Ind. Dep't of State REVENUE v. BELTERRA RESORT Ind. LLC., 49S10-1010-TA-519.

• Decision Date: 05 October 2010
• Docket Number: No. 49S10-1010-TA-519.,49S10-1010-TA-519.
• Citation: 935 N.E.2d 174
• Parties: INDIANA DEPARTMENT OF STATE REVENUE, Petitioner below, v. BELTERRA RESORT INDIANA, LLC, Respondent below.
• Court: Indiana Supreme Court

935 N.E.2d 174

INDIANA DEPARTMENT OF STATE REVENUE, Petitioner below,

v.BELTERRA RESORT INDIANA, LLC, Respondent below.

No. 49S10-1010-TA-519.

Supreme Court of Indiana.

Oct. 5, 2010.

COPYRIGHT MATERIAL OMITTED.

Gregory F. Zoeller, Attorney General of Indiana, John D. Snethen, Matthew R. Nicholson, Timothy A. Schultz, Jennifer E. Gauger, Andrew W. Swain, Deputy Attorney Generals, Indianapolis, IN, Attorneys for Petitioner.

Stephen H. Paul, Jon B. Laramore, Brent A. Auberry, Fenton D. Strickland, Baker & Daniels LLP, Indianapolis, IN, Attorneys for Respondent.

RUCKER, Justice.

In this opinion we address the question of whether a contribution by a parent corporation to the capital of its subsidiary is automatically excluded from Indiana use tax. We conclude it is not.

Facts and Procedural History

Belterra Resort Indiana, LLC (“Belterra”) is a Nevada corporation that owns and operates a hotel and riverboat casino in Switzerland County. Pinnacle Entertainment Inc. (“Pinnacle”), a Delaware corporation, is Belterra's parent company. Pinnacle contracted with Alabama Shipyard, Inc. of Mobile, Alabama to purchase and construct the Miss Belterra riverboat in September 1999, at the cost of $34,689,719.00. See Supp.App. at 28, 32. Alabama Shipyard then conveyed title and possession of the completed riverboat to Pinnacle on July 24, 2000. Pinnacle paid no Alabama sales tax on this transaction. The following day, Pinnacle transferred title and possession of the riverboat to Belterra while in international waters off the Gulf of Mexico. Thereafter the riverboat headed to its ultimate destination in Indiana. Pinnacle owned a 97% interest in Belterra at the time of the transfer. Pinnacle subsequently acquired the remaining 3% interest in Belterra in August of 2001.

The Indiana Department of Revenue (“Department”) conducted a sales and use tax audit of Belterra in 2002 and issued a proposed use tax assessment against Belterra in the amount of $1,869,783.00 plus penalty and interest, due to its acquisition of the riverboat. Belterra protested the assessment and after a hearing on the matter the Department issued a Letter of Findings denying Belterra's protest. Belterra filed a timely appeal of the denial with the Indiana Tax Court. The parties filed cross-motions for summary judgment. After a hearing the court granted Belterra's motion for summary judgment and denied the Department's motion. Belterra Resort Ind., LLC v. Ind. Dep't of State Revenue, 900 N.E.2d 513, 517 (Ind. Tax Ct.2009). The court reasoned that Belterra was not subject to use tax on its acquisition of the riverboat because it was a contribution to capital and not the result of a retail transaction. Id. at 516. We granted review.

Standard of Review

[1] [2] [3] The Indiana Tax Court was established to develop and apply specialized expertise in the prompt, fair, and uniform resolution of state tax cases. State Bd. of Tax Comm'rs v. Indianapolis Racquet Club. Inc., 743 N.E.2d 247, 249 (Ind.2001). This Court extends cautious deference to decisions within the special expertise of the Tax Court, and we do not reverse unless the ruling is clearly erroneous. Ind. Dep't of State Revenue v. Safayan, 654 N.E.2d 270, 272 (Ind.1995); see also Ind. Tax Court Rule 10. We extend the same presumption of validity to Tax Court rulings on summary judgments and apply the same standard of review. Ind. Dep't of State Revenue v. Bethlehem Steel Corp., 639 N.E.2d 264, 266 (Ind.1994). That is, when a summary judgment involves a question of law within the particular purview of the Tax Court, cautious deference is appropriate. Id. We will set aside the Tax Court's determinations of tax law on summary judgment only if we are definitely and firmly convinced that an error was made. Id.

Discussion

[4] [5] [6] Indiana imposes an excise tax, known as the state sales tax, on retail transactions made within the state. Ind.Code § 6-2.5-2-1(a). A retail transaction occurs when, among other things, a retail merchant in the ordinary course of its regularly conducted trade or business acquires tangible personal property for the purpose of resale and transfers that property to another person for consideration. See I.C. § 6-2.5-4-1(a), (b). Indiana also imposes a complementary tax, known as the use tax, on the use, storage, or consumption of tangible personal property in Indiana. See I.C. § 6-2.5-3-2(a). The use tax is complementary to the sales tax because it ensures non-exempt transactions that have escaped sales tax liability are nonetheless taxed. Horseshoe Hammond, LLC v. Ind. Dep't. of State Revenue, 865 N.E.2d 725, 727 (Ind. Tax Ct.2007). In fact, Indiana's use tax is primarily designed to reach out-of-state sales of tangible personal property that is subsequently used in Indiana. Id. at 727 n. 4.

