INDIANA TAX COURT
HEARING AT A GLANCE
THE NOTRE DAME LAW SCHOOL
The Majestic Star Casino II, Inc.
n/k/a The Majestic Star Casino II, LLC,
v.
Indiana Department of State Revenue
ISSUES:
I. Whether the Tax Court has subject
matter jurisdiction over the Casino’s
appeal; and
HEARING:
Wednesday, March 20, 2013
1 p.m. EST
II. Whether the Casino’s appeal
states a claim upon which relief may
be granted.
Case Synopsis and Arguments
On December 31, 2010,
the Casino filed an
Adversary Complaint
against the Department in
the U.S. Bankruptcy Court
for the District of Delaware
seeking to void the
termination of its “qualified
subchapter S subsidiary”
tax status (hereinafter
“QSub status”) and recover
over $3.3 million in
estimated and actual
Indiana income tax
payments, interest, and
penalties. The Complaint
states the Casino was a
QSub, which is a “pass
through” entity for federal
income tax purposes; thus,
its parent corporation and
sole shareholder were
liable for any tax on its
income, and they could
deduct its losses. The
Casino alleged its parent
corporation and sole
shareholder violated 11
U.S.C. § 549 by revoking its
QSub status without
providing any notice. The
revocation converted the
Casino into a subchapter C
corporation, causing it to
bear all liability for its
income tax payments. The
Casino, therefore, requested
that the Bankruptcy Court
void its QSub status
revocation pursuant to
section 11 U.S.C. § 550 and
order the Department to
refund its payments of
Indiana income tax,
continued on p.2
interest, and penalties. On
January 24, 2012, the
Bankruptcy Court issued an
Order voiding the Casino’s
QSub status revocation and
directing the Department to
return the Casino’s monies.
On March 22, 2012, the
Casino sent a letter to the
Department demanding
that it comply with the
Bankruptcy Court’s Order
and issue its refund as well
as any accrued statutory
interest. On April 26, 2012,
the Department issued the
$3.3 million refund to the
Casino without interest. As
a result, the Casino sent
another letter to the
Department on June 26,
2012, claiming that it was
entitled to $258,534 in
interest pursuant to Indiana
Code § 6-8.1-9-2(d). On
July 11, 2012, the
Department declined the
Casino’s request for
interest.
The Casino initiated an
appeal in the Tax Court on
October 9, 2012, claiming
that the Department’s
denial of its request for
refund interest was in
error. On December 12,
2012, the Department filed
a 12(B)(1) Motion to
Dismiss for lack of subject
matter jurisdiction and a
12(B)(6) Motion to Dismiss
for failure to state a claim
upon which relief can be
granted.
Law
T.R. 12(B)(1)
A motion to dismiss for
lack of subject matter
jurisdiction questions
whether the Tax Court has
the power to act; therefore,
the Tax Court must
determine whether the
Petitioner’s claim falls
within the general scope of
its Constitutional or
statutory authority. See
Williams v. Delta Steel
Corp., 695 N.E.2d 633, 635
(Ind. Ct. App. 1998)
(citations omitted), trans.
denied. The Tax Court has
“exclusive jurisdiction” over
any case that arises under
Indiana’s tax laws and that
is an initial appeal of a final
determination made by the
Department. IND. CODE § 3326-3-1 (2013).
In ruling on a motion to
dismiss for lack of subject
matter jurisdiction, the Tax
Court may consider not
only the complaint and
motion, but also any
affidavits or evidence
submitted in support. See
Fratus v. Marion Cmty. Sch.
Bd. of Trustees, 749 N.E.2d
40, 43 (Ind. 2001) (citation
omitted). In addition, the
Court may weigh the
evidence to determine the
existence of requisite
jurisdictional facts. See id.
(citation omitted).
