Indiana Law Review Developments in Indiana Taxation Lawrence A. Jegen, Iir Peter A. Siddiqui** The 1 12th Indiana General Assembly, the Indiana Supreme Court, and the Indiana Tax Court each contributed changes and clarifications to the Indiana tax laws in 2001 .' This Article will highlight the more interesting developments for the period of October 1, 2000 through September 30, 2001 .^ I. General Assembly Legislation Numerous legislative changes in 200 1 affected Indiana taxation. While many of the changes were made in order to fine-tune existing laws, some policy changes occurred in each of the following Indiana tax areas: income tax, sales and use tax, tax credits, inheritance tax, financial institutions tax, gasoline tax, motor carrier fuel tax, commercial vehicle excise tax, cigarette tax, tax administration, and innkeeper's tax. A. Indiana Income Taxes The General Assembly enacted several laws affecting Indiana income taxes. For example, the General Assembly amended the general provision that all references to the Internal Revenue Code in Indiana tax statutes are to refer to the Internal Revenue Code "as amended and in effect on January 1, 2001."^ This updating must be done each year if the State of Indiana wishes to continue, for example, for the Indiana adjusted gross income tax law to be based on the definition ofthe federal adjusted gross income tax, because the Indiana adjusted gross income tax is based on the federal income tax law's adjusted gross income. The Indiana Constitution prevents the State of Indiana from allowing Indiana laws to automatically change in response to changes that the federal government makes to the federal income tax laws. I. Indiana Income Taxes: The Gross Income Tax.—The General Assembly enacted laws with respect to the gross income tax. For example, the General * Thomas F. Sheehan Professor of Tax Law and Policy, Indiana University School of Law—Indianapolis; B.A., Beloit College; M.B.A., J.D., University ofMichigan; LL.M., New York University. ** B.A., DePauw University; J.D., 2002, Indiana University School ofLaw—Indianapolis. 1 . Hereinafter, at times, the following abbreviations are used in this Article: the Indiana General Assembly is referred to as General Assembly; the Governor of Indiana is referred to as Governor; the Indiana State Board of Tax Commissioners is referred to as ISBTC; the Indiana Depzirtment of Revenue is referred to as IDR; the Indiana Supreme Court is referred to as the supreme court; the Indiana Tax Court is referred to as the tax court; and, the terms petitioner, petitioners, taxpayer, and taxpayers are used interchangeably. 2. For comprehensive information concerning the tax court, the IDR, the ISBTC, and a variety of other tax items related to Indiana tax laws, visit the official State of Indiana web site, available at http://www.ai.org. 3. IND. Code §6-3-l-ll(a) (1998 &Supp. 2001). 1542 INDIANA LAW REVIEW [Vol. 35:1541 Assembly enacted a law that exempts from gross income the proceeds of a specific business transaction/ The new law provides that amounts received from the sale, lease, or other transfer ofan electric generating facility and any auxiliary equipment are "exempt from gross income tax to the extent of any mortgage, security interest, or similar encumbrance that exists" with respect to the electric generating facility at the time ofthe sale, lease, or transfer.^ The General Assembly passed another exemption from gross income with respect to electric generating facilities. The new law provides that "[g]ross income received by a qualified lessee from a qualified investment is exempt from gross income tax."^ The statute defines a qualified investment as an investment that is acquired by a qualified lessee for the purpose of paying rent under a qualified lease and exercising any purchase option in the qualified lease.^ A qualified lease is defined as "the lease of an interest in an electric generating facility . . . where the property is subject . . . to (1) or more leases previously entered into under Section 168(f)(8) ofthe Internal Revenue Code of 1954."* A qualified lessee is any person or an affiliate of a person who is the lessee under a qualified lease.^ 2. Indiana Income Taxes: The Adjusted Gross Income Tax.—In 2001, the General Assembly also amended and added new laws with respect to the adjusted gross income tax. Now an employee of a "nonprofit entity, the state, a political subdivision of the state, or the United States govemmenf counts as a qualified employee with respect to the enterprise zone adjusted gross income deduction. '° A qualified employee must reside in the enterprise zone in which the employee works; perform services for the employer, ninety percent ofwhich are related to the employers' trade or business, or to the nonprofit or governmental entity's activities; and perform fifty percent of the employee's service for the employer during the taxable year in the enterprise zone.'^ The enterprise zone deduction permits the qualified employee to deduct the lesser ofone-halfofthe employee's adjusted gross income for the taxable year or $7500.'^ 4. See id. § 6-2. 1-3- 16(b). 5. Id. 6. Id. §6-2.1-3-16.5(0. 7. Id. §§ 6-2.1-6-16.5(c)(l)(A)-(B). An investment is defined as a loan or deposit made by a qualified lessee or an investment contract or payment agreement purchased by a qualified lessee. Id. §6-2.1-3-16.5(b). 8. Id. § 6-2. 1-3-1 6.5(d). The federal income tax provision cited in the Indiana statute refers to a safe harbor provision that was given continuing effect for certain property by P.L. 99-5 1 4, Sec. 201(a). 9. Id. § 6-2. 1-3- 16.5(e). An affiliate is defined as a "corporation, partnership, limited liability company, or trust that controls, is controlled by, or is under common control with another corporation, partnership, limited liability company, or trust." Id. § 6-2. 1-3- 16.5(a). Control is further defined as ownership of eighty percent of voting stock. Id. 10. Id. §6-3-2-8(a). 11. Id. 12. Id. §6-3-2-8(b). 2002] TAXATION 1543 In another amendment, the General Assembly, by deleting part of a subsection, now permits individuals over the age of sixty-five to be eligible for the disability income tax deduction.'^ Another new law regarding the adjusted gross income tax treatment ofdistributions from individual accounts established under the Indiana family college savings account program provides that "[d]istributions from an individual account used to pay qualified higher education expenses are exempt from adjusted gross income ... as income of an account beneficiary or an account owner."'"^ The General Assembly also amended the law regarding independent contractors' ability to elect exemption from worker's compensation.'^ The law now mandates that independent contractors must file a statement with the IDR declaring independent contractor status and obtain a certificate of exemption from Worker's Compensation.'^ This filing must be done yearly and be accompanied by a five-dollar filing fee.'^ Within seven days, the IDR must provide a certificate ofexemption after verifying the accuracy ofthe statement.'^ Within thirty days after receiving the independent contractor's statement, the IDR "shall provide the independent contractor with an explanation of the department's tax treatment of independent contractors and the duty of the independent contractor to remit any taxes owed."'^ 3. Indiana Income Taxes: The County Adjusted Gross Income Tax.—The General Assembly enacted laws regarding the county adjusted gross income tax in 2001 . For example, county solid waste management districts may not receive distributions from the county adjusted gross income tax unless a majority ofthe county fiscal bodies approve the distribution by passing a resolution.^^ This resolution may expire on a date specified in the resolution or may remain in effect until the fiscal body revokes or rescinds the resolution.^' Also, regarding county adjusted gross income tax revenues, the General Assembly increased the length oftime a county with a certain population has to impose an additional adjusted gross income tax to eight years instead of four.^^ The purpose for this tax must be the operation and maintenance of a jail and 13. Id. §6-3-2-9(a). 14. M§ 6-3-2-19(6). 15. See id. §6-3-7-5. 16. See id. § 6-3-7-5(c). 17. /^. § 6-3-7-5(eH0. 18. Id. § 6-3-7-5(j). This certificate of exemption then must be filed with the Worker's Compensation Board of Indiana to be given effect. Id. 19. M § 6-3-7-5(k). 20. /(i.§ 6-3.5-1. l-1.3(b). 21. M §6-3.5-1. 1-1. 3(c). The General Assembly passed a similar law regarding distributions to county solid waste management districts from the county option income tax. See id. § 6-3.5-6- 1.3. 22. Id. § 6-3.5-1 . 1 -2.5(c). The affected counties must have a population between 37,000 and 37,800, id § 6-3.5-1.1 -2.5(a) (2001), or between 12,600 and 13,000, id § 6-3.5-1. 1-3. 5(a). 