(1) disallows a deduction for transfers to:
(1) private foundations which incur liability for the tax on termina-

tion of private foundation status [see I.R.C. §§ 507(a) and (c),
508(d)(1)];

(2) private foundations and nonexempt trusts unless the governing
instrument requires an appropriate minimum distribution of
income each year and prohibits self-dealing, retaining excess
business holdings, making investments which jeopardize charit-
able purposes, and making certain taxable expenditures [see
I.R.C. §§ 508(d) (2), 508(e), 4941-47]; and



344 INDIANA LAW REVIEW [Vol. 10:340

or the limitations found in section 2055 (e) (2) requiring an annuity-
trust, unitrust, or pooled income fund arrangement where interests
in property are split between charitable and noncharitable bene-
ficiaries.'^ It is possible, therefore, that some transfers will qualify
for the inheritance tax exemption even though they are not deduc-
tible under the federal estate tax.'® Apparently the legislature did
not wish to utilize the inheritance tax to discourage the abuses
which led Congress to enact the limitations in section 2055(e) for
the federal estate tax.

A peculiarity of the amendment is its failure to specify
whether it refers to section 2055(a) as in effect at a particular
date. By contrast, another section of the death tax statute defines
the term "federal death tax credit" by reference to sections 2011
and 2102 of the Internal Revenue Code of 1954 "as amended and
in effect on January 1, 1976."'' Such a limitation on the incorpora-
tion by reference of a provision of the federal statute is commonly-
used to avoid any problem of unconstitutional delegation of legisla-
tive authority.^° Consistent with general principles of incorporation

by reference, and in order to avoid unconstitutionality, the statute
should be interpreted as referring to section 2055(a) as amended
and in effect on the date the amendment to state law was adopted.^'
Thus, subsequent amendments to section 2055(a) by Congress

(3) foreign organizations with substantial support from foreign
sources which engage in certain prohibited transactions Isee
I.R.C. §4948].

'^Section 2055(e) (2) (A) generally disallows a deduction for a remainder

interest transferred to a qualified charity unless the interest is in a charitable

remainder annuity trust or unitrust [defined in I.R.C. § 664], or a pooled in-

come fund [defined in I.R.C. § 642(c) (5)]. This limitation does not apply,
however, to a remainder interest, not in trust, in a personal residence or

farm, or to an interest, not in trust, which is an undivided portion of the
decedent's entire interest in property.

Section 2055(e)(2)(B) disallows a deduction for the transfer of any
other partial interest in property to a qualified charity unless the interest

is in the form of a guaranteed annuity or fixed percentage distributed yearly
of the fair market value of the property, whether or not such interest is
in trust.

'^Conversely, the inheritance tax exemption would not apply to the
peculiar situation where a deduction is allowed under §2055 (b)(2) if a
bequest is made by the decedent in trust to an octogenarian surviving spouse
for life subject to a power of appointment which the spouse exercises in favor
of a qualified charity.

''IND. Code §6-4.1-1-4 (Burns Supp. 1976).

^°lND. Const, art. 4, § 1, vests the legislative authority of the state in

the General Assembly.

^'Tbe amendment was adopted on February 25, 1976, but the effective

date was July 1, 1976. Act of Feb. 25, 1976, Pub. L. No. 19, § 4, 1976 Ind.

Acts 106.



1976] SURVEY—TAXATION 345

would not be included without further action by the General
Assembly."

B. Income Taxes

1. Gross Income Tax—Exemptions
Prior to an amendment enacted in 1971, Indiana Code section

6-2-1-7 (i) provided for exemption from the gross income tax of
"gross income received by churches . . . hospitals ... or any corpora-
tion organized and operated solely for the benefit of any of the
same . . . ."" The term "hospital" was not defined. In State v.
Bethel Sanitarium, Inc,,^* the state contended that a nursing home
was not exempt because it did not fall within the definition of
"hospital" for licensing purposes under Indiana Code section
16-10-1-6. Since the statute limited this definition to the chapter

on hospital licensing and regulations, however, the First District
Court of Appeals held that it was not controlling for tax purposes.
Rather, the court decided that the term "hospital" for purposes
of the tax statute should be given its usual and ordinary meaning,
which is any institution for the reception and care of sick, wounded,
infirm, or aged persons. Alternatively, the court found that the
exemption of Bethel could be upheld on the ground that it was a
corporation organized and operated solely for the benefit of the
Seventh Day Adventist Church. While acknowledging that inci-
dental benefits flowed to the patients of Bethel, the court felt that

it was sufficient that any financial benefits inured to the church.
Indiana Code section 6-2-1-7(1) was extensively revised in

1971" and subsection (i) (3) now specifically limits the exemption
for hospitals to those licensed by the Indiana State Board of Health.
Furthermore, reference is no longer made to corporations organ-
ized and operated solely for the benefit of other charitable organ-
izations. At the same time, however, a more general exemption
was included in subsection (i) (1) for institutions, organizations
and not-for-profit corporations organized and operated exclusively
for charitable and related purposes. The court noted, therefore,
that an institution like Bethel could still qualify for exemption

under subsection (i) (1) even though it is not now entitled to
exemption under (i) (3) as a hospital.

^"^See, e.g., the amendments to section 2Q55(a) in the Tax Reform Act
of 1976, Pub. L. No. 94-455, §§ 1307(d), 1313(b), 1902(a), and 2009(b), 90
Stat. 1520.

"Ch. 117, § 6(1), 1937 Ind. Acts 616, as amended, Ind. Code § 6-2-1-7 (i)
(Burns Supp. 1976).

