Tax Court limits boat maker’s witness, expands discovery

The Indiana Tax Court has partially denied the Indiana State Department of Revenue’s motion to exclude a tax service provider’s report in the Department’s litigation against a southern Indiana boat maker.  

In April, Tell City Boatworks Inc. was denied its motion an investigatory report and testimony presented during litigation of its appeal of the Indiana Department of State Revenue’s determination that Tell City was not entitled to qualified research expense credit for the 2010 tax year.

During the discovery process of that litigation, Tell City produced a research and tax development study that it had retained the tax service provider alliantgroup LP to assist in the “analyzing, substantiating, and documenting [Tell City’s] various research and experimental activities” for the 2010 tax year.

Tell City also indicated that it might call as a fact witness Stacy Little, an associate director with alliantgroup. Tell City explained her testimony would potentially address “anything from project qualification to quantification of the research credit to substantiation or other items related to the claimed credit.”

However, the Department later discovered that Little was both an employee and an attorney for alliantgroup, and that all of Tell City’s nonlocal counsel held managerial, executive, or senior positions at alliantgroup. Tell City then confirmed for the first time that Little would be called as an expert witness.

The Department filed a motion to exclude or limit Little’s testimony pursuant to Indiana Rules of Evidence 403, 602, 701, 704, 801, and 802. The Department argued Little should not be permitted to testify as a fact witness because the substance of her testimony and the Tell City study were more akin to the opinions of experts, rather than fact witnesses.

“Tell City, on the other hand, claims that the Department’s characterization of Ms. Little as ‘an expert in lay witness’ clothing’ is unfounded because she possesses none of the attributes of a retained expert,” Judge Mary Blood Wentworth wrote. “Tell City further claims that the Department’s concerns regarding the Report are misplaced because it is nothing more than a ‘summary of the actions taken by Ms. Little throughout her involvement in the subject study.’ Tell City’s arguments, however, are not persuasive.”

Wentworth concluded that Tell City was unable to prove that Little’s testimony was admissible under Indiana Evidence Rule 701 based on her involvement in the creation of the study, which also indicated that her opinions on Tell City’s eligibility for the QRE was based on information received from others and not on her personal perceptions.

It further found that because the Department had not claimed that Little “lacked the knowledge, skill, experience, or training” to accomplish her tasks of developing and finalizing Tell City’s tax credit, that she could only testify as an expert witness.

The tax court also granted the Department additional time to conduct discovery to “level the playing field” if Little is in fact chosen to testify. Lastly, it concluded that the study was a “legal conclusion” and therefore neither Little nor any other witness would be permitted to testify to any portion of the study.

Wentworth thus declined to exclude any portion of the study at the current phase in the proceedings, and determined that the Department may conduct additional discovery regarding Little and the study, denying in part and granting in part the Department’s motion in Tell City Boatworks, Inc. v. Indiana Department of State Revenue, 18T-TA-4.