Justices vacate review of voided tax warrants in ‘puppy mill’ case

The Indiana Supreme Court on Tuesday vacated an order granting review in a case that concluded tax agencies and the Indiana attorney general’s office overstepped their authority by issuing jeopardy tax warrants to seize animals from an alleged puppy mill in Harrison County.

Justices unanimously vacated a transfer order from the Indiana Tax Court in Indiana Department of State Revenue v. Virginia Garwood, et al., No. 82S10-1203-TA-171. Justices previously granted transfer and heard oral arguments earlier this month, but Chief Justice Brent Dickson wrote that “review was improvidently granted” in ordering the appeal as final.

The appeal brought by Indiana Attorney General Greg Zoeller sought to overturn a tax court ruling against the Department of Revenue in August by Tax Judge Martha Wentworth in Virginia and Kristin Garwood v. Indiana Department of Revenue, No.82T10-0906-TA-29.

The attorney general's public information officer Bryan Corbin said the state has other avenues it can pursue to collect unpaid taxes, and noted the Virginia and Kristin Garwood pleaded guilty in May 2010 to Class D felony charges of failing to pay sales.

“Tax evasion and fraud are against the law and will subject the offender to potential civil and criminal penalties by the Department of Revenue, the Attorney General’s Office, and the local prosecutor’s office,” Corbin said in a statement. “The State will not tolerate businesses that gain an unfair economic advantage over their competitors by willfully failing to pay their taxes. The Court’s decision not to hear the case does not mean that the Garwoods are relieved of their tax burden to the State. We respect the decision of the Court.”

Corbin said the order set no precedent and applied only the to Garwood case.

The attorney for the Garwoods had not returned a message left by IL deadline.

The justices let stand Wentworth’s ruling against what the attorney general had dubbed the “Al Capone” approach to take down what it described as illegal puppy mill operations.

The case goes back to June 2009, when a mother and daughter were charged after a raid on their dairy farm that involved police, representatives of the attorney general’s office, department of revenue and about 60 animal rescue workers.

The state had gone to the Garwoods’ residence to serve the jeopardy tax assessments and demanded the family pay about $142,368 immediately or their personal property would be seized. When they couldn’t pay, 244 dogs and puppies were seized. The animals, some of which tested positive for disease, were sold by the state to the Humane Society for a total $300.

The tax court granted summary judgment in the Garwoods’ favor and voided the Garwoods’ jeopardy assessments. Wentworth ruled that lawmakers narrowly defined the circumstances in which jeopardy tax warrants may be issued.

Wentworth wrote that one of four circumstances must exist to execute jeopardy tax warrants: that a person intends to quickly leave the state, remove property from the state, conceal property in the state, or do any other act that would jeopardize the collection of taxes. She ruled there was no evidence that those circumstances existed.

The Garwoods eventually pleaded guilty to failing to pay 2007 to 2009 sales tax for the puppy-breeding and selling operation in Mauckport.

The state alleged the Garwoods were concealing the puppies to avoid being taxed, citing Virginia Garwood’s refusal to allow Harrison County Animal Control on her property at one point after a consumer complained she was hiding the operation.

But Wentworth disagreed, finding it was not reasonable to infer that Virginia Garwood’s intent was to conceal property to avoid paying taxes because one would not normally expect an animal control officer to be involved with tax collection matters. Wentworth also dismissed the state’s arguments that the Garwoods’ purchase of breeding animals in bulk was speculative as far as a way for them to conceal the individual sales of the dog operation.

While the Garwoods may not have been properly reporting and paying taxes, the evidence doesn’t prove they were intending not to pay or trying to thwart collection in any way, the judge determined.

Citing an Indiana Supreme Court ruling from 2002 about jeopardy assessments, Wentworth noted that those tax tools should be issued as part of the state’s “power of the purse” and not its “power of the sword” in punishing crimes.