=^332 N.E.2d 808 (Ind. Ct. App. 1975).
^^Compare Ind. Code § 6-2-1-7 (i) (Burns 1972) with id. (Burns Supp.

1976).



346 INDIANA LAW REVIEW [Vol. 10:340

2, Adjusted Gross Income Tax—Criminal Offenses
In State v. Moles,^'' the Third District Court of Appeals con-

sidered the proper county of jurisdiction and venue for the crim-
inal offenses under Indiana Code section 6-3-6-11 of making a
false and fraudulent tax return, making a false statement in a
tax return, and swearing to or verifying a false and fraudulent
statement in a tax return. The defendants prepared their income
tax returns in Lake County and filed them with the State Depart-
ment of Revenue in Marion County. Indictments were returned by
the Marion County Grand Jury, but the Marion County Criminal
Court transferred the cases to the Lake County Criminal Court,^'
which granted motions to quash the indictments on the ground
they charged offenses committed outside the jurisdiction of the
Marion County Grand Jury. The court of appeals held that both
jurisdiction and venue lay in Marion County and ordered that
the cases be transferred back to the Marion County Criminal Court.

In finding that the alleged offenses were committed in Marion
County, the court construed "making" a tax return to mean "filing**
the return and concluded that a filled-in tax form does not become
a "return" until it is filed. The opinion quoted approvingly from
a federal case^* which reached the same conclusions with respect
to similar statutory language in section 7206(1) of the Internal

Revenue Code of 1954.^' The court of appeals felt that any defect
in a tax return does not become material until the return is filed
and therefore taxpayers are entitled to a "right of self-correction"
if they should decide not to file false returns after they are com-

pleted and signed. It was also pointed out that a contrary inter-
pretation could defeat enforcement of the statute where returns

are prepared and signed outside the state.
Under the federal statute, however, the courts have generally

concluded that making a return is a continuous act occurring in
any place where some part of the return is prepared as well as
the place where it is filed.^° Accordingly, prosecution is permitted

2*337 N.E.2d 543 (Ind. Ct. App. 1975).
27The transfer was made pursuant to Ind. Code § 35-1-38-2 (Burns 1975)

[superseded by id. §35-1.1-2-6 (Burns 1975)], which provided for transfer

to the proper county where it appeared a defendant had been prosecuted in

a county not having jurisdiction of an offense.
"United States v. Gilkey, 362 F. Supp. 1069, 1071-72 (E.D. Pa. 1973).
29C/. United States v. Habig, 390 U.S. 222 (1968) ; Butzman v. United

States, 205 F.2d 343 (6th Cir.), cert, denied, 346 U.S. 828 (1953); United

States V. Horowitz, 247 F. Supp. 412 (N.D. 111. 1965). Contra, United States

V. Wyman, 125 F. Supp. 276 (W.D. Mo. 1954).
^°See United States v. Bettenhausen, 499 F.2d 1223 (10th Cir. 1974);

United States v. Lawhon, 499 F.2d 352 (5th Cir. 1974), cert, denied, 419 U.S.
1121 (1975) ; United States v. Slutsky, 487 F.2d 832 (2d Cir. 1973) ; United



1976] SURVEY—TAXATION 347

in any district where any part of the offense took place.'' The
opinion in Moles, on the other hand, implies that trials under the
Indiana statute are proper only in the county where the tax return
is filed, i.e., Marion County. Defendants residing in other counties
may therefore be put to the hardship of producing witnesses and
otherwise defending themselves in Marion County. While it is
sensible to require that filing is a necessary element of the offense

of "making" a false tax return, it does not follow that preparation
of the return is not also part of the offense. It should be permis-

sible to prosecute in the county where preparation of a false return
took place as well as in the county where it was filed. Moreover,
where prosecution is begun in the county of filing, a change of
venue to the county where the return was prepared should be
permitted if it appears to be the better forum in which to try the
case."

3. Credit for Investments in Neighbarhood Assistance Programs
in Impoverished Areas

A new income tax credit was enacted for investments in cer-
tain neighborhood assistance programs in impoverished areas,
either directly or by contributions to neighborhood organizations."
The credit is allowed for physical improvement of impoverished
areas, job training and education of individuals not employed by
the person or firm claiming the credit, crime prevention, counsel-

ing, emergency assistance, medical care, housing, and recreational
facilities.^'* An "impoverished area" is any area in Indiana certified
as such by the State Department of Public Welfare," and the
Administrator of Public Welfare must approve the program to be
conducted, the amounts to be invested therein, and the plans for
implementation.'*

States V. Hagan, 306 F. Supp. 620 (D. Md. 1969) ; cf. Kowalsky v. United
States, 290 F.2d 161 (5th Cir. 1961) ; United States v. Gross, 276 F.2d 816

(2d Cir.), cert, denied, 363 U.S. 831 (1960); Newton v. United States, 162
F.2d 795 (4th Cir. 1947), cert, denied, 333 U.S. 848 (1948) ; United States v.

Goldberg, 206 F. Supp. 394 (E.D. Pa. 1962), aff'd, 330 F.2d 30 (3d Cir.),
cert, denied, 377 U.S. 953 (1964).

^'However, 18 U.S.C. § 3237 (1970) permits the defendant to elect to

be tried in the district in which he resided at the time the alleged offense was
committed under I.R.C. §7206(1), if it involved use of the mails and prose-
cution is begun in a judicial district other than the one in which the defendant
resides.

"C/. United States v. United States District Court, 209 F.2d 575 (6th
Cir. 1954).

"IND. Code §§ 6-3-3.1-1 to -7 (Burns Supp. 1976).
'^Id. §§ 6-3-3.1-1 to -3.