1 544 INDIANA LAW REVIEW [Vol. 35: 1 541 juvenile detention center. ^^ A county described as having a population between 68,000 and 73,000^"^ is now permitted to raise its county adjusted gross income tax rates in order to "finance, construct, acquire, improve, renovate, or equip" its countyjail or repay bonds issued for the same purpose.^^ The taxes raised may not exceed the amount necessary to accomplish the above-stated purpose.^^ The law further provides that any excess revenue from the increased tax imposed will go to the highway fund for the county. ^^ The General Assembly also passed a new law that prohibits it from amending or repealing the county adjusted gross income tax in a way that would hinder the collection ofany taxes imposed for as long as obligations against which county adjusted gross income tax revenues are pledged remain unpaid.^* 4. IndianaIncome Taxes: The Municipal Option Income Tax.—^The General Assembly created a new tax called the municipal option income tax.^^ The municipal option income tax is a tax on the adjusted gross income of municipal taxpayers.^® The rate of tax is one percent on municipal taxpayers who are county residents and one-halfofone percent on municipal taxpayers who are not county residents.^' The revenue accumulated from this municipal option income tax will be used for the benefit of the county family and children's fund.^^ 5. Indiana Income Taxes: The Indiana Financial Intuitions Tax.—^The General Assembly has enacted some minor amendments to the laws regarding the taxation of financial institutions. The definition of a unitary business has been amended in that the term "does not include an entity that does not transact business in Indiana."" Also, the General Assembly has changed the payment dates for the financial institutions tax to the twentieth day of the fourth, sixth, ninth, and twelfth months of the financial institution's fiscal year.^"* B. Indiana Sales and Use Taxes The General Assembly amended and added tax laws regarding Indiana sales and use taxes. For example, the General Assembly eliminated quarterly filing of 23. Id. § 6-3.5-1. l-2.5(b). 24. Id. § 6-3.5-1. l-2.7(a). 25. Id § 6-3.5-1. l-2.7(b). 26. /c/.§ 6-3.5-1. l-2.7(d). 27. Id § 6-3.5-1. l-2.7(h). 28. Id §6-3.5-1.1-23. 29. See id §§ 6-3.5-8-1 to -25. 30. Id. § 6-3.5-8-9(a). A municipal taxpayer is defined as resident of the affected county or a person who maintains his or her principal place of business in the affected county and does not live in a county were there is another municipal option income tax. Id. § 6-3.5-8-5. 31. Id §6-3.5-8-10. 32. Id §§6-3.5-8-12(dHf)- 33. Id §6-5.5.1-18(a). 34. Id § 6-5.5-6-3(a). 2002] TAXATION 1545 sales tax returns.^^ The provision that allowed retail merchants to report and pay sales taxes on a quarterly basis if the merchant's tax liability in the previous calendaryearwas less than seventy-five dollars was removed.^^ Another deletion from the sales and use tax section eliminates the provision that allowed a taxpayer who remitted tax payments by electronic fund transfer to report quarterly instead of month ly.^^ The General Assembly added a new chapter to the law of sales and use taxes entitled the "Simplified Sales and Use Tax Administration Act."^^ This Act permits the IDR to enter into agreements with other states to simplify state rates, establish uniform standards ofsourcing and administration oftax returns, provide a central electronic registration for the collection and remittance of state taxes and reduce the burden of complying with local sales and use taxes.^^ The IDR has the power to act jointly with other agreeing states "to establish standards for certification of certified service providers and certified automated systems and to establish performance standards for multistate sellers.'"*^ Certified service providers are defined as agents ofsellers who are liable for sales and use tax due to each agreeing state on all sales transactions that they process for the seller/' C. Indiana Tax Credits The General Assembly amended and added tax laws regarding tax credits. For example, the General Assembly provides that when a pass through entity entitled to the prison investment credit "does not have state tax liability against which the credit may be applied . . . , it is entitled" to the distributive share ofthe prison investment credit that is available/^ A pass through entity is defined as any corporation that is exempt from adjusted gross income tax, a partnership, a trust, a limited liability company, or a limited liability partnership/^ Another amendment to Indiana tax credits provides that a high technology business operation is entitled to a five percent enterprise zone investment cost credit/"^ The General Assembly also decreased the maximum amount of credit allowed in a fiscal year for the individual development account tax credit from $500,000 to $200,000/^ Further, the General Assembly extended the expiration 35. See id. §6-2.5-6-14. 36. See id. 37. See id 38. See id §§ 6-2.5-11-1 to 39. Id §6-2.5-11-7. 40. Id §6-2.5-11-5. 41. Id § 6-2.5-1 l-lO(a). 42. Id §6-3.1-6-6. 43. Id §6-3.1-6-1. 10. 44. Id § 6-3.1-10-8(c)(4). See IND. CODE § 4-4-6.1-1.3 (Supp. 1998 & 2001) (defining a high technology business operation to include such operations as biotechnology and advanced computing). 45. Id §6-3.1-18-10(a). 1546 INDIANA LAW REVIEW [Vol. 35:1541 date for the earned income tax credit to December 3 1 , 2003/^ The General Assembly created new tax credits as well. For example, the General Assembly created the capital investment tax credit.'*^ This tax credit is available only to taxpayers in a county that has a population between 40,000 and 4 1 ,000 people.'** To be eligible for the credit in any year, the taxpayer must make a qualified investment in that year.'*^ A qualified investment is an amount of not less than seventy-five million dollars that is used to purchase new manufacturing equipment or machinery or improve facilities.^" The amount ofthe credit is equal to fourteen percent of the qualified investment.^' Another newly-enacted tax credit is the income tax credit for property taxes paid on homesteads.^^ A taxpayer is entitled to this credit ifthe taxpayer's earned income is less than $18,600 and the taxpayer pays property taxes on a homestead^^ that the taxpayer owns or is buying.^^ Further, the taxpayer must file with the IDR information about the amount of property taxes paid on a homestead.^^ The property upon which the taxpayer pays property tax must be located in a county with a population between 400,000 and 700,000 people.^^ Any taxpayer who meets the above-described characteristics "is entitled to a refundable credit against the individual's state income tax liability. . . ."^^ The amount of the credit for a taxpayer who has earned income of less than $ 1 8,000 is the lesser of $300 or the amount of property taxes actually paid.^* For a taxpayer with earned income between $18,000 and $18,600, the amount of the credit is the lesser ofthe amount ofproperty taxes paid or an amount determined by subtracting the taxpayer's earned income from $18,600 and multiplying the difference by 0.50.^^ The IDR must determine the amount ofthe credits allowed for a year by July 1 ofthe next year.^° One-half ofthis amount will be deducted 46. Id. §6-3.1-2M0. 47. See id. §§ 6-3.1-13.5-1 to -13. 48. Id §6-3.1-13.5-3. 49. Id §6-3.1-13.5-6. 50. Id §6-3.1-13.5-3. 51. Id §6-3.1-13.5-6. This law is retroactive to January 1, 2001. 5^^2001 Ind. Acts 291. 52. See iND. CODE §§ 6-3. 1-20-1 to -7. 53. A homestead is defined as a taxpayer's principle place ofresidence, including a dwelling and surrounding real estate of less than one acre. Id. § 6-1 . 1-20.9-1(2). 54. Id. § 6-3.1-20-4(a). Earned income is defined as employee compensation and net earnings from self-employment for the taxpayer and the taxpayer's spouse if the taxpayer files a joint tax return. Id. § 6-3.1-20-1. 55. Id §6-3.1-20-6. 56. Id §6-3.1-20-4(a)(2)(B). 57. Id. § 6-3. 1 -20-5(a). This section also states that "[i]fthe amount ofthe credit . . . exceeds the individual's state tax liability for the taxable year, the excess shall be refunded [by] the [IDR]." /^. §6-3.1-20-5(d). 58. Id §6-3.1-20-5(b). 59. Id §6-3.1-20-5(c). 60. Id §6-3.1-20-7(a). 2002] TAXATION 1547 from the riverboat admissions tax revenue due to the affected county and paid into the state general fund.^' The General Assernbly also enacted the residential historic rehabilitation credit.^^ A taxpayer can receive a credit of twenty percent of qualified preservation and rehabilitation expenditures^^ on historic property^ at least fifty years old^^ that the taxpayer intends to use as the taxpayer's residence.^^ To qualify for the credit, the expenditures on the property must exceed $10,000.^^ The adjusted basis for the property affected by this credit will be reduced by the amount of credit claimed by the taxpayer.