Caylor-Nickel Clinic, P.C. v. Indiana Dept. of State Revenue

• Decision Date: 04 April 1991
• Docket Number: CAYLOR-NICKEL,No. 49T05-9002-TA-00009,49T05-9002-TA-00009
• Citation: 569 N.E.2d 765
• Parties: CLINIC, P.C., Petitioner, v. INDIANA DEPARTMENT OF STATE REVENUE, Respondent.
• Court: Indiana Tax Court

Page 765

569 N.E.2d 765

CAYLOR-NICKEL CLINIC, P.C., Petitioner, v. INDIANA DEPARTMENT OF STATE REVENUE, Respondent.

No. 49T05-9002-TA-00009.

Tax Court of Indiana.

April 4, 1991.

Barton T. Sprunger, Mark J. Richards, Ice Miller Donadio & Ryan, Indianapolis, for petitioner.

Linley E. Pearson, Atty. Gen. by Lynn A. Francis, Deputy Atty. Gen., Indianapolis, for respondent.

FISHER, Judge.

Caylor-Nickel Clinic, P.C. (Caylor-Nickel) appeals the Indiana Department of State Revenue's (Department) assessment of gross income tax and interest of $136,980.57 for its fiscal year ending April 30, 1987. This matter is before the court on the parties' cross motions for summary judgment.

FACTS

Caylor-Nickel, an Indiana professional corporation, provides health care services in Bluffton, Indiana. It determines its tax liability on a fiscal year basis, beginning May 1 and ending April 30. For the tax years ending April 30, 1985, 1986, 1988, and 1989, Caylor-Nickel qualified for the small business corporation tax returns on or before August 15 of each year. For the 1987 fiscal year, however, Caylor-Nickel filed its federal corporation income tax return, Form 1120, and its Indiana Special Corporation Income Tax Return, IT-20SC, on January 15, 1988. Caylor-Nickel reported a loss for fiscal 1987 on both the state and federal returns. Caylor-Nickel did not previously file state or federal returns for the 1987 fiscal year nor did it obtain extensions of time to file the 1987 returns.

On July 19, 1988, the Department issued a Notice of Tax Due in the amount of $133,592.12 for unpaid 1987 Indiana gross income tax, ¹ interest, and penalties. The Department asserts that Caylor-Nickel waived the small business corporation exemption allowed under IC 6-2.1-3-24.5 for the 1987 fiscal year because it neither filed Form IT-20SC nor filed for an extension of time to file by August 15, 1987.

Following a hearing on Caylor-Nickel's protest, the Department issued its Letter of Findings denying the protest as to the tax and interest but waiving the penalties. The Department then denied a request for rehearing and on February 2, 1990, issued a Notice of Assessment of gross income tax and interest in the amount of $136,980.57.

Caylor-Nickel filed an Original Tax Appeal and Petition to Enjoin the Collection of Tax. By subsequent agreement and this court's order, an Agreed Order of Injunction was entered, enjoining the Department's collection from Caylor-Nickel of gross income tax and interest for the 1987 fiscal year pending the original tax appeal.

STANDARD OF REVIEW

Cross motions for summary judgment do not alter the standard for granting summary judgment. Aetna Ins. Co. v. Rodriguez (1986), Ind.App., 496 N.E.2d 1321, 1323; Ind.Rules of Procedure, Trial Rule 56(C). Each motion must be considered separately to determine whether there is a genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Aetna, 496 N.E.2d at 1323 (citing Ebert v.

                Grain Dealers Mut. Ins. Co.  (1973), 158 Ind.App. 379, 303 N.E.2d 693).   Neither Caylor-Nickel nor the Department asserts in their cross motions for summary judgment that a genuine issue of material fact exists
                

ISSUES AND DECISION

The issues before the court on the parties' cross motions are:

I. Whether, as a matter of law, timely filing of Form IT-20SC is a condition precedent to claiming the small business corporation gross income tax exemption provided in IC 6-2.1-3-24.5?

II. Whether Form IT-20SC is an information return, as defined by 45 I.A.C. 15-11-6, subject to the penalty exacted under IC 6-8.1-10-6?

III. Whether August 15, 1987, is the due date of Form IT-20SC for a taxpayer with a fiscal year ending April 30, 1987, pursuant to IC 6-2.1-5-2(c) and 45 I.A.C. 1-1-172?

I.

Whether timely filing of Form IT-20SC is a condition precedent to claiming the small business corporation exemption from state gross income tax "is purely a matter of statutory construction and is therefore subject to a ruling by summary judgment." Indianapolis Historic Partners v. State Bd. of Tax Comm'rs (1990), Ind.Tax, 563 N.E.2d 1345, 1347 (citing Faris Mailing, Inc. v. Indiana Dep't of State Revenue (1990), Ind.Tax, 557 N.E.2d 713, 715). A small business corporation is exempt from Indiana gross income tax:

(a) For purposes of this section, 'small business corporation' has the same definition that term has in Section 1361(b) of the Internal Revenue Code [26 U.S.C. Sec. 1361(b) ]....

(b) Except as provided in subsection (c), gross income received by a small business corporation is exempt from gross income tax.

(c) A small business corporation is not exempt from gross income tax under this section for a taxable year if for that taxable year twenty-five percent (25%) or more of the small business corporation's gross income consisted of passive investment income (as defined in Section 1362(d)(3)(D) of the Internal Revenue Code [26 U.S.C. Sec. 1362(d)(3)(D) ].

