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Indiana Code § 6-3-2-2.6 (the NOL Statute) provided the method to determine an Indiana NOL:
An Indiana net operating loss equals the taxpayer’s federal net operating loss for a taxable year as calculated under Section 172 of the Internal Revenue Code, derived from sources within Indiana and adjusted for the modifications required by IC 6-3-1-3.5.
IND. CODE § 6-3-2-2.6(c) (2004) (footnote omitted). Indiana Code § 6-3-2-12 (the FSD Statute), in relevant part, provided:
A corporation that includes any foreign source dividend in its adjusted gross income for a taxable year is entitled to a deduction from that adjusted gross income.
IND. CODE § 6-3-2-12(b) (2003).
The parties dispute whether the deduction of FSDs under the FSD Statute applies when calculating Indiana NOLs under the NOL Statute. The Department claims that Caterpillar was not entitled to deduct its FSDs in calculating its Indiana NOLs because the NOL Statute neither expressly incorporates the FSD Statute nor specifically references deducting FSDs as a modification in Indiana Code § 6-3-1-3.5. (See, e.g., Resp’t Br. Supp. Cross-Mot. Summ. J. at 7-8, 17.) Caterpillar contends, however, that the method of calculating Indiana NOLs necessarily triggered the statutory deduction of FSDs because its FSD income was included in its adjusted gross income in calculating its Indiana NOL for each of the Loss Years. (See, e.g., Pet’r Br. at 17-19.) To determine whether Caterpillar is entitled to deduct its FSD income in calculating its Indiana NOLs, the Court must answer two questions: 1) is “adjusted gross income” a component of the Indiana NOL Statute and, if so, 2) is Caterpillar’s FSD income included in that adjusted gross income.
1.
The term “adjusted gross income” does not appear in the Indiana NOL Statute. See I.C. § 6-3-2-2.6. Nonetheless, a corporation’s “adjusted gross income” is “the same as ‘[federal] taxable income’ (as defined in Section 63 of the Internal Revenue Code)[,]” as modified under Indiana Code § 6-3-1-3.5. IND. CODE § 6-3-1-3.5(b) (2003); see also Subaru-Isuzu Auto., Inc. v. Indiana Dep’t of State Revenue, 782 N.E.2d 1071, 1075 (Ind. Tax Ct. 2003). Accordingly, “adjusted gross income” is a component of the Indiana NOL Statute if the calculation includes “federal taxable income” that is modified by Indiana Code § 6-3-1-3.5.
To determine the amount of an Indiana NOL, a taxpayer begins with its federal NOL calculated under I.R.C. § 172. See I.C. § 6-3-2-2.6(c). A federal NOL “means the excess of the deductions allowed by this chapter[, as modified,] over the gross income.” I.R.C. § 172(c) (2003) (footnote added). Compare that definition to “the term ‘[federal] taxable income’ [which] means gross income minus the deductions allowed by this chapter” in determining federal income tax. I.R.C. § 63(a) (2003). Although these definitions are not identical, their calculations are. Cf. I.R.C. § 172 with I.R.C. § 63. Consequently, a taxpayer’s federal taxable income is included in or identical to its federal NOL.
The federal taxable income component within the Indiana NOL Statute must also be modified under Indiana Code § 6-3-1-3.5(b), however, if it is to constitute “adjusted gross income.” The plain language of the Indiana NOL Statute itself requires the federal NOL to be modified under Indiana Code § 6-3-1-3.5; thus, the resulting calculations contain “adjusted gross income.” See I.C. § 6-3-2-2.6(d)(1). Consequently, even though the term “adjusted gross income” is not used in the Indiana NOL Statute, the components of the NOL calculation establish its presence.
2.
