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ATTORNEY FOR PETITIONER: FRANCINA A. DLOUHY BAKER & DANIELS LLP Indianapolis, IN

ATTORNEYS FOR RESPONDENT: GREGORY F. ZOELLER ATTORNEY GENERAL OF INDIANA JOHN D. SNETHEN NANCY M. HAUPTMAN DEPUTY ATTORNEYS GENERAL Indianapolis, IN _____________________________________________________________________

IN THE INDIANA TAX COURT
RENT-A-CENTER EAST, INC.,

May 27 2011, 4:00 pm

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

_____________________________________________________________________ CLERK ) ) ) Petitioner, ) ) v. ) Cause No. 49T10-0612-TA-106 ) INDIANA DEPARTMENT OF STATE ) REVENUE, ) ) Respondent. ) _____________________________________________________________________ ORDER ON PARTIES MOTIONS FOR SUMMARY JUDGMENT FOR PUBLICATION May 27, 2011 WENTWORTH, J. Rent-A-Center East, Inc. (RAC East) appeals the final determination of the Indiana Department of State Revenue (Department) that assessed adjusted gross income (AGI) tax liability for the 2003 tax year. The matter is before the Court on the parties motions for summary judgment. The parties raise several issues in their

motions, which the Court consolidates and restates as whether the Department properly required RAC East to report its 2003 Indiana AGI tax liability using a combined income

tax return with two of its affiliates. FACTS AND PROCEDURAL HISTORY The parties have stipulated the following facts. Renters Choice, Inc. (n/k/a RAC East) was formed in 1986 to operate rent-to-own retail stores offering home electronics, appliances, computers, furniture, and accessories to customers under flexible rental purchase agreements that generally allowed the customer to buy the product at the end of the rental period. In 1998, Renters Choice acquired its largest rent-to-own

competitor with the trademarks and trade names associated with the "Rent-A-Center" brand (RAC Marks), changed its name to Rent-A-Center, Inc. (RAC Inc.), and transferred the RAC Marks to its new affiliate, Advantage Companies, Inc. (Advantage). As a result of the acquisition, RAC Inc. and its affiliates reorganized their corporate structure effective in 2003 whereby RAC Inc. assumed the name RAC East and Advantage changed its name to Rent-A-Center West, Inc. (RAC West). In addition, two new corporate entities were formed, Rent-A-Center Holdings, Inc. (RAC Holdings) and Rent-A-Center Texas, LP (RAC Texas). As part of the reorganization, RAC Inc. (a/k/a RAC East) engaged an independent accounting firm to determine arms-length pricing for royalties it would pay RAC West and management fees it would pay RAC Texas (Transfer Pricing Study). During 2003, RAC East operated 1,932 rent-to-own stores in the midwest and eastern United States, including 106 stores in Indiana. RAC West owned and licensed the RAC Marks and operated 437 rent-to-own stores in the western United States. RAC Texas operated 278 rent-to-own stores in the state of Texas and employed, among others, the executive management who performed strategic management functions for

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its affiliates. RAC East filed its 2003 Indiana corporate AGI tax return on a separate company basis reporting that it owed no tax. The Department audited RAC East for the 2001, 2002, and 2003 tax years, proposing an additional $513,272.60 in AGI tax liability, penalties, and interest for the 2003 tax year based on its determination that RAC East should have filed a combined AGI tax return with RAC West and RAC Texas (the RAC Group). RAC East filed a timely protest, and after conducting a hearing, the

Department issued its final determination upholding the audit results. On December 12, 2006, RAC East initiated an original tax appeal. On March 20, 2009, the Department filed a motion for summary judgment, and RAC East moved for summary judgment on June 3, 2009. The Court held a hearing on the parties motions on October 6, 2009. Additional facts will be supplied as necessary. LAW Indiana taxes the portion of a corporations AGI that is derived from sources within Indiana. IND. CODE

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