ATTORNEYS FOR PETITIONER:    ATTORNEYS FOR RESPONDENT:
LARRY J. STROBLE    STEVE CARTER    
TIMOTHY J. RIFFLE    ATTORNEY GENERAL OF INDIANA
MICHAEL ROSIELLO    Indianapolis, IN
BARNES & THORNBURG     
Indianapolis, IN
     DAVID A. ARTHUR
    DEPUTY ATTORNEY GENERAL
    Indianapolis, IN

_____________________________________________________________________

    IN THE INDIANA TAX COURT _____________________________________________________________________

BANC ONE INDIANA CORPORATION,                                             )
                                                                               )
    Petitioner,                                                                )
                                                                               )
    v.                                                                         )   Cause No. 49T10-9701-TA-00024
                                                                               )
INDIANA DEPARTMENT OF STATE                                                    )
REVENUE,                                                                       )
             
                                                                              
                                                                              
                                                                              
                                                                 
    )
    Respondent.            )    
_____________________________________________________________________

ORDER ON PETITIONER’S MOTION FOR SUMMARY JUDGMENT


NOT FOR PUBLICATION
January 9, 2002

FISHER, J.

    Petitioner Banc One Indiana Corporation (Banc One) appeals the Indiana Department of State Revenue’s (Department) final determination assessing Banc One with additional Financial Institutions Tax (FIT) See footnote liability. The matter is currently before the Court on Banc One’s motion for summary judgment, in which it raises the following issue: whether the formula used for calculating the FIT liability of a unitary group under Indiana Code § 6-5.5-2-4 violates both the Commerce Clause and Due Process Clause of the United States Constitution.
FACTS AND PROCEDURAL HISTORY

    The material facts as they relate to this motion for summary judgment are undisputed. Banc One, a financial institution incorporated and domiciled in Indiana, is subject to Indiana’s Financial Institutions Tax (FIT). For tax years 1991 and 1992, Banc One, having determined it was part of a unitary group See footnote that included sixteen other Indiana “affiliates,” See footnote filed FIT combined returns. See footnote
    In April of 1995, the Department completed an audit of Banc One in which it found FIT deficiencies for both the 1991 and 1992 tax years. More specifically, in its audit report, the Department took the position that the unitary group for which Banc One filed the combined return was, in actuality, part of a much larger unitary group. See footnote Based on that position, the Department recomputed Banc One’s FIT liability to account for those previously omitted group members and issued notices to Banc One increasing its FIT liability for those years.
    On July 7, 1995, Banc One filed a protest with the Department. After holding an administrative hearing, the Department denied Banc One’s protest in a Letter of Findings dated July 10, 1996. The Department subsequently held two rehearings and issued two more Letters of Findings, both of which also denied Banc One’s protest.
    Banc One filed an original tax appeal and petition to enjoin collection of tax with this Court on January 3, 1997. On March 13, 1997, this Court issued an order enjoining the Department from collecting the FIT and interest at issue from Banc One pending the outcome of the case. On June 16, 1997, Banc One filed this motion for summary judgment with respect to the 1992 tax year only. Additional facts will be supplied as necessary.
Standard of Review

    This Court reviews final determinations of the Department de novo and is therefore bound by neither the evidence nor the issues presented at the administrative level. Ind. Code § 6-8.1-9-1(d); Salin Bancshares v. Ind. Dep’t of State Revenue, 744 N.E.2d 588, 591 (Ind. Tax Ct. 2000). Summary judgment is appropriate only where 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); Uniden Am. Corp. v. Ind. Dep’t of State Revenue, 718 N.E.2d 821, 824 (Ind. Tax Ct. 1999).
Analysis and Discussion

    In Indiana, “[t]here is imposed on each taxpayer See footnote a franchise tax measured by the taxpayer’s adjusted gross income or apportioned income for the privilege of exercising its franchise or the corporate privilege of transacting the business of a financial institution in Indiana.” Ind. Code § 6-5.5-2-1(a) (footnote added). The amount of FIT due each taxable year is calculated by multiplying eight and one-half percent (8.5%) times the remainder of:
the taxpayer’s adjusted gross income or apportioned income; minus
the taxpayer’s deductible Indiana net operating losses as determined under this section; minus

the taxpayer’s net capital losses minus the taxpayer’s net capital gains . . . multiplied by the apportionment percentage applicable to the taxpayer . . . for the taxable year of the loss.