"/rf. § 6-3-3.1-1 (b).

'"Id. §6-3-3.1-3.



348 INDIANA LAW REVIEW [Vol. 10:340

The amount of the credit allowable for any taxable year is
basically the lesser of $25,000 or 50 percent of the difference be-
tween the amount invested or contributed and the amount of any
reduction or savings in the taxpayer's federal income tax attrib-
utable to the investment or contribution.^^ However, the total
credit allowable among all taxpayers in any one state fiscal year
is limited to $1,000,000.'° Taxpayers desiring to claim the credit
must file an application with the State Department of Revenue
before the investment or contribution is made.'' Applications will

then be approved by the department in the chronological order of
filing in the state fiscal year up to the $1,000,000 maximum.'*^
Within thirty days after receiving notification that an application
has been approved, the applicant is required to submit proof that

the amount to be claimed as a credit has been paid or permanently
set aside in a special account to be used soley for the approved

program or purpose.^' Once the $1,000,000 maximum has been
reached in any one state fiscal year, no further applications filed
in that year may be approved except to the extent of amounts
previously approved for applicants who fail to file the required
proof of payment within the prescribed thirty-day period."^^ If an
applicant so requests, however, the department may approve an
application, in whole or in part, with respect to the next succeed-

ing state fiscal year."^' Such approval would apparently give the

^''Id. § 6-3-3.1-4. Although the reference in subsection (c) of this section

is to "any reduction of savings in the federal income tax" (emphasis added),
presumably it was intended to read "any reduction or savings" in federal
taxes. Furthermore, the literal language of subsection (c) provides for taking

federal tax savings into account only in the case of a "business firm," whereas
subsection (a) allows a credit equal to 50 percent of the amount invested by
a "business firm or person." It is unclear, therefore, whether federal tax
saving must be taken into account in figuring the amount of the credit for
a taxpayer other than a "business firm." In any event, subsection (b) further
limits the credit to a maximum of $25,000 in any taxable year of the tax-
payer. No provision was made in the statute for a refund or carryover of
the credit to the extent it exceeds the amount of income taxes due in any year.

2«IND. Code §6-3-3.1-6 (Burns Supp. 1976).
^'/d. § 6-3-3.1-5. At this writing, the Indiana Department of Revenue has

not yet prescribed the forms and procedures to be used in applying for and
claiming the credit.

""^Id. § 6-3-3.1-6.

'/d. § 6-3-3.1-5. This section states that the Department of Revenue

"may" disallow the credit if proof of payment is not filed within the 30-day
period, but it is apparently not required to do so.

^=/ci. § 6-3-3.1-6.

*^Id. The requirement that proof of payment be submitted within 30

days after notification that an application has been approved applies only

where the credit is allowable in the same fiscal year of the state as the one

in which the application is filed. Id. § 6-3-3.1^5. The statute is silent as to



1976] SURVEY—TAXATION 349

taxpayer priority with respect to the $1,000,000 limitation over

applications filed in the succeeeding fiscal year. It would generally

be in the best interest of the taxpayer, therefore, to request such

approval rather than relying on a resubmission of the application

in the next state fiscal year.

Although credit applications are to be approved with respect

to the state's fiscal year, a cnedit is allowable to a taxpayer only

for the taxable year in which the investment or contribution is
paid or permanently set aside.^^ The credit is available against
any tax due under the gross income tax,^^ the adjusted gross income
tax,^* or the corporate supplemental net income tax."*'

^. Motor Fuel Tax Credit

Taxpayers entitled to a refund of motor fuel taxes under Indi-

ana Code section 6-6-1-22 (b) now have the option to claim the
refund as a credit on their state income tax returns.''® To receive
either the refund or the credit, the taxpayer must submit a verified
statement accompanied by original invoices and declaring that the
purchases of fuel were not for use in operating motor vehicles
on public highways of the state.^' The credit that may be claimed
on an income tax return is limited to the motor fuel taxes paid
during the taxable year for which the return is filed.^° If the
credit exceeds the amount of the taxpayer's income tax liability
for the year, he is entitled to a refund of the excess.^'

5. Occupation Income Tax Changes

The 1975 Indiana General Assembly enacted the Occupation
Income Tax Law to permit taxation of occupation income by cer-
tain local governmental entities." The law provides that a county
council, common council, or board of trustees may adopt an ordi-
nance to impose an annual 1.5 percent tax on occupation income

whether or when proof of payment must be submitted if an application is
approved with respect to the fiscal year succeeding the one in which the
application is filed. In this situation, however, the credit apparently cannot

be allowed until such succeeding state fiscal year.
^^Id. § 6-3-3.1-7.

^^Id. §§ 6-2-1-1 to -36 (Burns Supp. 1976) and id. §§ 6-2-2-1 to -3-1 (Bums
1972).

^*/d. §§ 6-3-1-1 to -7-4 (Burns 1972 & Supp. 1976).
*'Id. §§ 6-3-8-1 to -6 (Burns Supp. 1976).
*'^Id. § 6-3-3-7. The law is effective for income tax years beginning after

December 31, 1975. Act of Feb. 11, 1976, Pub. L. No. 352, § 3, 1976 Ind. Acts 7.
^'IND. Code § 6-6-1-22 (b) (Burns Supp. 1976).

5'/d. § 6-3-3-7 (d).

"Act of Apr. 26, 1975, Pub. L. No. 63, 1975 Ind. Acts 512.