Next, the Court must determine whether Caterpillar’s FSD income is included in its “adjusted gross income” within the NOL Statute. Caterpillar’s federal taxable income is the starting point for determining its Indiana adjusted gross income. See I.C. § 6-3-1-3.5(b); see also Endress & Hauser, 404 N.E.2d at 1175. As stated above, federal taxable income is gross income minus the deductions allowed by the Internal Revenue Code. See I.R.C. § 63(a). Caterpillar’s gross income (“all income from whatever source derived”) included its FSD income. See I.R.C. § 61(a) (2003); (see also Jt. Stip. ¶ 12.) The facts further reveal that in calculating its federal taxable income for the Loss Years, Caterpillar did not deduct its FSDs from its gross income under I.R.C. § 245.4 (See Jt. Stip. ¶¶ 6-7, 9 (footnote added).) Finally, the statutory adjustments delineated in Indiana Code § 6-3-1-3.5 did not require the subtraction of FSD income. See I.C. § 6-3-1-3.5(b)(1)-(8). As a result, Caterpillar’s FSDs were included in its federal taxable income, in its federal NOL, and in its adjusted gross income within the Indiana NOL Statute. Caterpillar was therefore entitled to deduct its FSD income under Indiana Code § 6-3-2-12 in calculating its Indiana NOLs.
A statutory amendment raises the presumption that the Legislature intended to change the law, unless it plainly appears that the amendment was passed in order to express its original intent more clearly. Endress & Hauser, 404 N.E.2d at 1175 (citations omitted); see also United Nat’l Ins. Co. v. DePrizio, 705 N.E.2d 455, 460 (Ind. 1999) (citations omitted). As originally set forth, corporate adjusted gross income completely conformed with the federal NOL under I.R.C. § 172 because there were no Indiana statutory adjustments involving NOLs. See Endress & Hauser, 404 N.E.2d at 1175. In 1983, the Legislature decoupled from this federal NOL conformity by including an adjustment that only allowed losses from an Indiana source. See P.L. 82-1983, § 1.5 Then, in 1987, the Legislature moved further away from federal NOL conformity by deleting Indiana Code § 6-3-1-3.5(b)(4) and enacting in its place an independent Indiana NOL Statute. See P.L. 91-1987, § 4. These amendments, deletions, and additions to Indiana’s treatment of NOLs clearly indicate that the Legislature intended to change from complete federal NOL conformity to less conformity by providing several Indiana-specific distinctions. It is in keeping with this history to find that deducting FSDs is one of those distinctions.
P.L. 82-1983, § 1.
Similarly, in 1987, the Legislature added a separate FSD Statute to the Indiana Code, like many other states, to ensure the calculation of taxable income did not discriminate against taxpayers with Foreign Source Dividends by more favorable treatment of taxpayer’s with U.S. Source Dividends. See P.L. 383-1987(ss), § 4; see also Kraft Gen. Foods, Inc. v. Iowa Dep’t of Revenue & Finance, 505 U.S. 71, 81 (1992) (finding Iowa’s tax scheme discriminated against foreign commerce by taxing the dividends of a foreign subsidiary, but not the dividends of a domestic subsidiary in violation of the Foreign Commerce Clause). A clue that the Legislature intended the FSD Statute to have a broader application, however, is found within the language of the FSD Statute itself. It is written broadly to apply to “a corporation that includes any foreign source dividend in its adjusted gross income for a taxable year.” I.C. § 6-3-2-12(b). Likewise, the Legislature omitted language limiting the FSD Statute’s application to the calculation of adjusted gross income under Indiana Code § 6-3-1-3.5. Id. Moreover, implicit in the Legislature’s provision of the FSD Statute in a separate provision from Indiana Code § 6-3-1-3.5 is the conclusion that the Legislature intended the FSD Statute to apply whenever FSD income is included in adjusted gross income, even when calculating Indiana NOLs.
CONCLUSION
For all the reasons stated above, the Court GRANTS summary judgment to Caterpillar and DENIES summary judgment to the Department.
http://www.in.gov/judiciary/opinions/pdf/03281301mbw.pdf
