Indiana Dep't of State Revenue v. Rent–A–Ctr. East, Inc.
| Decision Date | 09 March 2012 |
| Docket Number | No. 49S10–1112–TA–683.,49S10–1112–TA–683. |
| Citation | 963 N.E.2d 463 |
| Parties | INDIANA DEPARTMENT OF STATE REVENUE, Petitioner (Respondent below), v. RENT–A–CENTER EAST, INC., Respondent (Petitioner below). |
| Court | Indiana Supreme Court |
OPINION TEXT STARTS HERE
Gregory F. Zoeller, Attorney General of Indiana, John D. Snethen, Andrew W. Swain, Deputy Attorneys General, Indianapolis, IN, Attorneys for Petitioner.
Francina A. Dlouhy, Jon Laramore, Indianapolis, IN, Attorneys for Respondent.
On Petition for Review from the Indiana Tax Court, No. 49T10–0612–TA–106, The Honorable Martha Blood Wentworth, Judge
The Indiana Department of State Revenue conducted an audit of a taxpayer corporation, concluded that the corporation's 2003 tax return did not fairly represent its income from Indiana sources, and proposed an assessment of additional tax liability. On the corporation's appeal of the Department's final determination, the Indiana Tax Court granted the corporation's motion for summary judgment. We reverse and remand.
Rent–A–Center East, Inc. (“RAC East”) is a Delaware corporation originally formed as Renter's Choice, Inc. It operates rent-to-own retail stores providing furniture, electronics, appliances, and computers. In 1998, Renter's Choice acquired a competitor operating under the Rent–A–Center name, along with the competitor's subsidiary, Advantage Companies, Inc. As part of this acquisition and reorganization, Renter's Choice changed its name to Rent–A–Center, Inc.
In 2002, Rent–A–Center, Inc. changed its name to RAC East and a newly formed corporate entity, Rent–A–Center Holdings, Inc., assumed the name Rent–A–Center, Inc. Advantage Companies, Inc. changed its name to Rent–A–Center West, Inc. (“RAC West”), and yet another entity was formed under the name Rent–A–Center Texas, L.P. (“RAC Texas”). Consequently, at the start of the 2003 tax year there were three corporate entities relevant to this action: RAC East, RAC West, and RAC Texas.
RAC East operated 1932 retail stores nationwide, with 106 of those stores in Indiana. Neither RAC West nor RAC Texas operated retail stores in Indiana during the 2003 tax year, nor did they have any capital, property, or employees within the state. Instead, RAC West owned the Rent–A–Center trademarks and other related intellectual property and licensed this property to RAC East and RAC Texas in exchange for royalties. RAC Texas, in turn, performed all strategic management and related functions for RAC East and RAC West in exchange for a strategic assistance fee. Both the royalties and the strategic assistance fee amounts were established by a transfer pricing study conducted by an independent accounting firm, and reflected rates that were equivalent to those used in arm's-length transactions.
RAC East's 2003 Indiana corporate adjusted gross income tax return reflected no tax due for the 2003 tax year. The Indiana Department of State Revenue then conducted an audit of RAC East for the 2001, 2002, and 2003 tax years. The audit resulted in no change for the 2001 and 2002 tax year filings, but proposed an assessment of $513,272.60 in additional tax liability for the 2003 tax year. The assessment was based on a determination that RAC East should have filed a combined return 1 with RAC Texas and RAC West. RAC East timely filed a protest, contesting the requirement of filing a combined return and, after a hearing, the Department upheld the audit's assessment. RAC East then filed an original tax appeal with the Indiana Tax Court.
Both the Department and RAC East filed motions for summary judgment in the Tax Court. The court denied the Department's motion and granted RAC East's. Rent–A–Center East, Inc. v. Ind. Dep't of State Revenue, 952 N.E.2d 387 (Ind. Tax Ct.2011).
We granted the Department's petition for review pursuant to Indiana Rule of Appellate Procedure 63(A). Rent–A–Center East, Inc. v. Ind. Dep't of Revenue, 962 N.E.2d 653 (Ind.2011) (table).
The Indiana Tax Court is a specialized court established to provide particular expertise to fairly and uniformly resolve cases involving Indiana tax. Ind. Dep't of State Revenue v. Belterra Resort Ind., LLC, 935 N.E.2d 174, 176 (Ind.2010). Consequently, we exercise cautious deference to those decisions made within its particular realm, and will not reverse unless that decision is clearly erroneous. This deference extends to rulings on summary judgment where the question is one of tax law, and we will set aside those rulings “only if we are definitely and firmly convinced that an error was made.” Id.
