STATE EX REL. GREGORY F. ZOELLER, ATTORNEY GENERAL OF INDIANA v. AISIN USA MANUFACTURING, INC.,
No. 36S01-1009-CV-469
Indiana Supreme Court
May 12, 2011
Sullivan, Justice.
Appeal from the Jackson Superior Court, No. 36D01-0905-MI-8, The Honorable Bruce Markel, III, Judge. On Petition to Transfer from the Indiana Court of Appeals, No. 36A01-0909-CV-442
ATTORNEYS FOR APPELLANT
Gregory F. Zoeller
Attorney General of Indiana
Andrew W. Swain
Chief Counsel
Jennifer E. Gauger
Deputy Attorney General
Indianapolis, Indiana
ATTORNEYS FOR APPELLEE
Phillip R. Scaletta
Mark J. Richards
Edward P. Steegmann
Brian J. Paul
Indianapolis, Indiana
In the Indiana Supreme Court
STATE EX REL.
May 12, 2011
Sullivan, Justice.
The Attorney General sought to recover an erroneously issued “tax refund” of approximately $1,150,000 from Aisin USA Manufacturing, Inc. (“Aisin“) in Jackson Superior Court. Aisin argued that the case “arises under” Indiana tax law so that exclusive subject matter jurisdiction rests with the Indiana Tax Court. We hold that this case may proceed in Jackson Superior Court. It does not arise under the tax laws because the “refund” was the result of accounting and clerical errors within the Indiana Department of Revenue (“Department“) that were wholly unrelated to any interpretation or application of tax law.
Background
The factual issues in this case are unique and complex. But because this is
Aisin filed its Indiana corporate income tax return for tax-year 2000 in October, 2001, reporting its total tax due as $2,121,242 and its total payments as $2,083,241.1 Appellant‘s App. 4, 28, 195. Because it had underpaid its taxes by $38,001, Aisin remitted payment of $39,331, which included interest. Id. In October, 2002, Aisin filed its tax return for tax-year 2001, reporting its total tax due as $1,300,637 and its total payments as $1,457,000.2 Id. at 6-7, 70. Because it had overpaid its 2001 taxes, Aisin was entitled to a refund of $156,363, which it requested be applied toward its 2002 taxes. Id. at 7, 70. Even though Aisin was neither entitled to nor expecting to receive a refund check for its 2001 taxes, it received a check for $1,146,062 in September, 2003, which it negotiated. Id. at 7-8, 26, 189.
The Department issued the check because of several accounting and clerical errors that had occurred while entering data from paper records into the computerized Revenue Processing System (“RPS“). Id. at 7, 9. There appear to have been three major errors: First, the Department had given Aisin an erroneous credit of $967,3353 for an overpayment of its 2000 taxes. Id. at 4-5, 196. Second, a billing clerk in Audit Review had made a number of errors entering information from Aisin‘s paper return for 2001 into the RPS, which resulted in the RPS miscalculating Aisin‘s 2001 tax as $540,584 (minus a $1,000 college-contribution credit), instead of its actual tax due ($1,301,637 (minus a $1,000 college-contribution credit)). Id. at 7, 191. Third, the Department had failed to give Aisin credit for $657,000 worth of payments made toward its 2001 taxes.4 Id. at 6, 192-93. The combined effect of these three errors was a miscalculation that Aisin had overpaid its 2001 taxes by $1,227,750. Id. at 7-8, 188. The Department applied $156,363 of this total toward Aisin‘s 2002 tax liability, as requested, which resulted in a refund amount of
In October, 2005, Aisin filed an amended return for the 2001 tax year, reporting its total tax due as $1,052,369 and its total payments as $1,457,000 (plus a $1,000 college-contribution credit). Id. at 8, 118. Subtracting the $156,363 refund it claimed on its original return, Aisin claimed a refund of $249,268. Id. While processing Aisin‘s amended return, the Department discovered some of its earlier miscalculations, and in April, 2006, it issued a “Proposed Assessment” to Aisin stating that Aisin owed $616,0625 for tax-year 2001. Id. at 11, 157, 194. Aisin filed timely protests to the proposed assessment, claiming that the statute of limitations had expired and requesting a hearing. Id. at 11, 159-60, 163-65. Rather than hold a hearing, the Department cancelled the proposed assessment because it had finally discovered all of the errors and no longer believed that Aisin had underpaid its taxes. Id. at 179, 192, 195; Appellant‘s Br. 5; Appellant‘s Pet. to Transfer 3. Rather, the Department agreed that Aisin had paid the proper amount of taxes. Appellant‘s App. 7, 9, 12-13, 191-92; Appellant‘s Br. 5; Appellant‘s Pet. to Transfer 3. Subsequent efforts by the Department to recover the erroneously issued funds were unsuccessful, so the Department referred the matter to the Attorney General.
