"Adjusted gross income derived from sources within Indiana"
defined; apportionment; payroll factor; sales factor; property
factor
Sec. 2. (a) With regard to corporations and nonresident persons,
"adjusted gross income derived from sources within Indiana", for the
purposes of this article, shall mean and include:
(1) income from real or tangible personal property located in
this state;
(2) income from doing business in this state;
(3) income from a trade or profession conducted in this state;
(4) compensation for labor or services rendered within this
state; and
(5) income from stocks, bonds, notes, bank deposits, patents,
copyrights, secret processes and formulas, good will,
trademarks, trade brands, franchises, and other intangible
personal property if the receipt from the intangible is
attributable to Indiana under section 2.2 of this chapter.
In the case of nonbusiness income described in subsection (g), only
so much of such income as is allocated to this state under the
provisions of subsections (h) through (k) shall be deemed to be
derived from sources within Indiana. In the case of business income,
only so much of such income as is apportioned to this state under the
provision of subsection (b) shall be deemed to be derived from
sources within the state of Indiana. In the case of compensation of a
team member (as defined in section 2.7 of this chapter) only the
portion of income determined to be Indiana income under section 2.7
of this chapter is considered derived from sources within Indiana. In
the case of a corporation that is a life insurance company (as defined
in Section 816(a) of the Internal Revenue Code) or an insurance
company that is subject to tax under Section 831 of the Internal
Revenue Code, only so much of the income as is apportioned to
Indiana under subsection (r) is considered derived from sources
within Indiana.
(b) Except as provided in subsection (l), if business income of a
corporation or a nonresident person is derived from sources within
the state of Indiana and from sources without the state of Indiana,
then the business income derived from sources within this state shall
be determined by multiplying the business income derived from
sources both within and without the state of Indiana by a fraction, the
numerator of which is the property factor plus the payroll factor plus
the sales factor, and the denominator of which is three (3). However,
after a period of two (2) consecutive quarters of income growth and
one (1) additional quarter (regardless of any income growth), the
fraction shall be computed as follows:
(1) For all taxable years that begin within the first calendar year
immediately following the period, the numerator of the fraction
is the sum of the property factor plus the payroll factor plus one
hundred thirty-three percent (133%) of the sales factor, and the
denominator of the fraction is three and thirty-three hundredths
(3.33).
(2) For all taxable years that begin within the second calendar
year following the period, the numerator of the fraction is the
property factor plus the payroll factor plus one hundred
sixty-seven percent (167%) of the sales factor, and the
denominator of the fraction is three and sixty-seven hundredths
(3.67).
(3) For all taxable years beginning on or after January 1 of the
third calendar year following the period, the numerator of the
fraction is the property factor plus the payroll factor plus two
hundred percent (200%) of the sales factor, and the
denominator of the fraction is four (4).
For purposes of this subsection, income growth occurs when the
state's nonfarm personal income for a calendar quarter increases in
comparison with the state's nonfarm personal income for the
immediately preceding quarter at an annualized compound rate of
five percent (5%) or more, as determined by the budget agency based
on current dollar figures provided by the Bureau of Economic
Analysis of the United States Department of Commerce or its
successor agency. The annualized compound rate shall be computed
in accordance with the formula (1+N) -1, where N equals the
4
percentage change in the state's current dollar nonfarm personal
income from one (1) quarter to the next. As soon as possible after
two (2) consecutive quarters of income growth, the budget agency
shall advise the department of the growth.
(c) The property factor is a fraction, the numerator of which is the
average value of the taxpayer's real and tangible personal property
owned or rented and used in this state during the taxable year and the
denominator of which is the average value of all the taxpayer's real
and tangible personal property owned or rented and used during the
taxable year. However, with respect to a foreign corporation, the
denominator does not include the average value of real or tangible
personal property owned or rented and used in a place that is outside
the United States. Property owned by the taxpayer is valued at its
original cost. Property rented by the taxpayer is valued at eight (8)
times the net annual rental rate. Net annual rental rate is the annual
rental rate paid by the taxpayer less any annual rental rate received
by the taxpayer from subrentals. The average of property shall be
determined by averaging the values at the beginning and ending of
the taxable year, but the department may require the averaging of
monthly values during the taxable year if reasonably required to
reflect properly the average value of the taxpayer's property.
(d) The payroll factor is a fraction, the numerator of which is the
total amount paid in this state during the taxable year by the taxpayer
for compensation, and the denominator of which is the total
compensation paid everywhere during the taxable year. However,
with respect to a foreign corporation, the denominator does not
include compensation paid in a place that is outside the United
States. Compensation is paid in this state if:
(1) the individual's service is performed entirely within the
state;
(2) the individual's service is performed both within and without
this state, but the service performed without this state is
incidental to the individual's service within this state; or
(3) some of the service is performed in this state and:
(A) the base of operations or, if there is no base of
operations, the place from which the service is directed or
controlled is in this state; or
(B) the base of operations or the place from which the
service is directed or controlled is not in any state in which
some part of the service is performed, but the individual is
a resident of this state.