At stake in this case is whether the transfer of the riverboat from the parent company to its subsidiary corporation was a “retail transaction” within the meaning of Indiana Code section 6-2.5-3-2(a). The statute provides in pertinent part “[a]n excise tax, known as the use tax, is imposed on the ... use ... of tangible personal property in Indiana if the property was acquired in a retail transaction.” Id. Belterra contends it is not subject to Indiana's use tax because the riverboat was not acquired in a retail transaction. And this is so, according to Belterra, because no consideration was given in exchange for the riverboat. See I.C. § 6-2.5-4-1(b)(2) (providing in relevant part “[a] person is engaged in selling at retail when ... he ... transfers that property to another person for consideration”). Rather, Belterra argues that transfer of the riverboat was made as a capital contribution with no consideration given.

In support of its contention Belterra cites Grand Victoria Casino & Resort, LP v. Ind. Department of State Revenue, 789 N.E.2d 1041 (Ind. Tax Ct.2003). In that case Grand Victoria was formed as a result of a merger between two companies: G.V. II, Inc., and GV LLC. The facts of the merger apparently revealed that Grand Victoria received a riverboat as a capital contribution from G.V. II, Inc., and that the partners of Grand Victoria (who were previous owners of G.V. II, Inc.) received no cash or other property in connection with the capital contribution of the riverboat. On a claim that Grand Victoria was entitled to a refund of sales tax, the Department conceded and the Tax Court held that “[b]ecause the capital contribution was a transfer of property without consideration, it was not a retail sale subject to sales tax.” Id. at 1045. Here, Belterra contends that it is similarly situated and thus is entitled to a determination that it is not subject to Indiana's use tax. We disagree and make several observations.

[7] [8] In the corporate context a capital contribution is a “transaction between a shareholder and a corporation whereby the shareholder transfers money or property to the corporation. Instead of receiving additional stock, the basis of the shareholder's existing investment in the corporation is increased in proportion to the capital contribution.” Hoang v. Jamestown Homes, Inc., 768 N.E.2d 1029, 1041 (Ind.Ct.App.2002) (Bailey, J., dissenting) (citing Black's Law Dictionary 209 (6th ed.1990)), trans. denied; see also J. William Callison & Maureen A. Sullivan, Limited Liability Companies: A State-by-State Guide to Law and Practice § 6:1 (2010) (“Capital contribution decisions typically are made based on the LLC's capital needs.... In most states, members may receive membership interests in exchange for cash, property, and services contributions....”). However, not all capital contributions are created equally. Indeed we see nothing inherent in such transactions that automatically exempt them from the reach of Indiana's sales and use tax statutes. ¹ Thus, we do not read Grand Victoria as standing for the broad proposition that the fact of a capital contribution standing alone automatically means that no retail sale occurred. ² Instead Grand Victoria can best be understood as declaring that where a capital contribution is made “without consideration” then the transaction is not subject to sales tax. Stated somewhat differently, if the capital contribution was made without consideration then there was no retail sale and thus no Indiana sales or use tax could be imposed.

[9] The issue in this case is whether the transfer of the riverboat from Pinnacle to Belterra was done without either side receiving consideration. In an affidavit submitted in support of its motion for summary judgment Belterra declares as much. Specifically, the Board of Director's Resolution declared, “[ ]the Company hereby approves the transfer of ownership of the Riverboat Miss Belterra from Pinnacle Entertainment, Inc. to Belterra Resort Indiana, LLC as a capital contribution and without consideration being paid to Pinnacle Entertainment....” Supp.App. at 105 (emphasis added). However, this declaration is not dispositive. Whether consideration is given is a question of fact for the jury. NBZ, Inc. v. Pilarski, 185 Wis.2d 827, 520 N.W.2d 93, 97 (Wis.Ct.App.1994). However, whether consideration exists is generally a question of law for the court. Russell v. Jim Russell Supply, Inc., 200 Ill.App.3d 855, 146 Ill.Dec. 152, 558 N.E.2d 115, 120 (1990).

[10] [11] [12] [13] [14] [15] The tax statutes do not expressly define the term “consideration” as used in Indiana Code section 6-2.5-4-1(b)(2). However, the concept of consideration evolved from the law of contracts. Monarch Beverage Co. v. Ind. Dep't of State Revenue, 589 N.E.2d 1209, 1212 (Ind. Tax Ct.1992). And in order to have a legally binding contract there must be generally an offer, acceptance, and consideration. Id. “To constitute consideration, there must be a benefit accruing to the promisor or a detriment to the promisee.” Paint Shuttle, Inc. v. Cont'l Cas. Co., 733 N.E.2d 513, 523 (Ind.Ct.App.2000) (quoting A & S Corp. v....