Business Law : Indiana Department of Revenue v. Belterra Resort Indiana LLC - Case Study Example

? Business law case: Indiana Department of Revenue v. Belterra Resort Indiana LLC The term business law in its general sense means law relating to business organizations and business transactions. It includes within its ambit laws relating to taxes, environment, real estate, etc. The case in hand discusses a dispute between Indiana Department and Belterra Resort Indiana LLC pertaining to the imposition of a use Tax of $1,869,783 on capital contribution plus a penalty and interest for acquisition of a river boat from its parent company by the Indiana Department of Revenue (“In the Indiana Supreme Court…” 2). The facts of the case were simple, Pinnacle Entertainment Inc, a Delaware corporation possessing 97% interest on Belterra Resort Indiana, transferred the title and possession of a riverboat to Belterra Resort Indiana. Pinnacle acquired the remaining 3% interest on Belterra in August of 2001. The Indiana Departments of Revenue conducted an audit of sales tax and use tax of Belterra in 2002 and proclaimed in its assessment that Belterra owed tax amounting to $1,869,783 plus interest and penalty, for acquisition of the riverboat. Belterra protested against the assessment of the Department and the Department after hearing the matter, issued a letter of findings denying the letter of protest. Belterra filed an appeal with the Indiana Tax Court. Both the parties filed for summary motion. The court in Belterra Resort Ind, LLC v. Ind. Dep’t of State Revenue, 900 N.E. 2d 513, 517 granted Belterra’s motion for summary judgment and reasoned that Belterra was not liable for use tax on its acquisition of the river boat due to the fact that the transaction was a contribution to the capital and not the result of a retail transaction (“Indiana Department of Revenue”). The Revenue Department was not satisfied with this judgment and this led to the case in hand, which was filed in the Supreme Court of Indiana. The problems which the Supreme Court had to sort out before moving with the case were numerous. Firstly, reaching a conclusion that whether the transfer of the river boat from the parent company (Pinnacle) to its subsidiary company (Belterra) was a “retail transaction” under the Indiana code section 6-2.5-3-2(a), as because the use tax can be imposed on Belterra for the riverboat only when it was acquired under retail transaction (Indiana Department of Revenue v. Belterra Resort). Secondly, the court had to determine whether the riverboat was obtained with or without consideration. Belterra argued that when no consideration was given for the riverboat, the transaction was not a retail transaction, as § 6-2.5-4-1(b)(2) states, “[a] person is engaged in selling retail when…he… transfers that property to another person for consideration” (Indiana Department of Revenue v. Belterra Resort ). Thirdly, in the instant case the other critical legal issue was to find out, whether capital contribution by itself meant transfer of property without consideration. Belterra cited Grand Victoria Casino & Resort, LP v. Ind. Department of State Revenue, 789 N.E.2d 1041 to support his contention that capital contribution without consideration gave exemption from taxes (Rucker 827). Fourthly, the court had to determine whether there was exchange of some form of consideration other than cash in between Pinnacle and Belterra. The problem was to get an answer to the questions that “Was there any other benefit inuring to Pinnacle?” or “Was there some detriment borne by Belterra?” (Rucker 828). Fifthly, the court had to determine whether the presence of consideration in a transaction is enough to make it a retail sale. Justice Boehm states, “‘consideration’ is a necessary but not a sufficient condition to render a transaction ‘Selling at retail’” (Rucker 829). This however was contradictory to what Justice Rucker opined before. In the former context it was stated that when capital contribution was made without consideration there was no retail sale (Rucker 826). In other words Justice Rucker considered consideration as the sole element to determine retail sale. Sixthly, there was a controversy regarding what are the elements in a transaction which make it a retail transaction. Justice Boehm regarded sale the “first and central” requirement of a retail transaction (Gaming law review 828). But Justice Rucker viewed the transaction on the light of two cases: Mason Metals Co. v. Ind Dep’t of State Revenue and Gregory v. Helvering, the classic case from which the doctrine of step transaction was derived. Lastly, there was a difference in opinion in regard to the question whether the step transaction should be adopted in the Indiana tax law or it shouldn’t. While Justice Rucker and Sullivan sided for adopting the step transaction doctrine, Justice Boehm had a different view. In the words of Justice Boehm, “Importing the step transaction doctrine into the Indiana tax law should be done, if at all, on a more fully developed argument in the Tax Court” (Rucker 830) The outcome of this case was the reversal of the judgment of the Tax Court and summary judgment was passed in favor of the Department. Shephard, C.J. and Sullivan, J., agreed to the aforementioned decision. Boehm, J. dissented it and Dickson, J., joined him later (Rucker 828). The aforementioned case is a hot debate relating to the applicability of taxes to a corporation and its subsidiary, in regard to the circumstances of the case. While Justices Shephard and Sullivan adopted the step doctrine without making a full analysis of the facts and cases supporting the adoption, after they found out that the transactions undergone by Pinnacle were an endeavor to avoid use tax, Justice Boehm dissented to such application. His justification being that the decision “was only a conclusory application of the step transaction” and that it does not analyze the supporting case laws (“Does the Indiana Supreme Court...”). The basis of the decision by the court was actually to impose a tax on a transaction structured for avoiding taxes rather than the well-reasoned application of the federal step transaction doctrine (“Does the Indiana Supreme Court…”). As justice Hand pointed out in the case Gregory v. Helvering that anybody can make arrangements to make his taxes as low as possible and that nobody is bound to choose a “pattern which will best pay the treasury” (“Does the Indiana Supreme Court…”). However, as the decision of the highest court of the state, the judgment should be respected. Business organizations should keep in mind the consequences of using tactics to avoid taxes. Nevertheless, the organizations should take legal help in similar circumstances and should not be conclusive of their outcome in situations similar to this case. Works Cited “In the Indiana Supreme Court: On Petition for rehearing” in.gov/judiciary/opinions. n.p., n.d. Web. 6 Apr. 2011. Indiana Department of Revenue v. Belterra Resort Indiana LLC. Scholar.google.co.in. google scholar, 2011. Web. 6 Apr. 2011. Indiana Department of Revenue v. Belterra Resort Indiana LLC. In.findcase.com. VersusLaw Inc, 1992-2010. Web. 7 Apr. 2011. Rucker. Indiana Department of Revenue v. Belterra Resort Indiana LLC. Gaming law Review and Economics.14.10 (2010): 825-830. Mary Ann Liebert, Inc. Web. 7 Apr. 2011. “Does the Indiana Supreme Court’s application of the step transaction upset traditional sales and use tax planning?” Tax Practice: State and Local Tax Report. Winston & Strawn LLP, 2010. Web. 7 Apr. 2011. Read More