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ATTORNEY FOR PETITIONERS: STACY K. NEWTON RUDOLPH, FINE, PORTER & JOHNSON, LLP Evansville, IN

ATTORNEYS FOR RESPONDENT: GREGORY F. ZOELLER ATTORNEY GENERAL OF INDIANA ANDREW W. SWAIN CHIEF COUNSEL, TAX SECTION JOHN D. SNETHEN JESSICA E. REAGAN LYNNE D. HAMMER DEPUTY ATTORNEYS GENERAL Indianapolis, IN _____________________________________________________________________

_____________________________________________________________________ CLERK
of the supreme court, court of appeals and tax court

IN THE INDIANA TAX COURT

FILED

Aug 19 2011, 3:58 pm

VIRGINIA GARWOOD and KRISTIN GARWOOD,

) ) ) Petitioners, ) ) v. ) Cause No. 82T10-0906-TA-29 ) INDIANA DEPARTMENT OF STATE ) REVENUE, ) ) Respondent. ) ______________________________________________________________________ ORDER ON PARTIES MOTIONS FOR SUMMARY JUDGMENT FOR PUBLICATION August 19, 2011 WENTWORTH, J. On June 29, 2009, Virginia and Kristin Garwood (the Garwoods) initiated an original tax appeal, challenging the Indiana Department of State Revenues (Department) issuance of sixteen jeopardy tax assessments for portions of the 2007

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through 2009 tax years.1

The Garwoods and the Department subsequently filed

motions for summary judgment.2 In their motion for summary judgment, the Garwoods assert that the jeopardy assessments are void as a matter of law because the Department failed to provide them with an administrative hearing following their protest of the assessments, violating their procedural due process rights guaranteed under the Fourteenth Amendment to the United States Constitution. (See Petrs Br. Supp. Mot. Summ. J. at 2-4, Nov. 22, 2010.) In its motion, the Department claims it is entitled to judgment as a matter of law because the Tax Court lacks subject matter jurisdiction over the Garwoods appeal ,3 the use of jeopardy assessments was warranted, and the use of best information available assessments (BIA assessments) was reasonable.4 (See Respt Mem. Supp. Mot.

Summ. J. (hereinafter, "Respt Mem.") at 20-24, Mar. 3, 2011 (footnotes added).) When, as here, a case can be resolved on either constitutional grounds or

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The Department assessed the Garwoods with income tax liabilities for the 2007 and 2008 tax years and sales tax liabilities for the tax periods ending on December 31, 2007, through April 30, 2009. (See generally Respt Desg Evid. Ex. B, Jan. 31, 2011.)
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The parties have designated certain evidence as confidential; therefore, the Courts order will provide only that information necessary for the reader to understand its disposition of the issues presented. See generally Ind. Administrative Rule 9.
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Previously in this matter, the Department filed a motion to dismiss for lack of subject matter jurisdiction, which the Court denied on December 21, 2010. Garwood v. Ind. Dept of State Revenue, 939 N.E.2d 1150 (Ind. Tax Ct. 2010). Thereafter, the Department filed an Original Action in the Indiana Supreme Court seeking writs of mandamus and prohibition to halt this Court from exercising jurisdiction, which the Supreme Court declined to review. In its motion for summary judgment, the Department claims for the third time that the Court lacks subject matter jurisdiction. (See Respt Mem. Supp. Mot. Summ. J. (hereinafter, "Respt Mem.") at 20-21.) The Court maintains that it has subject matter jurisdiction and incorporates by reference the rationale previously articulated in both its Order issued December 21, 2010, and its March 10, 2011, preliminary response brief filed in the Original Action with the Supreme Court.
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Due to the disposition of this matter on other grounds, the Court need not address whether the Departments use of BIA assessments was reasonable.

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statutory/regulatory construction grounds, the Court will decide only the latter.

See

Southern Ind. Gas & Elec. Co. v. Ind. Dept of State Revenue, 804 N.E.2d 882 n.6 (Ind. Tax Ct. 2004) (citing Indiana Wholesale Wine & Liquor Co. v. State ex rel. Ind. Alcoholic Beverage Commn, 695 N.E.2d 99, 108 (Ind. 1998)), review denied. Accordingly, the Court restates the dispositive issue as whether the Department properly issued jeopardy assessments to the Garwoods. FACTS The following facts are undisputed. The Garwoods have operated a family-

owned dairy farm in Mauckport, Indiana for nearly thirty years. In 2007, the farm was on the brink of insolvency due to both the soaring price of grain and the declining price of milk. As a result, Virginia decided to supplement her familys income by breeding and selling dogs. Virginia purchased a pregnant cocker spaniel in July 2007. The cocker spaniel had four puppies in August, and Virginia sold them for a total of $400.00. In addition, one of the Garwoods farm dogs, an Australian shepherd, had several puppies, and Virginia sold two of them for a total of $150.00. Virginia purchased approximately thirty-four other dogs for breeding purposes in 2007; however, she could not immediately breed them because several of the dogs were unhealthy. At some point in 2008, Virginia purchased additional breeding stock and acquired several puppies for purposes of resale, and by November 2008, about fifty-two had been sold for an estimated $4,144.00. Then, in both December 2008 and January 2009, an acquaintance of the Garwoods who was closing his breeding business gave Virginia some of his breeding stock. Some of his dogs were undesirable breeds and others were extremely unkempt, but Virginia had them treated by a veterinarian,

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groomed them, and sold them, giving most of the sales proceeds to her acquaintance. On or about October 16, 2008, a Harrison County Animal Control Officer received a consumer complaint concerning the Garwoods treatment and sales of their dogs. The next day, the Officer went to the Garwoods residence to investigate the complaint. He met Virginia in her driveway and asked to speak to the person who sold the puppy to the customer; Virginia indicated that the person was not there and asked him to leave. The Officer gave Virginia a copy of an Animal Control Ordinance and left the premises. Over the course of the next three months, the Animal Control Officer received two other complaints regarding the Garwoods dog sales, and as a result, he contacted the Office of the Indiana Attorney General (the OAG) to report that the Garwoods may be operating a puppy mill.5 In February 2009, the OAG and the Department commenced a joint investigation to determine whether the Garwoods were remitting Indiana income and sales tax due on their sales of dogs. The investigation found that the Garwoods routinely placed advertisements in two local newspapers between 2007 and 2009, offering to sell adult dogs and puppies for between $100 and $400 each. The investigation also revealed that the Garwoods were not registered retail merchants, had never remitted sales tax or filed sales tax returns, and had not reported the income derived from or tax due on their income from dog sales. Approximately two months later, in April 2009, two of the

OAGs special investigators purchased two puppies from the Garwoods for a total of $550.00 in cash. The Garwoods did not issue receipts in either transaction and, in one

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At the time of these events, Indianas statutes and regulations neither defined the term "puppy mill" nor criminalized certain breeding or dog selling activities. (Cf., e.g., Petrs Desg Evid. Vol. 2, Ex. J at 1 (acknowledging that "[t]here is no legal definition for the term ,,puppy mill"), Mar. 29, 2011 with IND. CODE

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