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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. YES I WENT THROUGH THIS BEFORE IN A DIFFERENT SITUATION WITH MY YOUNGEST SON PEOPLE NEED TO LEAVE US ALONE WITH DCS IF WE ARE NOT HURTING OR NEGLECT OUR CHILDREN WHY ARE THEY EVEN CALLED OUT AND THE PEOPLE MAKING FALSE REPORTS NEED TO GO TO JAIL AND HAVE A CLASS D FELONY ON THERE RECORD TO SEE HOW IT FEELS. I WENT THREW ALOT WHEN HE WAS TAKEN WHAT ELSE DOES THESE SCHOOL WANT ME TO SERVE 25 YEARS TO LIFE ON LIES THERE TELLING OR EVEN LE SAME THING LIED TO THE COUNTY PROSECUTOR JUST SO I WOULD GET ARRESTED AND GET TIME HE THOUGHT AND IT TURNED OUT I DID WHAT I HAD TO DO NOT PROUD OF WHAT HAPPEN AND SHOULD KNOW ABOUT SEEKING MEDICAL ATTENTION FOR MY CHILD I AM DISABLED AND SICK OF GETTING TREATED BADLY HOW WOULD THEY LIKE IT IF I CALLED APS ON THEM FOR A CHANGE THEN THEY CAN COME AND ARREST THEM RIGHT OUT OF THE SCHOOL. NOW WE ARE HOMELESS AND THE CHILDREN ARE STAYING WITH A RELATIVE AND GUARDIAN AND THE SCHOOL WON'T LET THEM GO TO SCHOOL THERE BUT WANT THEM TO GO TO SCHOOL WHERE BULLYING IS ALLOWED REAL SMART THINKING ON A SCHOOL STAFF.

  2. Family court judges never fail to surprise me with their irrational thinking. First of all any man who abuses his wife is not fit to be a parent. A man who can't control his anger should not be allowed around his child unsupervised period. Just because he's never been convicted of abusing his child doesn't mean he won't and maybe he hasn't but a man that has such poor judgement and control is not fit to parent without oversight - only a moron would think otherwise. Secondly, why should the mother have to pay? He's the one who made the poor decisions to abuse and he should be the one to pay the price - monetarily and otherwise. Yes it's sad that the little girl may be deprived of her father, but really what kind of father is he - the one that abuses her mother the one that can't even step up and do what's necessary on his own instead the abused mother is to pay for him???? What is this Judge thinking? Another example of how this world rewards bad behavior and punishes those who do right. Way to go Judge - NOT.

  3. Right on. Legalize it. We can take billions away from the drug cartels and help reduce violence in central America and more unwanted illegal immigration all in one fell swoop. cut taxes on the savings from needless incarcerations. On and stop eroding our fourth amendment freedom or whatever's left of it.

  4. "...a switch from crop production to hog production "does not constitute a significant change."??? REALLY?!?! Any judge that cannot see a significant difference between a plant and an animal needs to find another line of work.

  5. Why do so many lawyers get away with lying in court, Jamie Yoak?

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