^* The amount of credit can be carried forward by the taxpayer for fifteen years;^^ however, the credit cannot be carried back or refunded to the taxpayer.^° The General Assembly has also enacted the rerefmed lubrication oil facility credit.^' A taxpayer is entitled to a credit that is equal to the percentage of property taxes paid by the taxpayer for real property containing a facility that processes rerefined lubrication oil and for personal property used in the processing of rerefined lubrication oil.^^ The percentage of property taxes on which the credit is determined decreases over five years from 100% in 2001 to twenty percent in 2005.^^ Rerefined lubrication oil is defined as used oil that is recycled in a manner that removes physical and chemical impurities so that it can be reused/"* The taxpayer can carry forward any unused credit for two years.^^ To be eligible for the credit, the Department of Commerce must approve the taxpayer for the credit/^ The General Assembly enacted a tax credit entitled "the voluntary remediation tax credit."^^ This credit provides that a taxpayer is entitled to the 61. Id§ 6-3. l-20-7(b)-(c). This credit will be applied retroactively to January 1, 2001 . See 2001 Ind. Acts 151. 62. See iND. CODE §§ 6-3.1-22-1 to -16. 63. Id. §6-3.1-22-8(b). 64. The property must be listed in the register of Indiana historic sites and structures. Id § 6-3.1-22-9(2). 65. M§6-3.1-22-9(l)(A). 66. Id §6-3.1-22-9(6). 67. Id §6-3.1-22-9(7). 68. Id §6-3.1-22-12. 69. Id §6-3.1-22-14(a). 70. Id §6-3.1-22-14(c). 71. 5'ee/^. §§6-3.1-22.2-1 to -10. 72. Id. § 6-3.1-22.2-5. Personal property includes property used for transportation of rerefined lubrication oil. Id 73. /c/. §6-3.1-22.2-6(b). This credit expires on January 1 , 2006. M § 6-3.1-22.2-10. 74. Id §6-3.1-22.2-2. 75. Id §6-3.1-22.2-8. 76. Id §6-3.1-22.2-9. 77. Id §§6-3.1-23-1 to -17. 1548 INDIANA LAW REVIEW [Vol. 35:1541 lesser of$100,000 or ten percent ofa qualified investment^* incurred to conduct a voluntary remediation of a brownfield.^^ The taxpayer can carry any unused credit over for five years.*° The credit expires on December 31, 2003.*' A brownfield is defined as an industrial or commercial parcel of real estate that cannot be utilized because ofthe presence of a hazardous substance on or under the surface soil or in the groundw^ater that poses a risk to human health and the environment. A final credit enacted by the General Assembly in 2001 is the credit for property taxes paid on business personal property." A taxpayer is entitled to a credit for the net property taxes paid on business personal property up to the lesser of $37,500 or the assessed value of the taxpayer's business personal property.*"* Business personal property is defined as tangible property held for sale in the ordinary course of business or held for the production of income.*^ The taxpayer can carry any unused credit over to the "following taxable years."*^ This credit is available to individuals and entities,*^ including pass through entities,** but the credit is not available to utility companies.*^ D. Indiana Inheritance Taxes The General Assembly has modified the Indiana inheritance taxes by moving the provision that provides that the IDR must prescribe the affidavit form that may be used to state that no inheritance tax is due to a different chapter.^ Further, personal representatives, trustees, and transferees of property must file an inheritance tax return with the probate court within nine months, instead ofthe previously required twelve months, after the decedents' death.^' Underthe newly enacted laws, inheritance tax is to be paid within twelve months, instead of the 78. Id. §6-3.1-23-6. 79. Id §6-3.1-23-3. 80. Id §6-3.1-23-11. 81 . M § 6-3. 1-23-16. This expiration date does not affect a taxpayer's ability to carry any unused credit forward. Id. 82. Id § 13-11-2-19.3. 83. See id §§ 6-3.1-23.8-1 to -9. 84. Id. § 6-3.1-23.8-6. Net property taxes means the "amount of property taxes paid by a taxpayer for a particular calendar year after the application of all property tax deductions and property tax credits." Id. § 6-3.1-23.8-2. 85. Id §6-3.1-23.8-1.5. 86. Id §6-3.1-23.8-7. 87. See id §6-3.1-23.8-5. 88. Id §6-3.1-23.8-8. 89. Id §6-3.1-23.8-6(c). 90. The provision is now in Indiana Code section 6-4. 1-4-0. 5(b). This provision was formerly in Indiana Code section 6-4.1-3-12.5 which was repealed by 2001 Ind. Acts 252. 9 1 . iND. Code § 6-4. 1 -4- 1 (a) ( 1 998 & Supp. 200 1 ). 2002] TAXATION 1549 previously required eighteen months.^^ However, if the taxpayer pays the inheritance tax within nine months ofthe death ofthe decedent, then the taxpayer is entitled to a five-percent reduction in the inheritance tax due.^^ The General Assembly has also shortened the time within which Indiana estate taxes are to be paid from eighteen months to twelve months after the death of the decedent.^"^ Also, the generation-skipping transfer tax is due twelve months, rather than eighteen months, from the date ofdeath ofthe "person whose death resulted in the generation-skipping transfer."^^ E. Indiana Gasoline Tax The Indiana General Assembly has amended one of the registration and licensure laws associated with the gasoline tax. The new law no longer requires a person who transports gasoline in a vehicle with a tank capacity of more than 850 gallons to display a transporter emblem.^ F. Indiana Motor Carrier Fuel Tax The Indiana General Assembly amended the law regarding the motor carrier fuel tax to provide that a carrier may obtain an International Fuel Tax Agreement (IFTA) repair and maintenance permit from the IDR to travel into Indiana to repair any vehicles owned by the carrier and then return to some other state when they are fmished.^^ The operator of a motor vehicle with such a permit, which costs forty dollars, does not need to pay the motor carrier fuel tax.^* A carrier may also obtain an International Registration Plan repair and maintenance permit, which is similar in all tax respects to the IFTA permits.^ Further, the commissioner ofthe IDR may become a member ofthe IFTA or other reciprocal agreements with other states or jurisdictions.^^ Also, entering into the IFTA provides for the exchange and sharing of information with other states and jurisdictions.'^' The General Assembly further specified its own powers and the powers of the IFTA.'°^ The IFTA is limited to determining the base state for users, specifying records requirements, specifying audit procedures, providing for the exchanging of information, defining persons eligible for tax licensing, defining qualified motor vehicles, determining whether bonding is required, and 92. Id §6-4.1-9-l(a). 93. Id. §6-4.1-9-2. 94. Id §6-4.1-11-3. 95. Id §6-4.1-11.5-9. 96. Id § 6-6-1. l-606.5(g) (2000), repealed by 2001 Ind. Acts § 10. 97. Id §6-6-4. 1-1 3(c). 98. Id 99. 5'ee/^.§ 6-6-4. 1-1. 3(d). 100. /d §6-6-6-4.1-14(a). 101. Id §6-6-4.1-16. 102. See id §6-6-4.1-14.5. 1550 INDIANA LAW REVIEW [Vol. 35:1541 specifying reporting requirements and periods. ^°^ Despite these enumerated powers, the General Assembly also retains the authority to determine whether to impose a tax, to prescribe the tax rates, to define tax exemptions and deductions, and to determine what constitutes a taxable event. '°^ The General Assembly further replaced all references to the Base State Fuel Tax Agreement with references to the IFTA.'°^ G. Cigarette Tax The General Assembly amended the law appropriating the money from the cigarette tax that is in the mental health centers fund, to the division of mental health and addiction.'^ K Tax Administration The General Assembly amended existing laws and added new laws with respect to tax administration. For example, the General Assembly added the municipal option income tax to the list of taxes defined as listed taxes. '°^ The General Assembly also changed the name ofthe Alcoholic Beverage Commission to the Alcohol and Tobacco Commission.'^* The General Assembly amended the powers of the IDR by permitting the department to enter into the IFTA.'^ If the IDR does enter into the agreement, then any conflicts between the provisions of the agreement and any Indiana statute will be resolved in favor ofthe state statute. "° Any conflicts between the provisions ofthe agreement and provisions in the Indiana Administrative Code will be resolved in favor of the agreement.' '' The General Assembly amended the law ofassessment oftaxes by providing that if the IDR sends out a notice of a proposed tax assessment and the notice is returned because the taxpayer has moved, and the IDR cannot determine the taxpayer's new address, the IDR may immediately make an assessment for the taxes owing and demand immediate payment without issuing a ten-day demand notice.''^ 103. Id §6-6-4. 1-1 4.5(a). 104. Id §6-6-4. 1-1 4.5(b). 105. See id §§ 6-6-4. 1-22 to -26. 1 06. Id. § 6-7-1-32. 