Id.
    Taxpayers subject to the FIT may either be residents of Indiana or nonresidents of Indiana. See Ind. Code § 6-5.5-1-13; Ind. Code § 6-5.5-1-12. A resident taxpayer (who does not file a combined return) calculates FIT liability on the basis of its adjusted gross income, which “equals all of the taxpayer’s adjusted gross income from whatever source derived.” Ind. Code § 6-5.5-2-2. A nonresident taxpayer (who does not file a combined return), on the other hand, calculates its FIT liability on the basis of its apportioned income, which “consists of the taxpayer’s adjusted gross income for that year multiplied by the quotient of: (1) [t]he taxpayer’s total receipts attributable to transacting business in Indiana . . . divided by (2) [t]he taxpayer’s total receipts from transacting business in all taxing jurisdictions . . .” Ind. Code § 6-5.5-2-3. When a unitary group files a combined return, it calculates its FIT liability on the basis of its apportioned income, which consists of:
the aggregate adjusted gross income, from whatever source derived, of the resident taxpayer members of the unitary group and the nonresident members of the unitary group; multiplied by

the quotient of:

(A) all the receipts of the resident taxpayer members of the unitary group from whatever source derived plus the receipts of the nonresident taxpayer members of the unitary group that are attributable to transacting business in Indiana; divided by
    
(B) the receipts of all the members of the unitary group from transacting business in all taxing jurisdictions.

Ind. Code § 6-5.5-2-4. See footnote
    In 1992, when Banc One filed its combined return, each of the members of its unitary group was a resident taxpayer under Indiana Code § 6-5.5-1-13. (See Pet’r Summary Judgment Motion, Ex. E.) Accordingly, when the unitary group calculated its FIT liability under Indiana Code § 6-5.5-2-4, because there were no nonresident members in the group, its liability was based on the group’s total adjusted gross income. See footnote (See Pet’r Summary Judgment Motion, Ex. E.) Banc One does not challenge a calculation of FIT liability based on this set of facts. (See Pet’r Summary Judgment Br. at 19, fn. 12.)
    What Banc One does challenge, however, is the Department’s proposed calculation of FIT liability – liability when both resident and nonresident taxpayers comprise a unitary group. (Pet’r Summary Judgment Br. at 26 (“[Banc One’s] case involves an apportionment formula applied to a group of corporations that the Department has treated as being unitary.”) More specifically, Banc One maintains that if indeed its unitary group includes the nonresident taxpayer members, the apportionment factor/formula does not accurately reflect how that unitary group earns its income and, as a result, Indiana taxes value earned outside its borders, which is prohibited by the Due Process and Commerce Clauses of the United States Constitution. See footnote
     Now, before the Court on its motion for summary judgment, Banc One asserts that the Court need only determine the issue about the constitutionality of the apportionment formula as it applies to the “alleged unitary group.” Indeed, it states:
the facts are undisputed concerning the apportionment formula applied by the Department to the alleged unitary group. If, as a matter of law, that formula violates the Constitution, the undisputed facts are dispositive of this litigation without the need to reach the unitary relationship issue itself. The tax deficiency will be eliminated irrespective of the determination that the Court might reach on the issue of the extent of [Banc One’s] unitary group.

