ATTORNEYS FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
FRANCINA A. DLOUHY
CHRISTOPHER A. RUHL
GENERAL OF INDIANA
BAKER & DANIELS
PAUL H. FRANKEL ROBERT B. WENTE
CRAIG B. FIELDS DEPUTY ATTORNEY GENERAL
ROBERTA MOSELEY NERO Indianapolis, IN
MORRISON & FOERSTER LLP
New York, NY
INDIANA TAX COURT
KOHLS DEPARTMENT STORES, INC., )
v. ) Cause No. 49T10-0209-TA-110
INDIANA DEPARTMENT OF )
STATE REVENUE, )
ORDER ON PARTIES CROSS-MOTIONS
FOR SUMMARY JUDGMENT
February 9, 2005
Kohls Department Stores, Inc. (Kohls) appeals the Indiana Department of State Revenues (Department)
denial of its claims for refund of income tax paid during the tax
years ending February 1, 1997, January 31, 1998, and January 30, 1999 (the
years at issue). The matter is currently before the Court on the
parties cross-motions for summary judgment. The sole issue for the Court to
decide is whether Kohls was required to seek the Departments permission to discontinue
filing combined Indiana income tax returns.
FACTS AND PROCEDURAL HISTORY
Kohls is a Delaware corporation with its principal place of business in Menomonee
Falls, Wisconsin. Kohls is engaged primarily in the operation of retail stores
which sell clothing and household goods. It operates stores both inside and
outside of Indiana.
In November 1993, due to a change in Kohls holding company structure,
See footnote the
Department granted Kohls permission to retroactively file combined Indiana income tax returns commencing
with the tax year ending August 29, 1987. Kohls holding company system
was again restructured in 1996. Subsequently, on November 8, 2000, Kohls requested
the Departments permission to discontinue filing its income tax returns on a combined
basis. On December 20, 2000, the Department granted Kohls request, commencing with
the 2000 tax year.
On February 23, 2001, Kohls filed amended corporate income tax returns for the
1997, 1998, and 1999 tax years, requesting refunds for each of these years.
Kohls filed these returns on a separate basis rather than a combined
basis, reasoning that the changed corporate structure that the Department recognized in December
of 2000 had been in existence since 1996. The Department subsequently denied
each of Kohls claims for refund.
Kohls requested review of the Departments denial and, on May 15, 2002, the
Department held an administrative hearing. On June 20, 2002, the Department issued
its Letter of Findings (LOF), again denying Kohls refund claims. In so
doing, the Department noted that Indiana Code § 6-3-2-2(q) requires a taxpayer to
file a petition for permission to file combined returns within thirty days of
the end of the affected tax year. The Department reasoned by implication
that a taxpayer was similarly obligated to file a request to discontinue filing
combined returns within the same time frame.
On September 17, 2002, Kohls initiated an original tax appeal. The parties
subsequently filed cross-motions for summary judgment on September 15, 2003. The Court
heard the parties oral arguments on November 13, 2003. Additional facts will
be supplied as necessary.
Standard of Review
This Court reviews the Departments determinations de novo. Ind. Code Ann. §
6-8.1-9-1(d) (West 2005). Therefore, the Court is bound by neither the evidence
presented nor the issues raised at the administrative level. Snyder v. Indiana
Dept of State Revenue, 723 N.E.2d 487, 488 (Ind. Tax Ct. 2000), review
In addition, a motion for summary judgment will be granted only when there
is no genuine issue of material fact and the moving party is entitled
to judgment as a matter of law. Ind. Trial Rule 56(C).
Cross-motions for summary judgment do not alter this standard. Snyder, 723 N.E.2d
Corporate taxpayers in Indiana may file their income tax returns on either a
separate company basis or a combined basis. See Ind. Code Ann. §
6-3-1-28 (West 2005); Ind. Code Ann. § 6-3-2-2(l) (West Supp. 2004-2005). The
combined reporting method is an alternative to Indianas standard three-factor apportionment scheme.
See Cooper Indus., Inc. v. Indiana Dept of State Revenue, 673 N.E.2d 1209,
1210 (Ind. Tax Ct. 1996). Through combined reporting, a group of corporations
operating as a unitary business may aggregate their earnings before apportionment in order
to more fairly represent their income derived from sources within the state of
Indiana. See id. See also A.I.C. § 6-3-2-2(l).
In order for a taxpayer to elect the combined filing method during the
years at issue, certain procedural requirements were to be met. Indiana Code
§ 6-3-2-2(q) provides that:
[O]ne (1) or more taxpayers may petition the [D]epartment . . . for
permission to file a combined income tax return for a taxable year.
