ATTORNEYS FOR PETITIONER                                       ATTORNEYS FOR RESPONDENT
Gregory F. Zoeller                                             Timothy J. Eifler
Attorney General of Indiana                                    Walter L. Sales
                                                               Louisville, Kentucky
Andrew W. Swain
John D. Snethen
Timothy A. Schultz
Deputy Attorneys General
Indianapolis, Indiana
 __________________________________________________________________________________
                                                                                 Aug 25 2014, 10:31 am


                                              In the
                         Indiana Supreme Court
                              _________________________________

                                       No. 49S10-1402-TA-79

INDIANA DEPARTMENT OF STATE REVENUE,
                                                               Petitioner (Respondent below),

                                                   v.

CATERPILLAR, INC.,
                                                        Respondent (Petitioner below).
                              _________________________________

                       Appeal from the Indiana Department of State Revenue
                                 Letter of Findings, No. 08-0333R
                            _________________________________

           On Petition for Review from the Indiana Tax Court, No. 49T10-0812-TA-70
                         The Honorable Martha Blood Wentworth, Judge
                            _________________________________

                                           August 25, 2014

Rush, Chief Justice.

       Indiana’s tax statutes expressly authorize corporate taxpayers to deduct some foreign
source dividend income when calculating Indiana adjusted gross income. But Caterpillar attempted
to use that same deduction to increase its Indiana net operating losses available for carryover to other
tax years. We hold that the plain meaning of the Indiana tax statutes disallows Caterpillar’s use of
the foreign source dividend deduction outside of its legislatively authorized context. We also hold
that Caterpillar has not met its burden to show that disallowing the deduction discriminates against
foreign commerce under the Foreign Commerce Clause of the Federal Constitution. Accordingly,
we reverse the Tax Court’s decision and grant summary judgment for the Indiana Department of
State Revenue.

                            Background and Relevant Tax Statutes

       Three Indiana tax statutes inform our discussion: 1) the statute defining “adjusted gross
income” (“AGI”); 2) the foreign source dividend deduction statute; and 3) the net operating loss
(“NOL”) statute. Indiana corporate taxpayers use a multistep process to calculate their taxable
Indiana AGI. The calculation begins with federal taxable income, to which a taxpayer makes
expressly enumerated adjustments under Indiana Code section 6-3-1-3.5(b) (“Section 3.5(b)”).
Then, the taxpayer makes additional adjustments based on provisions outside of Section 3.5(b).
One such provision is the foreign source dividend deduction statute. It allows a corporate taxpayer
to deduct a percentage of its dividend income earned from foreign subsidiaries: “A corporation
that includes any foreign source dividend in its adjusted gross income for a taxable year is entitled
to a deduction from that adjusted gross income.” Ind. Code § 6-3-2-12(b) (2004). After making
these adjustments, the taxpayer determines how much of its income is apportioned or allocated to
Indiana, based on provisions in Indiana Code section 6-3-2-2. The resulting number is Indiana
AGI before the NOL deduction. Finally, a corporation may apply allowable NOL deductions,
which are calculated by applying the three-step formula found in the Indiana NOL statute: “An
Indiana net operating loss equals the taxpayer’s federal net operating loss for a taxable year as
calculated under Section 172 of the Internal Revenue Code, derived from sources within Indiana
and adjusted for the modifications required by IC 6-3-1-3.5.” I.C. § 6-3-2-2.6(c).

                                  Facts and Procedural History

       This case presents the question of whether the Indiana tax statutes allow Caterpillar to
increase its Indiana NOLs by deducting foreign source dividend income. Caterpillar challenges the
Indiana Department of State Revenue’s (the “Department’s”) longstanding application of the
Indiana tax statutes. We granted the Department’s petition for review to resolve this question and
its Foreign Commerce Clause implications.



                                                 2
       Caterpillar is a multinational corporation, incorporated in Delaware with its headquarters
in Peoria, Illinois. It is the world’s largest manufacturer of construction and mining equipment,
and it operates one of its manufacturing plants in Lafayette, Indiana. From 2000 to 2003,
Caterpillar owned over two hundred fifty subsidiaries, either directly or indirectly. Some of these
subsidiaries were other U.S. corporations, but most were foreign companies operating outside the
United States. During this time, Caterpillar received dividends from both its domestic and foreign
subsidiaries.