350 INDIANA LAW REVIEW [Vol. 10:340

received by an employee who is principally employed in a taxing
subdivision/^ Occupation income is defined to include "wages,
salaries, fees, or commissions received for services performed in
this state."*'* A taxpayer is entitled to a credit against his occupa-
tion income tax liability in an amount equal to the lesser of his
state adjusted gross income tax liability or his occupation income
tax liability/*

The enactment of the 1975 law was greeted with mixed reac-
tions. Only five counties and one city adopted ordinances to impose

the occupation income tax for calendar year 1976,** and the State

of Kentucky unsuccessfully challenged the constitutionality of the

tax on the ground that it was a retaliatory measure aimed at
Kentucky residents working in Indiana.*^ Subsequent to this suit,

the Department of Revenue issued a circular showing that an

Indiana resident could also be subject to the occupation income

tax if his deductions in arriving at his adjusted gross income tax

liability reduced that liability to a lesser amount than his occupa-

tion income tax liability.*®

The legal controversy surrounding this tax led to the adoption

of two clarifying amendments and one new provision by the 1976
Indiana General Assembly: (1) A definition of the term "political
subdivision" was added;*' (2) reference in the law to the state

adjusted gross income tax liability was clarified to allow credit only

for an individual's Indiana adjusted gross income tax liability ;*°

(3) a new provision was added permitting an Indiana county, city,
or town imposing the occupation income tax to enter into a recip-

rocal agreement with political subdivisions of other states.*' This

agreement could exempt an out-of-state political subdivision's

residents working in an adopting county, city, or town from the

occupation income tax if a like exemption from a tax imposed by

the out-of-state locality was afforded to Indiana residents em-

ployed there.

"IND. Code § 6-3.5-8-2 (Bums Supp. 1976).
*Vd. §6-3.5-3-1(1) and (2).
"/d. §6-3.5-3-6.

**The five counties are Clark, Dearborn, Jay, Perry, and Randolph. The

only city adopting the tax was New Albany.
^'Kentucky ex rel. Baker v. Indiana, Cause No. 6069 (Jefferson Cir. Ct.,

Oct. 22, 1976).

««Circular OT-1 (November 17, 1975).

^'IND. Code §6-3.5-3-1(8) (Burns Supp. 1976).

"^Id. § 6-3.5-3-6.

*'/d. § 6-3.5-3-4.5.



1976] SURVEY—TAXATION 861

C. Sales and Use Taxes

1. Exemptions

In Indiana Department of State Revenice v, American Dairy
of Evansville, Inc.,^^ a case which drew some incredibly fine lines,
the First District Court of Appeals held that the exemption from
the sales and use taxes for ''fungicides, insecticides and other
tangible personal property to be directly used in the direct produc-

tion of food and commodities"" is applicable to insecticides, insect
spray, bird repellant, and cleaning compounds used by a dairy in
and around its processing plant to maintain a production environ-
ment conforming to state health standards. Although the Second
District Court of Appeals had previously held in Indiana Depart-
ment of State Revenue v. RCA Corp,^* that air conditioning equip-
ment installed to maintain environmental conditions conducive to
the manufacture of color television picture tubes and component
parts was not "directly used" in "direct production," the court in
Ame7ncan Dairy decided that since the statute referred to items
such as fungicides and insecticides, the use of which generally has
an immediate impact upon the production environment rather than
upon the product itself, these items qualified for the exemption.

While cleaning compounds are not specifically enumerated in the
statute, they were also found to be exempt since their use in this
case to retard the growth of harmful bacteria was functionally
similar to the use of fungicides.

It is easy to agree with this reasoning so far as insecticides

and fungicides are concerned, but it is difficult to reconcile the
decision that cleaning compounds are also exempt with the earlier
case holding that air conditioning equipment is not exempt. Con-

tinuing to try to walk this tightrope, however, the court in Amer-
ican Dairy held that cleaning equipment used by the dairy was not
exempt. Noting only that the impact of such equipment on the

production process was arguably less direct than that of the clean-
ing compounds, the court fell back on the principle of strict con-

struction of the exemption against the taxpayer in cases of

ambiguity. At the same time, exemptions were upheld for refriger-
ation equipment, ice, and dry ice used in the production plant to

maintain the physical integrity of the dairy products during

processing." It was decided that these items operated directly on
the dairy products during the production process and the exemp-

"338 N.E.2d 698 (Ind. Ct. App. 1975).
"IND. Code § 6-2-1-39 (b) (1) (Burns 1972).
6^310 N.E.2d 96 (Ind. Ct. App. 1974).

*^These items were found to be exempt under one or more of the ex-
emptions in Ind. Code § 6-2-1-39 (b) (1), (6) and (10) (Bums 1972).



352 INDIANA LAW REVIEW [Vol. 10:340

tion was not limited to items actually incorporated into the final
product. Finally, the court held that the exemptions for items
"directly used" in "direct production" do not apply to items used
in distributing finished goods to purchasers after completion of
the production process. Accordingly, exemption was denied for
wire and plastic milk cases used in delivering dairy products to
purchasers** and for electricity consumed in storing finished
goods.*' An exemption was allowed, however, for milk cans used
in the production process.

RCA and Amerioan Dairy have launched the Indiana courts
on a never ending course of deciding exemptions under the sales
and use tax on the basis of "attenuated subtleties."*^ Since the
statute does not limit exemptions to items actually incorporated

into a final product and since various items are enumerated which
normally have only an indirect impact on the final product itself,
exemptions should generally be allowed for any items which serve
a function similar to those enumerated. It makes no sense to exempt
fungicides and insecticides used to control a production environ-
ment while subjecting "other tangible personal property" similarly
used to a higher standard. In this regard, the courts have jumped
to strict construction of the exemption against the taxpayer with-

out first seeking to resolve ambiguities in a manner consistent
with the overall scheme of the statute.

