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Appeals court rules on corporate subsidiaries case

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The Indiana Court of Appeals has ruled against a Bluffton electric company, finding that corporations can’t simply create subsidiaries internally and declare them separate entities in order to avoid paying higher tax rates under state unemployment compensation law.

Instead, the state’s appellate court affirmed a determination by a liability administrative law judge with the Indiana Department of Workforce Development and found that Franklin Electric Company and two subsidiaries constituted only one employer for purposes of the Indiana Unemployment Compensation Act.

The decision today came in Franklin Electric Company v. Unemployment Insurance Appeals of the Department of Workforce Development, No. 93A02-0911-EX-1121.

Dating back to late 2003, parent company Franklin Electric created the two subsidiaries Franklin Electric Sales and Franklin Electric Manufacturing by transferring employees to those new corporations in exchange for 100 percent stock ownership in both. At first, the state DWD gave both new employer accounts and allowed them to be taxed at 2.7 percent rather than 4.9 percent that Franklin Electric had paid in 2004 – a savings of about $64,000. But the state later investigated that change and examined the organizational structures of all three, and eventually cancelled the new employer accounts and transferred their accounts back to Franklin Electric. An LALJ determined last year that the new corporate subsidiaries didn’t constitute partial successorships, and so no new employers were created to receive the lower tax rate. The judge did determine the company hadn’t tried to defraud the state agency in paying a lower amount. Franklin Electric appealed, and the state agency asked the appellate court to disregard their corporate structures for purposes of the compensation act.

Relying on Indiana Supreme Court precedent on the issue of “piercing-the-corporate-veil” and what the 7th Circuit Court of Appeals has found, the Indiana Court of Appeals pierced the corporate veils of both FEM and FES because Franklin Electric owns 100 percent of the stock from both subsidiaries and neither has its own separate board of directors. Franklin Electric also controls the bank accounts of all three and displays ownership activity in multiple ways.

That led to its holding affirming the judgment.

“In summary, we conclude that the LALJ correctly disregarded the corporate forms of FEM and FES for purposes of the Act,” Judge Cale Bradford wrote for the unanimous panel. “Allowing FEM and FES to qualify as independent new employers would work an injustice to the taxpayers and citizens of the State of Indiana.”

A footnote on the final page of the opinion adds, “Were we to accept Franklin Electric’s argument, any Indiana corporation could avoid ever having to pay a contribution rate of greater than the new employer rate by periodically creating a new corporation and selling itself to it.”
 

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  1. It appears the police and prosecutors are allowed to change the rules halfway through the game to suit themselves. I am surprised that the congress has not yet eliminated the right to a trial in cases involving any type of forensic evidence. That would suit their foolish law and order police state views. I say we eliminate the statute of limitations for crimes committed by members of congress and other government employees. Of course they would never do that. They are all corrupt cowards!!!

  2. Poor Judge Brown probably thought that by slavishly serving the godz of the age her violations of 18th century concepts like due process and the rule of law would be overlooked. Mayhaps she was merely a Judge ahead of her time?

  3. in a lawyer discipline case Judge Brown, now removed, was presiding over a hearing about a lawyer accused of the supposedly heinous ethical violation of saying the words "Illegal immigrant." (IN re Barker) http://www.in.gov/judiciary/files/order-discipline-2013-55S00-1008-DI-429.pdf .... I wonder if when we compare the egregious violations of due process by Judge Brown, to her chiding of another lawyer for politically incorrectness, if there are any conclusions to be drawn about what kind of person, what kind of judge, what kind of apparatchik, is busy implementing the agenda of political correctness and making off-limits legit advocacy about an adverse party in a suit whose illegal alien status is relevant? I am just asking the question, the reader can make own conclsuion. Oh wait-- did I use the wrong adjective-- let me rephrase that, um undocumented alien?

  4. of course the bigger questions of whether or not the people want to pay for ANY bussing is off limits, due to the Supreme Court protecting the people from DEMOCRACY. Several decades hence from desegregation and bussing plans and we STILL need to be taking all this taxpayer money to combat mostly-imagined "discrimination" in the most obviously failed social program of the postwar period.

  5. You can put your photos anywhere you like... When someone steals it they know it doesn't belong to them. And, a man getting a divorce is automatically not a nice guy...? That's ridiculous. Since when is need of money a conflict of interest? That would mean that no one should have a job unless they are already financially solvent without a job... A photographer is also under no obligation to use a watermark (again, people know when a photo doesn't belong to them) or provide contact information. Hey, he didn't make it easy for me to pay him so I'll just take it! Well heck, might as well walk out of the grocery store with a cart full of food because the lines are too long and you don't find that convenient. "Only in Indiana." Oh, now you're passing judgement on an entire state... What state do you live in? I need to characterize everyone in your state as ignorant and opinionated. And the final bit of ignorance; assuming a photo anyone would want is lucky and then how much does your camera have to cost to make it a good photo, in your obviously relevant opinion?

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