…
During the tax years at issue,
several state taxes applied to corporate income, including an adjusted gross
income tax imposed “on that part of the adjusted gross income derived from
sources within Indiana of every corporation.” I.C. § 6-3-2-1(b). The adjusted
gross income tax is an apportioned tax designed to reach income from interstate
transactions. Bethlehem Steel Corp., 639 N.E.2d at 266 n.4. However, Indiana
Code section 6-3-2-2.8(4) provides in relevant part, “there shall be no tax on
the adjusted gross income of . . . [i]nsurance companies subject to tax
under IC 27-1-18-2.” (emphasis added).
In turn, Indiana Code section
27-1-18-2 provides for a gross premium privilege tax, or “premiums tax” for
short. In brief, the statute requires all foreign insurance companies “doing
business within this state” to report annually to the Department of Insurance
“the gross amount of all premiums received by it on policies of insurance
covering risks within this state.” I.C. § 27-1-18-2(a). Deducted from this
amount are “considerations received for reinsurance of risks within this
state.” I.C. § 27-1-18-2(a)(1). Under this statute, the insurance company is
taxed at a certain rate on “the excess, if any, of the gross premiums over the
allowable deductions.” I.C. § 27-1-18-2(c) (2001 supp.).
…
The plain language of Indiana
Code section 27-1-18-2 requires that all insurance companies – like UPINSCO and
UPS Re – not “organized under the laws of this state” must, at the very least,
show they are “doing business within this state” before the companies are
entitled to an exemption from adjusted gross income. The very first sentence of
the statute reads, “Every insurance company not organized under the laws of
this state, . . . and doing business within this state shall . . . .”
I.C. § 27-1-18-2(a) (emphasis added).
…
Focusing on the fact that
UPINSCO and UPS Re are foreign reinsurance companies that collected premiums
for reinsurance of risks within the State of Indiana, UPS insists the adjusted
gross income of the Affiliates “was and is exempt” from corporate adjusted
gross income tax. Pet’r’s Mot. for Summ. J. at 2. However, the mere fact that
the Affiliates “collected premiums for reinsurance of risks” in Indiana does
not ipso facto establish they were doing business in Indiana…
The question here is whether
the summary judgment materials presented to the Tax Court support the
conclusion that during the years in question UPINSCO and UPS Re were “doing
business within this state.” The record shows and the parties do not dispute
the reinsurance transactions at issue took place between foreign companies –
that is, neither the Primary Insurers nor UPINSCO and UPS Re are organized
under the laws of Indiana. UPS designated a substantial amount of evidentiary
material concerning its business operations including agreements governing its
reinsurance transactions. The UPINSCO agreements specify all payments under the
agreements shall be made to the Primary Insurer whose address is listed as
Boston, Massachusetts. See, e.g., D.E. at 63, 60. UPINSCO’s address is listed
as St. Croix, U.S. Virgin Islands. See, e.g., D.E. at 46, 72. Payments under
the UPINSCO agreements are to be made via drafts on a letter of credit issued
by an Italian bank, as presented to the bank’s New York office. D.E. at 94. The
UPS Re agreement provides that any “notice, report, order, request or other
communication” shall be made to UPS Re in Hamilton, Bermuda and Atlanta,
Georgia8 and to the Primary Insurer in New York, New York. D.E. at 112. The UPS
Re agreement provides that UPS Re’s liability “shall attach simultaneously with
that of the [Primary Insurer] . . . [but] nothing herein shall in any manner
create any obligation to or establish any rights against [UPS Re] by any third
parties or any persons not parties to this Agreement.” D.E. at 107. The UPINSCO
agreements contain a choice of venue provision for Massachusetts state courts,
an arbitration clause in which arbitration is to take place in Boston,
Massachusetts, mandates that the agreements “shall be governed by the law of
the Commonwealth of Massachusetts,” requires service to UPINSCO in St. Croix
and Atlanta, Georgia, and requires service to the Primary Insurer in
Massachusetts. D.E. at 66, 67, 71, 77, 78. The UPS Re agreement provides for
choice of venue and law in New York and mandates service to be given in the
same manner as other notices under the agreement. D.E. at 111.
In sum, even
assuming UPINSCO and UPS Re reinsured Indiana risks, there is no evidence in
the record before us that the reinsurance transactions took place in the State
of Indiana. Stated somewhat differently, none of the summary judgment materials
presented to the Tax Court and in consequence nothing before this Court
establishes that during the years in question UPINSCO and UPS Re were doing
business within the State of Indiana. Because this is a necessary condition in
order to be “subject to” the premium tax, UPS failed in its burden of
establishing that it is entitled to summary judgment as a matter of law.
Because we are definitely and firmly convinced the Tax Court’s determination to
the contrary is in error, we reverse the grant of summary judgment in favor of
UPS and remand this cause for further proceedings.
http://www.in.gov/judiciary/opinions/pdf/06211201rdr.pdf
