Taxpayer is a C corporation, which was incorporated in Indiana in 1993 and has registered annually with the Indiana Secretary of State as a for-profit domestic corporation domiciled in Indiana. Taxpayer and one of Taxpayer's affiliates (also a C corporation, here referred to as "Affiliate") are the members of a two-member Indiana limited liability company ("Indiana LLC"). The Indiana LLC was organized in Indiana and registers annually with the Indiana Secretary of State as a for-profit domestic LLC. The Indiana LLC, in turn, wholly owns an Indiana limited liability company, which is treated as a disregarded entity for tax filing purposes. The two-member Indiana LLC, through its wholly-owned disregarded Indiana limited liability company (collectively, "Indiana LLC"), conducts its gaming business in Indiana and elected to be treated as a partnership for federal tax purposes. The Indiana LLC earns its income solely from its Indiana business activities. Taxpayer, who owns a 70 percent interest of the Indiana LLC, is the majority member and manages the Indiana LLC's daily business operation.
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Taxpayer filed its original 2008 Indiana income tax return, claiming the Deduction, in an amount equal to the income it reported from the "partnership" earnings of the Indiana LLC. Upon reviewing Taxpayer's 2008 return, the Department determined that Taxpayer was not entitled to the Deduction and therefore disallowed Taxpayer's claimed Deduction.
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[F]or Indiana income tax purposes, the Indiana LLC, by definition, is a partnership and Taxpayer is a corporate partner in a partnership. The Indiana LLC, a partnership under Indiana tax law, as required by IC § 6-3-4-10, filed an Indiana partnership return, Form IT-65, reporting all of its activities as "business income" attributable to Indiana and requiring it to issue Form IT-65 IN K-1s ("Indiana K-1s") to its corporate partners.
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[F]or Indiana income tax purposes, the Indiana LLC, by definition, is a partnership and Taxpayer is a corporate partner in a partnership. The Indiana LLC, a partnership under Indiana tax law, as required by IC § 6-3-4-10, filed an Indiana partnership return, Form IT-65, reporting all of its activities as "business income" attributable to Indiana and requiring it to issue Form IT-65 IN K-1s ("Indiana K-1s") to its corporate partners.
Pursuant to IC § 6-3-4-11(a), Taxpayer, the corporate partner, is liable for the adjusted gross income tax in its separate or individual capacity and is required to report its portion of the partnership's Indiana business activity, as represented on the K-1, on Taxpayer's Indiana adjusted gross income tax return.
During the hearing, Taxpayer asserted that it was not domiciled in Indiana, but was domiciled in a state other than Indiana. Referring to Riverboat Development, Inc. v. Indiana Dep't of State Revenue, 881 N.E.2d 107 (Ind. Tax Ct. 2008), Taxpayer asserted that it "did not conduct any activity other than that related to their respective membership interests in [the Indiana LLC]." Thus, Taxpayer maintained that it did not have a duty to report and pay tax on the money earned from the Indiana LLC's Indiana business activity. Taxpayer further stated that since the Indiana corporate income tax return did not contain a line item which properly described non-taxable income in this category, Taxpayer reported this Deduction on a line item for "Foreign Source Dividends and other adjustments." Taxpayer explained that this "Foreign Source Dividends and other adjustments" line was similar to the Deduction it would have claimed because it is domiciled outside of Indiana. Thus, Taxpayer maintained that it properly claimed the Deduction.
Taxpayer is mistaken in both its presentation of fact and of law. First, Taxpayer misconstrues its connections to Indiana. Not only did Taxpayer incorporate in Indiana, Taxpayer has for each and every year since its 1993 incorporation, registered with the Indiana Secretary of State as a domestic for-profit corporation domiciled in Indiana. Taxpayer's own articles of incorporation state that "[t]he purposes for which [Taxpayer] is formed are (a) to conduct gaming operations in the State of Indiana, and (b) to engage in the transition of any or all lawful business for which corporations may now or hereafter be incorporated under the Corporation Law." Moreover, according to the LLC's articles of organization and operating agreements with Taxpayer, Taxpayer is the majority member of a member-managed Indiana LLC operating a gambling casino in Indiana. Taxpayer, in the Indiana LLC's operating agreement, dated July 15, 1999, refers to itself as an "Indiana corporation." Furthermore, Taxpayer did not register with the states in which it conducted its business as a domestic or foreign corporation.
Second, Taxpayer's reliance on Riverboat Development is misplaced. Riverboat Development is not relevant because in that case the Tax Court addressed an out-of-state S-Corporation's duty to withhold on behalf of its non-resident shareholders' receipts from what the Tax Court classified as "intangibles;" "intangibles" are not at issue here. Most importantly, the Tax Court has addressed the circumstances of a corporate partner reporting its corporate partnership income in Hunt Corp. v. Indiana Dep't of State Revenue, 709 N.E.2d 766, 773 (Ind. Tax Ct. 1999) (noting that as of "January 1, 1984... corporate partnerships are treated like any other partnerships" for Indiana tax purposes). The Tax Court found that in order to determine income attributable to Indiana, the first question is "whether the income sought to be attributed is business or non-business income." Id. at 771. "If the income is business income, the [amount of] income attributable to Indiana is calculated by using a three-factor apportionment formula." Id. The Tax Court determined that when a corporate partner is in a unitary relationship with the partnership, the only income that can be removed from the apportionable base is non-business income. Id. at 778.
Taxpayer's supporting documentation demonstrates that it has been the majority member of the Indiana LLC which controls and manages the Indiana LLC's daily business operation. The Indiana LLC conducts its business activities solely in Indiana, and thus, its income (revenue) is business income attributable to Indiana. Likewise, Taxpayer, as the majority member of the Indiana LLC (the corporate partner of the partnership), earned its income solely from the Indiana LLC's business operation; its income from "partnership" earnings of the Indiana LLC, was attributable to Indiana and subject to Indiana corporate income tax.
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