Penn Entm't, Inc. v. Ind. Dep't of St. Revenue

230 N.E.3d 385

PENN ENTERTAINMENT, INC. (f/k/a Penn National Gaming, Inc.), Petitioner,

v.INDIANA DEPARTMENT OF STATE REVENUE, Respondent.

Case No. 22T-TA-00015

Tax Court of Indiana.

February 28, 2024

ATTORNEYS FOR PETITIONER: MARK J. RICHARDS, MATTHEW J. EHINGER, JOSHUA W. SCHLAKE, ICE MILLER LLP, Indianapolis, IN

ATTORNEYS FOR RESPONDENT: THEODORE E. ROKITA, ATTORNEY GENERAL OF INDIANA, LYDIA. A. GOLTEN, THOMAS L. MARTINDALE, J. DEREK ATWOOD, DEPUTY ATTORNEYS GENERAL, Indianapolis, IN

ORDER ON THE PARTIES’ CROSS-MOTIONS FOR SUMMARY JUDGMENT

Baker, Special Judge.

PENN Entertainment, Inc., f/k/a Penn National Gaming, Inc. ("PENN"), has challenged the Indiana Department of State Revenue’s (the "Department") denial of its tax protest. The Department had assessed additional corporate income taxes against Penn for the 2015, 2016, and 2017 tax years, after concluding that PENN should have included in its Indiana tax base the value of certain payments made to other state governments, as required by Indiana Code § 6-3-1-3.5(b). PENN argues it does not have to add back those payments, claiming the Department misapplied the governing statute. PENN further claims that adding back the value of the out-of-state payments violates its rights under the United States Constitution and the Indiana Constitution.

The matter is before the Court on the parties’ cross-motions for summary judgment. Upon review, the Court grants summary judgment for the Department and denies PENN’s motion.

FACTS AND PROCEDURAL HISTORY¹

PENN, a Pennsylvania company, operated a casino in Indiana through a subsidiary company. (See Joint Stipulation of Facts ("Jt. Stip.") ¶¶ 1,3.) PENN also owned other entities which operated gaming and entertainment ventures in California, Delaware, Florida, Illinois, Iowa, Kansas, Maryland, Massachusetts, Maine, Missouri, Mississippi, New Jersey, New Mexico, Nevada, Ohio, Pennsylvania, and West Virginia. (See Jt. Stip. ¶ 4.)

On its 2015, 2016, and 2017 Indiana adjusted gross income tax ("AGIT") returns, PENN reported the value of income taxes it had paid in other states. (See Jt. Stip. ¶ 5.) PENN had deducted those payments from its federal income tax returns, and added the value of those taxes back to its Indiana tax base. (See Jt. Stip. ¶ 5.)

The Department audited PENN’s AGIT returns for the years at issue. (See Jt. Stip. ¶ 8.) Afterwards, the Department determined certain payments by PENN to other state governments also needed to be added back to the calculation of PENN’s Indiana tax, base. (See Jt. Stip. ¶ 10.) As a result, the Department determined PENN owed additional taxes for 2015, 2016, and 2017, plus interest and penalties. (See Jt. Stip. ¶ 10.)

PENN protested the Department’s proposed assessments of additional taxes. (See Jt. Stip. ¶ 10.) Following an administrative hearing, the Department eliminated the assessment of penalties but otherwise denied PENN’s protest. (See Jt. Stip. ¶ 11.) Next, PENN requested rehearing, which the Department denied. (See Jt. Stip. ¶ 12.)

On November 16, 2022, PENN filed this original tax appeal. The Department moved for summary judgment on November 6, 2023, and PENN cross-moved for summary judgment on November 7. The Court held a hearing on the parties’ cross-motions on January 26, 2024. Additional facts will be supplied as necessary.

STANDARD OF REVIEW

[1] The Tax Court reviews final determinations of the Department de novo. Ind. Code § 6-8.1-5-1(i) (2024). The Court is therefore not bound by the evidence or the issues raised at the administrative level. Subaru-Isuzu Auto., Inc. v. Indiana Dep’t of State Revenue, 782 N.E.2d 1071, 1073 (Ind. Tax Ct. 2003).

[2, 3] "Summary judgment is designed to provide speedy resolution to those cases – or those parts of cases – that may be determined as a matter of law because there are no factual disputes." Vodafone Ams., Inc. v. Indiana Dep’t of State Revenue, 991 N.E.2d 626, 627 (Ind. Tax Ct. 2013) (citations omitted). A court shall grant a motion for summary judgment "if the designated evidentiary matter shows that there is no genuine issue as to any material fact and that the moving party is. entitled to a judgment as a matter of law." Ind. Trial Rule 56(C). Cross-motions for summary, judgment do not alter the standards for determining whether summary judgment is warranted. Horseshoe Hammond, LLC v. Indiana Dep’t of State Revenue, 865 N.E.2d 725, 727 (Ind. Tax Ct. 2007), review denied. The parties have stipulated to all material facts, leaving only questions of law.

