Miller Brewing Co. v. Ind. Dep't of State Revenue

955 N.E.2d 865

MILLER BREWING COMPANY, Petitioner,

v.INDIANA DEPARTMENT OF STATE REVENUE, Respondent.

No. 49T10–0607–TA–69.

Tax Court of Indiana.

Aug. 18, 2011.

Stephen H. Paul, Jon B. Laramore, Brent A. Auberry, Baker & Daniels LLP, Indianapolis, IN, Attorneys for Petitioner.Gregory F. Zoeller, Attorney General of Indiana, Andrew W. Swain, Chief Counsel, Tax Section, Jessica E. Reagan, Timothy A. Schultz, Deputy Attorneys General, Indianapolis, IN, Attorneys for Respondent.

ORDER ON PARTIES' MOTIONS FOR SUMMARY JUDGMENT

FISHER, Senior Judge.

Miller Brewing Company (Miller) appeals the Indiana Department of State Revenue's (Department) denial of its claims for refund of Indiana adjusted gross income tax and supplemental net income tax (collectively, AGIT) paid for the 1997, 1998, and 1999 tax years (the years at issue).¹ The case presents one issue for the Court to decide: whether, for purposes of calculating its Indiana AGIT liability, Miller's sales to Indiana customers are allocated to Indiana if those customers hired common carriers to pick up their merchandise at Miller's Ohio facility.

FACTS AND PROCEDURAL HISTORY

Miller, headquartered in Milwaukee, Wisconsin, manufactures and sells malt beverage products throughout the country. During the years at issue, Miller sold its products to customers located in Indiana. In those sales transactions: 1) the Indiana customers submitted purchase orders to Miller's Milwaukee headquarters; 2) Miller produced the products and prepared them for pick up at its Trenton, Ohio brewery; and 3) the Indiana customers arranged for and hired third-party common carriers to pick up the products at the brewery (hereinafter, “carrier-pickup sales”). Possession of and title to the products transferred to the Indiana customers at the brewery.

Miller prepared and filed Indiana corporate income tax returns for each of the years at issue. In calculating its Indiana AGIT liabilities, Miller did not allocate the income it received from the carrier-pickup sales to Indiana. After completing an audit of Miller's tax returns, however, the Department issued proposed assessments against Miller on the basis that it should have allocated the carrier-pickup sales income to Indiana. Miller subsequently “paid” the proposed assessments ² and then filed a claim for refund with the Department. On June 12, 2006, after conducting an administrative hearing, the Department issued a Letter of Findings (LOF) denying Miller's claim.

Miller initiated this original tax appeal on July 24, 2006. On December 15, 2006, the Department filed a motion for summary judgment; that same day, Miller also filed a motion for summary judgment. On October 27, 2010, this Court held a hearing on those motions. Additional facts will be supplied when necessary.

STANDARD OF REVIEW

Summary judgment is appropriate 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. Ind. Trial Rule 56(C). Cross-motions for summary judgment do not alter this standard. Horseshoe Hammond, LLC v. Ind. Dep't of State Revenue, 865 N.E.2d 725, 727 (Ind. Tax Ct.2007), review denied.

DISCUSSION AND ANALYSIS

Indiana imposes a tax on the portion of every corporation's adjusted gross income that is “derived from sources within Indiana[.]” Ind.Code § 6–3–2–1(b) (2011). During the years at issue, income was allocated to Indiana on the basis of a three-factor formula, reflecting a corporation's payroll, property, and sales attributed to this state, with the sales factor receiving the greater percentage of weight.³ See Ind.Code § 6–3–2–2(b) (1994) (amended 2006) (footnote added). For purposes of determining whether a corporation's sales should be attributed to Indiana under this formula, Indiana Code § 6–3–2–2(e)(1) states:

[s]ales of tangible personal property are in this state if[ ] the property is delivered or shipped to a purchaser, other than the United States government, within this state, regardless of the f.o.b. point or other conditions of the sale[.] ⁴

I.C. § 6–3–2–2(e)(1) (amended 2006) (footnote added).

As stated earlier, the issue in this case is whether Miller should have allocated its income from the carrier-pickup sales to Indiana. Both parties have argued that the resolution of the issue is contingent on the answer to the following question: does the plain language of Indiana Code § 6–3–2–2(e)(1) mandate the application of “the destination rule?” ⁵ (See, e.g., Resp't Supp'l Br. Mot. Summ. J. at 9; Pet'r Add'l Mem. Supp. Mot. Summ. J. at 8–9 (footnote added).)

The Department asserts the answer to that question is “yes.” This is so, the Department maintains, because: 1) the legislature adopted statutory language that tracks the language of section 16 of the Uniform Division of Income for Tax Purposes Act (“UDITPA”), which incorporates the destination rule; 2) Indiana rejoined the Multistate Tax Commission (“MTC”) in 2007 after a thirty year absence; and 3) other states with statutory language similar to Indiana Code § 6–3–2–2(e)(1) have construed their statutes as requiring the destination rule.⁶ ( See Resp't Supp'l Br. Mot. Summ. J. at 9, 18–21; Resp't Resp. Br. at 2–4, 16–17; Hr'g Tr. at 14–16 (Oct. 27, 2010) (footnote added).)