1 . The division has changed its name from the Division ofMental Health. See200\ Ind. Acts 215, § 11. 107. 2001 Ind. Acts 151, § (codified at iND. Code §§ 6-3.5-8-1 to -25 (Supp. 2001) (describing and enacting the municipal option income tax)). 108. Ind. Code § 6-8.1-7-l(m) (1998 & Supp. 2001). 109. Id §6-8. 1-3-1 4(a). 110. Id §6-8. 1-3- 14(c)(1). 111. Id §6-8. 1-3- 14(c)(2). 1 1 2. Id. § 6-8. 1 -5-3(b). This statute expressly provides that the IDR may ignore the provision that provides that the taxpayer has ten days to show the IDR why it has not paid the amount of tax required, fd.; see also id. § 6-8.1-8-2(a)(l). 2002] TAXATION 1551 The General Assembly amended several statutes dealing with the tax collection so that the word "lien" has been replaced with "judgment.""^ A new law regarding tax collection mandates that "a judgment arising from a tax warrant is enforceable in the same manner as any judgment issued by a court of general jurisdiction.""'* Further, the IDR has the power to initiate proceedings supplementary to the execution of the warrant in any court of general jurisdiction in the county where the tax warrant is recorded."^ /. Innkeeper 's Tax The General Assembly amended and added several laws regarding the Vigo County Innkeeper's Tax. For example, the Vigo County Convention and Visitor Commission now has the power to issue bonds and enter into leases for the construction and equipping of a sports and recreational facility."^ This is so because the General Assembly found that Vigo County "possesses a unique opportunity to promote and encourage conventions" and special events from which it could benefit if it had a sports and recreation facility within its borders."^ The General Assembly covenanted that it would not amend or repeal this law while there are any outstanding bonds or payments due under any lease. "^ The commission also has the ability to exercise the power of eminent domain for the purpose of encouraging conventions and tourism."^ The commission can now enter into agreements to pledge money deposited in the convention and visitor promotion fund^^° to pay for the construction and equipping of a sports and recreation facility.'^' Any sports and recreational facility constructed pursuant to these new laws must "serve[] a public purpose and [be] of benefit to the general welfare of the county by encouraging investment, job creation and retention, and economic growth and diversity." '^^ II. Indiana Tax Court Opinions and Decisions During the period of October 1, 2000 through September 30, 2001, the opinions and decisions ofthe Indiana Tax Court were dominated by cases dealing with Indiana real property cases. Specifically, the tax court published twenty-six opinions, sixteen of which concerned real property tax issues. The remaining cases are divided as follows: one case regarding the Indiana tangible personal 1 13. See 2001 Ind. Acts 129, § 22 (codified at IND. CODE §§ 6-8.1-8-2 to -8 (Supp. 2001)). 114. Ind. CODE §6-8.1-8-8.5(a). 115. M§6-8.1-8-8.5(b). 1 16. Id. § 6-9-1 l-3(a)(8)-(a)(9). See id. § 6-9-1 1-3.7 (establishing parameters and rules for bond issuance and lease terms). 117. M §6-9-11-9. 118. Id §6-9-11-3.9. 119. Id § 6-9-1 l-3(a)(10). 120. See id. § 6-9-1 1-7 (enabling the Vigo County treasurer to establish such a fund). 121. M §6-9-11-3.5. 122. Id §6-9-11-4.5. 1552 INDIANA LAW REVIEW [Vol. 35:1541 property tax; two cases regarding the Indiana gross income tax; three cases regarding Indiana sales and use taxes; one case regarding the Indiana controlled substance excise tax; one case regarding the Indiana financial institutions tax; and two cases regarding Indiana motor vehicle excise taxes. A. Property Tax-Real Property I. B i shop V. State Board ofTax Commissioners.'^^—The Bishops petitioned for review of the ISBTC's assessment of their Elkhart County condominium.'^'* On review, the ISBTC did not adjust its determination of the condominium's assessed value of$25,400. '^^ The Bishops appealed to the tax court asserting two issues: whether the ISBTC unconstitutionally applied its assessment regulations in assessing the Bishops' condominium'^^ and whether the ISBTC erred in assigning a B grade to the Bishops' condominium.'^^ The tax court held that the Bishops did not sufficiently explain how the ISBTC method ofassessment lacked equality and uniformity, and, therefore, the Bishops did not demonstrate that the method violated the property taxation clause of the Indiana Constitution.'^* The Bishops relied on a study performed by an appraiser. Landmark Appraisals, that analyzed the assessed value ofnewer homes as compared to older homes. '^^ The study found that new homes are assessed at a higher rate than older homes. '^° The Bishops argued that these results demonstrated a lack of uniformity in the ISBTC's assessments.'^' The court held that the Bishops did not explain how the study demonstrated "a lack ofequality and uniformity ofresidential assessments under Indiana's true tax value system."'^^ The figures used in the study were based on market information.'^^ However, the ISBTC regulations for assessing improvements do not allow for the application of market information.'^"* As a result of this disparity in standards, the Bishops failed to show how the study, which used market information, showed that the ISBTC's assessments, which did not use market information, were unconstitutional.'^^ The ISBTC's refusal to adjust the Bishops' property assessment was not an error. '^^ 123. 743 N.E.2d 810 (Ind. T.C. 2001). 124. Mat 812. 125. Id 126. Id 127. Mat 815. 128. Id at 814-15. See iND. CONST, art. X, § 1 129. Bishop, 743 ^.E2d at S\3. 130. Id 131. Id 132. Mat 814. 133. Id 134. Id 135. Id 136. Mat 815. 2002] TAXATION 1553 With respect to the grading ofthe Bishops' condominium, the tax court held that since the Bishops failed to establish "a prima facie case as to grade,"'-'^ the ISBTC's assessment of a B grade was not an error. '^* To get a grade reduction, a taxpayer "must offer probative evidence sufficient to establish a prima facie case concerning the alleged assessment error."'^^ The Bishops offered only a photograph of their condominium, photos ofC grade homes, a sample property report card, and the ISBTC's grade specification table."*° The court held that this evidence was not probative as to grade.'"*' The court found this evidence to be merely conclusory statements by the Bishops that they deserved a grade reduction."*^ The court was not persuaded and affirmed the denial of their reduction of grade. '^^ 2. Garcia V. State Board ofTax Commissioners.'"^—TheGarcias challenged the ISBTC's grade assessment of their home to the tax court, as well as the ISBTC's failure to assess some enclosed property on the land to the tax court. '"^^ After considerable procedural history,'*^ the ISBTC increased the grade of the Garcias' home from A+4 to A+6.''*^ Further, the ISBTC did not assess an enclosure on the Garcias' property.'"** The tax court held that the A+6 assessment was an error. '"*^ The court stated that the manner in which the ISBTC discerned the grade of the Garcias' home was wholly arbitrary and completely unsupportable by the ISBTC's own regulations. '^° The court further stated that the ISBTC's regulations did not support, under any circumstances, a grade above A.'^' Therefore, the court held 137. /^. at 816. 138. /^. at 817. 139. /f/. at 815. 140. /c/. at 816. 141. Id. 142. Id. 143. /^. at 817. 144. 743 N.E.2d 817 (Ind. I.e. 2001). 145. /(i. at 818. 146. See id; see also Garcia v. State Bd. of Tax Comm'rs, 694 N.E.2d 794 (Ind. T.C. 1998). 1 47. Garc/fl, 743 N.E.2d at 8 1 8. 148. Id 149. /^. at 821. 150. Id. at 820. The ISBTC*s method of assessment started with determining the actual construction value ofthe home only. Then it discounted this price to 1 985 costs in order to comply with its regulations in place at the time of the construction ofthe house in 1991 . Then the ISBTC used its regulations to determine what the cost ofthe house would be if it were graded as a C house. Then the court divided that cost by the actual cost of the house. This quotient constituted a percentage that the ISBTC used to guess the grade above an A at which the Garcia home should be assessed. See id. at 819-20. The ISBTC's methods were so arbitrary, the court noted, that even members of the ISBTC admitted at trial that the calculations were unsupportable. See id. at 820. 151. /^. at 820-21. 1554 INDIANA LAW REVIEW [Vol. 35:1541 that the A+6 assessment constituted an abuse of discretion by the ISBTC.'^^ Further, the court directed the ISBTC to assess Garcia's property as grade AJ^^ The court held that the ISBTC's failure to assess the enclosure was also an error. '^"^ However, the court granted the ISBTC's request that the court remand the issue so that the ISBTC could "extrapolate the value of the enclosure from Schedule G.l and then reassess it based on that extrapolation."'