The State, on behalf of the taxpayers of Indiana, filed a complaint against Aisin in Jackson Superior Court. The complaint raised claims of unjust enrichment, theft, statutory treble damages, and constructive trust. The State claimed a loss of $1,146,062 (and treble damages of $3,438,186).6 Aisin filed a motion to dismiss for lack of subject matter jurisdiction,
The trial court granted Aisin‘s motion to dismiss for lack of jurisdiction, concluding that this matter fell within the exclusive jurisdiction of the Indiana Tax Court. It reasoned that a statutory remedy existed because the State could have used the Department to collect the money and that the payment arose from the relationship of taxpayer and tax collector.
The Court of Appeals affirmed, holding that whether and to what extent mistakes were made in this case were “quintessentially tax matters” and that the Department could not unilaterally cancel a proposed assessment in an effort to circumvent the jurisdiction of the Indiana Tax Court. State ex rel. Zoeller v. Aisin USA Mfg., Inc., 926 N.E.2d 83, 88-89 (Ind. Ct. App. 2010).
The State sought, and we granted, transfer, State ex rel. Zoeller v. Aisin USA Mfg., Inc., 940 N.E.2d 823 (Ind. 2010) (table), thereby vacating the opinion of the Court of Appeals,
The only issue in this appeal is whether the Jackson Superior Court has subject matter jurisdiction7 over this case. The Jackson Superior Court has subject matter jurisdiction over all civil and criminal cases, except where exclusive jurisdiction has been conferred by law upon a different court with the same territorial jurisdiction. See
In 1986, the General Assembly created the Indiana Tax Court to channel tax disputes into a single specialized tribunal, thereby ensuring the uniform interpretation and application of the tax laws. State ex rel. Ind. Att‘y Gen. v. Lake Superior Court, 820 N.E.2d 1240, 1247 (Ind. 2005) (citation omitted). The Tax Court has exclusive subject matter jurisdiction over “original tax appeals,”
Though exclusive, the Tax Court‘s jurisdiction is limited to “original tax appeals” and any other jurisdiction specifically conferred by statute.
I
A
This Court first interpreted the meaning of “arises under” for purposes of Tax Court jurisdiction in State v. Sproles, 672 N.E.2d 1353 (Ind. 1996). After Sproles had been charged with marijuana possession, the Department had sought to collect from him $154,996 in unpaid taxes and penalties under the Controlled Substance Excise Tax (“CSET“), which taxed the unlawful possession of a controlled substance. Id. at 1355. Sproles pled guilty to one count of unlawful possession and then filed a claim in Lawrence Circuit Court seeking a declaratory judgment that the CSET violated his rights under the Double Jeopardy Clause of the Fifth Amendment. See id. The circuit court entered judgment in Sproles‘s favor. Id.