2. Collection Allowance

Beginning January 1, 1977, retail merchants other than public

utilities*' are allowed to keep a portion of the sales and use taxes

collected by them and otherwise timely remitted to the state. '°

The allowance, which is designed to compensate merchants for col-
lecting and timely remitting the taxes, phases in over a period of

four years starting at one-fourth percent of the taxes on returns

for 1977 and increasing each year thereafter by an additional one-

fourth percent to an allowance of one percent after 1979.

'^'^It was also found that the milk cases were not "returnable containers"
entitled to exemption under IND. Code § 6-2-1-39 (b) (2) (Burns 1972).

^^Exemption of the electricity was denied under Ind. Code § 6-2-1-38 (c)
(Burns 1972), which exempts electricity used in "production" but does not
contain the words "direct" or "directly." But see State v. Farmers Tankage,
Inc., 144 Ind. App. 392, 246 N.E.2d 409 (1969) (transportation equipment
used to gather raw materials before actual production process began was
exempt under an earlier version of the statute, Ch. 232, § 7(b) (1), 1965 Ind.
Acts 570, which did not include the words "direct" or "directly").

'®The term is from the opinion of Justice Holmes in Lucas v. Earl, 281
U.S. Ill, 114 (1930).

'^Described in Ind. Code § 6-2-1-38 (c), (d) and (e) (Burns 1972).
^°Id. § 6^2-1-49 (c) (Bums Supp. 1976).



1976] SURVEY—TAXATION 353

D. Intangibles Tax

1. Low Income Individuals

Overriding the Governor's veto of a bill originally passed in

1975, the General Assembly enacted an exemption from the intan-
gibles tax for individuals whose ''household income" for a taxable
year does not exceed $10,000, effective January 1, 1976/' If an
intangible is owned jointly with one or more persons who do not
meet the income test, the exemption applies to a portion of the
value of the property based on the ratio of qualifying owners to
the total number of owners/^

The act adopts the definition of household income provided
in Indiana Code section 6-3-3-6 (a) (1) and (2) for purposes of
the "circuit breaker" credit for disabled and elderly persons under
the adjusted gross income tax. Household income is defined therein

as the combined income of an individual and his or her spouse if
they are residing together. In addition to their adjusted gross

income for income tax purposes there is included the amount of
capital gains excluded from adjusted gross income, the amount of
any pension or annuity (including Social Security benefits) ex-
cluded from adjusted gross income, support money, cash public
assistance and relief, tax exempt interest on government obliga-
tions, workmen's compensation, "loss of time" insurance benefits,
and any other type of income not included in adjusted gross in-
come. The only exclusions are surplus food and other relief in
kind supplied by a governmental agency and gifts from nongovern-
mental sources.

It should be possible under this provision for high income

taxpayers to avoid the intangibles tax by transferring ownership

of intangibles to related family members, such as children, who
qualify as low income individuals.^^ It must be remembered, how-
ever, that "household income" apparently includes gifts from
nongovernmental sources, so the $10,000 limit might be exceeded

in the year of the transfer if the transfer itself is taken into

account. Moreover, the exemption might not apply to intangibles

transferred to a trust, even if the beneficiary is a low income

individual, since the taxpayer in that case is the fiduciary^* (un-

less the trust is revocable or amendable by the grantor, in which

case the grantor is considered to be the owner and taxpayer^^). It
7T7^T1"6^5^3T5-1^

"7d. § 6-5-3.5-2.

^^In Circular IN-27 (July 1, 1976), the Department of Revenue ruled
that a transfer to a minor must be irrevocable to be recognized for purposes
of the exemption.

^^See IND. Code § 6-5-1-1 (d), (e), and (h) (Burns 1972).
^^See id. § 6-5-1-1 (j).



354 INDIANA LAW REVIEW [Vol. 10:340

makes little sense, however, to base the exemption on the income
of the fiduciary. Since the intangibles tax is essentially imposed
on beneficial ownership and rights and privileges arising there-
from,'* allowance of the exemption arguably should turn on
whether the beneficial owner of the property is a low income
individual. Some support for this approach may be derived from
the provision requiring apportionment of the exemption in the
case of jointly owned property on the basis of the number of joint
owners who qualify as low income individuals. In addition, the
exemption would apparently be available for intangibles held by
a guardian or custodian for the benefit of a low income individual
since the property would be reported on a return filed in the name
of the individual for whom the property is held.'' In the final
analysis, it must be concluded that the amendment is ambiguous
as to whether the exemption is to be allowed on the basis of bene-
ficial ownership or on the basis of the duty otherwise to pay the
tax."'

2. Deposits in Credit Unions

An exemption from the intangibles tax for deposits in feder-
ally chartered credit unions was enacted,'' effective retroactively
to January 1, 1975.*° This amendment directly overturned the
position taken by the Department of Revenue in Circular IN-22
issued on August 4, 1975 that such deposits would be subject to
the intangibles tax starting January 1, 1975.®' Deposits in credit

unions organized under Indiana law were also exempted from the
taxes imposed on banks and savings and loan associations, as well

as the intangibles tax,°^ beginning January 1, 1976.°^ Such deposits

'"See id. § 6-5-1-2.

'''Intangibles are required to be reported in conjunction with the tax-

payer's state income tax return. Id. § 6-5-1-11. If an individual is unable to

file an income tax return, it must be filed by his or her agent, com-
mittee, guardian, fiduciary, or other person charged with the care of the

person or property of such individual. Id. § 6-3-4-2 (b).

