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The University of Phoenix, Inc. v. Indiana Department of State Revenue

Tax Court of Indiana

November 28, 2016

THE UNIVERSITY OF PHOENIX, INC., Petitioner,
v.
INDIANA DEPARTMENT OF STATE REVENUE, Respondent.

          ATTORNEYS FOR PETITIONER: FRANCINA A. DLOUHY J. DANIEL OGREN FAEGRE BAKER DANIELS LLP Indianapolis, IN

          THEODORE R. BOTS SCOTT L. BRANDMAN JENNY A. AUSTIN BAKER & McKENZIE LLP New York, NY

          ATTORNEYS FOR RESPONDENT: GREGORY F. ZOELLER ATTORNEY GENERAL OF INDIANA JESSICA R. GASTINEAU WINSTON LIN DEPUTY ATTORNEYS GENERAL Indianapolis, IN

          ORDER ON RESPONDENT'S VERIFIED MOTION FOR PROTECTIVE ORDER

          Martha Blood Wentworth Judge, Indiana Tax Court

         The University of Phoenix, Inc. ("UoPX") has appealed the Indiana Department of State Revenue's assessment of additional gross income tax and interest for the period ending on August 31, 2009, through and including August 31, 2011 (the "period at issue"). The matter is currently before the Court on the Department's Verified Motion for Protective Order. The Court denies the Department's Motion.

         FACTS AND PROCEDURAL HISTORY

         On November 7, 2014, UoPX initiated an original tax appeal alleging that the Department's assessment of additional gross income tax and interest for the period at issue ran afoul of the sourcing provisions for service revenue under Indiana Code § 6-3-2-2. More specifically, UoPX claimed that the Department erred in computing its alleged tax liability by sourcing some of its online tuition service revenue to Indiana based on a market or customer-based test despite the fact that Indiana Code § 6-3-2-2 required that the revenue be sourced based on the costs of performance test.

         As the litigation continued, the parties cooperatively used a variety of discovery tools to develop their respective positions. By October 21, 2016, however, the parties' cooperative efforts broke down and the Department filed a discovery enforcement motion that asked the Court to either bar or reschedule an October 28, 2016, subpoenaed deposition of the former Commissioner of the Indiana Department of State Revenue, Michael Alley. Although the Court quashed the subpoena, it advised the parties that UoPX could depose Mr. Alley at a later date.

         On November 1, 2016, UoPX sent a second subpoena to Mr. Alley, requesting that he appear for a deposition on November 29, 2016. UoPX sought to depose Mr. Alley on the following topics (which are referred to hereafter as the "deposition topics"):

1) the Tax Competitiveness and Simplification Report of September 2014 (the "Report"), Mr. Alley's September 29, 2014, presentation on the Report, and Section 14 of House Bill 1349;
2) the Department's "position and interpretation of Indiana's 'costs-of-performance' sourcing regime generally and how it should be applied to UoPX specifically[;]"
3) "the Department's involvement in the studies and reports, and specifically the Department's views, comments and approval of the statements describing Indiana's 'cost[s] of performance' sourcing regime pursuant to [Indiana Code] § 6-3-2-2(f)[;]" and
4) "the Department's involvement in the studies and reports, and specifically the Department[']s views, comments and approval of the statements regarding the replacement of Indiana's 'cost[s] of performance' sourcing with market or customer based sourcing."

(See Pet'r Resp. Resp't V. Mot. Protective Order ("Pet'r Resp. Resp't V. Mot.") ¶¶ 3, 11 (referring to Pet'r Resp. Resp't V. Mot. Protective Order or Alternative Quash Dep. But Allow Extension Of Time To Take Deps. ("Pet'r Resp.") ¶¶ 9-11).) On November 10, 2016, the Department responded with its Verified Motion for Protective Order, asserting that a protective order must be issued to protect Mr. Alley from a "burdensome and oppressive" deposition. (See Resp't V. Mot. Protective Order ("Resp't V. Mot.") ΒΆΒΆ 10-11.) On November 18, 2016, UoPX filed its response and on November 22, 2016, the ...


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