ATTORNEY FOR PETITIONER:    ATTORNEYS FOR RESPONDENT:
STEVEN W. DILLON    STEVE CARTER
ROSS G. THOMAS    ATTORNEY GENERAL OF INDIANA
DILLON LAW OFFICE     Indianapolis, IN
Indianapolis, IN    
     DAVID A. ARTHUR
    DEPUTY ATTORNEY GENERAL
    Indianapolis, IN

    
_____________________________________________________________________

    IN THE INDIANA TAX COURT _____________________________________________________________________

WILLIAM E. RALL,                                                          )
                                                                               )
    Petitioner,                                                                )
                                                                               )
    v.                                                                         )   Cause No. 49T10-9305-TA-25
                                                                               )
INDIANA DEPARTMENT OF STATE                                                    )
REVENUE and KENNETH L. MILLER,                                                 )
Commissioner,                                                                  )
                                                                               )
    Respondent.                                                                )    
 _____________________________________________________________________
     


ON APPEAL FROM A FINAL DETERMINATION
OF THE INDIANA DEPARTMENT OF STATE REVENUE


NOT FOR PUBLICATION
June 11, 2001


FISHER, J.

    The petitioner, William E. Rall, challenges the Indiana Department of State Revenue’s (Department) finding that he was not entitled to a refund of a controlled substance excise tax (CSET) of $21,310.90 that was paid by levy against bank accounts with Rall’s name on them. Rall raises two issues, which the Court restates as:
Whether Rall has standing See footnote to request the refund of Acorn on Oak’s corporate bank accounts levied; See footnote and

Whether Fourth Amendment rights regarding freedom from unreasonable search and seizures apply to CSET where Rall consented to the search of his house that resulted in the discovery of marijuana upon which the CSET was based.

For the reasons stated below, the Court AFFIRMS the Department’s CSET assessment against Rall.

FACTS AND PROCEDURAL HISTORY

    On October 4, 1991, Rall opened an account, which Rall listed as a corporate account, with Union Federal Saving Bank under the name of “Acorn on Oak Construction, William Rall.” (Pet’r Ex. C; Defendant’s Ex. F.) This account listed a federal tax identification number and Rall’s social security number on the account signature card. Acorn on Oak, Inc. was incorporated on November 14, 1991. Rall is the sole director of and owns fifty-one percent of the shares in Acorn on Oak, Inc. He is the sole signatory listed on the account.
On October 21, 1992, police officers obtained a warrant to search a storage shed owned by Rall. That same day, the police executed the search warrant and found approximately 100 grams of marijuana in Rall’s shed. The officers then went to Rall’s house and asked him if they could search his residence. Rall consented to the search of his house by signing a written consent form. (Trial Tr. at 24-25; Defendant’s Ex. B.) In Rall’s house, the officers found approximately 259 grams of marijuana, vials of marijuana seeds, and literature on growing marijuana.
The State charged Rall with possession of marijuana. See footnote Rall moved to suppress the marijuana by claiming that the police did not have any probable cause for the issuance of the search warrant. The State dismissed the criminal charge against Rall before a suppression hearing was held.
On October 21, 1992, the Department issued a CSET assessment to Rall for $21,310.90.See footnote On October 22, 1992, the Department sent a Notice of Levy to Union Federal Savings Bank to levy any of Rall’s accounts to satisfy the CSET against him. On October 22, 1992, Union Federal Savings Bank issued a check for $21,310.90 from accounts that has Rall’s name on them to the Department via the Marion County Sheriff’s Department.
    On September 20, 1993, Rall filed a claim for refund with the Department. The Department held a hearing on the matter and denied Rall’s claim for refund. On May 13, 1993, Rall initiated an original tax appeal in this Court. This Court conducted a trial and heard arguments of counsel. Additional facts will be supplied where necessary.
ANALYSIS AND OPINION
Standard of Review

    This Court reviews final determinations of the Department de novo and is not bound by either the evidence presented or issues raised at the administrative level. Ind. Code Ann. § 6-8.1-5-1(h) (West 2000); see also Horrall v. Indiana Dep’t of State Revenue, 687 N.E.2d 1219, 1220 (Ind. Tax. Ct. 1997), review denied. Although statutes that impose tax are to be strictly construed against the State, in Indiana “[t]he burden of proving that the proposed assessment is wrong rests with the person against whom the proposed assessment is made.” I.C. § 6-8.1-5-1(b); see also Horrall, 687 N.E.2d at 1221; Longmire v. Indiana Dep’t of State Revenue, 638 N.E.2d 894, 898 (Ind. Tax Ct. 1994). To meet his burden of proof, the taxpayer must present a prima facie case, that is, one in which the evidence is sufficient to establish a given fact and which, if not contradicted, remains sufficient. Longmire, 638 N.E.2d at 898.
Discussion

