United Parcel Serv., Inc. v. Ind. Dep't of State Revenue
| Decision Date | 16 September 2013 |
| Docket Number | No. 49T10–0704–TA–24.,49T10–0704–TA–24. |
| Citation | 995 N.E.2d 20 |
| Parties | UNITED PARCEL SERVICE, INC., Petitioner, v. INDIANA DEPARTMENT OF STATE REVENUE, Respondent. |
| Court | Indiana Tax Court |
OPINION TEXT STARTS HERE
Richard D. Birns, J. Edward Goff, Birns & Goff, Philadelphia, PA, Jeffrey S. Dible, Gene F. Price, Frost Brown Todd LLC, Indianapolis, IN, Louisville, KY, Attorneys for Petitioner.
Gregory F. Zoeller, Attorney General of Indiana, Andrew W. Swain, Chief Counsel, Tax Section, Jessica E. Reagan, Deputy Attorney General, Indianapolis, IN, Attorneys for Respondent.
ORDER ON PETITIONER'S MOTION FOR SUMMARY JUDGMENT
United Parcel Service, Inc. (UPS) challenges the Indiana Department of State Revenue's denial of its refund claim for the 2000 tax year and its assessment of additional corporate income tax for the 2001 tax year (“the years at issue”). The matter,currently before the Court on UPS's motion for summary judgment, presents two issues which the Court restates as: 1) whether foreign reinsurance companies must be physically present in Indiana to satisfy the statutory requirement of “doing business” under Indiana Code § 27–1–18–2; and 2) if so, whether Indiana Code § 6–3–2–2.8(4), in providing an exemption from Indiana's corporate income tax to foreign reinsurance companies that are “doing business” in Indiana under Indiana Code § 27–1–18–2, violates the Commerce Clause of the United States Constitution. Finding that physical presence is required and that the Commerce Clause challenge is improper, the Court grants summary judgment to the Department.
UPS and its affiliates (“the affiliated group”), which include the foreign reinsurance companies of UPINSCO, Inc. and UPS Re Ltd., form the world's largest package delivery company. Prior to 2001, UPS included the income of UPINSCO and UPS Re on the affiliated group's Indiana corporate income tax returns. Because UPS filed the returns under the worldwide unitary combined method, it reported the affiliated group's income, deductions, and credits on a combined basis. In 2001, however, UPS excluded the income of UPINSCO and UPS Re from the affiliated group's Indiana return. UPS also subsequently amended its 2000 Indiana return in order to exclude the income of UPINSCO and UPS Re from the return, thereby seeking a refund of $359,466 in income tax initially paid.
After auditing the affiliated group's returns for the years at issue, the Department determined that UPS erred in excluding the income of UPINSCO and UPS Re from the returns. As a result, the Department denied UPS's refund claim and assessed it with an additional income tax liability of $291,105 for 2001. UPS protested the Department's denial of its refund claim and its issuance of the proposed assessment with no success.
In March 2010, after appealing to this Court, UPS moved for summary judgment, asserting that because UPINSCO and UPS Re were “subject to” Indiana's gross premium privilege tax (premiums tax) under Indiana Code § 27–1–18–2, their income was exempt from Indiana's corporate income tax pursuant to Indiana Code § 6–3–2–2.8(4). The Department filed a cross-motion for summary judgment, contending that because UPS failed to comply with several provisions of the premiums tax statutory scheme, UPINSCO and UPS Re were neither “subject to” the premiums tax nor exempt from Indiana's corporate income tax.
On December 29, 2010, in an unpublished decision, this Court granted UPS's motion for summary judgment on the basis that UPINSCO and UPS Re were exempt from Indiana corporate income tax because they were both “subject to” the premiums tax based on the plain and ordinary meaning of the phrase “subject to.” See United Parcel Serv., Inc. v. Indiana Dep't of State Revenue, No. 49T10–0704–TA–24, slip op. at 6–7, 2010 WL 5549039 (Ind. Tax Ct. Dec. 29, 2010), rev'd on other grounds,969 N.E.2d 596 (Ind.2012)( UPS I ). On June 21, 2012, the Indiana Supreme Court reversed this Court's grant of summary judgment to UPS in UPS I, explaining:
The plain language of Indiana Code section 27–1–18–2 requires that all insurance companies—like UPINSCO and UPS Re—not “organized under the laws of this state” must, at the very least, show they are “doing business within this state” before the companies are entitled to an exemption from adjusted gross income [tax]. The very first sentence of the statute reads, “Every insurance company not organized under the laws of this state, ... and doing business within this state shall....”
