Salin Bancshares v. IN DEPT. OF REVENUE

• Decision Date: 30 October 2000
• Docket Number: No. 02T10-9807-TA-76.,02T10-9807-TA-76.
• Citation: 744 N.E.2d 588
• Parties: SALIN BANCSHARES, INC., Petitioner, v. INDIANA DEPARTMENT OF REVENUE, Respondent.
• Court: Indiana Tax Court

744 N.E.2d 588

SALIN BANCSHARES, INC., Petitioner, v. INDIANA DEPARTMENT OF REVENUE, Respondent.

No. 02T10-9807-TA-76.

Tax Court of Indiana.

October 30, 2000.

Heidi Bieberich Adair, Beers Mallers Backs & Salin, Indianapolis, IN, for petitioner.

Karen M. Freeman-Wilson, Attorney General of Indiana and David A. Arthur, Deputy Attorney General, Indianapolis, IN, for respondent.

FISHER, J.

Petitioner Salin Bancshares, Inc. (Salin) appeals the Indiana Department of State Revenue's (Department) final determination denying Salin's requested refund of Financial Institutions Tax (FIT), see IND. CODE ANN. § 6-5.5-1-1 to -9-5 (West 2000), for the 1991 tax year. In this original tax appeal, Salin alleges that the Department's assessment of the FIT was untimely. The Court restates Salin's challenge as follows:

I. Whether Salin was obligated to notify the Department of its 1995 closing agreement with the Internal Revenue Service (IRS) pursuant to IND.CODE ANN. § 6-5.5-6-6 (West 2000), where the closing agreement altered or modified Salin's tax liability for 1991; and

II. Whether the Department's assessment of Salin for deficient FIT payments more than three years after the due date for the tax was untimely, in violation of IND.CODE ANN. § 6-8.1-5-2 (West 2000).

FACTS AND PROCEDURAL HISTORY

The material facts are undisputed. Salin is an Indiana corporation subject to the FIT. In June of 1995, Salin entered into a closing agreement with the IRS, as permitted by I.R.C. § 7121 (2000).¹ The closing agreement settled a dispute between Salin and the IRS regarding the amount of amortization deductions attributable to a core deposit intangible asset, as claimed by Salin on its federal income tax returns for 1984 and subsequent tax years. In part, the closing agreement stated that, "for federal income tax purposes" Salin was entitled to no amortization deduction for the 1991 tax year. (Closing agreement at 2-3.) The closing agreement changed Salin's federal income tax liability.² Salin did not notify the Department that it had entered into the closing agreement.

The Department completed an audit of Salin on August 12, 1996, finding an $8000 deficiency of FIT payments for the 1991 tax year. With penalties and interest, the total payment due for 1991 was $11,264.46. The Department's audit also found that Salin owed a total for tax, penalty and interest of $32,951.09 for the 1992 tax year and $5133.29 for the 1994 tax year. For the 1993 tax year, the Department determined that Salin had overpaid its FIT liability in the total amount, with interest, of $34,340.01. The Department issued a proposed assessment for the 1991 deficiency on September 19, 1996. Prior to October 1, 1996, the Department paid Salin's 1991 deficiency with Salin's 1993 overpayment.

By letter dated April 22, 1997, Salin requested a refund of its payment of the 1991 deficiency.³ Salin maintained that it was entitled to a refund, because the statute of limitations for issuing a proposed assessment for the 1991 tax year had expired. On June 4, 1997, the Department responded with a letter indicating that the time period for assessing additional tax was "open if the taxpayer does not comply" with the notification requirements of Ind.Code § 6-5.5-6-6. (Original Tax Appeal Compl., Ex. C.) The Department conducted a hearing on this matter on September 8, 1997. On April 13, 1998, the Department issued a letter of finding denying Salin's request for a refund.

Salin filed this original tax appeal on July 7, 1998.⁴ On November 6, 1998, Salin filed a motion for summary judgment, together with a supporting brief and its designation of evidence.⁵ The Department on December 29, 1998 filed its response opposing the summary judgment motion and asking the Court instead to enter summary judgment in its favor.⁶ Salin filed a reply brief on January 6, 1999. The Court heard oral arguments from the parties on February 12, 1999 and thereafter took the matter under advisement. Additional facts will be supplied as needed.

ANALYSIS AND OPINION

Standard of Review

The Court reviews final determinations of the Department de novo and is bound by neither the evidence nor the issues presented at the administrative level. IND. CODE ANN. § 6-8.1-9-1(d) (West 2000); Mynsberge v. Department of State Revenue, 716 N.E.2d 629, 631 (Ind.Tax Ct.1999). Summary judgment is only appropriate where no genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law. IND.TRIAL RULE 56(C); Uniden Am. Corp. v. Indiana Dep't of State Revenue, 718 N.E.2d 821, 824 (Ind.Tax Ct.1999). Cross motions for summary judgment do not alter this standard. White River Envtl. Partnership v. Department of State Revenue, 694 N.E.2d 1248, 1250 (Ind.Tax Ct.1998).

