City Securities Corp. v. Department of State Revenue

• Decision Date: 30 December 1998
• Docket Number: No. 49T10-9505-TA-00049,49T10-9505-TA-00049
• Citation: 704 N.E.2d 1122
• Parties: CITY SECURITIES CORP., Petitioner, v. DEPARTMENT OF STATE REVENUE, Respondent.
• Court: Indiana Tax Court

Page 1122

704 N.E.2d 1122

CITY SECURITIES CORP., Petitioner, v. DEPARTMENT OF STATE REVENUE, Respondent.

No. 49T10-9505-TA-00049.

Tax Court of Indiana.

Dec. 30, 1998.

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

Jeffrey A. Modisett, Attorney General, Ted J. Holaday, Deputy Attorney General, Indianapolis, for Respondent.

FISHER, J.

City Securities Corp. (City) challenges the Department of State Revenue's (Department) decision to assess gross income tax on income City earned from the sale of bonds issued to fund school projects and sewer projects (hereinafter "the bonds"). City raises two issues for this Court's review:

I. Whether the Department's failure to issue a letter of findings in a timely manner voids the assessment of gross income tax made by the Department.

II. Whether the Department has the authority to assess gross income tax on the profit made on the buying and selling of the bonds when the bonds are:

a. exempt from gross income tax under their enabling statutes and;

b. have been treated as exempt by the Department for forty-two years.

FACTS

City is a corporation engaged in the business of buying and selling securities for profit. During the years 1989, 1990, and 1991, City sold bonds that had been issued by school building corporations and political subdivisions to raise revenue for various projects. In 1992, after an audit of City's records, the Department issued notices of proposed assessment against City for additional gross income tax, interest, and penalties related to City's sale of the bonds.

The Department based this assessment on the fact that City sold the bonds at a higher price than it paid for the bonds. In short, City purchased the bonds and then sold them for a profit without waiting for the bonds to mature and earn interest. City filed a written protest with the department on February 5, 1993 challenging the proposed assessment.

On April 12, 1994, the Department held a hearing on City's protest. The Department issued its Letter of Findings (LOF) on July 26, 1994, 105 days after the hearing. The Department concluded in its LOF that City did not owe a tax penalty but that the income gained from the sale of the bonds was taxable. On September 26, 1994, the Department issued Assessment Notices to City requesting payment of the additional gross income tax liability and interest. City paid the assessments and then filed a claim for refund of the assessments with the Department on October 31, 1994.

After more than 180 days had passed without action by the Department on City's claim for refund, City initiated an original tax appeal in this Court on May 26, 1995. See IND.CODE ANN. § 6-8.1-9-1(c)(3) (West Supp.1998) . Both parties filed motions for summary judgment. ¹

ANALYSIS AND OPINION

Standard of Review

This court reviews final determinations of the Department de novo and is bound neither by the evidence nor the issues raised at the administrative level. See IND.CODE ANN. § 6-8.1-9-1(d) (West Supp.1998); ANR Pipeline Co. v. Department of State Revenue, 672 N.E.2d 91, 93 (Ind. Tax Ct.1996). Summary judgment is appropriate only when no genuine issue of material fact exists. IND. T.R. 56(C); Roehl Transp., Inc. v. Department of State Revenue, 653 N.E.2d 539, 541 (Ind. Tax Ct.1995).

Discussion

Before the Court is able to address the parties' arguments, it must first examine whether it has jurisdiction to hear this appeal. Although neither party raises the issue of the Court's jurisdiction, the Court is required to raise the issue sua sponte. See City of New Haven v. Chemical Waste Management, L.L.C, 685 N.E.2d 97, 102 (Ind.Ct.App.1997); (citing Santiago v. Kilmer, 605 N.E.2d 237, 240 (Ind.Ct.App.1992), trans. dismissed, 698 N.E.2d 1195 (Ind.1988)). The question of whether this Court has jurisdiction over this case arises from a reading of two statutory provisions.

The first of these statutory provisions states: "[T]he tax court does not have jurisdiction to hear an appeal that is filed more than one hundred eighty (180) days after the date on which the letter of findings is issued by the department." IND.CODE ANN. § 6-8.1-5-1(g) (West Supp.1998). The second deals with taxpayers who believe they have paid more tax than they owe and have filed a claim for refund. That section reads:

If the person disagrees with any part of the department's decision, he may appeal the decision, regardless of whether or not he protested the tax payment or whether or not the person has accepted a refund. The person must file the appeal with the tax court. The tax court does not have jurisdiction to hear a refund appeal suit, if: ...

(3) the appeal is filed both before the decision is issued and before the one hundred eighty-first day after the date the person files the claim for refund with the department.

IND.CODE ANN. § 6-8.1-9-1(c) (emphasis added).

