Thermo-Cycler Indus., Inc. v. Ind. Dep't of State Revenue

• Decision Date: 15 June 2017
• Docket Number: Cause No. 71T10-1110-TA-00062
• Citation: 78 N.E.3d 30
• Parties: THERMO-CYCLER INDUSTRIES, INC., Petitioner, v. INDIANA DEPARTMENT OF STATE REVENUE, Respondent.
• Court: Indiana Tax Court

78 N.E.3d 30

THERMO-CYCLER INDUSTRIES, INC., Petitioner,

v.INDIANA DEPARTMENT OF STATE REVENUE, Respondent.

Cause No. 71T10-1110-TA-00062

Tax Court of Indiana.

June 15, 2017

ATTORNEY FOR PETITIONER: ANDREW R. WOLF, THE WOLF LAW OFFICE, Michigan City, IN

ATTORNEYS FOR RESPONDENT: CURTIS T. HILL, JR., ATTORNEY GENERAL OF INDIANA, JESSICA R. GASTINEAU, EVAN W. BARTEL, WINSTON LIN, DEPUTY ATTORNEYS GENERAL, Indianapolis, IN

ORDER ON PARTIES' CROSS-MOTIONS FOR SUMMARY JUDGMENT

WENTWORTH, J.

Thermo-Cycler Industries, Inc. has challenged the Indiana Department of State Revenue's final determination assessing it with unpaid Indiana sales and use tax liabilities for the 2008, 2009, and 2010 tax years (the years at issue). The matter is currently before the Court on the parties' cross-motions for summary judgment and presents just one issue for the Court to decide: whether the Department's assessments are void as a matter of law because of the audit procedures it employed. Upon review, the Court finds that they are not.

FACTS AND PROCEDURAL HISTORY

Thermo-Cycler, a manufacturer of heating equipment, is located in LaPorte County, Indiana. (Resp't Des'g Evid. Supp. Partial Mot. Summ. J. ("Resp't Des'g Evid."), Ex. 15 ¶¶ 1, 10.) In July of 2010, the Department notified Thermo-Cycler that in August it would be conducting a compliance audit for tax years 2007 through 2009 and indicated that it would need access to, among other things, Thermo-Cycler's federal income tax returns, sales reports showing total and exempt sales, and withholding tax forms. (Resp't Des'g Evid., Ex. A at Ex. 1.) At Thermo-Cycler's request, however, the audit start date was postponed several times. (See, e.g. , Pet'r Des'g Evid., Ex. A at Exs. 2-7.) In the meantime, Thermo-Cycler did not provide the Department with access to any of the requested records. (See Pet'r Des'g Evid., Ex. A at Ex. 7.)

At the beginning of January 2011, the Department sent Thermo-Cycler a letter stating that it was necessary for the audit to be completed by the end of the month and warned that if the requested records were not forthcoming, it would complete the audit based on the "best information available." (Pet'r Des'g Evid., Ex. A at Ex. 7.) There was no further communication between Thermo-Cycler and the Department until April of 2011 when the Department issued both an audit summary and Proposed Assessments against Thermo-Cycler imposing approximately $70,000 in sales and use tax liabilities for the 2008, 2009, and 2010 tax years. (See Pet'r Des'g Evid., Ex. A at 71-72, Ex. B at Exs. 2-3; Resp't Confd'l Des'g Evid., Ex. B ¶ 7, Ex. E ¶ 5, Ex. 11.) The Department's Proposed Assessments were based on figures it extrapolated from Thermo-Cycler's 2007-2009 federal tax returns. (See Pet'r Des'g Evid., Ex. B at 17.)

Thermo-Cycler subsequently protested the Proposed Assessments, claiming that they were void as a matter of law because the Department did not follow the statutorily-prescribed audit procedure. (See, e.g. , Pet'r Des'g Evid., Ex. A at Ex. 8.) In the alternative, Thermo-Cycler claimed that the amount of the tax liabilities set forth in the Proposed Assessments were improper because they were based on certain erroneous mathematical calculations. (See, e.g. , Pet'r Des'g Evid., Ex. A at Ex. 8.) After conducting a hearing on the protest, the Department issued a Letter of Findings in which it denied Thermo-Cycler's void as a matter of law argument, but granted that portion of Thermo-Cycler's protest relating to the propriety of the mathematical calculations subject to a supplemental audit. (See, e.g. , Pet'r Des'g Evid., Ex. A at Ex. 8.) After the supplemental audit was completed, the Department issued revised Proposed Assessments that reduced Thermo-Cycler's total sales and use tax liabilities for the years at issue to approximately $62,000. (See Resp't Des'g Evid., Ex. D ¶¶ 4-5; Resp't Confd'l Des'g Evid., Exs. 10, 12.)

Thermo-Cycler filed an original tax appeal on October 19, 2011. In 2013, while the case was pending, the Department conducted a second supplemental audit of Thermo-Cycler and reduced the Proposed Assessments again, to approximately $16,000.¹ (See Resp't Des'g Evid., Ex. C ¶¶ 4-5; Resp't Confd'l Des'g Evid., Exs. 9, 13.) On July 19, 2016, Thermo-Cycler and the Department filed cross-motions for summary judgment.² Additional facts will be supplied as necessary.