^^ 3. Canal Realty-Indy Castor v. State Board of Tax Commissioners.'^^ — Canal appealed to the tax court the assessment by the ISBTC of Canal's real property. '^^ This appeal focused on certain paving surrounding buildings on Canal's property.'^* Canal posed three issues: whether the ISBTC erred in not allowing further obsolescence deductions; whether the ISBTC violated Canal's due process by assigning value to previously non-assessed property without giving Canal an opportunity to address the assessment; and whether the ISBTC incorrectly valued the paving on Canal's property. '^^ The court reversed and remanded the ISBTC's denial of an additional obsolescence deduction. '^° The ISBTC performed the assessment at issue in 1 995 . '^' In 1 998, the tax court held that it would only hear obsolescence appeals from an ISBTC hearing in which the taxpayer identified the causes of the obsolescence and presented probative evidence to support an increase in obsolescence.'^^ For any assessment performed prior to this decision, the ISBTC had to support its obsolescence assessment with substantial evidence. '^^ On this issue, the tax court stated that Canal's offer of proof to support an increased obsolescence deduction was "woefully inadequate."'^'* However, the court had to remand the case so that the ISBTC could support its denial of increasing the obsolescence deduction with substantial evidence because the assessment was performed before the 1998 decision.'^^ 152. /^. at 821. 153. Id. 154. Id. 155. Id. This procedure was mandated by the court in its earlier Garcia opinion. Garcia v. State Bd. of Tax Comm'rs, 694 N.E.2d 794, 799 (Ind. T.C. 1998). Instead of complying with this request, however, the ISBTC did nothing. Garcia, 743 N,E.2d at 821. 156. 744 N.E.2d 597 (Ind. T.C. 2001). 157. Mat 599. 158. Id 159. Id 160. /^. at 603-04. 161. Id at 603. 162. Id (referencing Clark v. State Bd. of Tax Comm'rs, 694 N.E.2d 1230, 1241 (Ind. T.C. 1998)). 163. Id 164. Id 1 65. Id. The court, however, did hint to the ISBTC that if Canal offered the same quantum of evidence as it did in this appeal, the ISBTC could "merely state in its final determination that Canal takes nothing by its petition." Id. at 604. Then the ISBTC's "quantification ofobsolescence stands 2002] TAXATION 1555 The court held that the ISBTC did not violate Canal's due process. '^^ The court stated that all that due process requires is "an opportunity to review and rebut the [ISBTC]'s evidence of the paving value."'^^ The hearing officer at Canal's administrative hearing conducted an ex parte assessment of the paving on Canal's property because it had never been assessed.'^* The hearing officer then mailed a letter to Canal's representative asking Canal to "present evidence responding to the proposed assessment."'^^ The representative did not answer directly to this request.''^ The hearing officer subsequently sent another letter asking Canal to respond to the proposed assessment.'^' Again, Canal's representative did not sufficiently respond to the request. '^^ The court held that Canal, through its representative, had an opportunity to review and rebut the assessment ofthe paving, but it chose not to do so.'^^ The fact that Canal had an opportunity was enough to satisfy due process.'^'* Regarding the issue of the value of the paving, the trial court affirmed the ISBTC's determination.'^^ The court stated that since Canal had the opportunity to rebut the ISBTC's evidence at the administrative level, it bore the burden before the tax court ofdemonstrating that the ISBTC's assessment was invalid. '^^ This burden required that Canal offer "probative evidence as to the paving's condition, for purposes of challenging the physical depreciation assigned to the paving."'^^ The court stated that Canal offered no probative evidence. '^^ Further, in support ofthe ISBTC's assessment, the court stated the its "photograph ofthe subject property, set to scale, shows the paving's size, and the ninety-cent per square foot base rate applied is taken directly from Schedule G of the regulations."'^' Therefore, the ISBTC's assessment of the value of the paving was affirmed. 4. Quality Farm & Fleet v. Board ofTax Commissioners. '^°—Quality Farm and Fleet ("Quality Farm") appealed to the tax court the ISBTC assessment of its property.'*' Quality Farm raised five issues: whether the ISBTC "exceeded its automatically" without the need of substantial evidence to support it. Ic 166. Id. at 605. 167. Id. 168. Mat 599. 169. Id at 605. 170. Id 171. Id 172. Id 173. Id 174. Id 175. Mat 606. 176. Id 177. Id 178. Id 179. Id 180. lAl N.E.2d 88 (Ind. T.C. 200 1 ). 181. Id at 90. 1556 INDIANA LAW REVIEW [Vol. 35:1541 legislative authority in conducting a hearing in this matter without having issued a letter of appointment or a prescription of duties to its hearing officer;"'^^ whether the ISBTC erred in denying Quality Farm a negative influence factor; whether the ISBTC erred in not applying the General Commercial Kit (GCK) pricing schedule; whether the ISBTC erred in applying a D grade to Quality Farm's main building; and whether the ISBTC erred in not awarding an obsolescence adjustment.'*^ The court held that the administrative hearing was lawful even though the ISBTC did not issue a written order ofappointment or a prescription of duties to the hearing officer.'*"* The hearing was lawful because Quality Farm did not object to the hearing, and this failure constituted an acceptance of the hearing officer's authority, and a waiver of the issue. '*^ With respect to the negative influence factor, the court held that the ISBTC properly denied a negative influence factor to Quality Farm's parcel.'*^ For a negative influence factor to apply in this case. Quality Farm would have had to show, via probative evidence, that its main building did not have the same use as its surrounding buildings and that this inconsistent use negatively impacted the value of the property.'*^ Quality Farm proved the former; however, it did not demonstrate how the differing use of the buildings decreased the value of the property.'** Therefore, the denial of a negative influence factor was proper.'*^ The court further held that the ISBTC did not err when it refused to use the GCK pricing schedule.'^ The GCK pricing schedule was used for determining the value ofpre-engineered and pre-designed pole buildings used for commercial or industrial purposes.'^' Quality Farm alleged that it had two qualifying buildings: an addition and a small shop area.'^^ With respect to the addition. Quality Farm asserted that the ISBTC assessed it using the GCK price schedule in the past.'^^ The court stated that this evidence alone was not sufficient to show an error here since "each assessment and each tax year stands alone."'^"* Further, photographs shown by Quality Farm depicting the addition were not probative because they failed to explain how the addition qualifies for the GCK pricing schedule. '^^ 182. Id. 183. Id. 184. Id2X9\. 185. Id 186. Idz!i91. 187. id 188. Id 189. Id 190. Id at 93. 191. /af. at 92 (referencing iND. ADMIN. Code tit. 50, r. 2.2-1 0-6. 1(a)(1)(D) (2000)). 192. Id 193. /J. at 93. 194. Id 195. Id 2002] TAXATION 1557 With respect to the small shop area, Quality Farm demonstrated that its characteristics are similarto other buildings that use the GCK pricing schedule.'^ The court stated that this evidence, while probative, was not sufficient to "establish a prima facie case that the Small Shop Area should be assessed using the GCK pricing schedule."^^' The court further held that Quality Farm did not present sufficient evidence to establish a prima facie case to invalidate the grade assessment on its main building.'^^ Quality Farm wanted a decrease in grade from a D to a D-1 on the main building because it lacked interior finish, exterior windows, and exterior attractiveness.'^^ The court held that Quality Farm failed to explain why these deficiencies warranted a downward adjustment in the base value of the building.^^ Therefore, the ISBTC did not err in granting a grade assessment of The court finally held that Quality Farm was not entitled to an obsolescence adjustment.^^^ Obsolescence was defined as a diminishing of a property's desirability and usefulness because of inadequacies inherent in the property, or economic factors external to the property .^^^ Quality Farm claimed that the flat roof of its building and add-on construction create a loss in value of the property-^^"^ The court held, however, that Quality Farm did not sufficiently explain how these characteristics qualified as obsolescence.^^^ Quality Farm relied on conclusory statements that such characteristics reduce the value ofthe property.^^^ The court stated that these types of statements do not constitute probative evidence.^°^ Therefore, the ISBTC did not err in denying an obsolescence adjustment. ^^^ 5. Fleet Supply, Inc. v. State Board of Tax Commissioners.