T.R. 12(B)(6)
A motion to dismiss for
failure to state a claim upon
which relief can be granted
tests the legal sufficiency of
the claim, not the facts
supporting it, which are
taken as true. See Wireless
Advocates, LLC v. Indiana
Dep’t of State Revenue, 973
N.E.2d 111, 112 (Ind. Tax
Ct. 2012) (citations
omitted). Accordingly, the
Tax Court will not dismiss a
complaint unless it clearly
demonstrates on its face
that the complaining party
is not entitled to relief. Id.
(citation omitted). Motions
to dismiss are disfavored;
thus, the Tax Court views
the pleadings in the light
most favorable to the nonmovant, with every
inference drawn in its favor.
Id. at 112-13 (citation
omitted).
Indiana Code § 6-8.1-9-1
provides that if a person
pays more tax than he
determines is legally due,
he may file a refund claim
with the department within
3 years after the latter of
the return’s due date or the
payment date. IND. CODE §
6-8.1-9-1(a) (2013). A
refund claim generally
should be filed on the
department’s prescribed
form and specify an
amount, the rationale for
the claim, the tax period,
and the payment date. See
45 Ind. Admin. Code 15-92(d) (2013) (see
http://www.in.gov/legislati
ve/iac/).
“An excess tax payment that
is not refunded . . . within
ninety (90) days after the
date the refund claim is
filed, the date the tax
payment was due, or the
date the tax was paid,
whichever is latest, accrues
interest from the date the
refund claim is filed[.]” IND.
CODE § 6-8.1-9-2(d) (2013).
Parties’ Arguments
T.R. 12(B)(1)
The Department claims
the Tax Court does not have
jurisdiction for 3 reasons:
1) the Casino asks the Tax
Court to modify the
Bankruptcy Court’s Order
to direct the payment of
refund interest, but the Tax
Court has no authority to
modify the Order; 2) the
matter did not arise under
the tax laws of Indiana, but
primarily involves federal
bankruptcy law because
both of the Casino’s
demand letters concerned
enforcement of the
Bankruptcy Court’s Order,
not the collection of, or
defense against the
imposition of, a tax; 3) the
Casino failed to exhaust its
administrative remedies
because it did not file a
valid refund claim and it is
not appealing a final
determination of the
Department.
The Casino responds with
4 reasons that the Tax
Court has jurisdiction: 1) it
does not seek to modify the
Bankruptcy Court’s Order,
but to enforce its statutory
right to refund interest as
provided under Indiana
Code § 6-8.1.9-2(d); 2) it
seeks to enforce its rights
provided under an Indiana
tax statute so its appeal
does arise under the tax
laws of this State; 3) its
federal Complaint was a
valid refund claim because
it identified its theory of
relief and the amount of the
refund; and 4) the
Department’s denial of its
refund interest claim was a
final determination because
the Department decided
whether the Casino would
receive refund interest.
T.R. 12(B)(6)
Alternatively, the
Department claims that the
Casino has failed to state a
claim upon which relief
may be granted because its
right to interest depends on
whether the Department
paid its refund claim within
90-days of receiving the
claim. The Department
states that at best the
Casino filed the refund
claim on March 22, 2012,
and the Department paid
refund 35 days later, within
the 90-day period.
The Casino responds that
it does state a claim upon
which relief may granted
because it filed its refund
claim on December 31,
2010, and the Department
did not pay the claim until
well beyond the 90-day
period.
TAX COURT
Facts and History
• The General Assembly
established the Tax Court
effective July 1, 1986. See
IND. CODE § 33-26-1-1 . The
General Assembly’s
purpose in creating the
Court was to place tax
related disputes into one
court of expertise, thereby
providing a single,
authoritative judicial voice
in state tax matters. See
State v. Sproles, 672 N.E.2d
1353, 1357 (Ind. 1996).
• Since its inception, the
Tax Court has had two
judges. Judge Thomas G.
Fisher served from July
1986 to January 17, 2011.
The current judge, Martha
Blood Wentworth, has
served since January 17,
2011.
