West Lafayette business owner scores victory in Tax Court

The owner of two shops that sold books, music and other items, as well as rented movies, got a favorable ruling regarding his adjusted gross income tax owed in the Indiana Tax Court Friday.

John von Erdmannsdorff  has operated Von’s Shops in West Lafayette since 1968, where he sells comic books, music and other gifts. Another site at issue sold comic books and rented VHS movies. The Department of State Revenue audited Von’s Shops for the 2007 and 2008 tax years, which led to the department discovering no federal or state income tax returns have been filed. The audit expanded and led to the DOR using the best information available to calculate the shops’ Indiana adjusted gross income tax liabilities. It relied on a sales financial ratio derived from BizStats, an online provider of free business stats and financial ratios, to estimate Von’s Shops’ cost of goods sold.

The von Erdmannsdorffs protested the $244,686.87 assessment, providing copies of their 2000 through 2009 income tax returns prepared by a CPA firm, two inventories of Von’s Shops derived from inventories as of Jan. 1, 2000, and Jan. 1, 2010, and several credit card statements. The DOR upheld its findings, leading to the original tax appeal in 2011.  

Both parties dispute the credibility of each other’s designated evidence. The DOR claimed that the von Erdmannsdorffs couldn’t offer evidence generated post audit. But Judge Martha Wentworth pointed out, “Neither the statutes nor the case law upon which the Department relied support its claim that only contemporaneously prepared and maintained books and records may rebut the presumption of correctness afforded to its BIA Assessments as a matter of law.”

Wentworth also determined that the credibility issue couldn’t be determined on summary judgment and denied the state’s motion with regard to this issue.

Also, both parties agreed that the DOR’s methodology for computing the von Erdmannsdorffs’ Indiana adjusted gross income did not comport with the law. It does not matter, as the DOR argued, that the errors actually decreased the adjusted gross income by nearly half a million dollars for the years at issue, Wentworth ruled, because once raised, this issue must be resolved based on what the law requires.

As such, she granted the couple’s motion for partial summary judgment on this issue in John and Sylvia Von Erdmannsdorff v. Indiana Department of State Revenue, 49T10-1112-TA-93
 
Wentworth noted she would direct the parties regarding the remaining issues for trial under separate cover.

In a memorandum decision also issued Friday in this case, Wentworth granted the von Erdmannsdorffs’ motions to strike with respect to the DOR’s statements and designated evidence regarding the couple’s purported failure to file income tax returns for the dates before the years at issue. Wentworth denied their motions to strike with respect to the depositions, statements regarding the inventory records and statements regarding BizStats.