    The CSET is imposed on individuals who possess a controlled substance in violation of Indiana Code § 35-48-4 or 21 U.S.C. 841 – 852. Ind. Code Ann. § 6-7-3-5 (West 2000). The amount of the CSET owed is determined by the weight of the controlled substance. Ind. Code Ann. § 6-7-3-6 (West 2000). The Department may collect the CSET owed by a taxpayer by levying his bank accounts. Ind. Code Ann. § 6-8.1-8-8 (West 2000). Specifically, Indiana Code § 6-8.1-8-8(1) states that after a tax warrant becomes a judgment lien, the Department “may levy upon the property of the taxpayer that is held by a financial institution by sending a claim to the financial institution.” I.C. § 6-8.1-8-8.
    Rall does not dispute that he possessed the 252.9 grams marijuana in violation of Indiana Code § 6-7-3-5 or that he had been properly assessed $21,310.90 for the CSET. Rall, however, claims that the Department improperly levied bank accounts of two corporations in which he is a shareholder to satisfy the $21,310.90 assessment. See footnote (Pet’r Br. at 4-5.) Rall claims that a “corporate” account belonging to Acorn on Oak, Inc. was improperly levied because the assets of the account did not belong to Rall. See footnote (Pet’r Br. at 4.) The Department argues that the corporation and Rall are distinct legal entities and that Rall lacks standing to pursue a refund on behalf of the corporation. See footnote (Resp’t Br. at 7.)
    This Court will first address the issue of Rall’s standing to request a refund of the monies to Acorn on Oak. Next this Court will address the issue of whether the Fourth Amendment should apply to Rall’s CSET.
Standing

    Standing refers to “whether a party has an actual demonstrable injury for purposes of a lawsuit.” Hammes v. Brumley, 659 N.E.2d 1021, 1029 (Ind. 1995), reh’g denied. Standing is “[a] party’s right to make a legal claim or seek judicial enforcement of a duty or right.” Black’s Law Dictionary 1413 (7th ed. 1999). “Standing remains a significant restraint on the ability of Indiana courts to act, as it denies the courts any jurisdiction absent an actual injured party participating in the case.” Pence v. State, 652
N.E.2d 486, 488 (Ind. 1995), reh’g denied. See footnote
    When dealing with a corporation, a shareholder may have standing to bring a
derivative action See footnote to enforce a right of a corporation; however, the “well-established general rule” is that a shareholder of a corporation cannot maintain an action in his own name to redress an injury to the corporation, even if the injury has the effect of impairing the value of his stock. Barth v. Barth, 693 N.E.2d 954, 957 (Ind. Ct. App. 1998), trans. denied (Barth III) (citing Barth v. Barth, 659 N.E.2d 559, 560 (Ind. 1995) (Barth II) (internal quotation marks omitted); Pfaffenberger v. Brooks, 652 N.E.2d 884, 885 (Ind. Ct. App. 1995). Instead, the shareholder is required to bring a derivative action on behalf of the corporation. Pfaffenberger, 652 N.E.2d at 885-86.
    There is, however, an exception to this general rule that applies to shareholders of closely-held corporations. Barth III, 693 N.E.2d at 957. “A closely-held corporation is one which typically has relatively few shareholders and whose shares are not generally traded in the securities market.” Barth II, 659 N.E.2d at 561 n.5 (citations omitted). In Barth II, the Indiana Supreme Court held that a trial court has discretion to permit a shareholder of a closely-held corporation to maintain a derivative claim in a direct action if it finds that to do so will not: (1) unfairly expose the corporation or defendants to a multiplicity of actions; (2) materially prejudice the interests of creditors of the corporation; or (3) interfere with a fair distribution of the recovery money among all interested parties. Barth II, 659 N.E.2d at 562 (quoting A.L.I. Principles of Corporate Governance § 7.01(d)). Therefore, in order for a shareholder to bring a suit in his own name on behalf of a corporation, that shareholder must show that: (1) the corporation is a closely-held corporation; and (2) the three factors of the exception apply.
Here, Rall failed to meet his burden of showing why he should be allowed to bring a suit in his own name on behalf of Acorn on Oak. The evidence – that that are three other shareholders in Acorn on Oak See footnote – tends to show that there were relatively few shareholders in Acorn on Oak. Therefore, the Court will assume that Acorn on Oak is a closely-held corporation. However, even assuming that Acorn on Oak is a closely-held corporation, Rall has failed to provide this Court with any evidence or argument to show why the exceptions allowing him to bring the suit in his own name would apply to his case. This Court has repeatedly stated that it will not do the taxpayer’s work for him. See CDI, Inc. v. State Bd. of Tax Comm'rs, 725 N.E.2d 1015, 1020 (Ind. Tax Ct. 2000). Rall has failed to present a prima facie case on the issue of standing. Because Rall has failed to show that he fits into the exception to the general rule requiring a shareholder to bring a derivative action, he has failed to demonstrate that he has standing to bring
this case in his own name to ask for a refund on behalf of Acorn on Oak, Inc. See footnote
II. Application of the Fourth Amendment to CSET