IC 6-2.1-3-24.5 (footnotes omitted).

The taxpayer claiming exemption has the burden of showing the terms of the exemption statute are met. St. Mary's Medical Center v. State Bd. of Tax Comm'rs (1989), Ind.Tax, 534 N.E.2d 277, 281 (quoting Indiana Ass'n of Seventh-Day Adventists v. State Bd. of Tax Comm'rs (1987), Ind.Tax, 512 N.E.2d 936, 938). The Department's Information Bulletin # 62 ² prescribed Form IT-20SC, the Special Corporation Income Tax Return, as the only return a small business corporation must file to satisfy IC 6-2.1-5-2(a), requiring all taxpayers with a gross income of $1,000 or more in a taxable year to file a gross income tax return, and IC 6-2.1-3-24.5(d), requiring a small business corporation taxpayer to file annual proof of its status.

The top portion of Form IT-20SC contains questions, the answers to which provide prima facie proof that during the period of assessment the taxpayer met the definition of a small business corporation and met the requirements of the passive investment test. Caylor-Nickel filed Form IT-20SC on January 15, 1988, for the 1987 fiscal year. Furthermore, Caylor-Nickel and the Department stipulated, and the court finds, Caylor-Nickel met the requirements of IC 6-2.1-3-24.5(a), (b), and (c) for the 1987 fiscal year. The controversy therefore focuses on the meaning of IC 6-2.1-3-24.5(d):

(d) Any corporation that claims an exemption under this section shall annually provide the department with proof that it is a small business corporation. The corporation must provide that proof on or before the due date of its gross income tax return (including any extensions granted by the department).

The foremost goal of statutory construction is to determine and give effect to the true intent of the legislature. Johnson County Farm Bureau Coop. Ass'n v. Indiana Dep't of State Revenue (1991), Ind.Tax, 568 N.E.2d 578, 580 (citing Scheid v. State Bd. of Tax Comm'rs (1990), Ind.Tax, 560 N.E.2d 1283, 1286). To determine the legislature's intent, the words of a statute must be read in their plain, ordinary, and usual sense. IC 1-1-4-1(1). IC 6-2.1-3-24.5 should be construed not only in light of its text, but also in its proper context. Indiana law has long recognized that context influences the plain meaning of the words in a statute.

It has often been stated by the courts, that in the construction of statutes the prime object is to ascertain and carry out the purpose and intent of the legislature; that to do this the words should first be considered in their literal and ordinary signification; that if, by giving them such a signification, the meaning of the whole instrument is rendered doubtful, or is made to lead to contradictions, or absurd results, the intent, as collected from the whole instrument, must prevail over the literal import of terms, and control the strict letter of the law.

Decatur Township v. Bd. of Comm'rs (1942), 111 Ind.App. 198, 209-10, 39 N.E.2d 479, 483 (citing City of Indianapolis v. Huegele (1888), 115 Ind. 581, 587, 18 N.E. 172).

Many well-settled rules of construction aid in ascertaining a statute's meaning based on its context. Indiana law does not treat exemptions from tax statutes favorably. See Indiana Dep't of State Revenue v. Indianapolis Pub. Transp. Corp. (1990), Ind., 550 N.E.2d 1277, 1278; Madding v. Indiana Dep't of State Revenue (1971), 149 Ind.App. 74, 92, 270 N.E.2d 771, 780-81 (citing Gross Income Tax Div. v. Nat'l Bank & Trust Co. (1948), 226 Ind. 293, 298, 79 N.E.2d 651, 653); Conklin v. Town of Cambridge City (1877), 58 Ind. 130, 133. An ambiguous exemption statute therefore is strictly construed against the party seeking the benefit and in favor of taxation. Indianapolis Pub. Transp. Corp. v. Indiana Dep't of Revenue (1987), Ind.Tax, 512 N.E.2d 906, 908 (citing Indiana Dep't of State Revenue v. Indiana Harbor Belt R.R. (1984), Ind.App., 460 N.E.2d 170, 174-75), aff'd, 550 N.E.2d 1277 (1990). Furthermore, statutes that apply to the same subject matter must be construed harmoniously, Marion County Sheriff's Merit Board v. Peoples Broadcasting Corp. (1989), Ind., 547 N.E.2d 235, 237 (citing Schrenker v. Clifford (1979), 270 Ind. 525, 387 N.E.2d 59, 60; Bell v. Bingham (1985), Ind.App., 484 N.E.2d 624, 627), giving effect, if possible, to every word and clause. Guinn v. Light (1990), Ind., 558 N.E.2d 821, 823 (citing Doughty v. State Dep't of Pub. Welfare (1954), 233 Ind. 213, 117 N.E.2d 651).

All four subsections of IC 6-2.1-3-24.5 address the same subject matter, the small business corporation exemption from gross income tax. Subsections (a), (b), and (c) specify qualifications for exemption while (d) provides a filing requirement. The Department asserts the only way to harmonize and give effect to IC 6-2.1-3-24.5(d) in the light most favorable to imposing taxation is to find that compliance with the filing requirement is a prerequisite to claiming the exemption. The Department therefore asks the court to read IC 6-2.1-3-24.5(b) as if it stated, ...