^^'—Fleet appealed the assessment of its real property by the ISBTC to the tax court.^'° Fleet raised four issues: whether the depreciation schedule for its main building should be based on a thirty-year rather than a forty-year life expectancy; whether the ISBTC erred in declaring the conditions of improvements to be average; whether the D grade was improper; and whether the ISBTC erred in refusing to 196. Id 197. Id. 198. /flf. at94. 199. Id 200. Id 201. Id 202. Id ai95. 203. Id. (referencing IND. Admin. Code tit. 50, ir. 2.2-1-40 (1996)). 204. Id 205. Id 206. Id 207. Id 208. Id 209. 747 N.E.2d 645 (Ind. T.C. 2001). 210. Id at 647. 1558 INDIANA LAW REVIEW [Vol. 35:1541 apply a negative influence factor.^" With respect to the life expectancy issue, the court held that the forty-year expectancy table was properly used.^'^ Life expectancy tables were used by the ISBTC to account for the physical depreciation ofthe property.^'^ There are four different tables used for the depreciation of commercial and industrial buildings.^''* The thirty-year table is used for light pre-engineered buildings, while the forty-year table is used for buildings that are fire-resistant but not listed in other tables.^ '^ To show that the ISBTC should have used the thirty-year table, the court stated that Fleet "was required to submit to the ISBTC probative evidence sufficient to establish a prima facie case as to the invalidity of the application of the forty-year life expectancy table."^^^ This Fleet failed to do.^'^ Fleet offered evidence through its appraiser. Landmark Appraisals, that the main building should have been depreciated by the thirty-year table, offered photographs ofthe main building, and offered testimony that the building was a light pre-engineered structure.^'* The court held that this evidence was conclusory and did not explain why the thirty-year table was more appropriate.^'^ The photographs were without caption and were unexplained, so the court granted them no probative weight.^^^ The testimony offered no argument or analysis but, rather, just stated conclusions, and the court refused to make any arguments for Fleet.^^' Therefore, the court held that the ISBTC did not err in using the forty-year depreciation table. As to the issue ofthe average condition rating, the court held that since Fleet failed to provide any explanation for its argument that the assignment of an average condition to the main building was in error, the court affirmed ISBTC's assessment ofthe main building's condition as average.^^^ Fleet offered evidence that the proper condition was less than average because the main building received little maintenance and that the building had dents and stains.^^^ The court again disregarded this evidence as conclusory and uninformative as to how these problems affected the usefulness of the buildings.^^"^ 211. Id. at 647-48. Fleet also argued that the ISBTC's assessment violated the Indiana Constitution. However, the court replied that it would not invalidate an assessment because the regulations that led to the assessment were unconstitutional. Id. at 647-48 n. 1 . 212. /^. at 650. 213. /f^. at 648. 214. /^. at 648-49. 215. Id 5eelND.ADMIN.CODEtit. 50, r. 2.2-11-7(1996). 216. Fleet Supply, 147 "N.E.lddit 649. 217. Id 218. Id 219. Id 3Li 649-50. 220. Id 221. Id 222. /^. at 651. 223. Mat 650. 224. /J. at 650-51. 2002] TAXATION 1559 As to the issue of grade, the court affirmed the D grade assessed by the ISBTC.^^^ The court held that the evidence offered by Fleet did not create a prima facie showing to change the grade.^^^ Fleet's evidence consisted of conclusory statements similar to those that the court had rejected in its analysis of Fleet's other complaints,^^^ The court finally held that Fleet was not entitled to a negative influence factor.^^^ A negative influence factor is a percentage decrease in property's assessed value representing the effect of factors that influence the value.^^^ Fleet argued that it was entitled to a negative influence factor because the structures surrounding the main building were used for purposes different from those ofthe main building, which was suited for retail purposes.^^^ The court rejected this argument because Fleet failed to show that this disparate use of the property caused a decrease in the value of the property.^^' As a result, the court affirmed the denial of a negative influence factor.^^^ 6. McDonald's Corp. v. Indiana State Board of Tax Commissioners.^^^ — McDonald's appealed the assessment of its property by the ISBTC to the tax court.^^"* McDonald's asserted that "its land should have been assessed on a front foot basis pursuant to the Commercial/Industrial Platted section of the Land Order rather than on the acreage basis."^^^ The "land order" was the Kosciusko County Land Valuation Order.^^^ McDonald's wanted its property assessed by the platted section rather than the acreage section of the land order.^^^ The court held that since McDonald's land was platted and "the subdivision where McDonald's land [was] located [was] specifically provided for in the Commercial/Industrial Platted land section ofthe Land Order,"^^^ the land should have been assessed on a front foot basis pursuant to the commercial/industrial platted section. ^^^ 225. /(/.at 652. 226. Id. 227. See id. at 651. 228. Mat 653. 229. Mat 652. 230. Id. at 652-53. To be entitled to a negative influence factor, Fleet needed to show two things: that the main building did not have the same use as the surrounding buildings and that the "inconsistent usage negatively impacted the subject parcel's value." Id. at 653 (referencing iND. ADMIN Code tit. 50, r.2.2-4-10-(a)(9)(E) (1996)). 231. Mat 653. 232. Id 233. 747 N.E.2d 654 (Ind.TC. 2001). 234. Mat 655. 235. Mat 656. 236. Id 231. Id 238. Id at 651. 239. Id 1560 INDIANA LAW REVIEW [Vol. 35:1541 7. Damon Corp. v. Indiana State Bd. of Tax Commissioners.^'*^—Damon purchased certain property in Elkhart County from Mallard Coach Co. in 1992.^"*' In 1 993, Damon received a bill for property taxes due for 1 989 through 1992.^"*^ Damon filed a petition for review ofthe assessment with the ISBTC arguing that it was a bona fide purchaser and, therefore, not subject to a lien for additional taxes assessed before Damon purchased the property.^"^^ The ISBTC did not hold a hearing or make any determination regarding Damon's petition.^'*'* Damon subsequently filed another petition with the ISBTC requesting an obsolescence deduction and kit building adjustment.^"*^ The ISBTC denied these requests, and Damon appealed to the tax court.^'*^ The tax court initially ruled that it did not have jurisdiction over the bona fide purchaser issue.^'*^ However, under thejurisdictional laws in 1994, the date when Damon filed its initial petition, if the ISBTC did not conduct a hearing within a certain time after the filing of the petition, Damon could file an appeal with the tax court.^"** Since Damon filed its appeal after the requisite period, the tax court had jurisdiction over the case.^"*^ With respect to the merits ofthe bona fide purchaser issue, the tax court held that the bona fide purchaser exception to liens for additional taxes assessed for assessment dates prior to Damon's purchase of property did not apply in this case.^^^ The bona fide purchaser notion relied upon by Damon states: "With respect to real property which is owned by a bona fide purchaser without knowledge, no lien attaches for any property taxes which result from an assessment, or an increase in assessed value, made under this chapter for any period before his purchase of the property."^^' The court stated that the plain language of this section provides that bona fide purchasers were exempt from previous assessments made under chapter nine, which dealt with the assessments ofundervalued or omitted tangible property.^^^ Since the taxes were owed before Damon even possessed the property, there was no evidence showing why the previous owner of the property owed these taxes.^" As a result, Damon failed to make a prima facie showing that it was not subject to the lien for additional 240. 738 N.E.2d 1 102 (Ind. T.C. 2000). 241. Mat 1105. 242. Id. 243. Id. 244. Id. 245. Id 246. Id 247. 5eg/^. atll05n.3. 248. Id. See iND. CODE §6-1.1-1 5-4(e) ( 1 989). The requisite time period was one year in a nonreassessment year and two years in a reassessment year. Id. 249. Da/wow, 738 N.E.2d at 1105 n.3. 250. /c/. at 1107. 251. Id. at 1 106 (quoting iND. CODE § 6-l.l-9-4(b) (2000)) (emphasis deleted). 252. /i/. at 1107. 253. Id 2002] TAXATION 1561 taxes.^^* With respect to obsolescence, Damon asserted that it was entitled to an obsolescence deduction because it paid less than the true tax value for the property, because the building was vacant before Damon took it over, and because the building was under construction.