ANALYSIS

I. Application of Indiana Code § 6-3-1-3.5

[4–7] The parties disagree as to whether specific payments submitted by PENN to other state governments should, by statute, be included in the calculation of PENN’s Indiana adjusted gross income. "When this Court is confronted with a question of statutory constriction, its function is to determine and implement the intent of the legislature in enacting that statutory provision." DeKalb Cnty. E. Cmty. Sch. Dist. v. Dep’t of Loc. Gov’t Fin., 930 N.E.2d 1257, 1260 (Ind. Tax Ct. 2010) (citation omitted). "In general, the best evidence of the legislature’s intent is found in the actual language used within the statute itself." Id. (citation omitted).

The General Assembly instructs that "[w]ords and phrases shall be taken in their plain, or ordinary and usual, sense." Ind. Code § 1-1-4-1(1) (1991). "Nevertheless, a statute must not be construed so narrowly that it does not give effect to legislative intent because the intent of the legislature embodied in a statute constitutes the law." Gen. Motors Corp. v. Indiana Dep’t of State Revenue, 578 N.E.2d 399, 404 (Ind; Tax Ct. 1991), aff'd, 599 N.E.2d 588 (Ind. 1992) (citation omitted).

For business entities such as PENN, Indiana defines "adjusted gross income" the same as federal "taxable income" is defined in Section 63 of the Internal Revenue Code ("IRC") with certain adjustments. Ind. Code § 6-3-1-3.5(b) (2015). IRC § 63 defines taxable income as "gross income minus the deductions allowed" by the Code. 26 USCA § 63 (2014). The allowable deductions inclüde payment of state income taxes. 26 USCA § 164 (2014).

Next, the General Assembly directs Indiana businesses calculating adjusted gross income to "[a]dd an amount equal to any deduction or deductions allowed or allowable pursuant to [IRC § 63] for taxes based on or measured by income and levied at the state level by any state of the United States." I.C. § 6-3-1-3.5(b)(3). This subsection is known as the "add-back provision." See Subaru-Isuzu, 782 N.E.2d at 1076.

PENN does not deny that some of its out-of-state tax payments should be included in its Indiana tax base. PENN instead argues the specific out-of-state payments at issue, which are discussed below, should not be added to its Indiana tax base because the payments were for "unapportioned excise taxes, privilege fees, and other non-tax payments" that are not measured by income. (Pet’r Br. Supp. Mot. Summ. J. ("Pet’r Br.") at 13.)

In Consolidation Coal Company v. Indiana Department of State, Revenue, 583 N.E.2d 1199 (Ind. 1991), the Indiana Supreme Court considered whether an out-of-state tax, specifically "West Virginia’s Business and Occupation Tax," was "based on or measured by income" for purposes of Indiana Code section 6-3-1-3.5(b)(3). Consolidation Coal Co. v. Indiana Dep’t of State Revenue, 583 N.E.2d 1199, 1200 (Ind. 1991). The Court determined the General Assembly’s use of the phrase "based on or measured by income" in the statute "suggests a broader inquiry than would be appropriate if the legislature had provided for adding back, say, ‘taxes on income.’ " Id. at 1201. In essence, Indiana Code section 6-3-1-3.5(b)(3) permits "the add-back of taxes based on income but not those such as property or excise taxes." ’ Id. at 1202. Turning to the tax in question, the Court noted it was "a tax on the privilege of doing business in that state." Id. Even so, West Virginia calculated the amount of tax owed using "gross proceeds of sales," derived from "tangible property," rather than the value of property held. Id. The Indiana Supreme Court determined West Virginia’s privilege tax was measured by income and thus subject to the add-back provision. Id.; see also Aztar Ind. Gaming Corp. v. Indiana Dep’t of State Revenue, 806 N.E.2d 381, 386 (Ind. Tax Ct. 2004) (determining payments made for Indiana’s Riverboat Wagering Tax were subject to the add-back provision because the tax was measured by receipts, even though the tax was an excise tax), review denied.

This Court reached a contrary result on different facts in First Chicago NBD Corporation v. Department of State Revenue, 708 N.E.2d 631 (Ind. Tax. Ct. 1999). In that case, this Court was called on to apply a subsection of Indiana Code § 6-5.5-1-2. See First Chicago NBD Corp. v. Dep’t of State Revenue, 708 N.E.2d 631, 632 (Ind. Tax Ct. 1999). That statute, which defines adjusted gross income for financial institutions, included an add-back provision that was substantially similar to the one in Indiana Code § 6-3-1-3.5(b)(3). See, e.g., Ind. Code § 6-5.5-1-2(a)(1)(C) (2024) (requiring add-backs for out-of-state taxes "based on or measured by income"). The Department alleged Michigan’s Single Business Tax ("MSBT"), was "based on or measured by income," First Chicago, 708 N.E.2d at 632, and thus First Chicago NBD Corporation needed to add the value of its MSBT payments back to its Indiana taxable income.

The Tax Court disagreed with the Department, determining the MSBT was a value added tax. Although the taxpayer’s income was part of the calculation of the tax owed, the income was "merely an effort to measure, in part, the value added by the production of a product." Id. at 634. At its core, the MSBT measured the value added from the production process, not income derived from sales. Id. Further, the Tax Court noted Michigan’s courts have determined the MSBT is not a tax measured by income. Id. The Court concluded the MSBT was not ...