The Tax Court's determination in this case was necessarily governed by a combination of tax statutes and trial rule requirements. Because we believe the Tax Court incorrectly applied this combined scheme to the case before it, we reverse and remand without addressing the merits of either party's motion.
We begin with the tax statutes. A corporation's adjusted gross income is taxed based on the portion of that income derived from sources within Indiana. Ind.Code § 6–3–2–1(b) (2010).2 This portion of a corporation's income is determined according to the provisions of Indiana Code § 6–3–2–2(a)– (k) (2010 & Supp.2011) (the “Standard Sourcing Rules”), and reported on a separate basis. RAC East, 952 N.E.2d at 389; Kohl's Dep't Stores, Inc. v. Ind. Dep't of State Revenue, 822 N.E.2d 297, 301, 301 n. 2 (Ind. Tax Ct.2005) (). But if none of the methods available through the Standard Sourcing Rules “fairly represent the taxpayer's income derived from sources within the state of Indiana,” the taxpayer may petition—or the Department may require—alternative sourcing methods. Ind.Code § 6–3–2–2( l ) (2010).3
Finally, there is the provision upon which this case turns. Section 6–3–2–2(p) addresses the Department's authority to require a combined income tax return, and states, in relevant part:
Notwithstanding subsection[ ] ( l ) ... the department may not require that income, deductions, and credits attributable to a taxpayer and another entity ... be reported in a combined income tax return for any taxable year, unless the department is unable to fairly reflect the taxpayer's adjusted gross income for the taxable year through use of other powers granted to the department by subsection[ ] ( l )....
In the context of summary judgment, these tax statutes must operate within the procedural framework established by Indiana Trial Rule 56(C). Pursuant to this rule, summary judgment may be rendered as to all or some of the issues or claims when “the designated evidentiary matter shows that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Ind. Trial Rule 56(C). The moving party “bears the burden of making a prima facie showing” as to the absence of any issues of material fact. Dreaded, Inc. v. St. Paul Guardian Ins. Co., 904 N.E.2d 1267, 1270 (Ind.2009). To do so, it must “designate to the court all parts of pleadings, depositions, answers to interrogatories, admissions, matters of judicial notice, and any other matters on which it relies for purposes of the motion.” T.R. 56(C). “[T]he burden then shifts to the non-moving party to designate and produce evidence of facts showing the existence of a genuine issue of material fact.” Dreaded, Inc., 904 N.E.2d at 1270; see also T.R. 56(C).
Here, the Tax Court apparently construed the tax statutes so as to require the Department to make its Trial Rule 56(C) prima facie showing by “designating facts material to whether: 1) RAC East's 2003 separate return fairly reflect its income from sources in Indiana; 2) the use of a combined income tax return was reasonable and equitable in this instance; and 3) the Department complied with Indiana Code § 6–3–2–2(p).” Id. at 390. The Tax Court then denied the Department's motion after finding it “failed to designate any facts to show it complied with Indiana Code § 6–3–2–2(p); therefore, it has not made a prima facie case that it is entitled to judgment as a matter of law.” Id. at 392. It thus granted judgment to RAC East.
We conclude that Section 6–3–2–2(p) and Trial Rule 56 must function together in a different way.
The Department may make a proposed assessment only if it “reasonably believes that a person has not reported the proper amount of tax due,” and it makes its assessment “on the basis of the best information available.” Ind.Code § 6–8.1–5–1(b) (2010). Significantly, the General...
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Indiana Tax Court Holds Taxpayer Not Required To File Combined Return
...percent of its total costs. 3 Rent-A-Center East, Inc. v. Indiana Department of State Revenue, 952 N.E.2d 387 (Ind. Tax Ct. 2011), rev'd, 963 N.E.2d 463 (Ind. 4 Indiana Department of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463 (Ind. 2012). For a discussion of this case, see GT......
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Alternative apportionment: tough for the taxpayer, (too) easy for the states.
...this trend is found in Indiana Dep't of State Rev. v. Rent-A-Center East, Inc., 952 N.E.2d 387 (Ind. Tax Ct. 2011), rev'd and remanded, 963 N.E. 2d 463 (Ind. 2012). The taxpayer was a corporation operating rent-to-own retail stores in Indiana. As part of an affiliated group and under the gu......