Safayan v. Indiana Dept. of State Revenue
| Decision Date | 18 March 1994 |
| Docket Number | No. 49T10-9302-TA-00011,49T10-9302-TA-00011 |
| Citation | 631 N.E.2d 25 |
| Parties | Zinat SAFAYAN, Petitioner, v. INDIANA DEPARTMENT OF STATE REVENUE, Respondent. |
| Court | Indiana Tax Court |
George P. Adinamis, Carol M. Adinamis, Adinamis & Adinamis, James W. Bradford, Indianapolis, for petitioner.
Pamela Carter, Atty. Gen., Brian D. Scott, Deputy Atty. Gen., Indianapolis, for respondent.
The Petitioner, Zinat Safayan (Safayan), appeals the final determination of the Respondent, the Indiana Department of State Revenue (the Department), assessing Safayan with gross retail tax (sales tax) pursuant to IND.CODE 6-2.5-9-3 and withholding tax pursuant to IND.CODE 6-3-4-8, plus penalties and interest, for the years 1989, 1990, and 1991 (the years in issue). The Department assessed Safayan as president of G.D.G.F., Inc. (the Corporation). The matter is before the court on the parties' cross-motions for summary judgment.
The court consolidates the issues raised in the parties' cross-motions for summary judgment as:
I. Whether the Corporation is liable for the delinquent sales and withholding taxes of the Restaurant.
II. Whether Safayan is personally liable for the delinquent sales and withholding taxes of the Corporation.
In December of 1985, Safayan, Doctor Esfandiar Safayan, Dennis Grubb, and Teressa Grubb formed the Corporation to operate Gib & Denzil's Restaurant (the Restaurant). The Safayans contributed $43,000 in exchange for 51 percent of the corporate stock. The Grubbs contributed their restaurant management expertise in exchange for 49 percent of the corporate stock. Safayan was named as president of the Corporation. Esfandiar During the years in issue, the Corporation operated the Restaurant in Bloomington, Indiana. The Safayans, both professionals in Terre Haute, Indiana, did not participate in the management of the Restaurant. Instead, the Corporation hired Dennis Grubb under an employment contract to manage the operations of the Restaurant. Dennis Grubb's specific duties included maintaining and preparing accurate and current financial information. Teressa Grubb, as secretary and treasurer, maintained the accounting system. The Grubbs were the sole authorized signatories on the Corporation's checking account. Teressa Grubb signed the 1988 corporate income tax return. Safayan, as president, signed the 1989 and 1990 corporate income tax returns.
Safayan and Dennis Grubb were named vice presidents and Teressa Grubb was named secretary and treasurer of the Corporation. The four stockholders were the directors of the Corporation.
In January of 1991, Safayan learned the Restaurant was delinquent in its payments to many of its creditors and also in its payment of sales and withholding taxes to the Department. On January 28, 1991, the Corporation filed for bankruptcy protection under 11 U.S.C. § 1101 et seq. (Chapter 11). Shortly thereafter, the Grubbs resigned from the Corporation. In November of 1991, Safayan signed and filed the Corporation's sales and withholding tax returns for 1988, 1989, and 1990 along with a letter disclaiming personal liability for the taxes.
Nevertheless, the Department assessed Safayan, as president of G.D.G.F., Inc., with the delinquent sales and withholding taxes for 1989, 1990, and 1991. Safayan protested and the Department held a hearing on December 4, 1992. The Department issued its final determination on January 19, 1993. Safayan now appeals. Additional facts will be provided as necessary.
The standard for granting summary judgment is not altered by cross motions for summary judgment. Bulkmatic Transp. Co. v. Indiana Dep't of State Revenue (1994), Ind.Tax, 629 N.E.2d 955, 956 (). "The court will grant summary judgment only if no genuine issue of material fact exists and a party is entitled to judgment as a matter of law." Id., 629 N.E.2d at 957 (citing Fort Wayne Nat'l Corp. v. Indiana Dep't of State Revenue (1993), Ind.Tax, 621 N.E.2d 668, 670). See also C & C Oil Co. v. Indiana Dep't of State Revenue (1991), Ind.Tax, 570 N.E.2d 1376, 1378 ().
"The moving party bears the burden of proving first, that no genuine issue of material fact exists and second, that the moving party is entitled to judgment as a matter of law." Id. at 1378 (citing ITT Commercial Fin. Corp. v. Union Bank & Trust Co. (1988), Ind.App., 528 N.E.2d 1149, 1152). Safayan asserts that there are no genuine issues of material fact, and that she is entitled to a determination as to her personal liability, as president of the Corporation, for the sales and withholding taxes at issue.