       From 2000 to 2003 (“the Loss Years”), Caterpillar deducted its foreign source dividend
income when calculating its Indiana NOLs. In so doing, Caterpillar grafted Indiana’s foreign
source dividend deduction statute, see I.C. § 6-3-2-12, into the Indiana NOL calculation—literally.
Caterpillar had to write in the deduction manually on its tax return because the NOL schedule
(Schedule IT-20NOL) made no space for the foreign source dividend deduction. In this way,
Caterpillar presumed to increase its Indiana NOLs by deducting foreign source dividend income
from the Loss Years.

       In 2004 and 2005, Caterpillar timely filed amended tax returns for 1996, 1997, 1998, and
1999 (the “Carryback Years”) that included a modified AGI reduced by the NOLs carried back
from the Loss Years, and sought a refund based on the amended returns. The Department partially
denied the refund after it audited Caterpillar’s returns filed during the Carryback and Loss Years.
The Department rejected Caterpillar’s insertion of the foreign source dividend deduction into the
NOL calculation; reduced Caterpillar’s usable Indiana NOLs by $8,309,622; and issued a partial
refund to Caterpillar consistent with the Department’s interpretation of the Indiana NOL statute.

       On May 8, 2008, Caterpillar timely protested the Department’s recalculation of its Indiana
NOL deductions and partial denial of its refund. After a hearing on August 21, 2008, the
Department denied the protest in a Letter of Findings dated October 10, 2008. Letter of Findings:
08-0333R, Ind. Reg. LSA Doc. No. 08-907 (Dec. 17, 2008) (see http://www.in.gov/legislative/iac/
20081217-IR-045080907NRA.xml.html). On December 9, 2008, Caterpillar commenced an
original tax appeal in the Indiana Tax Court. In its petition, Caterpillar did not seek the refunds the
Department denied for the Carryback Years. But, it did appeal the Department’s reduction of its




                                                  3
Indiana NOLs available for carryforward and use in future tax years.1 Caterpillar moved for
summary judgment on October 30, 2009, and the Department filed its own cross-motion for
summary judgment on January 15, 2010. On March 28, 2013, the Tax Court rendered its decision
granting summary judgment for Caterpillar and denying the Department’s cross-motion for
summary judgment. 988 N.E.2d 1269 (Ind. Tax Ct. 2013). The Department timely petitioned this
Court for review,2 and we granted review. Ind. Appellate Rule 63(M).

                                         Standard of Review

        When we review a decision from the Indiana Tax Court, we extend cautious deference to
the court’s special expertise in Indiana tax law. Ind. Dep’t of Revenue v. Miller Brewing Co., 975
N.E.2d 800, 803 (Ind. 2012). Although we exercise de novo review over all questions of
constitutional and statutory interpretation, we will set aside a decision by the Tax Court only when
we are “definitely and firmly convinced” the Tax Court has erred. Id. (internal quotation marks
omitted); Dep’t of Local Gov’t Fin. v. Roller Skating Rink Operators Ass’n, 853 N.E.2d 1262,
1265 (Ind. 2006). Additionally, when we examine a statute that an agency is “charged with
enforcing . . . we defer to the agency’s reasonable interpretation of [the] statute even over an
equally reasonable interpretation by another party.” Chrysler Grp., LLC v. Review Bd. of Ind.


1
 The parties dispute whether the 2004 version of the Indiana NOL statute applies in this case. A non-code
provision accompanying the 2004 amendments to the Indiana Code directs us to apply the 2004 version:

        (f) The following provisions apply to deductions for net operating losses that are claimed
        after December 31, 2003:
        ...
                (2) Deductions for net operating losses that were incurred in taxable years ending
                before January 1, 2004, and that are carried forward and deducted in taxable years
                ending after December 31, 2003, must be calculated under IC 6-3-2-2.5 and IC 6-
                3-2-2.6, both as amended by this act.

