The Indiana Department of State Revenue scored a partial victory in Tax Court on Wednesday when the court granted the agency’s motion for summary judgment regarding whether I.C. 6-3-2-2.2 applied in its taxing of a portion of the gain generated by a Las Vegas-based corporation’s sale of a horse racetrack and card club to an out-of-state company. But there are issues of genuine material fact as to whether the department correctly classified Pinnacle Entertainment’s gain as business income.
Pinnacle and Churchill Downs Inc. entered into an asset purchase agreement in 1999 in which Pinnacle would sell a racetrack and card club in California to Churchill Downs for $140 million in cash. The amount was placed in an escrow account and distributed to Pinnacle in two installments. Pinnacle reported its gain from the sale under the installment method for federal income tax purposes.
In 2000, the company filed an Indiana adjusted gross income tax return that classified the gain as nonbusiness income. The Department of State Revenue disagreed and reclassified the gain as business income, recalculated Pinnacle’s net operating losses, and assessed the company with additional adjusted gross income tax, interest and penalties for the 2006 and 2007 tax years.
The issue made it before the Tax Court in 2012, and both sides filed motions for partial summary judgment in 2013.
I.C. 6-3-2-2.2 states that “receipts from assets in the nature of loans or installment sales contracts that are primarily secured by or deal with real or tangible personal property are attributable to this state if the security or sale property is located in Indiana.” In Pinnacle Entertainment, Inc. v. Indiana Department of State Revenue, 49T10-1206-TA-34, Pinnacle argued that none of its gain was derived from an Indiana source and it was involved in an installment sales contract. Senior Judge Thomas Fisher determined the asset purchase agreement was not an installment sales contract and granted summary judgment to the department, which had argued because the purchase agreement wasn’t an installment sales contract, the statute in question does not preclude the state’s ability to tax a portion of Pinnacle’s gain. He granted the state’s motion for summary judgment on this issue.
But there were genuine issues of material fact as to whether Pinnacle’s gains are business income, so the judge denied either party’s motion for summary judgment on this matter. The department’s evidence supported its claim that Pinnacle was in the business of buying and selling entertainment businesses. Pinnacle’s evidence averred that its business consisted of the operation of certain entertainment businesses, not the purchasing and selling of the businesses.
Fisher ordered the parties to file a joint case management plan with proposed order within 30 days.