ATTORNEY FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
STEVEN W. DILLON STEVE CARTER
ROSS G. THOMAS ATTORNEY GENERAL OF INDIANA
DILLON LAW OFFICE Indianapolis, IN
DAVID A. ARTHUR
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
WILLIAM E. RALL, )
v. ) Cause No. 49T10-9305-TA-25
INDIANA DEPARTMENT OF STATE )
REVENUE and KENNETH L. MILLER, )
ON APPEAL FROM A FINAL DETERMINATION
OF THE INDIANA DEPARTMENT OF STATE REVENUE
NOT FOR PUBLICATION
June 11, 2001
The petitioner, William E. Rall, challenges the Indiana Department of State Revenues (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 Ralls name on them. Rall raises two issues, which the Court
Whether Rall has standing
to request the refund of Acorn on Oaks corporate
bank accounts levied;
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 Departments 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. (Petr Ex. C; Defendants Ex. F.) This
account listed a federal tax identification number and Ralls 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 Ralls shed. The
officers then went to Ralls 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; Defendants Ex. B.)
In Ralls 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 Ralls 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 Ralls name on them
to the Department via the Marion County Sheriffs Department.
On September 20, 1993, Rall filed a claim for refund with the
Department. The Department held a hearing on the matter and denied Ralls
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 Dept 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 Dept 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.
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
(Petr 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.
(Petr 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.
(Respt Br. at 7.)
This Court will first address the issue of Ralls 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 Ralls CSET.
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),
rehg denied. Standing is [a] partys right to make a legal claim
or seek judicial enforcement of a duty or right. Blacks 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), rehg denied.
When dealing with a corporation, a shareholder may have standing to bring a
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
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 taxpayers 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.
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.
(Petr 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. (Petr 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. (Respt Br. at 3, 6.) This Court, however, finds that
Rall did raise the issue of the Fourth Amendment in his original tax
appeal. (See Petr original tax appeal petition filed May 13, 1993.)
Ralls 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 Ralls storage shed and
discovered marijuana, they went to Ralls 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 Ralls house.
Ralls 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. (Defendants Ex. B; Trial Tr. at 24.) Moreover, there
was no evidence presented that Ralls 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 Ralls CSET.
Accordingly, the Department properly assessed the CSET against Rall for his possession of
252.9 grams of marijuana.
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
the Departments CSET assessment
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 Departments 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.
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 Ralls claim that the
Department improperly levied funds from these accounts.
See infra n.6.
Based on Ralls 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 Ralls possession of 252.9
grams of marijuana. Therefore, it appears that the Department assessed the CSET
only for the marijuana found in Ralls 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 clerks fee of $3.00.
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).
Rall, however, does not contest the Departments levy of $47.35
from his personal savings account and $502.74 from his personal checking account.
(Trial Tr. at 45, 46.)
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,
that Rainbow Management, Inc. owned the restaurant, Sir Walters Public House, thus making
the accounts corporate accounts. (Petr 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.
Blacks Law Dictionary 1398 (7th ed. 1999). The only evidence that connects
Rainbow Management, Inc. to the Sir Walters Public House accounts is Ralls 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. (Petr Ex. C; Defendants 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 Ralls 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.
the Department argues that it properly levied the accounts because
the corporation is the alter ego of Rall. (Respt 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.
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 Commrs 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), rehg denied).
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 corporations behalf against a third party (usu. a
corporate officer) because of the corporations failure to take some action against the
Blacks 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).
The other three Acorn on Oak shareholders consisted of six
people who held the shares jointly with rights of survivorship. (Petr Ex.
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), rehg 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), rehg 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.
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. (Respt 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.