Act of Mar. 17, 2004, Pub. L. No. 81-2004, § 62, 2004 Ind. Acts 1221.
2
  The Department’s petition for review also states that allowing the Tax Court’s decision to stand would
produce millions of dollars in lost revenue for the State. The Department’s discussion of fiscal impact is
entirely appropriate because “[a]ny brief may discuss the fiscal impact of the Tax Court’s decision on
taxpayers or government.” Ind. Appellate Rule 63(J). But the petition also includes an affidavit confirming
the precise magnitude of this fiscal impact, and that affidavit was not designated before the Tax Court.
Caterpillar has moved to strike that affidavit as undesignated evidence. We now grant Caterpillar’s motion
because the Department did not designate its affidavit before the Tax Court, Ind. Trial Rule 56(C), and we
may not rely upon it in reviewing the Tax Court’s decision.
                                                    4
Dep’t of Workforce Dev., 960 N.E.2d 118, 124 (Ind. 2012); Stump v. Ind. Dep’t of State Revenue,
777 N.E.2d 799, 802 (Ind. Tax Ct. 2002). And when reviewing summary judgment, we will affirm
only when the record presents no genuine issues of material fact and the moving party is entitled
to judgment as a matter of law. Ind. Trial Rule 56(C).

                                     Discussion and Decision

       At its core, the resolution of this case is straightforward: The Indiana NOL statute does not
reference or incorporate the foreign source dividend deduction, and the Tax Court clearly erred in
holding that it did. The Department correctly recognized that the Indiana tax statutes did not
authorize Caterpillar to include foreign source dividend income in its Indiana NOL calculation.
We also conclude that Caterpillar has not met its burden to show the Indiana tax statutes
unconstitutionally discriminate against foreign commerce.

I. The Indiana Net Operating Loss Calculation

       “The first and often the only step in resolving an issue of statutory interpretation is the
language of the statute.” Shell Oil Co. v. Meyer, 705 N.E.2d 962, 972 (Ind. 1998). We give effect
to the “‘plain and ordinary meaning’” of tax statutes when the Legislature has “‘spoken clearly
and unambiguously,’” rather than apply canons of statutory construction or deduce legislative
intent. Miller Brewing Co., 975 N.E.2d at 803 (quoting Sloan v. State, 947 N.E.2d 917, 922 (Ind.
2011)); Ind. Dep’t of State Revenue v. Horizon Bancorp, 644 N.E.2d 870, 872 (Ind. 1994). But if
a statute authorizing a deduction is ambiguous, we must construe the deduction narrowly because
“‘an income tax deduction is a matter of legislative grace and . . . the burden of clearly showing
the right to the claimed deduction is on the taxpayer.’” INDOPCO, Inc. v. Comm’r., 503 U.S. 79,
84 (1992) (quoting Interstate Transit Lines v. Comm’r, 319 U.S. 590, 593 (1943)); Ind. Dep’t of
State Revenue v. Food Mktg. Corp., 403 N.E.2d 1093, 1102–03 (Ind. Ct. App. 1980). When
something is not enumerated in a statutory list it “should not be engrafted into the list by judicial
interpretation.” Morgan Cnty. v. Ferguson, 712 N.E.2d 1038, 1043 (Ind. Ct. App. 1999).

       Here, we find that the Indiana NOL statute is unambiguous and thus apply the statutory
terms as written without resorting to canons of construction. We also “decline [the] parties’
invitations to consider extraneous evidence of legislative intent, including—but not limited to—


                                                 5
legislative history and administrative interpretations of the statute.” Miller Brewing Co., 975
N.E.2d at 803.

    A. Calculating Indiana NOLs

        Indiana corporate taxpayers calculate Indiana NOLs by modifying their federal NOLs
using a three-step process:

        [a]n Indiana net operating loss equals the taxpayer’s federal net operating loss for
        a taxable year as calculated under Section 172 of the Internal Revenue Code,
        derived from sources within Indiana and adjusted for the modifications required by
        IC 6-3-1-3.5.
I.C. § 6-3-2-2.6(c).3 The three steps outlined in this provision are 1) calculate the federal NOL; 2)
adjust the federal NOL by applying the modifications required by Indiana Code section 6-3-1-3.5;
and 3) determine the portion derived from sources within Indiana. I.C. § 6-3-2-2.6(c). None of
these three steps references or incorporates the foreign source dividend deduction—which, indeed,
is codified separately from the Indiana NOL statute. See I.C. § 6-3-2-12.4 We thus reject Caterpillar’s
and the Tax Court’s interpretation of the Indiana NOL statute.