• The Tax Court has
exclusive jurisdiction over
any case that arises under
the Indiana tax laws and
that is an initial appeal of a
final determination made
by the Indiana Department
of State Revenue or the
Indiana Board of Tax
Review. In addition, the Tax
Court has jurisdiction over
certain appeals from the
Department of Local
Government Finance. The
Tax Court also hears
appeals of inheritance tax
determinations from the
courts of probate
jurisdiction.
• The Tax Court is a
traveling court. It hears
cases in the following
counties: Marion, Lake, St.
Joseph, Allen, Vigo,
Vanderburgh, and Jefferson.
• The Tax Court is a court
of record. Any trials it
conducts are without a jury.
TAX COURT JUDGE
The Honorable
Martha Blood Wentworth
was appointed by Governor
Mitch Daniels to succeed
the Honorable Thomas G.
Fisher, upon his retirement.
For more than 12 years
immediately prior to her
appointment, she was a
Director at Deloitte Tax LLP
where she led Deloitte’s
Indiana Multistate Tax
Services.
Judge Wentworth
received an Associate of
Arts degree from Bennett
College in Millbrook, New
York and she has received 3
degrees from Indiana
University in Bloomington:
a bachelor’s degree (B.S.
1971), a master’s degree
(M.S. 1977), and her law
degree awarded cum laude
(J.D. 1990) together with
the honorary Order of
Barristers award. After
graduating from law school,
she began her legal career
as judicial law clerk to
Judge Fisher at the Indiana
Tax Court for 2 years, and
thereafter was an associate
at Hall, Render, Killian,
Heath & Lyman PSC in
Indianapolis.
Judge Wentworth is a
member of the American,
Indiana, Florida, and
Indianapolis Bar
Associations. Judge
Wentworth is an adjunct
professor at I.U. Kelley
School of Business in
Bloomington and the
McKinney School of Law.
Since taking the bench,
Judge Wentworth has
become a member of the
Indiana Judges Association,
and she was appointed by
Chief Justice Dickson to
serve as Chair of the
Indiana Pro Bono
Commission.
Attorneys for the Parties
For Petitioner: Richard J. Deahl and Ziaaddin Mollabashy, Barnes & Thornburg LLP
Richard Deahl is a partner in the Real Estate and Corporate Departments of Barnes & Thornburg’s
South Bend office. Mr. Deahl concentrates his practice on state and local tax matters, real estate
transactions, and mergers and acquisitions. He received his Bachelor’s Degree in business
administration from Indiana University in 1994 and received his J.D. and M.B.A. from Indiana
University and Kelley School Business – Indianapolis in 1998. Mr. Deahl is a member of the Indiana
State and St. Joseph County Bar Associations.
Ziaaddin Mollabashy is an associate in the Corporate Department of Barnes & Thornburg’s
Indianapolis office. He concentrates his practice on state, local, and property tax issues and advises
businesses on rules for promotions involving prize drawings, sweepstakes, and skills contests. Mr.
Mollabashy earned his B.A. in 1993 from Indiana University – Bloomington with a double major in
English and philosophy. He earned J.D. from the University of Pittsburgh School of Law in 2002. He is
a member of the Indiana State Bar Association and the Indianapolis Bar Association for which he
serves as chair of the Tax Section Executive Committee.
For Respondent: John P. Lowrey, Deputy Attorney General
John Lowrey is a Deputy Attorney General in the Tax Litigation Section of the Revenue Division of the
Office of the Indiana Attorney General. He primarily practices in the areas of inheritance tax, property
tax, and sales/use tax. In 2005, he graduated from Pacific University with a Bachelor’s Degree in
Business Administration. Thereafter, he attended Indiana University Maurer School of Law in
Bloomington, where he served as a managing Editor on the Indiana Law Journal and an Executive
Judge Coordinator for the Sherman Minton Moot Court Board. During this period, John also worked as
a law clerk at the Office of the Indiana Attorney General, in the Solicitor General division.