The court's initial inquiry is whether the Corporation is liable for the Restaurant's delinquent sales and withholding taxes. Safayan argues that the Corporation is liable because it owns and operates the Restaurant. The Department contends, for the first time in its motion for summary judgment, that the general partnership formed by Safayan, Esfandiar Safayan, Dennis Grubb, and Teressa Grubb owns and operates the Restaurant and is thus liable for the Restaurant's delinquent taxes.
"Facts alleged in the complaint are taken as true except to the extent they are negated by other pleadings, depositions, answers to interrogatories, affidavits, or other evidence presented by the moving party." Id. at 1378 (quoting Kahf v. Charleston S. Apartments (1984), Ind.App., 461 N.E.2d 723, 729). Safayan, in accord with Ind.Trial Rule 56, has designated the following items for the court's consideration in determining the Department's Because the evidence designated by Safayan demonstrates the absence of a genuine issue of material fact as to the ownership of the Restaurant, "[t]he burden therefore shifts to the Department to show the existence of a genuine issue of material fact by specifically setting forth contrary facts either in affidavits, depositions, testimony, or as otherwise provided in T.R. 56(C)." Id. at 1378 (citing ITT Commercial, 528 N.E.2d at 1151). The Department, however, did not designate any material for the court to consider. Nevertheless, because Safayan designated the partnership agreement, the Department may and does rely on it to show the partnership owned and operated the Restaurant. The partnership agreement does not, however, show that the partnership owned and operated the Restaurant during the years in issue, nor does it respond to Safayan's assertion that the Corporation owned and operated the Restaurant during the years in issue. Therefore, the court finds the mere reliance on the partnership agreement and use of the name "Gib & Denzil's Restaurant" insufficient to show the partnership owned and operated the Restaurant during the years in issue. See Id. The Department has failed to meet its burden.
motion: the partnership agreement; the 1988 and 1989 partnership tax returns; the Corporation's W-2 Forms; the Corporation's 1987 and 1988 tax returns; the affidavits of Safayan, Esfandiar Safayan, and Steve Groh, an employee of the Restaurant; the Corporation's employment contract with Dennis Grubb; the Department's notices of tax assessment; and the Department's letter of finding. The partnership's tax returns and the Corporation's tax returns, along with the Corporation's W-2 Forms, account for the Restaurant as though owned and operated by the Corporation. The Corporation's employment contract with Dennis Grubb further displays that the Corporation operates the Restaurant and the affidavits of Safayan and Esfandiar Safayan attest to that fact and that the Corporation owns the Restaurant. Moreover, the Department in its notices of assessed tax and in its letter of findings recognize the Corporation as the owner and operator of the Restaurant.
The court relies on the designated evidence, which shows the Restaurant used the Corporation's tax identification number, the Department's assessed the Corporation for the Restaurant's delinquent taxes, and the parties believed the Corporation was the owner and operator of the Restaurant, and therefore finds that the Corporation owns and operates the Restaurant. 1 Accordingly, the court must now determine the Restaurant's liability for the sales and withholding taxes.
The sales tax is an excise tax imposed on retail transactions made in Indiana. IND.CODE 6-2.5-2-1(a). Furthermore,
[t]he person who acquires property in a retail transaction is liable for the tax on the transaction and, except as otherwise provided in this chapter, shall pay the tax to the retail merchant as a separate added amount to the consideration in the transaction. The retail merchant shall collect the tax as agent for the state.
IC 6-2.5-2-1(b). Therefore, the Restaurant, as an agent of the State, must collect sales tax on its retail transactions and has the duty to remit the sales tax to the State.
As for the withholding tax,
[e]very employer making payments of wages subject to tax under IC 6-3, regardless of the place where such payment is made, who is required under the provisions (1) shall be liable to the state of Indiana for the payment of the tax required to be deducted and withheld under this section and shall not be liable to any individual for the amount deducted from his wages and paid over in compliance or intended compliance with this section; and
of the Internal Revenue Code 2 to withhold, collect, and pay over income tax on wages paid by such employer to such employee, shall, at the time of payment of such wages, deduct and retain therefrom the amount prescribed in withholding instructions issued by the department.... Such employer making payments of any wages:
(2) shall make return of and payment to the department...
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