'®By contrast, Ind. Code § 6-5-2-1 (Bums 1972) exempts intangibles
"owned by or held for the use and benefit of" religious and charitable institu-
tions, and id. § 6-5-3-1 exempts property "held" in pension, profit sharing,
and stock bonus trusts exempt under the federal income tax.

^'IND. Code §28-7-1-32(3) (Burns Supp. 1976).
«°Ad; of Feb. 18, 1976, Pub. L. No. 18, §2(b), 1976 Ind. Acts 606.

*' After the issuance of Circular IN-22, a class action suit was commenced
by members of a federally chartered credit union. The court issued a pre-
liminary injunction prohibiting the state from taxing deposits held by mem-
bers in federal credit unions. Jester v. Clark, Cause No. S-775-1444 (Marion

Co. Super. Ct., Dec. 22, 1975). Pursuant to the court's decision, the depart-

ment's position was withdrawn in Circular IN-23 (Dec. 15, 1975).
"iND, Code §28-7-1-32(2) (Burns Supp. 1976).
"Act of Feb. 19, 1976, Pub. L. No. 124, §2(a), 1976 Ind. Acts 606.



1976] SURVEY—TAXATION 356

had not previously been considered subject to the intangibles tax
because they were subject to the deposit taxes imposed on savings
and loan associations at the same rate as the intangibles tax. The
effect of these changes is to equalize the treatment of deposits in

state and federal credit unions by exempting both types from the
intangibles tax and equivalent deposit taxes.®^ To this extent,
credit unions are given an advantage over other banks and financial
institutions which must pay taxes on their deposits to the state,

E. Property Tax

1 . Easements

In Bvdyiick v. Indiana National Bank,'^^ the First District Court

of Appeals decided that an easement held by a pipeline company
must be assessed separately from the remaining interest in the
land. The issue arose when the land was sold for delinquent taxes
and the new owner contended that the tax deed extinguished the
easement. The court held that the tax deed could not convey more
than the property interest with respect to which the taxes were
delinquent, and if the easement was required to be assessed sepa-
rately to the pipeline company it could not be considered as included
in the tax sale where only the taxes of the land owner were
delinquent. Although it was established that the full value of the
land had actually been assessed to the land ovnier without any
reduction for the value of the easement, the court construed the

then-applicable statute taxing pipeline companies on "[a] 11 prop-

erty, including all rights, franchises, and privileges owned or
used"** to require that the easement be separately assessed to the

pipeline company. Moreover, since the statute required the assessed

valuation of pipeline company property other than "land not con-

^'^ Federal credit unions themselves are exempted from state and local
taxation by 12 U.S.C. §1768 (1970).

"333 N.E.2d 131 (Ind. Ct. App. 1975).
^''IND. Code §6-1-44-5 (Bums 1972). This section was repealed in 1975

when the property tax provisions of the Code were recodified in Article 1.1 of
Title 6. Act of March 18, 1975, Pub. L. No. 47, § 4, 1975 Ind. Acts 466. Al-
though the recodification was intended to be a restatement of the prior law,
the language quoted in the text does not appear in the new codification.
However, Ind. Code § 6-1.1-8-1 (Burns Supp. 1976) taxes "property owned or
used by a public utility company," and id. § 6-1.1-8-10 provides for apportion-
ment among taxing districts of the assessed valuation of a pipeline company's
property other than certain tangible personal property and "real property
which is not a part of a pipeline or right of way of the company." (emphasis
added). Essentially, the court construed the former statute to require the
easement to be included in the property assessed to the pipeline company,
subject to apportionment among the taxing districts in which the company's
pix>elines were located.



356 INDIANA LAW REVIEW [Vol. 10:340

stituting a part of the pipeline right-of-way" (and other than
certain tangible personal property) to be apportioned by the State
Board of Tax Commissioners among the taxing districts in which
the company's pipelines were located,*^ it was concluded that only
the State Board could assess the easement, and the local assessor
lacked jurisdiction to assess the value of the easement to the land
owner or to anyone else. By this reasoning, the court deduced that
there were no delinquent taxes with respect to the easement and
therefore the rights of the easement holder were not affected by
the tax sale.

If this case properly construes the statute, it would appear
that land owners should not be assessed for the value of easements
held by others. But if the easement is property which must be
apportioned by the State Board, as in the case of the pipeline com-
pany, then under the court's reasoning the local assessor may lack
jurisdiction to determine the value of the easement to be excluded

in assessing the land owner. The assessor would therefore have to
obtain the value of the easement from the State Board in order to
arrive at the residual value to be assessed to the land owner.

Evidence introduced in Budnick indicates, however, that the State
Board has been assessing pipelines only on the basis of the value
of the pipe and not on the value of the easements associated there-
with. Thus, the prospect of a real stalemate exists unless the local

assessor may properly determine the residual value to be assessed
to the land owner without regard to action by the State Board on
the easement.

2. Leasehold Interests

In Miller v. Bauer,'^'^ the plaintiffs had sold their real estate

in the Indiana Dunes area to the United States, retaining "lease-
backs" consisting of the right to use and occupancy of improved

property for noncommercial residential purposes for a term of

twenty-five years or less. When property taxes on the residential
improvements were thereafter assessed to the plaintiffs®' they

»7lND. Code §6-1-44-11(8) (Burns 1972), now codified at id. §6-1.1-8-10
(Burns Supp. 1976).

s«517 F.2d 27 (7th Cir. 1975).

