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ATTORNEYS FOR PETITIONER Gregory F. Zoeller Attorney General of Indiana John D. Snethen Andrew W. Swain Deputy Attorneys General Indianapolis, Indiana

ATTORNEYS FOR RESPONDENT Francina A. Dlouhy Jon Laramore Indianapolis, Indiana

FILED
Mar 09 2012, 2:24 pm

In the

Indiana Supreme Court
No. 49S10-1112-TA-683 INDIANA DEPARTMENT OF STATE REVENUE,

of the supreme court, court of appeals and tax court

CLERK

Petitioner (Respondent below), v. RENT-A-CENTER EAST, INC., Respondent (Petitioner below).

Appeal from the Indiana Department of State Revenue Letter of Findings, No. 05-0512 On Petition for Review from the Indiana Tax Court, No. 49T10-0612-TA-106 The Honorable Martha Blood Wentworth, Judge

March 9, 2012 Shepard, Chief Justice.

The Indiana Department of State Revenue conducted an audit of a taxpayer corporation, concluded that the corporation's 2003 tax return did not fairly represent its income from Indiana sources, and proposed an assessment of additional tax liability. On the corporation's appeal of the Department's final determination, the Indiana Tax Court granted the corporation's motion for summary judgment. We reverse and remand.

Facts and Procedural History Rent-A-Center East, Inc. (RAC East) is a Delaware corporation originally formed as Renter's Choice, Inc. It operates rent-to-own retail stores providing furniture, electronics, appliances, and computers. In 1998, Renter's Choice acquired a competitor operating under the Rent-A-Center name, along with the competitor's subsidiary, Advantage Companies, Inc. As part of this acquisition and reorganization, Renter's Choice changed its name to Rent -A-Center, Inc.

In 2002, Rent-A-Center, Inc. changed its name to RAC East and a newly formed corporate entity, Rent-A-Center Holdings, Inc., assumed the name Rent-A-Center, Inc. Advantage Companies, Inc. changed its name to Rent-A-Center West, Inc. (RAC West), and yet another entity was formed under the name Rent-A-Center Texas, L.P. (RAC Texas). Consequently, at the start of the 2003 tax year there were three corporate entities relevant to this action: RAC East, RAC West, and RAC Texas.

RAC East operated 1932 retail stores nationwide, with 106 of those stores in Indiana. Neither RAC West nor RAC Texas operated retail stores in Indiana during the 2003 tax year, nor did they have any capital, property, or employees within the state. Instead, RAC West owned the Rent-A-Center trademarks and other related intellectual property and licensed this property to RAC East and RAC Texas in exchange for royalties. RAC Texas, in turn, performed all strategic management and related functions for RAC East and RAC West in exchange for a strategic assistance fee. Both the royalties and the strategic assistance fee amounts were established by a transfer pricing study conducted by an independent accounting firm, and reflected rates that were equivalent to those used in arm's-length transactions. RAC East's 2003 Indiana corporate adjusted gross income tax return refle cted no tax due for the 2003 tax year. The Indiana Department of State Revenue then conducted an audit of RAC East for the 2001, 2002, and 2003 tax years. The audit resulted in no change for the 2001 and 2002 tax year filings, but proposed an assessment of $513,272.60 in additional tax liability

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for the 2003 tax year. The assessment was based on a determination that RAC East should have filed a combined return1 with RAC Texas and RAC West. RAC East timely filed a protest, contesting the requirement of filing a combined return and, after a hearing, the Department upheld the audit's assessment. RAC East then filed an original tax appeal with the Indiana Tax Court.

Both the Department and RAC East filed motions for summary judgment in the Tax Court. The court denied the Department's motion and granted RAC East's. Rent-A-Center East, Inc. v. Ind. Dep't of State Revenue, 952 N.E.2d 387 (Ind. Tax Ct. 2011). We granted the Department's petition for review pursuant to Indiana Rule of Appellate Procedure 63(A). Ind. Dep't of State Revenue v. Rent-A-Center East, Inc., ___ N.E.2d ___ (Ind. 2011) (table).

Standard of Review

The Indiana Tax Court is a specialized court established to provide particular expertise to fairly and uniformly resolve cases involving Indiana tax. Ind. Dep't of State Revenue v. Belterra Resort Ind., LLC, 935 N.E.2d 174, 176 (Ind. 2010). Consequently, we exercise cautious

deference to those decisions made within its particular realm, and will not reverse unless that decision is clearly erroneous. This deference extends to rulings on summary judgment where the question is one of tax law, and we will set aside those rulings only if we are definitely and firmly convinced that an error was made. Id.

A combined return, or combined income tax return, is any income tax return on which one (1) or more taxpayers report income, deductions, and credits on a combined basis with one (1) or more other entities. Ind. Code

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