ILNews

Appeals court rules on corporate subsidiaries case

Back to TopE-mailPrintBookmark and Share

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.”
 

ADVERTISEMENT

Sponsored by
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. File under the Sociology of Hoosier Discipline ... “We will be answering the complaint in due course and defending against the commission’s allegations,” said Indianapolis attorney Don Lundberg, who’s representing Hudson in her disciplinary case. FOR THOSE WHO DO NOT KNOW ... Lundberg ran the statist attorney disciplinary machinery in Indy for decades, and is now the "go to guy" for those who can afford him .... the ultimate insider for the well-to-do and/or connected who find themselves in the crosshairs. It would appear that this former prosecutor knows how the game is played in Circle City ... and is sacrificing accordingly. See more on that here ... http://www.theindianalawyer.com/supreme-court-reprimands-attorney-for-falsifying-hours-worked/PARAMS/article/43757 Legal sociologists could have a field day here ... I wonder why such things are never studied? Is a sacrifice to the well connected former regulators a de facto bribe? Such questions, if probed, could bring about a more just world, a more equal playing field, less Stalinist governance. All of the things that our preambles tell us to value could be advanced if only sunshine reached into such dark worlds. As a great jurist once wrote: "Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman." Other People's Money—and How Bankers Use It (1914). Ah, but I am certifiable, according to the Indiana authorities, according to the ISC it can be read, for believing such trite things and for advancing such unwanted thoughts. As a great albeit fictional and broken resistance leaders once wrote: "I am the dead." Winston Smith Let us all be dead to the idea of maintaining a patently unjust legal order.

  2. The Department of Education still has over $100 million of ITT Education Services money in the form of $100+ million Letters of Credit. That money was supposed to be used by The DOE to help students. The DOE did nothing to help students. The DOE essentially stole the money from ITT Tech and still has the money. The trustee should be going after the DOE to get the money back for people who are owed that money, including shareholders.

  3. Do you know who the sponsor of the last-minute amendment was?

  4. Law firms of over 50 don't deliver good value, thats what this survey really tells you. Anybody that has seen what they bill for compared to what they deliver knows that already, however.

  5. As one of the many consumers affected by this breach, I found my bank data had been lifted and used to buy over $200 of various merchandise in New York. I did a pretty good job of tracing the purchases to stores around a college campus just from the info on my bank statement. Hm. Mr. Hill, I would like my $200 back! It doesn't belong to the state, in my opinion. Give it back to the consumers affected. I had to freeze my credit and take out data protection, order a new debit card and wait until it arrived. I deserve something for my trouble!

ADVERTISEMENT