*'IND. Code § 6-1.1-10-1 (a) (Burns Supp. 1976) provides:
The property of the United States and its agencies and instru-

mentalities is exempt from property taxation to the extent that this
state is prohibited by law from taxing it. However, any interest in

tangible property of the United States shall be assessed and taxed to

the extent this state is not prohibited from taxing it by the Constitu-
tion of the United States.

IND. CODE § 6-1.1-10-37 (Burns Supp. 1976) provides:
If real property which is exempt from taxation is leased to



1976] SURVEY—TAXATION 357

sought to enjoin collection of the tax and asked that the leasebacks
be declared immune from local taxation.'^ The Seventh Circuit
Court of Appeals affirmed dismissal of the complaint by the dis-
trict court on the basis of a statute prohibiting federal courts from
enjoining the assessment, levy, or collection of state taxes where
a "plain, speedy and efficient remedy may be had in the courts"
of the state."

The appellate court was unpersuaded by the plaintiffs' argu-
ment that there was no "plain, speedy and efficient remedy" be-
cause Indiana law does not specifically allow a class action at the
administrative appeals level." Moreover, the court refused to

entertain the notion that the tax was unconstitutional on the
ground that the plaintiffs were mere instrumentalities of the fed-
eral government." Rather it was correctly determined that the
taxes were levied with respect to the leasehold interests retained

by the plaintiffs and not upon property of the United States.

3. Property in Interstate Commerce

Scheneman v. State Board of Tax Commissioners'"^ dealt with
another situation in which a lease affected the taxable status of
property. In this case the owner of a fleet of trucks had leased
them to an interstate carrier for the purpose of transporting goods
in interstate commerce. The First District Court of Appeals held
that even though the owner himself was not an interstate carrier,
he was entitled to have the assessed value of the property deter-

another whose property is not exempt and the leasing of the real
property does not make it taxable, the leasehold estate and appurten-
ances to the leasehold estate shall be assessed and taxed as if they
were real property owned by the lessee or his assignee.
'°The action was brought under 28 U.S.C. §§ 1331, 1343 (1970) and 42

U.S.C. § 1983 (1970).
"28 U.S.C. §1341 (1970).
'^The court noted that Ind. Code §6-1-31-4 (Burns 1972), now codified

in part at id. §6-1.1-15-5 (Burns Supp. 1976), permits consolidation of ap-
peals from the State Board of Tax Commissioners to the circuit or superior
court, and Ind. Code §§ 6-1-26-5, -6, and -8 (Bums 1972), now codified at id.
§§ 6-1.1-4-5 to -9 (Burns Supp. 1976), provide various procedures under which
the State Board of Tax Commissioners may order a general reassessment of
an entire township, parcel, or area.

'''Compare United States v. City of Detroit, 355 U.S. 466 (1958) (tax

properly imposed on property of the United States leased to a private party)

and Auga Caliente Bank of Mission Indians v. County of Riverside, 442 F.2d
1184 (9th Cir. 1971), cert, denied, 405 U.S. 933 (1972) (tax properly imposed

on lessees of Indian land), with Department of Employment v. United States,
385 U.S. 355 (1966) (Red Cross is an instrumentality of the United States

and therefore immune from state unemployment taxes).
'^340 N.E.2d 385 (Ind. Ct. App. 1976).



2m INDIANA LAW REVIEW [Vol. 10:340

mined in accordance with an allocation formula provided in regula-
tions of the State Board of Tax Commissioners for trucks licensed
in Indiana and "held, possessed or controlled" by an interstate
carrier.'^ Under the formula, only a proportionate amount of the
value of an interstate fleet is subject to the tax, based on the
ratio of the number of miles traveled in Indiana to total miles
traveled. The court noted that interstate use by the lessee could
result in taxation of the property in other states on a proportion-
ate basis, raising a constitutional question whether the property
could also be fully taxed in Indiana.'* Since the allocation formula

was specifically designed to avoid such multiple taxation, it was
construed to apply to the interstate fleet without regard to own-
ership.

In Whirlpool Corp. v. State Board of Tax Commissioners,'^^
an exemption for inventory goods allegedly manufactured, boxed,
and stored in a warehouse for the purpose of transshipment to an
out-of-state destination was upheld on the basis of assumed legisla-
tive acquiescence in prior actions by the State Board of Tax Com-
missioners.'* After the Board had ruled in favor of the claimed
exemption in 1965, Whirlpool continued to claim it in 1966, 1967,

and 1968 without further challenge. When Whirlpool claimed the
exemption in 1969, however, the Board ruled that the property was
not exempt. The First District Court of Appeals overruled the
latter decision on the assumption that the failure of the legislature

to act after the prior administrative interpretation by the Board
indicated acquiescence in the exemption, and therefore the Board

was bound to adhere to its first interpretation. The court also
held the Board had not acted to hold a hearing and make a final
determination VTith respect to the assessment of the property within

the limitation period prescribed in Indiana Code section 6-1-31-10.''

'^IND. Admin. R. & Regs. Ann. Rule (€-1.1-3-^) -72 (Burns 1976).
''^See Central R.R. v. Pennsylvania, 370 U.S. 607 (1962). Compare Braniff

Airways, Inc. v. Nebraska State Bd. of Equalization, 347 U.S. 590 (1954),

with NoTthwest Airlines, Inc. v. Minnesota, 322 U.S. 292 (1944).
9=^338 N.E.2d 501 (Ind. Ct. App. 1975). For a discussion of other issues

in the case, see Shaffer, Administrative Law, supra.