Thus, under section 6-8.1-5-1(g), a taxpayer who files a protest and receives an LOF must file an appeal within 180 days for this Court to have jurisdiction. In this case, City received an LOF in July 1994 but did not initiate an original tax appeal until March 1995. A reading of section 6-8.1-5-1(g) in isolation would lead to the conclusion that this Court would not have jurisdiction to hear City's appeal. However, section 6-8.1-9-1(c) confers jurisdiction on this Court to hear an appeal when the taxpayer has waited at least 181 days (and less than three years) but has received no determination from the Department regarding his claim for refund "whether or not [the taxpayer] protested the tax payment...." Id.

In the present case, after City received the LOF, it paid the assessed taxes and then filed a claim for refund. City waited until more than 180 days had passed from the date it filed its claim for refund to file an appeal with this Court. Therefore, jurisdiction to hear City's appeal on its refund claim appears to be conferred on this Court by section 6-8.1-9-1(c), while jurisdiction to hear this appeal is, at the same time, denied by section 6-8.1-5-1(g).

It is important to remember that statutes applicable to the same subject matter should be construed in harmony with one another. See Sangralea Boys Fund, Inc. v. State Bd. of Tax Comm'rs, 686 N.E.2d 954, 958 (Ind. Tax Ct.1997), review denied; (citing Caylor-Nickel Clinic, P.C. v. Department of State Revenue, 569 N.E.2d 765, 768 (Ind. Tax Ct.1991), aff'd, 587 N.E.2d 1311 (Ind.1992)). Moreover, Courts will not construe a statute in a manner that will render another a nullity. See Sangralea, 686 N.E.2d at 958 (citing Althaus v. Evansville Courier Co., 615 N.E.2d 441, 444 (Ind.Ct.App.1993)). To read section 6-8.1-5-1(g) as completely barring appeals to this Court once 180 days have passed from the issuance of an LOF, would strip this Court of the jurisdiction conferred in section 6-8.1-9-1(c) and would render that section a nullity.

Perhaps more importantly, the language included in section 6-8.1-9-1(c) allows an appeal from a claim for refund to be made on the 181st day "whether or not [the taxpayer] protested the tax payment." Therefore, a taxpayer can file a written protest, subsequently pay the tax and file a claim for refund, and not lose the right to appeal from the claim for refund. Indeed, our Supreme Court has made clear that a taxpayer may pursue relief under both procedures at once. See State v. Sproles, 672 N.E.2d 1353, 1357 (Ind.1996); see also Horrall v. Department of State Revenue, 687 N.E.2d 1219, 1220 n. 2 (Ind. Tax Ct.1997), review denied. For this Court to hold otherwise would contradict the language in Sproles. Accordingly, this Court concludes that it has jurisdiction to hear the present appeal and turns to the merits of the case.

I. Whether the Department's failure to issue a letter of

findings in a timely manner voids the assessment

of gross income tax made by the Department.

Neither party disputes the fact that when a taxpayer files a written protest, the Department is required issue an LOF within sixty days of the completion of a hearing on a taxpayer's protest. IND.CODE ANN. § 6-8.1-5-1(e) (West Supp.1998). City claims that failure to meet this sixty day deadline renders any assessment made by the Department void.

The Department argues that failure to issue a LOF within sixty days does not render the assessment void. Rather, the Department asserts that the intent of the legislature in providing the sixty day limit was to provide "guidance" regarding the appropriate length of time the Department should take to issue a LOF while leaving the statute "flexible enough to account for more complicated or difficult cases." (Resp't Br. at 10). The Department argues that the legislature would have used explicit language if it intended the sixty day limit to be a prerequisite to a valid assessment. (Resp't Br at 10).

It is important to note that this Court may not usurp the authority of the legislature by engrafting a remedy onto a statute where none exists. See State Bd. of Tax Comm'rs v. Mixmill Mfg. Co., 702 N.E.2d 701, 705-706 (Ind. 1998) (citing Grody v. State, 257 Ind. 651, 659-60, 278 N.E.2d 280, 285 (1972)). However, this is precisely what City asks this court to do by voiding the assessment made by the Department. Although it is unclear whether the legislature contemplated that there be any consequences for a failure by the Department to issue an LOF within sixty days, it is clear that the legislature did not expressly include any consequences in the applicable statutes. Moreover, the legislature did not expressly link the validity of an LOF, and the associated assessment, to the timely issuance of the LOF. ²

This is not to say that taxpayers are without recourse if the Department fails to act within sixty days. The taxpayer may appeal to this Court if no LOF is issued. See Sproles, 672 N.E.2d at 1361 n. 19; cf. Bielski v. Zorn, 627 N.E.2d 880, 886 (Ind. Tax Ct.1994). Alternatively, the taxpayer can petition...