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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. by the time anybody gets to such files they will probably have been totally vacuumed anyways. they're pros at this at universities. anything to protect their incomes. Still, a laudable attempt. Let's go for throat though: how about the idea of unionizing football college football players so they can get a fair shake for their work? then if one of the players is a pain in the neck cut them loose instead of protecting them. if that kills the big programs, great, what do they have to do with learning anyways? nada. just another way for universities to rake in the billions even as they skate from paying taxes with their bogus "nonprofit" status.

  2. Um the affidavit from the lawyer is admissible, competent evidence of reasonableness itself. And anybody who had done law work in small claims court would not have blinked at that modest fee. Where do judges come up with this stuff? Somebody is showing a lack of experience and it wasn't the lawyers

  3. My children were taken away a year ago due to drugs, and u struggled to get things on track, and now that I have been passing drug screens for almost 6 months now and not missing visits they have already filed to take my rights away. I need help.....I can't loose my babies. Plz feel free to call if u can help. Sarah at 765-865-7589

  4. Females now rule over every appellate court in Indiana, and from the federal southern district, as well as at the head of many judicial agencies. Give me a break, ladies! Can we men organize guy-only clubs to tell our sob stories about being too sexy for our shirts and not being picked for appellate court openings? Nope, that would be sexist! Ah modernity, such a ball of confusion. https://www.youtube.com/watch?v=QmRsWdK0PRI

  5. LOL thanks Jennifer, thanks to me for reading, but not reading closely enough! I thought about it after posting and realized such is just what was reported. My bad. NOW ... how about reporting who the attorneys were raking in the Purdue alum dollars?

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