    Rall argues that his CSET assessment should not be upheld because the Fourth Amendment of the United State Constitution should apply to his CSET assessment. (Pet’r Br. at 2-3 (citing Lynn v. West, 134 F.3d 582 (4th Cir. 1998), cert. denied, 525 U.S. 813 (1998).) Specifically, it appears that Rall claims that if Fourth Amendment protections applied to CSET, it would trigger application of the exclusionary rule, and Rall could then argue that the search warrant lacked probable cause and have his CSET assessment dismissed if the search warrant was found to be invalid. (Pet’r Br. at 3; Trial Tr. at 31.) The Department argues that Rall is not entitled to review of this issue because he never raised the issue in his original tax appeal petition. (Resp’t Br. at 3, 6.) This Court, however, finds that Rall did raise the issue of the Fourth Amendment in his original tax appeal. (See Pet’r original tax appeal petition filed May 13, 1993.)
     Rall’s argument that the marijuana upon which the CSET is based was illegally seized is without merit because he consented to the search of his house, which resulted in the discovery of that marijuana. Generally, a search warrant is a prerequisite to a constitutionally proper search and seizure unless some recognized exception to the warrant requirement applies. Joyner v. State, 736 N.E.2d 232, 242 (Ind. 2000). A valid consent is an exception to the warrant requirement. Id. A consent to search is valid except where procured by fraud, duress, fear, or intimidation or where it is merely a submission to the supremacy of the law. Id.
     After the police executed a search warrant on Rall’s storage shed and discovered marijuana, they went to Rall’s house. Rall consented to the search of his house, and police discovered more marijuana. The Department assessed a CSET against Rall for 252.9 grams of marijuana found in Rall’s house. Rall’s argument that his CSET was based upon marijuana illegally obtained from his house is without merit. Although the police did not have a warrant to search his house, Rall consented to the search by signing a written consent form. (Defendant’s Ex. B; Trial Tr. at 24.) Moreover, there was no evidence presented that Rall’s consent was given under conditions of fraud or intimidation. Because Rall consented to the search of his house, there was no need for a search warrant. See Joyner, 736 N.E.2d at 242. Thus, the exclusionary rule is not applicable to Rall’s CSET. Accordingly, the Department properly assessed the CSET against Rall for his possession of 252.9 grams of marijuana. See footnote
CONCLUSION

    Because Rall does not have standing to bring this suit in his own name to seek a refund for the corporation and because he consented to the search of his house that resulted in the discovery of the marijuana upon which the CSET is based, this Court AFFIRMS the Department’s CSET assessment against Rall.


Footnote: At trial, after Rall claimed that the accounts levied were corporate accounts, the Court sua sponte raised the issue of whether Rall had standing to individually challenge the Department’s levy on these corporate accounts. See Schulz v. State, 731 N.E.2d 1041, 1044 (Ind. Ct. App. 2000) (court may raise the issue of standing sua sponte), trans. denied; Collard v. Enyeart, 718 N.E.2d 1156, 1159 (Ind. Ct. App. 1999) (generally standing may be raised at any point during the litigation and if not raised by the parties it is the duty of the reviewing court to determine the issue sua sponte), trans. denied. But see Tumblin v. State, 736 N.E.2d 317, 321 (Ind. Ct. App. 2000) (appellate court should not invoke lack of standing sua sponte when resolving claim of unlawful search and seizure). The parties argued the issue of standing in their post-trial briefs and at oral argument.


Footnote: Rall also claimed that the “corporate” accounts of Rainbow Management, Inc. were improperly levied. However, because Rall did not present prima facie evidence that the accounts were corporate, but instead that that these accounts were from a sole proprietorship, the Court will not address Rall’s claim that the Department improperly levied funds from these accounts. See infra n.6.


Footnote: Based on Rall’s testimony at trial, it appears that his possession charge was based on the marijuana found in his shed and in his house. (Trial Tr. at 31.)


Footnote: The Department assessed the $21,310.90 CSET for Rall’s possession of 252.9 grams of marijuana. Therefore, it appears that the Department assessed the CSET only for the marijuana found in Rall’s house. This amount includes the $10,116 tax itself, a 100% nonpayment penalty of $10,116, a 10% collection fee of $1,011.60, interest of $64.30, and a clerk’s fee of $3.00. See Ind. Code Ann. §§ 6-7-3-6 (demonstrating calculation of tax); 6-7-3-11 (authorizing 100% nonpayment fee); 6-8.1-8-2(b) (authorizing 10% collection fee).