        1. Step 1: Calculate Federal NOLs.

        Caterpillar’s calculation of its Indiana NOLs begins with its federal NOLs. I.C. § 6-3-2-
2.6(c). The Internal Revenue Code defines federal NOLs as “the excess of the deductions allowed
by this chapter over the gross income.” I.R.C. § 172(c) (2000 & Supp. 2003). A federal NOL
deduction for foreign source dividends does not exist. Jerome R. Hellerstein & Walter Hellerstein,
1 State Taxation: Constitutional Limitations and Corporate Income and Franchise Taxes ¶ 4.21, 4-
306 n.1373 (3d ed. 2013). Therefore, no foreign source dividend deduction enters into Caterpillar’s


3
  The statute also provides that an Indiana NOL “includes a net operating loss that arises when the
modifications required by IC 6-3-1-3.5 exceed the taxpayer’s federal taxable income.” I.C. § 6-3-2-
2.6(d)(3).
4
  Calculating Indiana NOLs could also begin with federal taxable income, followed by adjustments for
modifications under Indiana Code section 6-3-1-3.5 that exceed federal taxable income, and then a
determination of the portion of the resulting NOL derived from Indiana sources. See Ind. Code § 6-3-2-
2.6(d)(3). But these alternative steps neither reference nor incorporate the foreign source dividend deduction
statute.



                                                      6
calculation of its federal NOLs,5 nor does the foreign source dividend deduction make it into the
Indiana NOL calculation at this step.

        2. Step 2: Apply the “modifications required by IC 6-3-1-3.5.”

        Likewise, the second step to calculate Indiana NOLs does not incorporate the foreign
source dividend deduction. Instead, the NOL statute directs Caterpillar only to the specific
modifications listed in Section 3.5(b). These modifications are applied to Caterpillar’s federal
taxable income, and there were only six that applied to corporations under the statute in effect and
applicable to the NOLs in this case:

        (1) Subtract income that is exempt from taxation under this article by the
            Constitution and statutes of the United States.

        (2) Add an amount equal to any deduction or deductions allowed or allowable [for
            charitable contributions and gifts] pursuant to Section 170 of the Internal
            Revenue Code.

        (3) Add an amount equal to any deduction or deductions allowed or allowable
            pursuant to Section 63 of the Internal Revenue Code for taxes based on or
            measured by income and levied at the state level by any state of the United
            States.

        (4) Subtract an amount equal to the amount included in the corporation’s taxable
            income under Section 78 of the Internal Revenue Code.

        (5) Add or subtract the amount necessary to make the adjusted gross income of any
            taxpayer that owns property for which bonus depreciation was allowed in the
            current taxable year or in an earlier taxable year equal to the amount of adjusted
            gross income that would have been computed had an election not been made
            under Section 168(k)(2)(C)(iii) of the Internal Revenue Code to apply bonus
            depreciation to the property in the year that it was placed in service.

        (6) Add an amount equal to any deduction allowed [for federal NOLs] under
            Section 172 of the Internal Revenue Code.

I.C. § 6-3-1-3.5(b)(1)–(6). None of these six modifications mentions foreign source dividend
income. In fact, Caterpillar had to go to another statutory section separate from Section 3.5(b)—


5
  Similarly, no deduction of foreign source dividends received occurs in the calculation of federal taxable
income. Thus, for taxpayers who begin their Indiana NOL calculation with federal taxable income under
Indiana Code section 6-3-1-3.5, no such deduction enters into the Indiana NOL calculation at this step.
                                                    7
indeed, to a different Code chapter—for guidance on when foreign source dividends may be
deducted, Indiana Code section 6-3-2-12. Neither the Indiana NOL statute nor Section 3.5(b) make
any reference to that section. Thus, the foreign source dividend deduction does not factor in when
modifying federal NOLs under Section 3.5(b) and is not incorporated into this step of the Indiana
NOL calculation.

        3. Step 3: Calculate NOLs “derived from sources within Indiana.”

        Finally, Caterpillar may only deduct that portion of its Indiana NOLs which are “derived
from sources within Indiana.” The Indiana NOL statute explains how to calculate that portion:

        The amount of the taxpayer’s net operating loss that is derived from sources within
        Indiana shall be determined in the same manner that the amount of the taxpayer’s
        adjusted income derived from sources within Indiana is determined under section
        2 of this chapter for the same taxable year during which each loss was incurred.

