24S-TA-00382
Ind.Jun 29, 2026Background
- Indiana taxes corporate adjusted gross income, then apportions that tax base using a sales-factor formula and taxes only Indiana-sourced income. 1
- Indiana’s add-back statute requires corporations to add back deductions for state taxes “based on or measured by income” levied by states. 2
- Penn deducted apportioned state income taxes and also deducted about $2 billion in unapportioned wagering excise taxes on its federal returns, but it did not add back the wagering taxes on its Indiana returns. 3
- After an audit, the Department assessed additional Indiana tax and interest, concluding Penn had to add back the wagering taxes. 4
- The Tax Court granted summary judgment for the Department, and Penn sought review in the Indiana Supreme Court. 5
- The Indiana Supreme Court reversed, holding the add-back statute does not require adding back unapportioned wagering taxes because they are neither income taxes nor the functional equivalent of income taxes. 6
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does Indiana’s add-back statute cover unapportioned wagering taxes? 7 | Penn: only apportioned income taxes or their equivalents qualify. | Department: any tax measured by revenue qualifies. | No; unapportioned wagering taxes need not be added back. 8 |
| Does “based on or measured by income” include excise taxes? 9 | Penn: no, only income taxes. | Department: yes, if calculated with reference to revenue. | Only excise taxes functionally equivalent to income taxes count. 10 |
| Do unapportioned excise taxes create a double-apportionment problem? 11 | Penn: adding them back inflates the tax base. | Department: the apportionment formula prevents inflation. | Yes, adding them back would artificially inflate the tax base. 12 |
| Do Consolidation Coal and Aztar require adding back the wagering taxes? 13 | Penn: those cases involve apportioned or functional income taxes only. | Department: precedent compels add-back of non-property taxes. | No; Consolidation Coal supports Penn, and Aztar’s broader reading is disapproved. 14 |
Key Cases Cited
- MeadWestvaco Corp. ex rel. Mead Corp. v. Illinois Department of Revenue, 553 U.S. 16 (U.S. 2008) (due process and commerce clause limits require fair state apportionment 15)
- Merch. Warehouse Co. v. Indiana Department of State Revenue, 87 N.E.3d 12 (Ind. 2017) (summary judgment standard 16)
- Korakis v. Memorial Hospital of South Bend, 225 N.E.3d 760 (Ind. 2024) (summary judgment reviewed de novo 17)
- Consolidation Coal Co. v. Indiana Department of State Revenue, 583 N.E.2d 1199 (Ind. 1991) (prior add-back precedent treating functional income taxes as covered 18)
- Aztar Indiana Gaming Corp. v. Indiana Department of State Revenue, 806 N.E.2d 381 (Ind. T.C. 2004) (tax court decision reading the statute broadly to reach wagering taxes 19)
- State v. Timbs, 169 N.E.3d 361 (Ind. 2021) (precedent is overruled only for urgent reasons and clear error 20)
- Estabrook v. Mazak Corp., 140 N.E.3d 830 (Ind. 2020) (courts do not second-guess legislative tax policy 21)
- Pension Benefit Guaranty Corp. v. LTV Corp., 496 U.S. 633 (U.S. 1990) (subsequent legislative action is a hazardous guide to earlier intent 22)
- United National Insurance Co. v. DePrizio, 705 N.E.2d 455 (Ind. 1999) (an amendment may clarify original legislative intent 23)