The petition . . . must be completed and filed with the [D]epartment
not more than thirty (30) days after the end of the taxpayers taxable
Ind. Code Ann. § 6-3-2-2(q) (West 1997). The statute does not, as
the Department concedes, specify whether the same requirements apply if a taxpayer wishes
to discontinue combined filing and resume filing on a separate company basis.
(Respt Br. at 8.) Nevertheless, the Department maintains that the legislature intended
for the requirements to be the same but inadvertently failed to include an
explicit statute of limitations for petitions to discontinue combined filing. Consequently, the
Department asserts that because Kohls did not seek permission to discontinue combined filing
within thirty days after the end of the 1997, 1998, and 1999 tax
years, it was not entitled to file separate returns for those years (which
in turn enabled them to claim for refund). Kohls counters that the
plain and unambiguous language of Indiana Code § 6-3-2-2(q) does not require it
to seek the Departments permission to discontinue combined filing.
It is a fundamental rule of statutory construction that it is the legislative
intent behind a statute, rather than its precise language, which governs. See
Zoercher v. Indiana Associated Tel. Corp., 7 N.E.2d 282, 284 (Ind. 1937).
If, after reading a statute within the context of the entire act and
using tools of statutory construction, a court determines that certain words necessary to
effectuate the legislatures intent have been omitted, the court may read the omitted
words into the statute. Evansville Concrete Supply Co. v. Indiana Dept of
State Revenue, 571 N.E.2d 1350, 1353 (Ind. Tax Ct. 1991). When the
language of a statute is clear and unambiguous, however, the court may not
expand or contract the meaning of a statute by reading into it language
to correct supposed omissions or defects. Id. (internal quotation and citation omitted).
Furthermore, a court should construe a statute to determine the legislatures intent
only when the meaning of a statutes language is reasonably susceptible to more
than one construction. Id (internal citation omitted). Accordingly, the critical inquiry
here is whether Indiana Code § 6-3-2-2(q) is reasonably susceptible to the Departments
The Department argues that its interpretation of § 6-3-2-2(q) is consistent with the
legislatures intent because the legislature could not have intended for taxpayers [to] be
allowed to float from one reporting method to another with no time parameters
affixed. (Respt Resp. Br. at 2.) Additionally, the Department explains that
the legislature amended § 6-3-2-2(q) in 1993 to require a taxpayer to request
permission to file a combined return within thirty days of the end of
the affected tax year. This amendment, according to the Department, is direct
evidence that the legislature intended to segregate out decisions regarding the granting and
discontinuing of permission to file combined returns but inadvertently neglected to include an
explicit statute of limitations for petitions to discontinue. (Respt Br. at 8.)
Both arguments are unavailing.
First, it is simply not true that, in the absence of the Departments
implied statute of limitations for petitions to discontinue, taxpayers will be allowed to
yo-yo back and forth between filing methods without limitation. (See Respt. Br.
at 12.) As the Department itself acknowledges, Indiana Code § 6-8.1-9-1, the
general refund statute, provides that claims for refund must be filed within three
years after the latter of the due date of the return or the
date of payment. Ind. Code Ann. § 6-8.1-9-1(a) (West Supp. 2004-2005).
Accordingly, the Departments concern that a taxpayer could come before the Department years
after-the-fact, reach back as far as it desired[,] and dictate that its corporate
tax be changed[,] (Respt Resp. Br. at 3), is unfounded. A
taxpayer could only, at most, reach back three years to file an amended
return and corresponding claim for refund.
Second, the fact that the legislature added a thirty-day requirement for permission to
file combined returns in no way indicates that the legislature intended to single
out decisions regarding both the granting and discontinuing of permission to file combined
returns. The Department offers no support for this assertion and none can
be found in the statute itself. The language of the statute is
plain and unambiguous and makes no reference to discontinuing combined filing. If
the legislature had intended to impose a thirty-day restriction on seeking permission to
discontinue, it would have stated as much. See Cooper Indus., Inc., 673
N.E.2d at 1215. Indeed, the legislatures failure to address this situation could
have been intentional given the fact that separate filing is actually the default
See footnote It seems logical that the legislature would impose special requirements
on those wishing to depart from the default method, but would not impose
those same requirements on those wishing to return to it.See footnote
Section 6-3-2-2(q) is not, therefore, susceptible to the Departments construction. The terms
of the statute are clear and there is no reason for this Court
to expand those terms to embrace the Departments interpretation. This is not
a situation where a supposed omission makes it impossible to comply with the
See Town of Homecroft v. Macbeth, 148 N.E.2d 563, 568 (Ind.
