ATTORNEY FOR PETITIONER: STEPHEN H. PAUL, FRANCINA A. DLOUHY, BENJAMIN A. BLAIR, FAEGRE BAKER DANIELS LLP, Indianapolis, IN.
ATTORNEYS FOR RESPONDENT: GREGORY F. ZOELLER, ATTORNEY GENERAL OF INDIANA, JOHN P. LOWREY, DEPUTY ATTORNEY GENERAL, Indianapolis, IN.
ORDER ON THE PARTIES' CROSS-MOTIONS FOR PARTIAL SUMMARY JUDGMENT
Thomas G. Fisher, Senior Judge.
Pinnacle Entertainment, Inc. has appealed the Indiana Department of State Revenue's assessments of Indiana adjusted gross income tax for the 2006 and 2007 tax years. The matter, currently before the Court on the parties' cross-motions for partial summary judgment, presents two issues for the Court to decide:
I. Whether an apportioned sum of the gain generated by Pinnacle's sale of a racetrack and card club is attributable to this state under Indiana Code § 6-3-2-2.2; and if so,
II. Whether the Department correctly classified Pinnacle's gain as business income.
FACTS AND PROCEDURAL HISTORY
Pinnacle (f/k/a Hollywood Park, Inc.) is a Delaware corporation headquartered in Las Vegas, Nevada. (See Des'g Evid. Supp. Pet'r Mot. Partial Summ. J. (" Pet'r Des'g Evid." ), Ex. 3 ¶ ¶ 1-2.) In April of 1999, Pinnacle owned and operated a pari-mutuel horse racing facility and an adjacent card club in Inglewood, California (collectively, " the Racetrack" ). (See Pet'r Des'g Evid., Ex. 3 ¶ ¶ 12-15.)
On May 5, 1999, Pinnacle and Churchill Downs, Inc. executed an Asset Purchase Agreement, which provided that Pinnacle would sell the Racetrack to Churchill Downs for $140 million in cash. (See Pet'r Des'g Evid., Ex. 3. ¶ 15, Ex. 4 ¶ 6, Ex. A at 11.) On September 10, 1999, Churchill Downs placed $140 million cash into a qualified escrow account to facilitate the sale of the Racetrack. (See Pet'r Des'g Evid., Ex. 4 ¶ ¶ 7-10, Ex. B at 1-5.) The escrow holder issued a portion of the sale proceeds to Pinnacle in 1999 and the remainder in 2000. (See Pet'r Des'g Evid., Ex. 4 ¶ ¶ 9, 11-12, Ex. B at 1-5.) Pinnacle subsequently reported its gain from the sale under the installment method for federal income tax purposes. (See Pet'r Des'g Evid., Ex. 4 ¶ ¶ 12-17, Exs. C-D.)
In 2000, Pinnacle filed an Indiana adjusted gross income tax return that classified the gain derived from the Racetrack sale as nonbusiness income. (See Hr'g Tr. at 17.) The Department, after auditing Pinnacle, reclassified Pinnacle's gain as business income, recalculated Pinnacle's net operating losses, and assessed Pinnacle with additional adjusted gross income tax, interest, and penalties for the 2006 and 2007 tax 1 years. (See Pet'r Des'g Evid., Ex. 3 ¶ ¶ 4-6; Resp't Des'g Evid. Opp'n Pet'r Mot. Summ. J. (" Resp't Des'g Evid." ), Ex. B at 1-3.)
Pinnacle timely protested the Department's assessments. (Pet'r Des'g Evid., Ex. 3 ¶ 7.) On March 30, 2011, the Department issued a Letter of Findings that, with the exception of certain penalties, upheld
each of the assessments. (See Pet'r Des'g Evid., Ex. 3 ¶ 8.) Pinnacle requested a rehearing, which the Department conducted on June 22, 2011. (See Pet'r Des'g Evid., Ex. 3 ¶ ¶ 9-10.) On April 26, 2012, the Department issued a Supplemental Letter of ...