I.C. § 6-3-2-2.6(d)(2). “Section 2 of [the] chapter,” in turn, describes Indiana’s statutory system of
apportionment and allocation of AGI. I.C. § 6-3-2-2. When applied to Caterpillar’s NOLs, these
statutes apply only to allocate and apportion Caterpillar’s modified federal NOLs. And because
we have already explained that foreign source dividend income is not deducted in calculating
federal NOLs, no such deduction affects the allocation and apportionment of modified federal
NOLs. The foreign source dividend deduction does not make it into the Indiana NOL calculation
at this final step, either.

    B. The Tax Court’s Holding

        The Tax Court’s holding treats an Indiana NOL as the mirror image of Indiana AGI by
finding that the Indiana NOL statute incorporates the foreign source dividend deduction. The
court’s opinion acknowledged that “[t]he term ‘adjusted gross income’ does not appear in the
Indiana NOL [s]tatute,” 988 N.E.2d at 1272, but through a string of inferences, the decision
superimposed all adjustments to Indiana AGI—including the foreign source dividend deduction—
onto the Indiana NOL calculation. By the Tax Court’s opinion, the term “modifications required
by IC 6-3-1-3.5” found in the NOL statute is shorthand for every adjustment to AGI scattered
throughout the Indiana tax statutes. And because the Indiana NOL statute contains the phrase
“modifications required by IC 6-3-1-3.5,” then according to the Tax Court’s decision, the “plain


                                                  8
language of the Indiana NOL [s]tatute itself” incorporates all Indiana AGI adjustments. 988 N.E.2d
at 1272. The Tax Court attempted to reinforce its conclusion when it looked at the legislative
history of the Indiana NOL staute.

        The Tax Court’s interpretation is not consistent with the plain meaning of the Indiana NOL
statute. The phrase “modifications required by IC 6-3-1-3.5” does not incorporate by reference
every modification to Indiana AGI found anywhere in the Indiana tax statutes. Rather, that phrase
means what it says—the “modifications required by [Section 3.5].” The General Assembly
repeated this phrase four times throughout the Indiana NOL statute, as if to assuage any uncertainty
about which modifications it had in mind. We must assume that the General Assembly
intentionally chose to define Indiana NOLs with reference only to Section 3.5 and not all
adjustments to AGI because “legislatures make the tax statutes and courts enforce them as
written.” Ind. Dep’t of State Revenue v. Endress & Hauser, Inc., 404 N.E.2d 1173, 1178 (Ind. Ct.
App. 1980) (emphasis added). “[W]e may not extend the definition of [Indiana NOLs] by an
interpretation for which there is no verbal basis in the Act.” Id. Because Section 3.5 makes no
reference to foreign source dividends, the plain meaning of the Indiana NOL statute prevents us
from inferring what is not there explicitly. See Ferguson, 712 N.E.2d at 1043 (stating that “other
items or words” not enumerated in a statutory list it “should not be engrafted into the list by judicial
interpretation”). If the General Assembly had intended corporate taxpayers to include every
adjustment to AGI in the NOL calculation, it would have said so.

        Affirming the Tax Court’s interpretation would have consequences beyond the NOL
treatment of foreign source dividend income and would affect more than just corporate taxpayers.
Under the Tax Court’s interpretation, all Indiana taxpayers—both corporations and individuals—
could use every AGI adjustment listed outside of Section 3.5 to calculate Indiana NOLs. That
expansive interpretation reinforces our belief that such an interpretation contravenes the plain
meaning of the NOL statute. Cf. Loparex, LLC v. MPI Release Techs., LLC, 964 N.E.2d 806, 818
(Ind. 2012) (“Statutes are to be read as a whole.”). Individual deductions for unemployment
compensation, I.C. § 6-3-2-10, and deductions for federal employee paid leave, I.C. § 6-3-2-11,
along with corporate deductions for export income, I.C. § 6-3-2-13, are only three examples of
deductions that reduce AGI but are not among the “modifications” listed in Section 3.5. Hoosier
taxpayers could also include these deductions in their Indiana NOL calculations under Caterpillar’s

                                                   9
and the Tax Court’s interpretation. Additionally, finding exact symmetry between Indiana AGI
and Indiana NOLs is inconsistent with federal practice, which does not allow every modification
to federal taxable income to apply in calculating federal NOLs. See I.R.C. § 172(d) (listing all
modifications to deductions in the federal NOL calculation). We will not interpret the Indiana tax
statutes any differently.

