The Indiana Supreme Court Monday reversed a Tax Court ruling that favored Caterpillar Inc., holding the company could not deduct foreign-source dividend income when calculating its net operating losses for the years 2000 through 2003 for Indiana tax purposes.
The Indiana Department of Revenue rejected Caterpillar’s foreign-source dividend deduction and reduced its net operating loss by about $8.3 million. The company appealed to the Indiana Tax Court, where it prevailed. http://www.theindianalawyer.com/judge-rules-in-favor-of-caterpillar-in-tax-deduction-dispute/PARAMS/article/31095 The department then appealed.
“At its core, the resolution of this case is straightforward: The Indiana (net operating loss) statute does not reference or incorporate the foreign source dividend deduction, and the Tax Court clearly erred in holding that it did,” Loretta Rush wrote in her first opinion as chief justice, Indiana Department of State Revenue v. Caterpillar, Inc., 49S10-1402-TA-79.
“The Department correctly recognized that the Indiana tax statutes did not authorize Caterpillar to include foreign source dividend income in its Indiana NOL calculation. We also conclude that Caterpillar has not met its burden to show the Indiana tax statutes unconstitutionally discriminate against foreign commerce,” Rush wrote for the unanimous court.
The case was remanded to the Tax Court with instructions that summary judgment be entered on behalf of the Department of Revenue and denied to Caterpillar.
The court in a footnote said the department argued that allowing the Tax Court ruling to stand would produce millions of dollars in lost revenue for the state. However, the court granted Caterpillar’s motion to strike an affidavit that confirmed the precise magnitude of the fiscal impact because it was not designated as evidence before the Tax Court. Therefore, the Supreme Court could not rely on it when reviewing the Tax Court’s decision.
"(W)e hold that the Tax Court clearly erred when it adopted a false symmetry between Indiana (adjusted gross income) and Indiana NOLs, and we decline Caterpillar’s effort to apply the foreign source dividend deduction to its NOL calculations," the court held.