Indiana Department of Revenue v. United Parcel Service, Inc.
969 N.E.2d 596
Ind.2012Background
- UPS and affiliates UPINSCO (VIIs) and UPS Re (Bermuda) engaged in reinsurance to cover risks within Indiana.
- UPS used a consolidated Indiana corporate return excluding affiliate income from AGI, reducing tax liability.
- Indiana Department of Revenue audited 2000–2001, denying affiliate-excluded income treatment and refunds.
- Reinsurance arrangements shifted risk away from UPS to its affiliates, enabling tax benefits typical of self-insurance.
- Premiums tax statutes impose tax on foreign insurers doing business in Indiana; exemptions for insurers subject to the tax exist.
- Question presented: whether affiliate reinsurance income is exempt from Indiana AGI tax as being subject to the premiums tax.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are UPINSCO and UPS Re subject to the premiums tax? | Ups contends affiliates are subject since they collected premiums from Indiana risks. | Department contends neither paid premiums tax and not doing business in Indiana. | No; record fails to show doing business in Indiana; not subject to premiums tax. |
| Does being subject to the premiums tax exempt affiliate income from AGI tax? | Affiliate income should be excluded from UPS's AGI tax as exempt via premiums tax status. | Exemption requires doing business in Indiana and compliance; not shown here. | Exemption not established; tax court reversal affirmed remand for further proceedings. |
| Did the Tax Court properly interpret 'subject to' the premiums tax? | Subject to means under the tax authority; need not pay to qualify. | Subject to requires doing business in state and compliance with statutes. | Court adopts strict interpretation; proceeding requires show of Indiana business activity. |
Key Cases Cited
- Bethlehem Steel Corp. v. Department of Revenue, 639 N.E.2d 264 (Ind. 1994) (applies tax law interpretation and deference to Tax Court on summary judgments)
- State ex rel. Crittenberger v. Continental Insurance Co. of New York, 116 N.E. 929 (Ind.App. 1917) (premiums tax generally tax business done within Indiana; reinsurance considerations)
- Tipton Cnty. Health Care Found., Inc. v. Tipton Cnty. Assessor, 961 N.E.2d 1048 (Ind.Tax Ct. 2012) (exemption statutes construed strictly against taxpayer)
- DeKalb Cnty. E. Cmty. Sch. Dist. v. Dep't of Local Gov't Fin., 930 N.E.2d 1257 (Ind.Tax Ct. 2010) (tax statutes interpreted with regard to legislature's intent)
- I.C. Wholesale Wine & Liquor Co. v. State ex rel. Ind. Alcoholic Beverage Comm'n, 695 N.E.2d 99 (Ind. 1998) (exemption provisions require strict construction against taxpayer)