(Pet’r Summary Judgment Br. at 13 (emphasis added).) The Court concludes, however, that such a determination would be premature.
    Every action has three jurisdictional elements: 1) jurisdiction of the subject matter; 2) jurisdiction of the person; and 3) jurisdiction of a particular case. Carroll County Rural Elec. Membership Corp. v. Indiana Dep’t of State Revenue, 733 N.E.2d 44, 47 (Ind. Tax 2000). “Subject matter jurisdiction is the power of a court to hear and determine the general class of cases to which the proceedings before it belong.” Musgrave v. State Bd. of Tax Comm’rs, 658 N.E.2d 135, 138 (Ind. Tax 1995). Whether a court has subject matter jurisdiction “depends on whether the type of claim advanced by the petitioner falls within the general scope of authority conferred upon the court by constitution or statute.” Id.
    Included within the realm of subject matter jurisdiction is “ripeness.” Id. “Ripeness relates to the degree to which the defined issues in a case are based on actual facts rather than on abstract possibilities, and are capable of being adjudicated on an adequately developed record.” Indiana Dep’t of Envtl. Management v. Chemical Waste Management, Inc., 643 N.E.2d 331, 336 (Ind. 1994). Furthermore, in deciding ripeness claims, consideration must be given to, among other things, avoiding unnecessary constitutional decisions. See Carroll County Rural Elec. Membership Corp., 733 N.E.2d at 47, fn. 3.
     Banc One’s constitutional challenge is to the apportionment formula as applied to the Department’s proposed unitary group – one that includes both resident and nonresident taxpayer members. In other words, Banc One is not contending that its constitutional rights have been violated, but rather its rights will be violated if it is placed in the larger unitary group. (See Pet’r Summary Judgment Br. at 19, stating that “[w]hen resident and nonresident taxpayers file a combined return . . . as specified in I[ndiana] C[ode] § 6-5.5-2-4 . . . [it is] the source of the constitutional violation”.) It remains to be determined, however, whether or not Banc One is indeed a member of the proposed, larger unitary group. Consequently, if this Court issues an opinion ruling that the formula is constitutional, but then determines at trial that Banc One is not part of the larger unitary group, then it has essentially issued an “advisory opinion” regarding the constitutionality of the formula. This Court may not issue advisory opinions. See INS Investigations Bureau, Inc. v. Lee, 709 N.E.2d 736, 742 (Ind. Ct. App. 1999), trans. denied; Community Hosps. of Ind., v. Estate of North, 661 N.E.2d 1235, 1239 (Ind. Ct. App. 1996), trans. denied. But cf. Indiana Dep’t of Envtl. Management, 643 N.E.2d at 337 (noting that the Supreme Court “can and does issue decisions which are, for all practical purposes, ‘advisory’ opinions”).

Conclusion

    For the foregoing reasons, this Court hereby denies Banc One’s motion for summary judgment. The case will be scheduled for trial in a separate order.

SO ORDERED this 9th day of January, 2002.

     _________________________
     Thomas G. Fisher, Judge
Indiana Tax Court

DISTRIBUTION:

Larry J. Stroble
Timothy J. Riffle
Michael Rosiello
BARNES & THORNBURG
1313 Merchants Bank Building
11 South Meridian Street
Indianapolis, IN 46204

Steve Carter
Attorney General of Indiana
By: David A. Arthur
Deputy Attorney General
Indiana Government Center South, Fifth Floor
402 West Washington Street
Indianapolis, IN 46204-2770


Footnote: See Ind. Code § 6-5.5-1-1 through § 6-5.5-9-5.

Footnote: “The term ‘unitary group’ includes those entities that are engaged in a unitary business transacted wholly or partially in Indiana.” Ind. Code § 6-5.5-1-18(a). “‘Unitary business’ means business activities or operations that are of mutual benefit, dependent upon, or contributory to one another, individually or as a group, in transacting the business of a financial institution.” Id. “Unity is presumed whenever there is unity of ownership, operation, and use evidenced by centralized management or executive force, centralized purchasing, advertising, accounting, or other controlled interaction among entities that are members of the unitary group . . .” Ind. Code § 6-5.5-1-18(b).