On direct appeal, we were asked to determine the scope of the Tax Court‘s exclusive jurisdiction. To give effect to the legislative purpose for the Tax Court, we held that a case “arises under” Indiana tax law if (1) “an Indiana tax statute creates the right of action,” or (2) “the case principally involves collection of a tax or defenses to that collection.” Id. at 1357. We concluded that Sproles‘s claim arose under the tax laws because it principally involved a defense to the Department‘s attempt to collect a tax - Sproles had contended that the Department could not collect the
We have continued to interpret the Tax Court‘s “arises under” jurisdiction broadly within the framework established by Sproles. For example, any case challenging the collection of a tax or assessment arises under the tax laws, whether the challenge is premised on constitutional, statutory, or other grounds. See, e.g., Lake Superior Court, 820 N.E.2d at 1247; State Bd. of Tax Comm‘rs v. Ispat Inland, Inc., 784 N.E.2d 477, 481 (Ind. 2003); State v. Costa, 732 N.E.2d 1224, 1224-25 (Ind. 2000); State Bd. of Tax Comm‘rs v. Montgomery, 730 N.E.2d 680, 682-84 (Ind. 2000). And the challenge need not be to the collection directly - challenges to earlier steps in the taxation or assessment process arise under the tax laws. See, e.g., Lake Superior Court, 820 N.E.2d at 1243-45 (challenging reassessment of property valuations on which property-taxcalculation would be based); Ispat Inland, 784 N.E.2d at 479-80 (challenging audit conducted after taxes were paid because the audit might have resulted in a deficiency).
The Sproles “arises under” test has proved to be relatively straightforward and easy to apply. Only once before today have we revisited that holding in any detail, and we concluded that the issue in that case fell squarely within Sproles. See Lake Superior Court, 820 N.E.2d at 1247 (holding that challenges to assessments arise under tax law). Most of our cases addressing the Tax Court‘s jurisdiction concern whether there has been a “final determination” sufficient to satisfy the second requirement of
B
The State argues that both the Court of Appeals and the trial court went beyond the holding of Sproles and, therefore, beyond the statutory grant of exclusive Tax Court jurisdiction. The Court of Appeals acknowledged that the State‘s claims “do not directly involve the collection of a tax or a defense to that collection,” Aisin, 926 N.E.2d at 88, but held that the case arises under the tax laws because whether and to what extent mistakes were made are “quintessentially tax matters.” Id. This case, however, is itself not “quintessentially” a tax matter because the claims and alleged facts are far from typical. In point of fact, the Court of Appeals clearly departed from Sproles by finding that this case arises under the tax law even though neither of the two jurisdictional tests was satisfied. And this departure was unwarranted.
The trial court also concluded that this case arose under the tax laws. But unlike the Court of Appeals, the trial court held that the case involved the collection of a tax because the dispute involved a taxpayer and a tax collector. In essence, the trial court‘s approach would find that a case arises under the tax laws anytime it involves the Department or another tax agency.Cf. Osborn v. Bank of the United States, 22 U.S. (9 Wheat.) 738, 822-25 (1824) (holding that a case was one “arising under” federal law for purposes of Article III of the U.S. Constitution because the Bank was created by a federal charter and that law gave the Bank the power to sue and be sued). We think
Today we reaffirm our holding in Sproles interpreting the term “arises under” as that term is used in
II
Turning to the present case, Aisin does not contend that the State‘s right of action is created by a tax statute. Therefore, we consider whether this case principally involves the collection of a tax or defenses to the collection of a tax.
A
The State agrees that Aisin owed $1,300,637 in estimated corporate income taxes for 2001. It also agrees that Aisin actually paid $1,457,000 toward its 2001 tax bill. Those payments came from four quarterly payments totaling $1,100,000 that were made during 2001 and an extension payment of $357,000 that was made in April, 2002, to extend the filing deadline. Accordingly, when Aisin made its extension payment it satisfied its tax liability in full and that liability was discharged. See Nyce v. Schmoll, 40 Ind. App. 555, 82 N.E. 539, 540 (1907) (citations omitted) (“[T]he way to discharge a tax is to pay it.“); cf.
To be sure, one set of accounting errors in this case caused the RPS to miscalculate Aisin‘s original tax due as $539,584, rather than $1,300,637. Aisin contends that, because the State calculated a lower tax liability and the “refund” was based on that miscalculation, the State seeks to recover unpaid taxes. Put differently, although Aisin originally paid the proper amount of tax, the State‘s issuance of the allegedly erroneous refund resulted in a net underpayment of taxes, and the present cause of action attempts to remedy that underpayment. We disagree.
