PAUL J. ELMER and CAROL A. N. ELMER, Petitioners,
INDIANA DEPARTMENT OF STATE REVENUE, Respondent
ATTORNEYS FOR PETITIONERS: DAVID F. MCNAMAR, MCNAMAR & ASSOCIATES, P.C., Indianapolis, IN; F. PEN COSBY, CREMER & CREMER, Indianapolis, IN; JAMES K. GILDAY, GILDAY & ASSOCIATES, P.C., Indianapolis, IN.
ATTORNEYS FOR RESPONDENT: GREGORY F. ZOELLER, ATTORNEY GENERAL OF INDIANA; JOHN P. LOWREY, DEPUTY ATTORNEY GENERAL, Indianapolis, IN.
ORDER ON RESPONDENT'S MOTION FOR SUMMARY JUDGMENT
Thomas G. Fisher, Senior Judge.
Paul J. Elmer and Carol A. N. Elmer have appealed the Indiana Department of State Revenue's assessments of Indiana adjusted gross income tax (AGIT) for the 2005, 2006, 2007, and 2008 tax years (the years at issue). The matter is currently before the Court on the Department's Motion for Summary Judgment. While the Department's Motion presents three issues, the Court consolidates and restates them as: whether the Department, in determining the Elmers' Indiana AGIT liability, erred in disallowing their business expense
and uncollectible debt deductions.
FACTS AND PROCEDURAL HISTORY
During the years at issue, Mr. Elmer was the sole shareholder and president of two S-Corporations: Pharmakon Long Term Care Pharmacy, Inc., an institutional pharmacy, and Hamilton Consulting Group, Inc. (See Br. Supp. Resp't Mot. Summ. J. (" Resp't Br." ), Ex. 3 at 4; Pet'rs' Resp. Resp't Summ. J. Mot. (" Pet'rs' Br." ) at 5 (citing Aff. Paul Elmer (" Elmer Aff." ) ¶ ¶ 2-3; Resp't Br., Ex. 8 at 10-11).) As a result, the Elmers' Indiana income tax returns reported their income and losses as well as those of Pharmakon and Hamilton. (See Resp't Br., Ex. 3 at 4.) See also Riverboat Dev., Inc. v. Indiana Dep't of State Revenue, 881 N.E.2d 107, 109 n.4 (Ind.Tax Ct. 2008) (explaining that the income and losses of an S-Corporation are passed through to its owners (i.e., shareholders) who, in turn, report their pro-rata shares on their individual tax returns), review denied.
The Department subsequently determined that the deductions taken by the Elmers for vehicle, contract labor, operating, and management/marketing expenses were not valid business expense deductions. (See Resp't Br., Ex. 3 at 4-13.) The Department also determined that the Elmers had improperly taken a deduction for an uncollectible debt in 2008. (See Resp't Br., Ex. 3 at 13-14.) Consequently, the Department disallowed all of the Elmers' deductions, recalculated their AGIT liability, and assessed them with additional AGIT, interest, and penalties for the years at issue. (See Resp't Br., Ex. 1, Ex. 3 at 4.)
The Elmers protested the Department's assessments. (See Resp't Br., Ex. 3 at 4.) On August 31, 2011, the Department issued a Letter of Findings (LOF) that ultimately upheld the assessments. (See generally Resp't Br., Ex. 3.)
On October 25, 2011, the Elmers initiated this original tax appeal. On September 13, 2013, the Department filed its Motion. On April 7, 2014, the Court held a hearing on the Motion. Additional facts will be supplied as necessary.
STANDARD OF REVIEW
This Court reviews the Department's final determinations regarding proposed assessments de novo. Ind. Code § 6-8.1-5-1(i) (2015). Accordingly, the Court is not bound by the evidence or the issues presented at the administrative level. See Horseshoe Hammond, LLC v. Indiana Dep't of State Revenue, 865 N.E.2d 725, 727 (Ind.Tax Ct. 2007), review denied.
Summary judgment is proper only when the designated evidence demonstrates that no genuine issues of material fact exist and the moving party is entitled
to judgment as a matter of law. Ind. Trial Rule 56(C). When the Department moves for summary judgment, it may make a prima facie showing that there is no genuine issue of material fact as to the validity of an unpaid tax by properly designating its proposed assessments. Indiana Dep't of State Revenue v. Rent-A-Center E., Inc. (RAC II), 963 N.E.2d 463, 466-67 (Ind. 2012). See also Filip v. Block, 879 N.E.2d 1076, 1080-82 (Ind. 2008) (discussing the designation of evidence requirements of Trial Rule 56). " The burden then shifts to the taxpayer to come forward with sufficient evidence demonstrating that there is, in actuality, a genuine issue of material fact with respect to the unpaid tax." RAC II, 963 N.E.2d at 467.
LAW AND ANALYSIS
The Department claims that it has made a prima facie case for summary judgment because its designated evidence (i.e., Exhibit 1) includes the proposed assessments for each of the years at issue. (See Reply Br. Supp. Resp't Mot. Summ. J. (" Resp't Reply Br." ) at 3 (citing Resp't Br., Ex. 1).) The Department is incorrect.
The Department's Exhibit 1 contains: (1) copies of the 2005 and 2007 proposed AGIT assessments, including interest, and penalties, and (2) a 2008 proposed assessment for a penalty only. (Resp't Br., Ex. 1.) As a result, the Department has made a prima facie showing that there is no genuine issue of material fact as to the validity of the unpaid tax for the 2005 and 2007 tax years, but it has not done so for the 2006 and 2008 tax years. This is not, however, necessarily fatal to the Department's claims for the 2006 and 2008 tax years because the Department has presented other designated evidence to support its Motion. (See, e.g., Resp't Mot. Summ. J. at 1-3.) Nonetheless, before the Court evaluates that other evidence to determine whether the Department has made the requisite prima facie showing for the 2006 and 2008 tax years, the Court will determine whether the Elmers' designated evidence shows that there is a genuine issue of material fact with respect to the validity of the unpaid tax for the 2005 and 2007 tax years.
I. The 2005 and 2007 Tax Years