'°The exemption was claimed under Ind. Code §6-1-24-6 (Bums 1972),
now codified at id. §6-1.1-10-30 (Burns Supp. 1976), which essentially pro-
vides an exemption to the extent the property is exempt under the commerce

clause of the United States Constitution. See generally Ind. Admin. R. &
Regs. Ann. Rule (6-1.1-3-9) -32 (Bums 1976).

''''Now codified at Ind. Code § 6-1.1-16-1 (Bums Supp. 1976). This statute
provides that any change in assessment by the State Board of Tax Commis-
sioners, including the final determination appeal from the County Board of
Review, must be made and notice thereof given by October 1 of the year for
which the assessment is made, or 16 months after the personal property



1976] SURVEY—TAXATION 359

The statute provides that if the Board fails to act to change an
assessment within the prescribed period, the assessed value claimed

by the taxpayer on the personal property return is final. "^

Although a representative of the Board had conducted an audit
of the taxpayer's return and his recommendation to disallow
the claimed exemption had been adopted within the limitation
period, the Board had also granted a further hearing to the tax-
payer after expiration of the limitation period pursuant to a regu-

lation permitting a hearing in the discretion of the Board if the
taxpayer disagrees with the recommendation of a hearing officer

and petitions for such a hearing before final assessment is made
by the Board.' °' In these circumstances, the court decided that the
audit was not a hearing and that the final action disallowing the
exemption occurred after the formal hearing, which was too late.

^. Valvntion of Real Property

In determining the value of real property for taxation pur-

poses, the statute prescribes a number of factors to be considered '°^

and requires that all of these factors must be taken into account
to the extent they are applicable. '°^ In State Board of Tax Commis-
sioners V. Valparaiso Golf Club, Inc.,'°'^ the Third District Court of

Appeals decided that the Board acted arbitrarily when it valued
a golf course solely on the basis of the use of the property without

considering whether other factors might be relevant. While it is

not necessary to use all of the factors listed in the statute in making
every appraisal, the Board is required to determine which ones
are applicable and then to use those factors in appraising the value
of the property. The court of appeals also held that the trial court

return is filed if it is filed after May 16 of the assessment year, whichever
is later.

'°°The court found the longer limitation period of three years specified

in the case of undervalued or omitted property in Ind. Code § 6-1-30-2 (Bums
1972), now codified at id. § 6-1.1-9-3 (Burns Supp. 1976), to be inapplicable.
This longer period does not apply where the taxpayer files a return in sub-

stantial compliance with the statute and regulations of the State Board of

Tax (Commissioners. In addition, Ind. Code §6-1-31-15 (Bums 1972), now
codified at id. § 6-1.1-16-4 (Bums Supp. 1976), provides that in case of any
conflict the shorter limitation period is controlling.

'°'IND. Admin. R. & Regs. Ann. Rule (6-1.1-3-9) -13 (Bums 1976).
'°2lND. Code §6-1-33-3 (Bums 1972), now codified at id. §6-1.1-31-6

(Bums Supp. 1976).
'°^IND. Code §6-1-33-2 (Burns 1972), now codified at id. §6-1.1-31-5

(Bums Supp. 1976). The recodification does not si)ecificially include the re-
quirement that all factors must be considered.

'°^330 N.E.2d 394 (Ind. Ct. App. 1975).



360 INDIANA LAW REVIEW [Vol. 10:360

could not fix the value of property on an appeal from the Board,
since the proper procedure is to remand the matter to the Board
for reassessment.

'°^

XVIII. Torts

James J. Brennan*

The purpose of this discussion is to highlight selected judicial
decisions in the area of tort law. Not all tort cases decided during
the survey period have been discussed, but an effort has been made
to note recent developments and significant clarifications and
affirmations of Indiana law. Because this discussion is synoptic in

nature, it does not purport to provide either extensive coverage

or extensive analysis of the cases.

A. Limitations on Duty

1. The Guest Statute

The Indiana guest statute' withstood a vigorous equal protec-
tion challenge during the survey period. In Sidle v. Majors,^ a

guest passenger who was injured in an automobile driven by the
defendant appealed the dismissal of her negligence complaint on

the ground that the guest statute violated the fourteenth amend-
ment to the United States Constitution and article 1, sections 12
and 23 of the Indiana Constitution. The Seventh Circuit Court of
Appeals, before addressing the questions of federal law, certified

the questions of state law to the Indiana Supreme Court pursuant
to Rule 15 (N) of the Indiana Rules of Appellate Procedure.

In an opinion couched with judicial restraint,^ the supreme

^^See IND. Code § 6-1.1-15-8 (Burns Supp. 1976) ; Indiana State Bd. of
Tax Comm'rs v. Pappas, 302 N.E.2d 858 (Ind. Ct. App. 1973).

Member of the Indiana Bar. B.S., Purdue University, 1972; J.D., Indiana
University School of Law—Indianapolis, 1975.

The author wishes to express his appreciation to Lynn Brundage for
her assistance in the preparation of this comment, and to J. Randall Aikman
for his work in authoring the section on damages.

'Ind. Code §9-3-3-1 (Burns 1973).
^536 F.2d 1156 (7th Cir.), certifying questions of state law to 341 N.E.2d

763 (Ind.), cert, denied, W7 S. Ct. 366 (1976). Dempsey v. Leonherdt, 341
N.E.2d 763 (Ind. 1976) was a companion case to Sidle. This case is also
discussed in Marsh, Constitutional Law, supra at 133. For an analysis of
Sidle, see 9 Ind. L. Rev. 885 (1976).

^341 N.E.2d 763 (Ind. 1976). The extent to which the supreme court acted
with restraint is exemplified by the following excerpt from the opinion: