Vodafone is required to pay a tax on that part of its adjusted gross income derived from sources within Indiana. See IND. CODE § 6-3-2-1 (2005) (amended 2011). During the years at issue, “adjusted gross income derived from sources within Indiana” meant:
(1) income from real or tangible personal property located in [Indiana];
(2) income from doing business in [Indiana];
(3) income from a trade or profession conducted in [Indiana];
(4) compensation for labor or services rendered within [Indiana]; and
(5) income from . . . intangible personal property if the receipt from the intangible [was] attributable to Indiana under [Indiana Code § 6-3-2-2.2].
IND. CODE § 6-3-2-2(a)(1)-(5) (2005) (amended 2011).
In its Motion, Vodafone argues that the income it received as a result of its partnership interest in Cellco is not adjusted gross income derived from sources within Indiana under Indiana Code § 6-3-2-2(a) and is therefore not taxable. In arriving at that conclusion, Vodafone explains that because a partner’s interest in a partnership is defined as intangible personal property, the income it received from Cellco was adjusted gross income derived from sources within Indiana only if it was attributable to Indiana under Indiana Code § 6-3-2-2.2(g), “the most applicable” portion of Indiana Code § 6-3-2-2.2. (See, e.g., Pet’rs’ Am. Pet. Refund Adjusted Gross Income Tax (“Pet’rs’ Am. Pet.”) at 4-5 (citations omitted); Pet’rs’ Mot. Summ. J. (“Pet’rs Mot.”) at 2 (citations omitted); Pet’rs’ Reply Br. Supp. Mot. Summ. J (“Pet’rs’ Reply Br.”) at 6 (citations omitted).) Indiana Code § 6-3-2-2.2(g) provides that “[r]eceipts in the form of dividends from investments are attributable to this state if the taxpayer’s commercial domicile is in Indiana.” IND. CODE § 6-3-2-2.2(g) (2005). Given that it is not commercially domiciled in Indiana, Vodafone argues that its income – dividends it received from investing in Cellco – is not derived from sources within Indiana and therefore not taxable. (See, e.g., Pet’rs’ Am. Pet. at 4-5 (citations omitted); Pet’rs’ Mot. at 2 (citations omitted); Pet’rs’ Br. Supp. Mot. Summ. J. (“Pet’rs’ Br.”) at 8-12; Pet’rs’ Reply Br. at 6 (citations omitted).)
Income in the form of “dividends from investments” is sourced pursuant to Indiana Code § 6-3-2-2.2(g). The term “dividends from investments” is cloaked with meaning that is different than that of the general term “dividends” that is used in Indiana Code § 6-3-2-2, Indiana’s sourcing statute. See I.C. § 6-3-2-2(g), (j). See also USAir, Inc. v. Indiana Dep’t of State Revenue, 623 N.E.2d 466, 470 (Ind. Tax Ct. 1993) (explaining that each and every word used in a statute must be read as having meaning). Indeed, the use of the term “dividends from investments” reflects the distinction between operational income and investment income, a key constitutional concept in the attribution of income among the states.2 See, e.g., Allied-Signal, Inc. v. Dir. of Taxation, 504 U.S. 768, 784-87 (1992) (explaining that the relevant inquiry in sourcing intangible income is whether the intangible asset serves an operational function or an investment function) (footnote added). Thus, the critical question is whether the income Vodafone received as a partner of Cellco had the character of operational income or investment income because if it was operational income, it was not income in the form of “dividends from investments” under Indiana Code § 6-3-2-2(g).
A general partnership is “an association of two (2) or more persons to carry on as co-owners a business for profit[.]” IND. CODE § 23-4-1-6(1) (2005). In its most elemental form, a general partnership is “[a] partnership in which all partners participate fully in running the business and share equally in profits and losses (though the partners’ monetary contributions may vary).” BLACK’S LAW DICTIONARY 1230 (9th ed. 2009). See also IND. CODE § 23-4-1-24 (2005) (stating that the property rights of a partner in a general partnership are “(1) his rights in specific partnership property, (2) his interest in the partnership, and (3) his right to participate in the management”) (emphasis added).4 Thus, the mere fact that Vodafone was a partner in a general partnership gives its income from that partnership the character of operational income. As such, Vodafone’s income is not income in the form of “dividends from investments” under Indiana Code § 6-3-2-2.2(g).
Nevertheless, Vodafone argues that the substance of its participation in Cellco’s business, and not the business form by which Cellco is organized, should control how its income is characterized. More specifically, Vodafone argues that despite the fact it was a partner in a general partnership, a “lack of control” placed it in essentially the same position as being a limited partner of, or a true “passive investor” in, Cellco. (See Pet’rs’ Br. at 4; Pet’rs’ Reply Br. at 9, 19.) As support for this argument, Vodafone explains that
[p]ursuant to Section 3.2 of the Cellco Partnership Agreement . . . the business and affairs of Cellco were managed by its Board of Representatives. The Board consisted of nine members. Verizon Communications, as holder of the majority of the partnership interests, appointed five representatives while Vodafone was entitled to appoint four representatives[.] Corporate actions . . . required only a majority vote of the Board.
(Pet’rs’ Br. at 4-5 (citations omitted) (footnote added).)
A limited partner is a partner in a partnership whose liability is limited to the extent of his original investment in the business enterprise. See BLACK’S at 1229. A limited partner is considered a passive investor because the “quid pro quo” for his limited liability is his sacrifice of his right to participate in the management of the enterprise. See id. at 1229 (defining a limited partner as “[a] partner who receives profits from the business but does not take part in managing the business and is [therefore] not liable for any amount greater than his or her original investment”), 1230 (defining limited partnership as “[a] partnership composed of one or more persons who control the business and are personally liable for the partnership’s debts (called general partners), and one or more persons who contribute capital and share profits but who cannot manage the business and are liable only for the amount of their contribution (called limited partners)”).
While Vodafone has spent a great deal of time emphasizing the point that as the minority partner it does not “control” Cellco’s Board of Representatives or a vote thereof, (see Pet’rs’ Br. at 4-5; Pet’rs’ Reply Br. at 9, 15-16, 19; Hr’g Tr. at 5-6, 14-16, 47; Pet’rs’ Des’g Evid., App. C at ¶¶ 8-9), that does not mean that it was a “passive investor” in Cellco as a limited partner would be. Vodafone has already acknowledged that, in accordance with its rights as stated in the Cellco Partnership Agreement, it participates in Cellco’s management by appointing members to the Board of Representatives. See infra. Vodafone has also acknowledged that pursuant to its rights as stated in the Cellco Partnership Agreement, it participated in Cellco’s management by appointing Cellco’s chief financial officer. (See Hr’g Tr. at 41.) Finally, Vodafone has acknowledged that it participates in Cellco’s management by holding certain veto rights by which it can block Cellco from taking specifically identified and extraordinary actions, such as entering into entirely new lines of business, entering a voluntary bankruptcy, or otherwise terminating Cellco’s existence. (Pet’rs’ Br. at 4-5 (citations omitted); Pet’rs’ Reply Br. at 18 (citation omitted); Hr’g Tr. at 15; Pet’rs’ Des’g Evid., App. C at ¶ 9 (footnote added).) Consequently, Vodafone’s “lack of control” by reason of its minority interest is insufficient to show that it does not participate in the management of Cellco and thus that it was a mere “passive investor” in Cellco.
