Justices: Tax Court erred in prima facie showing requirement

The Indiana Supreme Court has found that the Indiana Tax Court erred in requiring the state revenue department to produce more evidence of a proposed assessment of additional tax liability for a corporation. The justices reversed and remanded Indiana Department of State Revenue v. Rent-A-Center East, Inc., No. 49S10-1112-TA-683.

The Tax Court in May denied the revenue department’s motion for summary judgment and granted one in favor of Rent-A-Center East. The department failed to designate any facts to show it complied with Indiana Code 6-3-2-2(p), so it had not made a prima facie case that it is entitled to judgment as a matter of law regarding whether the department should consider alternatives to assessing tax based on a combined return.

But the justices determined the Tax Court incorrectly applied the combined scheme of state statute and trial rule requirements to the case.

Judge Martha Wentworth construed the tax statutes to require the revenue department to make its Trial Rule 56(C) prima facie showing by designating facts material to RAC East’s separate return from 2003 on income sources and the use of combined income tax return being reasonable and equitable. Then, the court denied the department’s motion after finding it didn’t comply with Indiana Code 6-3-2-2(p).

“We conclude that Section 6-3-2-2(p) and Trial Rule 56 must function together in a different way,” Chief Justice Randall Shepard wrote.

The justices found that the department may make a proposed assessment only if it reasonably believes that a person has not reported the proper amount of tax due, and it makes its assessment on the basis of the best information available. The General Assembly has provided that the notice of proposed assessment is prima facie evidence that the department’s claim for the unpaid tax is valid, Shepard wrote, so the burden of proving that the proposed assessment is wrong rests with the person against whom the proposed assessment is made.

“Nothing in the text of Section 6-3-2-2(p) indicates that the General Assembly intended it to trump the presumption of validity given to the proposed assessment, nor do we think it proper for a taxpayer resisting such an assessment simply to cite subsection (p) as a means of vitiating the Department’s prima facie showing.” Shepard wrote. “Rather, Section 6-3-2-2(p) reflects the Legislature’s codification of a rule of decision with respect to when a combined income tax return may permissibly be required. It serves as the evidentiary bar that must be evaluated at the end of the summary judgment analysis (or trial process), not a threshold over which the Department must pass at the beginning.”

The case is remanded to Wentworth to consider summary judgment motions on their merits in light of all the designated evidence the parties may tender.