       In most cases, we exercise “cautious deference” to the Tax Court’s opinion because we
recognize its unique expertise in Indiana tax law. Miller Brewing Co., 975 N.E.2d at 803. But
when the plain meaning of the statute is unambiguous, we are in no worse position than the Tax
Court to apply the statute as written, especially when the Tax Court’s conclusion interpolates
“extraneous evidence of legislative intent,” id., as it did here. Thus, we hold that the Tax Court
clearly erred when it adopted a false symmetry between Indiana AGI and Indiana NOLs, and we
decline Caterpillar’s effort to apply the foreign source dividend deduction to its NOL caclulations.

II. Foreign Commerce Clause

       Caterpillar also argues that the Indiana tax statutes facially discriminate against foreign
commerce by disallowing the foreign source dividend deduction in the Indiana NOL calculation,
but incorporating the federal domestic source dividend deduction in the same calculation. We
review a statute’s constitutionality de novo, but “[a]ll statutes are presumptively constitutional,
and the court must resolve all reasonable doubts concerning [a] statute in favor of
constitutionality.” UACC Midwest, Inc. v. Ind. Dep’t of State Revenue, 629 N.E.2d 1295, 1299
(Ind. Tax Ct. 1994) (citing N. Ind. Bank & Trust Co. v. State Bd. of Fin., 457 N.E.2d 527, 529
(Ind. 1983)). Caterpillar, as the party challenging the constitutionality of the statutes, “bears the
burden to overcome the [constitutional] presumption.” Mid-Am. Mailers, Inc. v. State Bd. of Tax
Comm’rs, 639 N.E.2d 380, 386 (Ind. Tax Ct. 1994) (holding that taxpayer failed to show that a
personal property tax violated the Federal Commerce Clause). We hold that Caterpillar has failed
to carry this burden.

       Caterpillar rests its constitutional argument upon Kraft Gen. Foods, Inc. v. Iowa Dep’t of
Revenue & Fin., 505 U.S. 71 (1992), which involved the state tax treatment of foreign source
dividend income in calculating taxable income, not NOLs. In Kraft, the United States Supreme
Court held that Iowa facially discriminated against foreign commerce by allowing corporate

                                                 10
taxpayers a deduction for domestic source dividends but disallowing a comparable deduction for
foreign source dividends. Id. at 82. Yet the constitutional defect at issue in Kraft is absent from
Indiana’s tax scheme because Indiana allows corporate taxpayers the very foreign source dividend
deduction in calculating AGI that the United States Supreme Court found lacking in Kraft. See
I.C. § 6-3-2-12. Kraft does not address how treatment of foreign source dividend deductions apply
to NOLs, and we decline Caterpillar’s invitation to extend Kraft’s holding to the NOL context. At
least one other jurisdiction has wrestled with the same question and found no unconstitutional
discrimination. Colgate-Palmolive Co. v. Fla. Dep’t of Revenue, 988 So. 2d 1212, 1224 (Fla. Dist.
Ct. App. 2008). The only authority that Caterpillar cites to the contrary is an unpublished decision
by the Maryland Tax Court from 2001, Kraft Gen. Foods, Inc. v. Comptroller of the Treasury, No.
98-IN-OO-0353, 2001 WL 699558 (Md. Tax Ct. June 8, 2001), which Colgate-Palmolive
considered, but found unpersuasive, 988 So. 2d at 1221–22. Caterpillar simply has not borne its
burden of overcoming the tax statutes’ presumption of constitutionality.

                                           Conclusion

       Caterpillar may not deduct foreign source dividends when calculating Indiana NOLs—a
conclusion compelled by the plain meaning of the Indiana tax statutes. And Caterpillar has not
carried its burden of proving that this conclusion violates the Foreign Commerce Clause.
Therefore, we reverse the Tax Court’s judgment and remand with instructions to grant summary
judgment to the Department and deny summary judgment to Caterpillar.


Dickson, Rucker, David, and Massa, JJ., concur.




                                                11
