ATTORNEY FOR PETITIONER:    ATTORNEYS FOR RESPONDENT:
DENNIS C. BECKER    STEVE CARTER
BARRETT & McNAGNY, LLP     ATTORNEY GENERAL OF INDIANA
Fort Wayne, IN    Indianapolis, IN
    
    LAUREANNE NORDSTROM
    DEPUTY ATTORNEY GENERAL
    Indianapolis, IN
______________________________________________________________________
     IN THE INDIANA TAX COURT

NORTHEAST INDIANA CHEVROLET        )
DEALERS ADVERTISING                 )
ASSOCIATION, INC.,                  )
                                    )
    Petitioner,                     )
    v.                              )

The taxpayer must be a true agent. . . . [T]he principal must be liable for the authorized acts of the agent.
The agent must have no right, title or interest in the money or property received or transferred as an agent. In other words, the income received for work done or services performed on behalf of a principal must pass intact to the principal or a third party; the agent is merely a conduit through which the funds pass.

Ind. Admin Code tit. 45, r. 1-1-54 (1992 and 1996). Accordingly, when a taxpayer receives income, on behalf of a principal, it must be acting as an agent and have no beneficial interest in the income to avoid the gross income tax. See also Universal Group Ltd. v. Indiana Dep’t of State Revenue, 609 N.E.2d 48, 53 (Ind. Tax Ct. 1993) (“UGL”) (stating that “the incidents of taxation follow the beneficial interest in income. Thus, a person who is a mere conduit for another is generally not taxable on the income received”) (internal quotation and citation omitted), supplemented by, 642 N.E.2d 553 (Ind. Tax Ct. 1994).
The Association alleges that when it received funds through the Marketing Initiative, it received them in an agency capacity. More specifically, the Association asserts that GMC “consented” to the agency relationship in establishing the terms of the Marketing Initiative as outlined in the Manual, and the Association “accepted” the authority to act as GMC’s agent when it agreed to the terms of the Marketing Initiative. See footnote Finally, the Association contends that GMC “controlled” the Association’s activities and an agency relationship was established. The Court, however, disagrees.
The member-dealers of the Association chose to incorporate and form the Association; it was a distinct corporate entity of its own. See Winkler v. V.G. Reed & Sons, Inc., 638 N.E.2d 1228, 1231-32 (Ind. 1994) (explaining that while a corporation can act only through its agents, officers, shareholders, and employees, it is a legal entity separate and distinct from its shareholders and officers). It was the Association’s decision (through its decision-making body) to participate in the Marketing Initiative in order to subsidize its advertising costs. See footnote See UGL, 609 N.E.2d at 54 (stating "reimbursements of a taxpayer's own expenses are receipts of gross income to the taxpayer”). In so doing, GMC did not gain the right to control the Association; under the Marketing Initiative’s terms, GMC never possessed authority over the Association’s actions – it merely retained the right to withdraw the funding it offered at its discretion.
Thus, the terms of the Marketing Initiative do not demonstrate that GMC had the requisite right to “control” the Association. See Policy Mgmt. Sys. Corp., 720 N.E.2d at 24 (stating that “the principal’s control cannot simply consist of the right to dictate the accomplishment of a desired result”). The conditions attached to the advertising were in place to ensure that the funds were “budgeted and utilized in a consistent manner.” (Resp’t Mot. for Summ. J., Ex. B at 5.) Absent additional evidence indicating GMC’s right to control, or specific actions it took to control the Association, the Court cannot conclude that the Association was an agent of GMC.See footnote See Hope Lutheran Church v. Chellew, 460 N.E.2d 1244, 1249 (Ind. Ct. App. 1984) (finding that “the absence of control by the purported principals negate[d] the existence of an actual agency relationship”). Consequently, the Court DENIES the Association’s motion for summary judgment.
The Department contends that it is entitled to summary judgment because even assuming arguendo that the Association was an agent of GMC, the Association has a beneficial interest in the funds it received through the Marketing Initiative. Specifically, the Department claims that
the [Association] was not receiving the funds from [GMC] merely to turn [them] over to a third party. Instead, the [Association] used the funds for the benefit of its members[.] [The Association] made binding commitments with its advertising agency, and made advertising decisions in the best interest of its members[.]

(Resp’t Mot. for Summ. J. at 11-12.) Accordingly, the Department concludes that the funds the Association received from GMC are taxable to the Association as gross income. The Court agrees.
Under the Marketing Initiative, “[a]ll marketing, merchandising and advertising activities must be paid for by the DMG and must be designed to benefit all member Dealers to be allowable.” (Resp’t Mot. for Summ. J., Ex. B at 6 (emphasis added).) Thus, it was the Association that determined in which media outlets to promote the advertisements, as well as what vehicles to promote in the advertisements. (See Pet’r Br. in Supp. of Mot. for Summ. J. at 5.) This freedom to tailor advertisements best suited to the Association’s member-dealers’ needs promoted the purpose of the Marketing Initiative in the first place. Indeed,
[the] underlying premise of the [Marketing] Initiative is that Dealers know best their local markets. Thus [while GMC] provides financial support[,] [] the Dealers can choose to supplement it and are free to develop appropriate marketing and advertising within broad guidelines. Consequently, within the guidelines, Dealers decide what is best and execute at the local level.

(Resp’t Mot. for Summ. J., Ex. B at 6.)
It is clear to the Court that the Association and its member-dealers were the beneficiaries of the advertising. See footnote Therefore, the Department was correct in assessing gross income tax on the monies the Association received from GMC under the Marketing Initiative. Accordingly, the Court GRANTS the Department’s motion for summary judgment.

Steve Carter
Attorney General of Indiana
By: Laureanne Nordstrom
Deputy Attorney General
Indiana Government Center South, Fifth Floor
402 West Washington Street
Indianapolis, Indiana 46204-2770