Footnote: The other “affiliates” were: Bank One, Bloomington, NA; Bank One, Crawfordsville, NA; Bank One, Indianapolis, NA; Bank One, Lafayette, NA; Bank One, Marion, Indiana, NA; Bank One, Merrillville, NA; Bank One, Rensselaer, NA; Bank One, Richmond, NA; Bank One, Plainfield, NA; American Fletcher Realty Corp.; Banc One Equipment Finance, Inc.; Transport Leasing Corp.; Banc One Indianapolis Auto Lease, Inc.; Windridge Estates, Inc.; C.P. Financial Corporation; and BIL International Holdings, Inc. Each of these affiliates was headquartered in Indiana and had its commercial domicile in Indiana. (Pet’r Summary Judgment Br. at 4-5.)


Footnote: See Ind. Code § 6-5.5-5-1(a); Ind. Code § 6-5.5-6-1 (providing that members of a unitary group shall file one annual, combined return covering all operations and members of the unitary business).


Footnote: In fact, the Department alleges that the unitary group to which Banc One and its Indiana affiliates actually belonged was comprised of nearly 250 other corporations, including: 1) Banc One’s sole shareholder, Banc One Corporation (“BOC”), headquartered in Columbus, Ohio; 2) five other state bank holding companies (all owned by BOC) and their subsidiaries (including banks they own in Colorado, Illinois, Ohio, Texas, and Wisconsin); 3) Banc One Diversified Services Corporation (“BOD”), and its 35-plus subsidiaries, which are engaged in business outside the “traditional” banking area, such as mortgage banking, brokerage services, data processing, and equipment leasing; and 4) certain other direct subsidiaries of BOC. ( See Pet’r Summary Judgment Br. at 3-6.)

Footnote: For purposes of the FIT, taxpayer is defined as:

a corporation that is transacting the business of a financial institution in Indiana, including any of the following:

A holding company.
A regulated financial corporation.
A subsidiary of a holding company or regulated financial corporation.
Any other corporation organized under the laws of the United States, this state, another taxing jurisdiction, or a foreign government that is carrying on the business of a financial institution.

Ind. Code § 6-5.5-1-17.


Footnote: Thus, w hile the basis of the FIT reflects the extent to which a financial institution enjoys the privilege of operating as such in Indiana, the extent of that privilege is measured by the financial institution’s income. This is not to say, however, that the FIT is an income tax. See Indiana Dep’t of State Revenue v. Fort Wayne Nat’l, 649 N.E.2d 109, 111-112 (Ind. 1995) (stating that an excise or franchise tax may be measured by a taxpayer’s income without being construed as an income tax), cert. denied, 516 U.S. 913 (1995). Instead, income is merely a factor in the formula used to determine a taxpayer’s liability for the FIT -- just as income is a factor in the formulas used to determine a taxpayer’s liability for other taxes: income, sales, and/or use taxes. The use of income to calculate these various types of tax liability does not, however, automatically convert a levy from one type of tax to another. Indiana’s FIT is not a direct tax on income, but rather an excise tax on the exercise of the corporate privilege of operating as a financial institution in Indiana. Id. at 112.


Footnote:      Under Indiana Code § 6-5.5-2-4, Banc One’s appor tioned income consisted of:
the aggregate adjusted gross income, from whatever source derived, of the resident taxpayer members of the unitary group and the nonresident members of the unitary group; multiplied by

the quotient of:

(A) all the receipts of the resident taxpayer members of the unitary group from whatever source derived plus the receipts of the nonresident taxpayer members of the unitary group that are attributable to transacting business in Indiana; divided by
    
(B) the receipts of all the members of the unitary group from transacting business in all taxing jurisdictions.

Ind. Code § 6-5.5-2-4 (emphasis added). Because there were no nonresident members of the group, those portions emphasized above were zero. As a result, the fraction having the same numerator and denominator, equaled one. One multiplied by the aggregate adjusted gross income, from whatever source derived, of the resident taxpayer members of the unitary group equals the adjusted gross income of all resident taxpayers.


Footnote: In its protest filed with the Department, as well as in its petition filed with this Court, Banc One claims: 1) that it is not part of a larger unitary group as the Department proposes, and 2) that the formula the Department used to calculate the FIT liability of the “alleged unitary group” violates the Due Process and Commerce Clauses of the United States Constitution. (See Pet’r Summary Judgment Br. at 6, 8.)