In its briefs to this Court and to the Court of Appeals, Aisin argued generally that reference to the tax laws is required in this case to determine whether mistakes were made, but it cited no specific tax laws. At oral argument before this Court, Aisin‘s counsel asserted for the first time that Aisin believes the check was for an overpayment of taxes in 1999 and 2000 that was discovered by the Department during an audit. Counsel argued that this audit revealed that Aisin had overpaid its taxes for those prior years by over $967,000 and that the check was for that amount with interest. Thus, according to counsel, resolution of this case requires determining whether the statutes governing the calculation of carry-forward credits are implicated. According to the record, the check was dated September 9, 2003, and negotiated shortly thereafter, Appellant‘s App. 26, but the Department‘s audit of Aisin‘s 2000 tax return was not completed until January 14, 2004, id. at 28. Thus, under counsel‘s view, the check was issued on the basis of an audit that had yet to be completed. This discrepancy, along with the fact that Aisin did not raise this argument until oral argument before this Court, provides no basis to conclude that the tax laws governing the calculation of carry-forward credits are implicated here.
This is essentially an accounting case where the questions to be resolved are whether Aisin made the payments with which it was credited. Had Aisin neither paid nor owed any income taxes but still received the check because of a clerical error, the State‘s action to recover would not be an action to recover any unpaid “tax” because Aisin would not have owed any tax. We see no difference here where one of the clerical errors was mistakenly entering data into a computer, which resulted in a miscalculated tax liability, after the taxpayer had already paid its true taxes in full.
To hold that this “refund,” issued solely because of accounting or clerical errors, represents part of a tax would not serve the legislative purpose of ensuring the uniform interpretation and application of the tax laws because the tax laws are not implicated. Every case that this Court has held arises under Indiana tax law has involved a dispute as to the interpretation or application of a tax law. The taxpayers in Sproles, Lake Superior Court, Montgomery, and Costa each asked us to interpret a tax law as unconstitutional. The taxpayer in Ispat Inland asked us to interpret a tax law as forbidding a county assessor from outsourcing its auditing functions to aprivate firm. The present case, however, is an accounting case and requires no consideration of substantive tax law. Aisin has implicated no tax laws and it has challenged no tax laws.
Similarly, this case differs from Zayas v. Gregg Appliances, Inc., 676 N.E.2d 365 (Ind. Ct. App. 1997), trans. denied, upon which Aisin places heavy reliance. In that case, a taxpayer brought a class-action suit challenging a retailer‘s collection of sales tax on a delivery fee, instead of first requesting refunds from the retailer and the
Zayas had attempted to circumvent the exhaustion-of-administrative-remedies requirement by arguing that his case was “not an action for a tax refund, but an action for return of monies improperly collected by Gregg,” id. at 367 (footnote omitted), because, from his perspective, the charge on the delivery fee had been “a mere purchase price overcharge,” not an authorized sales tax, id. The court rejected this argument finding that Zayas‘s proposed distinction was “too fine to gain ... acceptance,” id., because adopting Zayas‘s position would have meant that “any time a tax were improperly collected by a retail merchant, the consumer could maintain an action against the retailer thereby rendering moot the refund provisions of the statute, as they relate to requesting a refund from the retailer and then applying to the [Department],” id.
Resolution of the claim in Zayas required interpreting and applying tax laws to determine if Gregg had had authority to collect sales tax on a delivery fee. But, again, the tax laws do not need to be interpreted or applied in this case. The State agrees that Aisin‘s tax liability (based on the original return) was $1,300,637. The $1,146,062 check issued to Aisin was based entirely on accounting and clerical errors and not on any misinterpretation or misapplication of the tax laws.
The legislative purpose for the Tax Court‘s existence is to ensure the uniform interpretation and application of Indiana tax law. That purpose would not be served by the Tax Court exercising jurisdiction over a case devoid of any tax-law issues. Therefore, we hold that a refund issued because of an accounting error and having nothing to do with the interpretation or application of substantive tax law does not revive the original tax liability, where such liability has already been discharged by the taxpayer‘s full payment. And because such a refund is issued to a taxpayer owing no tax, the State has a claim for restitution.