1958) (stating that [w]here it is clear that words have been omitted which
are necessary to make the statute workable . . . such may be
read into the act to express the true legislative intent). Nor is
there any indication that an omission has occurred or a correction is necessary
as a result of a clerical or typographical error. See Woerner v.
City of Indianapolis, 177 N.E.2d 34, 38-39 (Ind. 1961) (stating that courts may
provide minor omissions or make minor substitutions in the enactments of the legislature
where there has been such an error).
In this case, the omission alleged by the Department is a substantial one.
In fact, the Department itself refers to the omitted statute of limitations
as a critical proviso. (Respt Resp. Br. at 2.) To find
that the legislature overlooked such an important provision would require this Court to
impute a high degree of negligence to the legislature. This the Court
will not do. Accordingly, the Departments interpretation of Indiana Code § 6-3-2-2(q)
must be rejected and the language of the statute will control.
See footnote [L]egislatures
make the tax statutes and courts enforce them as written, not as departments
of revenue may wish they had been written.See footnote
Indiana Dept of State
Revenue v. Endress & Hauser, Inc., 404 N.E.2d 1173, 1178 (Ind. Ct. App.
1980) (footnote added).
For the above stated reasons, the Court GRANTS the Petitioners motion for summary
judgment and DENIES the Departments motion for summary judgment.
SO ORDERED this 9th day of February, 2005.
Thomas G. Fisher, Judge
Indiana Tax Court
Francina A. Dlouhy
Christopher A. Ruhl
Baker & Daniels
300 North Meridian Street, Suite 2700
Indianapolis, IN 46204
Paul H. Frankel
Craig B. Fields
Roberta Moseley Nero
Morrison & Foerster, LLP
1290 Avenue of the Americas
New York, NY 10104-0050
Attorney General of Indiana
By: Robert B. Wente
Deputy Attorney General
Indiana Government Center South, Fifth Floor
302 West Washington Street
Indianapolis, IN 46204
At the behest of creditors, two holding companies had been established to
hold acquisition debt. Accordingly, the Department found that filing on a separate
company basis distorted Kohls Indiana taxable income.
Footnote: This is evident simply by looking at the language of § 6-3-2-2
itself. The statute provides that the taxpayer may only elect another method
of filing [i]f the allocation and apportionment provisions of [Title 6, Article 3]
do not fairly represent the taxpayers income derived from sources within the state
Ind. Code Ann. § 6-3-2-2(l), (q) (West 1997).
In any event, if a taxpayers income is distorted by either method,
an audit will reflect such distortion. The Department may then require the
taxpayer to employ a different filing method.
See A.I.C. § 6-3-2-2(l).
The Department also relies on a 1996 decision of this Court for
the proposition that the Court may read a limitations period into a statute
where one has been omitted by the legislature. (
See Respt Br. at
9-10 (citing State ex rel. ANR Pipeline Co. v. Indiana Dept of State
Revenue, 672 N.E.2d 91 (Ind. Tax Ct. 1996).) The statute at issue
in that case, Indiana Code § 6-8.1-5-1(g), provided that if a taxpayer disagreed
with the Departments decision in a Letter of Findings (LOF), the taxpayer had
180 days to appeal the decision to this Court. Ind. Code Ann.
§ 6-8.1-5-1(g) (West Supp. 1996). Accordingly, the Court reasoned that the Department
likewise had 180 days to reconsider its LOF. See ANR Pipeline, 672
N.E.2d at 95. This was a reasonable inference to make because by
placing a 180-day limitation on appeals, the statute implied that the LOF became
final after 180 days. If it is final with respect to the
taxpayer, it should be final with respect to the Department as well.
Here, by contrast, there is nothing in Indiana Code § 6-3-2-2(q) to suggest
that because a taxpayer must request permission to file combined returns, he must
also request permission to discontinue such filing.
More fundamentally, however, the Departments reliance on ANR Pipeline is misplaced because the
proposition it cites is mere dicta. The Courts holding in that case
rested on a separate issue. See id.
If the Department wants to impose restrictions on taxpayers wishing to discontinue
combined filing, it may be able to promulgate a rule or regulation interpreting
Indiana Code § 6-3-2-2(q).
See Indiana Dept of Envtl. Mgmt. v. AMAX,
Inc., 529 N.E.2d 1209, 1212 (Ind. Ct. App. 1988) (stating that [a]dministrative agencies
may make reasonable rules and regulations to apply and enforce legislative enactments).
The Court makes no judgment at this time as to whether such a
rule or regulation would be within the scope of the Departments authority as
conferred by the legislature. See Charles A. Beard Classroom Teachers Assn v.
Bd. of School Trs. of the Charles A. Beard Memorial School Corp., 668
N.E.2d 1222, 1224 (Ind. 1996).