STANDARD OF REVIEW

Summary judgment is proper only when the designated evidence demonstrates that 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). When reviewing a motion for summary judgment, the Court will construe all properly asserted facts and reasonable inferences drawn therefrom in favor of the non-moving party. See Scott Oil Co. v. Indiana Dep't of State Revenue , 584 N.E.2d 1127, 1128-29 (Ind. Tax Ct. 1992). Cross-motions for summary judgment do not alter this standard. Horseshoe Hammond, LLC v. Indiana Dep't of State Revenue , 865 N.E.2d 725, 727 (Ind. Tax Ct. 2007), review denied .

LAW

The Department is charged with the administration, collection, and enforcement of Indiana's sales and use taxes. See IND. CODE § 6-8.1-1-1 (2011) (amended 2013); IND. CODE § 6-8.1-3-1(a) (2011). Accordingly, the Department "may audit any returns filed in respect to [those] taxes ... and may investigate any matters relating to [those] taxes." IND. CODE § 6-8.1-3-12(a) (2011).

When conducting an audit, the Department may "inspect any books, records, or property of any taxpayer which is relevant to the determination of the taxpayer's tax liabilities[.]" IND. CODE § 6-8.1-4-2(a)(3) (2011). To that end, every person subject to the sales or use taxes "must keep books and records so the [D]epartment can determine the amount, if any, of [his] liability for th[ose] tax[es] by reviewing those books and records." IND. CODE § 6-8.1-5-4(a) (2011). The taxpayer must allow inspection of his books, records, and returns by the Department at all reasonable times. I.C. § 6-8.1-5-4(c). When the taxpayer fails to maintain or provide the Department with his records, the Department may determine the taxpayer's tax liability based on the best information available to it. See I.C. § 6-8.1-5-4(a) ; IND. CODE § 6-8.1-5-1(b) (2011) ; Elmer v. Indiana Dep't of State Revenue , 42 N.E.3d 185, 194 n.12 (Ind. Tax Ct. 2015).

During the course of its audit, the Department "may[ ] (1) subpoena the production of evidence; (2) subpoena witnesses; and (3) question witnesses under oath." I.C. § 6-8.1-3-12(c). Ultimately, the Department

may enforce its audit and investigatory powers by petitioning for a court order in any court of competent jurisdiction located in the county where the tax is due or in the county in which the evidence or witness is located.... The petition to the court must state the evidence or testimony subpoenaed and must allege that the subpoena was served but that the person did not comply with the terms of that subpoena.

I.C. § 6-8.1-3-12(d).

ANALYSIS

On appeal, Thermo-Cycler maintains that the Department's Proposed Assessments are void as a matter of law for three reasons. First, it contends that the Department was statutorily required, but failed, to get a subpoena and court order from the LaPorte County court before it could even complete its audit. Second, it argues that the Department was not authorized to conduct a best information audit because it had not formulated any reasonable belief that Thermo-Cycler had underreported its sales and use tax liabilities. Finally, Thermo-Cycler maintains that because it was never notified prior to the issuance of the Proposed Assessments that tax year 2010 would be included, its right to due process under both the U.S. and Indiana Constitutions has been violated.

1.

Thermo-Cycler first asserts that when, in January 2011, the Department apparently believed Thermo-Cycler was "refusing to cooperate" because it had not yet provided the Department with access to its records, the Department was required under Indiana Code § 6-8.1-3-12(d) to obtain a subpoena and court order from the LaPorte County court before it could proceed any further with its audit. (See Pet'r Mem. Law Supp. Mot. Summ. J. ("Pet'r Br.") at 11, 13-16; Hr'g Tr. at 12, 15 -16, 21 -22.) Thermo-Cycler, however, misreads the language of Indiana Code § 6-8.1-3-12(d).

As previously indicated, when conducting an audit, the Department "may [ ] (1) subpoena the production of evidence; (2) subpoena witnesses; and (3) question witnesses under oath." I.C. § 6-8.1-3-12(c)(emphasis added). In turn, the Department may enforce those subpoena powers

by petitioning for a court order in any court of competent jurisdiction located in the county where the tax is due or in the county in which the evidence or witness is located.... The petition to the court must state the evidence or testimony subpoenaed and must allege that the subpoena was served but that the person did not comply with the terms of that subpoena.

I.C. § 6-8.1-3-12(d). The use of the word "may" in these statutory provisions indicates that while the Department has the power to both issue and enforce a subpoena, it is not required to exercise either of those powers. See, e.g. , Paul Heuring Motors, Inc. v. State Bd. of Tax Comm'rs , 620 N.E.2d 39, 42 (Ind. Tax Court 1993) (stating that the words of a statute must be read in their plain, ordinary, and usual sense); WEBSTER'S THIRD NEW INT'L DICTIONARY (2002 ed.) at 1396, 2085-86 (explaining that "may" is a discretionary term while "shall" is a mandatory one). Consequently, contrary to Thermo-Cycler's stated argument, the Department was not required under Indiana Code § 6-8.1-3-12(d) to obtain a subpoena and court order from the LaPorte County court before proceeding with its audit.³

2.

Next, Thermo-Cycler asserts that pursuant to Indiana Code § 6-8.1-5-1(b), the Department's power to conduct a best information audit can be exercised only after it has formulated a...