Miller, however, answers the question with a “hard to tell.” ⁷ More specifically, it asserts that in enacting Indiana Code § 6–3–2–2(e)(1), the legislature used language that can reasonably be construed in two different ways, effecting two different outcomes. Under one construction, Miller explains, the statutory language can be construed to mean that a sale is an Indiana sale if the property's purchaser is domiciled or has a business situs in Indiana, no matter where the merchandise is shipped or delivered; under the other construction, however, the statutory language can be construed to mean that a sale is an Indiana sale if the property is delivered or shipped to this state, whether or not the purchaser has an Indiana domicile or business situs.⁸ (See Pet'r Add'l Mem. Supp. Mot. Summ. J. at 11–12 (footnote added).) Miller argues that instead of looking to UDITPA, the MTC, or other states to determine the proper construction of Indiana's statute, the Department's own regulation interpreting how the legislature intended the statute to apply, should control: “[s]ales are not ‘in this state’ if the purchaser picks up the goods at an out-of-state location and brings them back into Indiana in his own conveyance.” ( See Pet'r Add'l Mem. Supp. Mot. Summ. J. at 8–9, 11–16 ( citing 45 Ind. Admin. Code 3.1–1–53(7) (1997) (see http:// www. in. gov/ legislative/ iac/)).)

This Court will construe and interpret a statute only if is unclear and ambiguous. Shoup Buses, Inc. v. Ind. Dep't of State Revenue, 635 N.E.2d 1165, 1167 (Ind. Tax Ct.1994). When a statute is susceptible to more than one interpretation, it is ambiguous. Amoco Prod. Co. v. Laird, 622 N.E.2d 912, 915 (Ind.1993). To resolve the ambiguity (and therefore determine the legislature's intent in enacting the statutory provision), “it is appropriate for the court to look to a clarifying regulation or one indicating the method of [the statute's] application[.]” Johnson Cnty. Farm Bureau Co-op. Ass'n v. Ind. Dep't of State Revenue, 568 N.E.2d 578, 580, 585–86 (Ind. Tax Ct.1991) (internal quotation marks and citation omitted), aff'd by 585 N.E.2d 1336 (Ind.1992). Indeed, a regulation (i.e., the interpretation of a statute by an administrative agency charged with enforcing the statute) has the force of law unless it is clearly inconsistent with the statute itself. ⁹ Id. at 586; Pierce v. State Dep't of Corr., 885 N.E.2d 77, 89 (Ind.Ct.App.2008) (footnote added).

In this case, the Department has not argued that 45 I.A.C. 3.1–1–53(7) is inconsistent with Indiana Code § 6–3–2–2(e)(1).¹⁰ Accordingly, in determining how the legislature intended Indiana Code § 6–3–2–2(e)(1) to be applied, the Court finds the Department's interpretation—as embodied in its own regulation—to be more persuasive than UDITPA, Indiana's membership in the MTC, or how other states construe their statutory language. Indeed, while the language of Indiana Code § 6–3–2–2(e)(1) does track the language of UDITPA, see supra note 6, Indiana has not adopted UDITPA.¹¹See I Jerome R. Hellerstein, Walter Hellerstein & John A. Swain, State Taxation ¶ 9.01 (Table 9–1) (3d ed. 1998 & Supp.2011) (listing states that have adopted UDITPA) (footnote added). Moreover, the Court will not impute the MTC's goal of uniform taxation of multistate businesses—via the application of the destination rule—to the legislature's intent in enacting Indiana Code § 6–3–2–2(e)(1), as the Department cannot “explain away” the fact that it promulgated 45 I.A.C. 3.1–1–53(7) in 1979, two years after Indiana left the MTC. See 45 I.A.C. 3.1–1–53. See also Miller Brewing Co. v. Ind. Dep't of State Revenue, 903 N.E.2d 64, 72 (Ind.2009) ( citing 1977 Ind. Acts 467, P.L. 90–1977; 2007 Ind. Acts 2191, P.L. 145–2007 § 17). In any event, as the Oregon Tax Court aptly explained, the MTC's “aspirational goals” for uniformity in taxation represent matters of policy, not law. Oracle Corp. v. Or. Dep't of Revenue, Case No. TC–MD 070762C, 2010 WL 496945, slip op. at 3 (Or. T.C. Feb. 11, 2010). Finally, while other state courts may have found that statutory language similar to that contained in Indiana Code § 6–3–2–2(e)(1) requires the application of the destination rule, the holdings from those jurisdictions are not binding on this Court. In fact, they are not even particularly instructive: none of them analyzed statutory language in conjunction with an interpretative regulation or rule, similar to 45 I.A.C. 3.1–1–53(7), by the administrative entity charged with enforcing the actual statute. ( Cf. Resp't Supp'l Br. Mot. Summ. J. at 20 n. 78 with Resp't Supp'l Des'g Evid., Vol. II at 626–88.) See also Jamestown Homes of Mishawaka, Inc. v. St....