Footnote: Rall, however, does not contest the Department’s levy of $47.35 from his personal savings account and $502.74 from his personal checking account. (Trial Tr. at 45, 46.)

Footnote:
Rall also contends that three other accounts – the Sir Walters Public House accounts – were improperly levied because the assets of the accounts did not belong to Rall. The bank signature cards list these accounts under “William Rall DBA Sir Walters Public House,” Nonetheless, Rall claims that Rainbow Management, Inc. owned the restaurant, Sir Walters Public House, thus making the accounts corporate accounts. (Pet’r Br. at 4.) However, Rall has not presented sufficient evidence to show that Rainbow Management, Inc. owned Sir Walters or that Sir Walters was a corporation. The evidence tends to show that Sir Walters was a sole proprietorship owned by Rall. A sole proprietorship is “[a] business in which one person owns all the assets, owes all the liabilities, and operates in his or her own personal capacity.” Black’s Law Dictionary 1398 (7th ed. 1999). The only evidence that connects Rainbow Management, Inc. to the Sir Walters Public House accounts is Rall’s self-serving testimony at trial that Rainbow Management operated Sir Walters Public House. (Trial Tr. at 35.) Rall opened these accounts, which Rall listed as a “sole proprietorship,” with Union Federal Saving Bank under the name of “William Rall DBA Sir Walters Public House.” (Pet’r Ex. C; Defendant’s Ex. F.) This account contained only his social security number, and no federal tax identification number. He is the sole signatory listed on the account. Because the money from Rall’s sole proprietorship would be considered his own money, it would have been considered “property of the taxpayer” under Indiana Code § 6-8.1-8-8. Therefore, the Department properly levied the funds from the Sir Walters Public House accounts. Accordingly, this Court will not address the issue of standing in regards to Rainbow Management.


Footnote: Alternatively, the Department argues that it properly levied the accounts because the corporation is the alter ego of Rall. (Resp’t Br. at 6, 7.) However, this Court does not reach this issue because it finds that Rall did not have standing to bring this case in his own name and ask for a refund for the corporation. See infra.


Footnote: For an individual party t o have standing, he must be able to show: (1) a personal stake in the outcome of the lawsuit; and (2) that some direct injury has been suffered or will immediately be sustained as a result of the conduct at issue. State ex rel. Indiana State Bd. of Tax Comm’rs v. Indiana Chamber of Commerce, Inc., 712 N.E.2d 992, 996 (Ind. Ct. App. 1999) (citing Pence v. State, 652 N.E.2d 486, 487-88 (Ind. 1995), reh’g denied).


Footnote: A derivative action is “[a] suit by a beneficiary of a fiduciary to enforce a right belonging to the fiduciary; esp., a suit asserted by a shareholder on the corporation’s behalf against a third party (usu. a corporate officer) because of the corporation’s failure to take some action against the third party.” Black’s Law Dictionary 455 (7th ed. 1999). To bring a derivative action, the following requirements must be met: (1) the person bringing the suit must have been a shareholder at the time of the complained of transaction; (2) the shareholder must fairly and adequately represent the interests of all injured shareholders; (3) the complaint must be verified; and (4) the complaint must allege that a demand was made to obtain action by the board of directors or allege why a demand was not made. Ind. Trial Rule 23.1; Ind. Code Ann. § 23-1-32-1; see also Pfaffenberger v. Brooks, 652 N.E.2d 884, 886 n.2 (Ind. Ct. App. 1995).


Footnote: The other three Acorn on Oak shareholders consisted of six people who held the shares jointly with rights of survivorship. (Pet’r Ex. E.)


Footnote: Additionally, because the corporate funds were levied, the corporation would be the “true owner of the right sought to be enforced.” See Hammes v. Brumley, 659 N.E.2d 1021, 1030 (Ind. 1995), reh’g denied. Accordingly, Acorn on Oak, and not Rall, would be the real party in interest pursuant to Indiana Trial Rule 17, which states that “[e]very action shall be prosecuted in the name of the real party in interest.” Ind. Trial Rule 17(A). The real party in interest requirement of Indiana Trial Rule 17 is similar, but not identical to, standing. Pence v. State, 652 N.E.2d 486, 487 (Ind. 1995), reh’g denied. The point of the standing and real party in interest requirements is to assure that the party before the court has a substantive right to enforce the claim that is the subject of litigation. Id.

Footnote: Alternatively, the Department argued that Fourth Amendment protections and criminal procedures do not apply to CSET because CSET is a civil, not a criminal, penalty. (Resp’t Br. at 3-6 (citing Hudson v. State, 522 U.S. 93 (1997).) Because Rall consented to the search of his house, this Court need not address this argument.