Discussion

The FIT is an "excise tax on the exercise of the corporate privilege of operating as a financial institution in Indiana." Indiana Dep't of State Revenue v. Fort Wayne Nat'l Corp., 649 N.E.2d 109, 112 (Ind.1995), cert. denied, 516 U.S. 913, 116 S.Ct. 298, 133 L.Ed.2d 204 (1995). Specifically, section 6-5.5-2-1(a) provides "There is imposed on each taxpayer a franchise tax measured by the taxpayer's adjusted gross income or apportioned income for the privilege of exercising its franchise or the corporate privilege of transacting the business of a financial institution in Indiana."⁷ Calculation of a taxpayer's FIT liability therefore relies in part upon the taxpayer's adjusted gross income; for purposes of the FIT, adjusted gross income "means taxable income as defined in Section 63 of the Internal Revenue Code," with certain adjustments. IND.CODE ANN. § 6-5.5-1-2(a) (West 2000).

I. Notice

A taxpayer's FIT liability is dependent upon the taxpayer's federal adjusted gross income tax liability. When the latter changes, then the former likely changes too. This potential for change explains the General Assembly's intent in enacting IND. CODE ANN. § 6-5.5-6-6 (West Supp.2000), which provides:

(a) Each taxpayer shall notify the department in writing of any alteration or modification of a federal income tax return filed with the United States Internal Revenue Service for a taxable year that begins after December 31, 1988, including any modification or alteration in the amount of tax, regardless of whether the modification or assessment results from an assessment.

(b) The taxpayer shall file the notice in the form required by the department within one hundred twenty (120) days after the alteration or modification is made by the taxpayer or finally determined, whichever occurs first.

(c) The taxpayer shall pay an additional tax or penalty due under this article upon notice or demand from the department.

Salin asserts that it was never obligated to notify the Department of the terms of the closing agreement. Specifically, Salin contends that it was "not aware that it altered or modified its federal income tax returns for the years 1991 through 1993." (Pet'r Br. at 4.) According to Salin, a federal tax audit for the 1991 tax year took place and the closing agreement resulted from this audit; however, "no amended tax return for the year 1991 was filed." Id. Thus, Salin maintains that section 6-5.5-6-6 refers to alterations or modifications of the actual tax return form and does not include a change to a taxpayer's tax liability for a given tax year, where the change stems from a closing agreement and does not involve amending a tax return. Salin reasons that "No authority exists to indicate that a closing agreement with the IRS is tantamount to altering or modifying a federal income tax return. Therefore, Salin was under no obligation to notify the [Department] of anything having to do with the IRS." Id.

The Department challenges Salin's position. In its brief, the Department asserts:

It does not matter that the federal changes were made as the result of a closing letter rather than on an actual federal return form. The Indiana statute is broad in its reach. It requires notification whenever there is a change to or of a federal return and not merely when a change is recorded on a federal return. . . . Thus, the argument that there is no duty to report just because the change was memorialized in a closing letter fails on the face of the statutes.

(Resp't Br. at 3-4.)

The Court may only construe and interpret a statute if it is unclear and ambiguous. Shoup Buses, Inc. v. Indiana Dep't of State Revenue, 635 N.E.2d 1165, 1167 (Ind.Tax Ct.1994). In construing a statute, the Court's function is to give effect to the legislature's intent in enacting the statutory provision in dispute. Mynsberge, 716 N.E.2d at 632. Generally, the best evidence of this intent is found in the language chosen by the legislature. See id. Words in a statute are given their plain, ordinary and usual meaning unless the legislative intent reveals a contrary purpose. Maurer v. Indiana Dep't of State Revenue, 607 N.E.2d 985, 987 (Ind. Tax Ct.1993). However, the Court may also consider legislative intent as ascertained from an act or statutory scheme as a whole. Mynsberge, 716 N.E.2d at 633.

Arguably, section 6-5.5-6-6 is ambiguous. Both Salin's and the Department's interpretations at first blush seem plausible. Therefore, the Court endeavors to determine the legislature's intent in enacting the provision. To begin, the Court notes that the altered or modified "return" that is the subject of the statute refers to an actual federal tax return form and not the tax liability calculated using the return. A "tax return" is an "income-tax form on which a person or entity reports income, deductions, and exemptions, and on which tax liability is calculated." BLACK'S LAW DICTIONARY 1475 (7th ed. 1999). The question is whether the alteration or modification of the return must be made exclusively on the return itself or on an amended return, as opposed to a closing agreement entered into with the federal government.

Salin's interpretation of section...