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General Partner With A Minority Partnership Interest Must Recognize Indiana Income Attributable To Partnership


In Vodafone Americas Inc. and Vodafone Holdings LLC v. Indiana Dep’t of Revenue, No. 49T10-1002-TA-7 (Ind. Tax. Ct. June 18, 2013), the Indiana Tax Court held that income received by Vodafone as a partner in a general partnership that was doing business in Indiana was operating income taxable as a dividend derived from sources within Indiana.

Vodafone is a Delaware corporation that owned a 45% interest in Cellco Partnership, a general partnership also organized under Delaware law.  Cellco, doing business as Verizon Wireless, provided cell phone services and communication equipment to its customers throughout the United States, including Indiana.

After filing its Indiana income taxes for the taxable years ending March 31, 2005 through March 31, 2008, Vodafone filed for refunds on the basis that its distributive shares of Cellco income were not attributable to, and therefore not taxable by, Indiana.  The Department denied the refund claims.

The crux of Vodafone’s argument was that its income derived from Cellco were receipts in the form of “dividends from investments,” which, under Indiana Code § 6-3-2-2.2(g), are only attributable to Indiana if the taxpayer’s commercial domicile is in Indiana.  Since Vodafone’s commercial domicile is in Delaware, under this theory its Cellco income would not be taxable by Indiana.

In its analysis, the Tax Court explained that the Indiana Code has a different meaning for “dividends from investments” than it does for mere “dividends.”  This difference reflects the distinction between investment income and operational income.  Therefore, only if the income received by Vodafone through its partnership interest in Cellco had the character of investment income, then would it be deemed “dividends from investments” not attributable to Indiana.  If the income had the character of operating income, then it would be taxable in Indiana as a “dividend.”

Although Vodafone is a general partner in Cellco, Vodafone attempted to demonstrate that it had a “lack of control” of the Cellco partnership by reason of its minority interest and its ability to appoint only a minority of the board of representatives. However, the Tax Court found that this was “insufficient to show that it does not participate in the management of Cellco and thus that it was a mere ‘passive investor’ in Cellco.”

The Tax Court held that “the mere fact that Vodafone was a partner in a general partnership gives its income from that partnership the character of operating income,” thus the Cellco income was taxable to Vodafone in Indiana as a dividend.

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