B
The central claim in this case is a typical common-law10 claim for unjust enrichment, brought by the government, in that it alleges that Aisin was unjustly enriched when it received public funds to which it was not entitled and therefore should be liable in restitution.11 See, e.g., Zoeller v. E. Chi. Second Century, Inc., 904 N.E.2d 213, 220-21 (Ind. 2009) (holding that the Indiana Attorney General could bring a claim for unjust enrichment against a private for-profit corporation); Cmty. Care Ctrs., Inc. v. Sullivan, 701 N.E.2d 1234, 1240-42 (Ind. Ct. App. 1998) (holding that the State was entitled to restitution where valid governmental regulations had been enjoined and improper payments had been made under the injunction, which was subsequently reversed), trans. denied; see also Bd. of Educ. v. Holt, 354 N.E.2d 534, 535 (Ill. App. Ct. 1976) (holding that school board could bring a claim to recover money mistakenly paid to a former teacher); In re Guardianship of Kordecki, 290 N.W.2d 693, 696-97 (Wis. 1980) (Abrahamson, J.) (holding that county had common-law authority to recover erroneous public-assistance payments). Indeed, government restitution claims to recoup mistakenly disbursed public funds are supported by policies that are stronger than those supporting restitution claims by private individuals. E.g., Morrow v. Surber, 11 S.W. 48, 49 (Mo. 1889); Graham Douthwaite, Attorney‘s Guide to Restitution § 10.2, at 407 (1977); see also City of Duluth v. McDonnell, 63 N.W. 727, 728 (Minn. 1895) (suggesting that public money may be recovered even where recovery would not be equitable in a purely private dispute). Although the government generally has a common-law cause of action to recover public funds paid out by mistake, the General Assembly can limit or even eliminate that right by statute. Cf. United States v. Wurts, 303 U.S. 414, 415-16 (1938) (discussing the effect of a two-year statute of limitations enacted by Congress on the otherwise unlimited common-law right of the federal government to recover erroneously issued tax refunds).
Aisin argues that the Department could have recovered the allegedly erroneous refund by issuing a proposed assessment within the three-year statute of limitations but that any action to collect the money, regardless of legal theory, is time barred because the limitations period expired before the errors were even discovered. It argues that this statute abrogates the State‘s common-law right to bring a restitution action and that this was the Department‘s exclusive remedy.
The assessment statute provides that “[i]f the department reasonably believes that a person has not reported the proper amount of tax due, the department shall make a proposed assessment of the amount of the unpaid tax on the basis of the best information available to the department.”
Aisin‘s reliance on the statutory assessment vehicle in this case is misplaced. The plain language of the statute makes it clear that before the Department can make a proposed assessment, it must “reasonably believe[] that [the taxpayer] has not reported the proper amount of tax due.”
Contrary to Aisin‘s contention, our conclusion does not conflict with UACC Midwest, Inc. v. Indiana Department of State Revenue (UACC II), 667 N.E.2d 232, 243 n.8 (Ind. Tax Ct. 1996), in which the Tax Court rejected the argument that the Department lacked statutory authority to recover an erroneously issued refund and concluded that the assessment procedure of
Conclusion
The present case is not one that “arises under” Indiana tax law and therefore is not an original tax appeal over which the Tax Court has exclusive jurisdiction under
Shepard, C.J., and David, J., concur.
Rucker, J., dissents with separate opinion in which Dickson, J., concurs.
Rucker, Justice, dissenting.
I respectfully dissent. What is really at stake in this case is that the State apparently acted under the assumption that it had missed a statute of limitations deadline in a tax proceeding. See Appellee‘s Br. at 10 (“The State‘s real problem here is . . . that the [Department of Revenue] failed timely to pursue its claim under the applicable statute of limitations and then chose not to take final administrative action so as to proceed to Tax Court.” (emphasis omitted)). The State does not contest Aisin‘s assertion. Instead it is reasonable to conclude that acting under the assumption that it could obtain no relief in the Tax Court by reason of a statute of limitation, the State attempted an end-run and filed this action in the Superior Court. Both the trial judge and the Court of Appeals concluded that this matter belongs before the Tax Court. Given the lengths to which the majority was required to analyze Aisin‘s various tax filings and the resultant repercussions, I agree this is a tax case and would affirm the judgment of the trial court.
Dickson, J., concurs.