^" The court held that the fact that Damon paid less than the true tax value of the property failed to make a prima facie case establishing an obsolescence deduction.^^^ The court stated that "the difference between the true tax value ofDamon's property and the price Damon paid for the property, two unrelated numbers, [did not] demonstrate that there has been a loss in value of the subject improvement."^" The numbers were so unrelated, in fact, that a statute expressly states that "true tax value does not mean fair market value."^^* The court further held that the vacancy of the building did not constitute a prima facie case establishing that the property suffered a loss and was entitled to obsolescence.^^^ The court stated that Damon did not explain why the building was vacant or whether the building was even for sale during its vacant period. ^^° The court further found that no case for obsolescence had been shown by Damon's argument that its main building was under construction and unusable.^^' The court stated that "for an obsolescence adjustment to be made, there must be some loss in value."^" Further, "obsolescence cannot be applied to a building that is under construction because its useful life has not yet begun."^" Damon was not entitled to an obsolescence adjustment, because its building had not started becoming useful yet and therefore had not suffered a loss in value.^^'* With respect to the kit building adjustment, the court held that Damon had presented a prima facie case that its building was eligible for a kit building adjustment.^^^ The ISBTC permits a fifty percent reduction in the base rate ofkit buildings,^^^ which are defined as buildings made of light weight and inexpensive materials put together in a particular way.^^^ Damon presented evidence to the tax court tending to show that it was entitled to a kit building adjustment because its main building was constructed in such a manner as to be a kit building.^^^ The 254. Id. 255. /^. at 1108. 256. Mat 1109. 257. Id. 258. Id. (quoting IND. CODE §6-1.1-31 -6(c) (2000)) (emphasis deleted). 259. Id 260. Id 261. Mat 1110. 262. Id. (emphasis deleted). 263. Id 264. Id 265. Mat nil. 266. Id. (referencing iND. Admin. Code tit. 50, r. 2.1-4-5 (1992)). 267. Id 268. Id 1562 INDIANA LAW REVIEW [Vol. 35:1541 court stated: "Because Damon has presented evidence that its building had tapered columns and Cee channels (both key factors in identifying kit buildings) as well as cross bracing, this Court concludes that Damon has established a prima facie case that its building is eligible for a kit building adjustment. "^^^ Since Damon had presented a prima facie case, the ISBTC had to rebut Damon's evidence andjustify its decision to deny a kit building adjustment with substantial evidence.^^^ The ISBTC argued that it denied the adjustment because Damon had put two additions to the main building.^^' The court rejected this reason as insufficient to rebut Damon's showing. The court stated that the ISBTC cited no authority supporting its position that additions to an otherwise qualifying structure disqualified that structure.^^^ As a result, the court held that the ISBTC acted arbitrarily and capriciously in denying the kit building adjustment and remanded the case instructing the ISBTC to reassess Damon's property.^^^ The court further instructed that if the assessment altered the grade of Damon's building, the ISBTC must grade it a C or must support with substantial evidence any grade other than a C.^^^ 8. Componx, Inc. v. Indiana State Board of Tax Commissioners.^^^ — Componx appealed to the tax court the fmal determination of the ISBTC assessing Componx's property.^^^ Componx's property was subject to a kit building adjustment.^^^ However, the ISBTC ruled that the interior components of the building should be subtracted from the base price of the building before applying the fifty percent reduction^^* for the kit building adjustment and then fully added back in after the adjustment has been made.^^^ The issue was whether this procedure constituted an abuse of discretion by the ISBTC.^^^ The tax court ruled that this procedure was not an abuse of discretion or arbitrary and capricious action by the ISBTC.^*' The court reasoned that the kit building adjustment statute did not provide for the interior components to be reduced by fifty percent.^*^ Further, the court stated that the ISBTC developed the subtraction method through its instructional bulletins.^*^ The court stated that 269. Id. 270. Mat 1112. 271. Id 272. Id 273. Mat 1113. 274. Id 275. 741 N.E.2d 442 (Ind. T.C. 2000). 276. Id at 443. 277. Id 278. Mat 445. 279. Id 280. Id at 444. 281. Mat 446. 282. Id 5eelND.ADMlN.CODEtit. 50, r. 2.1-4-5(1992). 283. Componx, Inc., 741 N.E.2d at 444-45. See iND. ADMIN. CODE tit. 50, r. 4.2-1-5 (1992) (permitting the ISBTC to issue instructional bulletins to provide instructions to assessors). 2002] TAXATION 1563 "Instructional Bulletins hold a lofty position in property tax law."^*'' The court held that Instructional Bulletin 92-1, the one describing the subtraction method, prevails over other previous, less specific, and contradictory instructional bulletins.^^^ Therefore, this method holds near-statutory status according to the tax court. The court further supported its holding by stating that previous instructional bulletins, such as Instructional Bulletin 91-8,^*^ indicate that the kit building adjustment was meant to apply only to the shell of the building and not its interior components.^^^ To conclude, the court held: Because the [ISBTC]'s interpretation of IND. ADMIN. CODE tit. 50, r. 2.1-4-5 via [Instructional Bulletin] 92-1 is not inconsistent with the regulation itself, reflects the purpose ofthe kit building adjustment, and is the most recent, specific, and objective explanation by the [ISBTC], this Court holds that the method of calculating the kit building adjustment therein is not arbitrary or capricious and is not an abuse of the ISBTC's discretion.^** 9. Clark v. State Board of Tax Commissioners.^*^—Clark appealed a final determination by the ISBTC adjusting the grade assigned to Clark's apartment complex to a C-1 and refusing to issue an obsolescence adjustment.^^^ The tax court held that the ISBTC erred in adjusting the grade on Clark's property from a C to a C-1.^^^ In its final determination, the ISBTC offered no explanation as to why it adjusted Clark's grade.^^^ At the trial before the tax court, however, the hearing officer ofClark's administrative hearing testified that she based the adjustment on deviations of Clark's apartment building from the "specifications ofthe GCR Apartment model."^'^ The court held that the ISBTC could not support its final determination by "referring to reasons that were not previously ruled upon, but that [were] offered as post hoc rationalizations."^^"* Since the hearing officer's trial testimony was the first explanation on the adjustment, the tax court reversed and remanded the ISBTC's grade 284. Componx, Inc., 741 N.E.2d at 446. 285. Id. at 447. 286. Instructional Bulletin 9 1 -8 was previously used by the ISBTC in assessing the kit building adjustment. This instructional bulletin provided that the fifty percent reduction applied to the entire building, including the interior. Id. at 444. 287. Id 288. Id. at 448. On practically the same facts, and on the very same day, the tax court made a ruling identical to Componx in King Industrial Corp. v. State Board ofTax Commissioners, 74 1 N.E.2d 815 (Ind.T.C. 2000). 289. 742 N.E.2d 46 (Ind.T.C. 2001). 290. Id at 47. 291. Mat 49. 292. Id at 48. 293. Id. at 49. At no point in the opinion did the court define the GCR Apartment model. 294. Id. (quoting Word of His Grace Fellowship, Inc. v. State Bd. of Tax Comm'rs, 711 N.E.2d 875, 878 (Ind. T.C. 1999)). 1564 INDIANA LAW REVIEW [Vol. 35:1541 determination.^^^ With respect to the issue of the obsolescence deduction, the court affirmed the ISBTC in denying the deduction.^^^ Clark argued that he was entitled to a deduction because his apartment lessees tend to be Purdue University students. This characteristic, Clark argued, translated into higher maintenance costs and a higher turnover rate. Further, Clark argued that he was entitled to obsolescence because of the low land-to-building parking ratios.^^^ The court held that while these reasons may in fact permit an entitlement, Clark failed to submit probative evidence tending to show that he actually suffered higher administrative costs or that the parking situation led to an actual problem.^^* Instead, Clark rested on conclusory statements which, the court commented, "do not qualify as probative evidence."^^^ As a result, the court affirmed the ISBTC denial ofan obsolescence deduction.^°° 10. Louis D. Realty Corporation v. Indiana State Board of Tax Commissioners.^^^—Louis Realty appealed to the tax court a final determination by the ISBTC.