Indiana Dep't of State Revenue v. United Parcel Serv., Inc., 969 N.E.2d 596, 601 (Ind.2012)( UPS II ) (citation omitted). After determining that the designated evidence failed to show whether UPINSCO and UPS Re were doing business within this state for purposes of Indiana Code § 27–1–18–2, the Indiana Supreme Court remanded the case for further proceedings. See id. at 603.
On April 18, 2013, UPS once again moved for summary judgment. The Court held a hearing on August 16, 2013. Additional facts will be supplied as necessary.
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.1Ind. Trial Rule 56(C) (footnote added). Indiana Trial Rule 56(B) provides that “[w]hen any party has moved for summary judgment, the court may grant summary judgment for any other party upon the issues raised by the motion although no motion for summary judgment is filed by such party.” T.R. 56(B). When, as here, the material facts are undisputed and a litigant challenges the constitutionality of a statute, the issue presented is purely one of law for which summary judgment is particularly appropriate. See Dowdell v. City of Jeffersonville, 907 N.E.2d 559, 564 (Ind.Ct.App.2009) (citation omitted), trans. denied.
During the years at issue, Indiana imposed an income tax on the part of every corporation's adjusted gross income that was derived from sources within Indiana. SeeInd.Code § 6–3–2–1(b) (2000) (amended 2002). Indiana Code § 6–3–2–2.8(4), however, provided certain entities with an exemption from that tax: “there shall be no tax on the adjusted gross income of ... [i]nsurance companies subject to tax under IC 27–1–18–2.” Ind.Code § 6–3–2–2.8(4) (2000) (amended 2002). In turn, Indiana Code § 27–1–18–2, in relevant part, provided:
(a) Every insurance company not organized under the laws of this state ... and doing business within this state shall, on or before March 1 of each year, report to the department [of insurance], under the oath of the president and secretary, the gross amount of all premiums received by it on policies of insurance covering risks within this state, or in the case of marine or transportation risks, on policies made, written, or renewed within this state during the twelve (12) month period ending on December 31 of the preceding calendar year. From the amount of gross premiums described in this subsection shall be deducted ... considerations received for reinsurance of risks within this state from companies authorized to transact an insurance business in this state[.]
* * * * * *
(c)(1) For the privilege of doing business in this state, every insurance company required to file the report provided in this section shall pay into the treasury of this state an amount equal to [two percent (2%)] of the excess, if any, of the gross premiums over the allowable deductions[.]
Ind.Code § 27–1–18–2(a), (c)(1) (2000) (amended 2001).2
In its motion for summary judgment, UPS claims that the Indiana Supreme Court's decision in UPS II essentially requires foreign reinsurers to be physically present within this state in order to be “doing business” under Indiana Code § 27–1–18–2 and to qualify for the corporate income tax exemption provided under Indiana Code § 6–3–2–2.8(4). ( See Hr'g Tr. at 4–6, Aug. 16, 2013; Pet'r Mot. Summ. J. ¶ 6, Apr. 18, 2013; Pet'r Br. Supp. Mot. Summ. J. (“Pet'r Br.”) at 9, Apr. 18, 2013.) According to UPS, that determination creates tension between Indiana's premiums tax and its corporate income tax because UPS contends the latter utilizes an economic presence standard, not a physical presence standard. ( See Hr'g Tr. at 6–8 () The Department, however, maintains that UPS has misconstrued both UPS II and Indiana Code § 27–1–18–2 because neither of those authorities makes any mention of physical presence whatsoever. ( See Hr'g Tr. at 9–12.)
At the outset, and contrary to UPS's claim, there is no tension between Indiana's premiums tax and its corporate income tax because each utilizes a physical presence standard. Thus, to the extent UPS believes this Court's decision in MBNA held that Indiana's corporate income tax utilized an economic presence standard, it is incorrect. See MBNA, 895 N.E.2d at 141–44 ().
Furthermore, while this Court has found that an economic presence rather than a physical presence is a sufficient basis for imposition of the FIT, it cannot reach the same conclusion regarding Indiana's premiums tax for three main reasons. First, the U.S. Supreme Court has explained that a physical presence standard applies for purposes of a premiums tax:
the limits of [a] state's legislative jurisdiction to tax, [as] prescribed by the Fourteenth Amendment, are to be ascertained by reference to the incidence of the tax upon its objects rather than the ultimate thrust of the economic benefits and burdens of transactions within the state.
Connecticut Gen. Life Ins. Co. v. Johnson, 303 U.S. 77, 80, 58 S.Ct. 436, 82 L.Ed. 673 (1938). See also State Bd. Ins. v. Todd Shipyards...
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