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ATTORNEYS FOR APPELLANT
Gregory F. Zoeller Attorney General of Indiana Andrew W. Swain Chief Counsel Jessica E. Reagan Deputy Attorney General Indianapolis, Indiana

ATTORNEYS FOR APPELLEE
Richard D. Birns Birns & Goff Philadelphia, Pennsylvania Jeffrey S. Dible Frost Brown Todd LLC Indianapolis, Indiana

FILED
of the supreme court, court of appeals and tax court

Jun 21 2012, 8:43 am

______________________________________________________________________________ CLERK

Indiana Supreme Court
_________________________________ No. 49S10-1107-TA-417 INDIANA DEPARTMENT OF REVENUE, Petitioner (Respondent below), v. UNITED PARCEL SERVICE, INC. Respondent (Petitioner below). _________________________________ On Petition for Review from the Indiana Tax Court, No. 49T10-0704-TA-24 The Honorable Thomas G. Fisher, Judge _________________________________

In the

June 21, 2012

Rucker, Justice.

In this case we examine whether income received by a corporation's affiliated foreign reinsurance companies falls within the ambit of Indiana's gross premium privilege tax statute and is on that basis exempt from Indiana adjusted gross income tax.

Background

Typically, insurance premiums paid by a corporation are deductible from federal corporate gross income as ordinary and necessary business expenses. See Clinton N. McGrath, Jr., Using Captives to Manage Risk, 35 Am. Inst. of Certified Pub. Accountants Tax Adviser 419, 419 (July 2004). However, a company electing to insure its own risks does not receive this tax benefit. See id. For this and other reasons, "a non-insurance company [may] establish[] an insurance subsidiary (often in Bermuda or another offshore location) to insure risks of the U.S. parent and other subsidiaries." Joint Comm. on Taxation Reinsurance Analysis at 4 n.5.1 This is commonly called a "captive" insurance arrangement. Id.

Insurance companies are subject to federal income tax at regular corporate tax rates, though companies qualifying as "insurance companies" under federal law benefit from certain federal tax code provisions applying specifically to insurance companies. Id. at 14; McGrath, supra, at 419. In Indiana and many other states, insurance companies are required to pay tax on earned premiums, in lieu of state corporate income tax. See Ind. Code

Download Indiana Department of Revenue v. United Parcel Service, Inc..pdf

Indiana Law