^*^^ Louis Realty raised two issues: whether the ISBTC's regulations regarding grade, condition, or obsolescence were unconstitutional because they were arbitrary and capricious and whether the ISBTC's determinations regarding grade, condition, or obsolescence in Louis Realty's case were arbitrary and capricious or unsupported by substantial evidence.^^^ The tax court held that the final determination of the ISBTC would not be reversed solely because Louis Realty's property was assessed under an unconstitutional system.^^'^ The court stated that property must still be assessed, even though the current system was unconstitutional, until new regulations are in place.^^^ Therefore, "a taxpayer cannot come into court, point out the inadequacies of the present system and obtain a reversal of an assessment .... Instead, the taxpayer must come forward with probative evidence relating to" the specific issues ofthe taxpayer's individual case.^°^ As a result, the court refused to reverse the final determination of the ISBTC solely on constitutional 295. Id. The court hinted to the ISBTC that the preferred way of accounting for Clark's deviation from the GCR Apartment model is to "use separate schedules that show the costs of certain components and features present in the model." Id. (referencing Whitley Prods., Inc. v. State Bd. ofTax Comm'rs,704N.E.2d 1113, 1117 (Ind.T,C. 1998)). This method would be more objective theui the grade adjustment method and therefore was preferred. Id. 296. Id at 52. 297. /£/. at 50-51. 298. Id. at 51-52. In fact, the evidence suggested that Clark was making money off his apartments. /7, 744 N.E.2d at 595. 537. Id 538. Id 539. Id 540. Id. (citing Wabash Grain, Inc. v. Smith, 700 N.E.2d 234, 237 (Ind. Ct. App. 1998)). 541. Id 2X596. 542. Id 1580 INDIANA LAW REVIEW [Vol. 35:1541 affirming the IDR's denial of a refund to Salin 543 G. Motor Carrier Fuel Tax 7. Jack Gray Transport, Inc. v. Department of State Revenue.^^'^—The taxpayer^"*^ was a motor carrier in the business of commercial trucking.^"*^ The General Assembly passed a law that exempted from the motor carrier tax those vehicles that used power take-off equipment.^*^ The taxpayer applied for this exemption, but the IDR denied its application.^"*^ The taxpayer appealed to the tax court asking that the court certify its class and grant it the exemptions.^"*^ The tax court did not certify the class.^^° The court held that the taxpayer did not meet the numerosity requirement because the taxpayer expressly indicated that it could join all potential claimants in one lawsuit.^^' Furthermore, the IDR stated that it was willing to try all 1536 cases if necessary."^ The tax court did hold, however, that as to the taxpayers directly involved in this action,^^^ the IDR erred in refusing to give the taxpayers their exemption.^^^ The court held that the statute that provided the exemption was not completely invalidated by a previous tax court case that declared part of the statute unconstitutional.^^^ Since the court had previously only struck the unconstitutional language in the motor carrier fuel statute, the statute still existed and the taxpayer was entitled to the exemption.^^^ 2. Hi-Way Dispatch, Inc. v. Indiana Department of State Revenue.^^^ — Hi-Way Dispatch, Inc. ("Hi-Way") is a commercial motor vehicle operator with 543. Id. 544. 744 N.E.2d 1071 (Ind. T.C 2001). 545. The taxpayer includes Jack Gray Transport as well as thirty-eight other parties. Id. at 1072. The taxpayer sought to certify a class action consisting of 1536 similarly-situated motor carriers. Id. at 1073. 546. Id 547. Id ^ee Ind. Code §6-6-4.1 -4(d) (1 998 &Supp. 2001). 548. Jack Gray Transport, 744}^.E.2d at \072'73. 549. Id &t 1073. 550. Id at 1075. 551. Id ^ee I^fD. Trial RULE 23(A). 552. Jack Gray Transport, 744 N.E.2d at 1075. 553. Mat 1077 n.U. 554. /^. at 1077. 555. Id. See Bulkmatic Transp. Co. v. Dep't of State Revenue, 715 N.E.2d 26, 36 (Ind. T.C. 1999);BulkmaticTransp.Co.v.Dep'tofStateRevenue,691N.E.2dl371, 1379 (Ind. T.C. 1998). The previous version of the motor carrier fuel tax was unconstitutional because in contained language that "discriminated against interstate commerce and foreclosed tax neutral decisions, a result which is not allowed under the Commerce Clause." Jack Gray Transport, 744 N.E.2d at 1076. 556. Jack Gray Transport, 744 N.E.2d at 1077. 557. 756 N.E.2d 587 (Ind. T.C. 2001). 2002] TAXATION 1581 a principle place of business in Marion, Indiana.^^^ Between 1992 and 1994, Hi-Way did not pay its motor carrier fuel taxes for the gas lost during idle time.^^^ Idle time was when a motor vehicle's engine was on, but the vehicle was not moving.^^^ The IDR issued an assessment against Hi-Way for the amount of taxes not paid plus interest, and Hi-Way appealed to the tax court.^^' The issues before the tax court were whether the IDR properly included idle time gas consumption in the calculation of fuel tax owed, whether Hi-Way had any affirmative defenses with respect to the IDR's assessment, and whether Hi-Way was entitled to full credit for the fuel purchased in Indiana but consumed elsewhere.^^^ The tax court held that the IDR properly concluded that Hi-Way could not reduce its total fuel consumed figure by fuel lost in idle time.^^^ Indiana was a member of the International Fuel Tax Agreement (IFTA).^^ The IFTA is an agreement between memberjurisdictions that permits a motor carrier to pay fuel tax in one jurisdiction, and then that jurisdiction distributes the tax to other jurisdictions in which the carrier operates.^^^ The IFTA permitted a tax on the consumption ofmotor fuels used in the propulsion ofcertain vehicles.^^^ Hi-Way argued that idle time gas loss was not used in the propulsion oftheir vehicles, so it was exempt from the tax.^^^ Indiana statutes provide, however, a road tax on the consumption of fuel during operations on the state's highways.^^^ Another Indiana statute states that if an Indiana law and an IFTA regulation conflict, the IFTA regulation prevails.^^' The court held that the Indiana road tax law and the IFTA tax only on the fuel that was used to propel the carrier were not inconsistent.^^° The court stated that the IFTA regulation "explains the general use for which fuel must be consumed under IFTA, not the fuel's specific use at any given time."^^' Since there was no conflict, the IDR properly did not reduce Hi-Way's tax liability by the amount of gas used in idle time.^^^ The court held that Hi-Way had a valid affirmative defense oflaches against 558. /^. at 591. 559. Id. 560. Id. at 596. 561. Mat 591. 562. Id at 590. 563. Id at 597. 564. Id at 595. See IND. CODE § 6-8.1-3-14 (1998 & Supp. 2001). 565. Hi'Way Dispatch, 756 N.E.2d at 594. 566. Mat 595. 567. Mat 596. 568. Id 5ge iND. CODE § 6-6-4. 1-4(1 998 & Supp. 2001). 569. Hi-Way Dispatch, 756 N.E.2d at 595. See iND. CODE § 6-8. 1-3- 14(d) (1998 & Supp. 2001). 570. Hi'Way Dispatch, 756 N.E.2d at 597. 571. Id 572. Id 1582 INDIANA LAW REVIEW [Vol. 35:1541 the IDR.^^^ The elements ofthe defense of laches were: "(0 inexcusable delay in asserting a right; (2) an implied waiver arising from knowing acquiescence in existing conditions; and (3) circumstances resulting in prejudice to the adverse party."^^"* The court found a genuine issue of material fact as to laches because Hi-Way offered evidence that tended to show that its president received the blessing of the administrator of the IDR's Special Tax Division to exclude idle time.^^^ Despite this apparent acquiescence, the IDR, after seven years, decided to enforce its right to collect idle time taxes anyway.^^^ As a result, the tax court permitted a trial to go forward on the issue of laches.^^^ With respect to the issue of Hi-Way's entitlement to a tax credit, the court held that the IDR properly denied the credit to Hi-Way.^^* The court held that the Indiana statute that provided a full tax credit for gasoline purchased in Indiana but consumed in a non-IFTA state only when a similar ftiel tax was remitted to that state was not in conflict with the IFTA and did not violate the Commerce Clause.^^^ As a result, Hi-Way's motion for summary judgment on the issue of the credit entitlement was denied.^*° 573. Id. at 600. The court concluded that Hi-Way did not have a valid equitable estoppel defense against the IDR. Id. at 599. The court stated: "Hi-Way must identify an important public policy reason for disregarding the general rule that government entities cannot be estopped." Id. The reason for this rule is that "[i]fthe government could be estopped, then dishonest, incompetent or negligent public officials could damage the interests of the public. At the same time, if the government v/ere bound by its employees' unauthorized representations, then government itself could be precluded from functioning.*' Id. at 598 (quoting Samplawski v. City of Portage, 512 N.E.2d 456, 459 (Ind. Ct. App. 1 987)). 574. Mat 599-600. 575. Id 2X600. 576. Id 577. /^. at 605. 578. Id 579. Mat 602-03. 580. Mat 605.