(e) The sales factor is a fraction, the numerator of which is the
total sales of the taxpayer in this state during the taxable year, and
the denominator of which is the total sales of the taxpayer
everywhere during the taxable year. Sales include receipts from
intangible property and receipts from the sale or exchange of
intangible property. However, with respect to a foreign corporation,
the denominator does not include sales made in a place that is outside
the United States. Receipts from intangible personal property are
derived from sources within Indiana if the receipts from the
intangible personal property are attributable to Indiana under section
2.2 of this chapter. Sales of tangible personal property are in this
state if:
(1) the property is delivered or shipped to a purchaser, other
than the United States government, within this state, regardless
of the f.o.b. point or other conditions of the sale; or
(2) the property is shipped from an office, a store, a warehouse,
a factory, or other place of storage in this state and:
(A) the purchaser is the United States government; or
(B) the taxpayer is not taxable in the state of the purchaser.
Gross receipts derived from commercial printing as described in
IC 6-2.5-1-10 shall be treated as sales of tangible personal property
for purposes of this chapter.
(f) Sales, other than receipts from intangible property covered by
subsection (e) and sales of tangible personal property, are in this
state if:
(1) the income-producing activity is performed in this state; or
(2) the income-producing activity is performed both within and
without this state and a greater proportion of the
income-producing activity is performed in this state than in any
other state, based on costs of performance.
(g) Rents and royalties from real or tangible personal property,
capital gains, interest, dividends, or patent or copyright royalties, to
the extent that they constitute nonbusiness income, shall be allocated
as provided in subsections (h) through (k).
(h)(1) Net rents and royalties from real property located in this
state are allocable to this state.
(2) Net rents and royalties from tangible personal property are
allocated to this state:
(i) if and to the extent that the property is utilized in this state;
or
(ii) in their entirety if the taxpayer's commercial domicile is in
this state and the taxpayer is not organized under the laws of or
taxable in the state in which the property is utilized.
(3) The extent of utilization of tangible personal property in a
state is determined by multiplying the rents and royalties by a
fraction, the numerator of which is the number of days of physical
location of the property in the state during the rental or royalty period
in the taxable year, and the denominator of which is the number of
days of physical location of the property everywhere during all rental
or royalty periods in the taxable year. If the physical location of the
property during the rental or royalty period is unknown or
unascertainable by the taxpayer, tangible personal property is utilized
in the state in which the property was located at the time the rental
or royalty payer obtained possession.
(i)(1) Capital gains and losses from sales of real property located
in this state are allocable to this state.
(2) Capital gains and losses from sales of tangible personal
property are allocable to this state if:
(i) the property had a situs in this state at the time of the sale; or
(ii) the taxpayer's commercial domicile is in this state and the
taxpayer is not taxable in the state in which the property had a
situs.
(3) Capital gains and losses from sales of intangible personal
property are allocable to this state if the taxpayer's commercial
domicile is in this state.
(j) Interest and dividends are allocable to this state if the
taxpayer's commercial domicile is in this state.
(k)(1) Patent and copyright royalties are allocable to this state:
(i) if and to the extent that the patent or copyright is utilized by
the taxpayer in this state; or
(ii) if and to the extent that the patent or copyright is utilized by
the taxpayer in a state in which the taxpayer is not taxable and
the taxpayer's commercial domicile is in this state.
(2) A patent is utilized in a state to the extent that it is employed
in production, fabrication, manufacturing, or other processing
in the state or to the extent that a patented product is produced
in the state. If the basis of receipts from patent royalties does
not permit allocation to states or if the accounting procedures
do not reflect states of utilization, the patent is utilized in the
state in which the taxpayer's commercial domicile is located.
(3) A copyright is utilized in a state to the extent that printing
or other publication originates in the state. If the basis of
receipts from copyright royalties does not permit allocation to
states or if the accounting procedures do not reflect states of
utilization, the copyright is utilized in the state in which the
taxpayer's commercial domicile is located.
(l) If the allocation and apportionment provisions of this article do
not fairly represent the taxpayer's income derived from sources
within the state of Indiana, the taxpayer may petition for or the
department may require, in respect to all or any part of the taxpayer's
business activity, if reasonable:
(1) separate accounting;
(2) the exclusion of any one (1) or more of the factors;
(3) the inclusion of one (1) or more additional factors which
will fairly represent the taxpayer's income derived from sources
within the state of Indiana; or
(4) the employment of any other method to effectuate an
equitable allocation and apportionment of the taxpayer's
income.
(m) In the case of two (2) or more organizations, trades, or
businesses owned or controlled directly or indirectly by the same
interests, the department shall distribute, apportion, or allocate the
income derived from sources within the state of Indiana between and
among those organizations, trades, or businesses in order to fairly
reflect and report the income derived from sources within the state
of Indiana by various taxpayers.
(n) For purposes of allocation and apportionment of income under
this article, a taxpayer is taxable in another state if:
(1) in that state the taxpayer is subject to a net income tax, a
franchise tax measured by net income, a franchise tax for the
privilege of doing business, or a corporate stock tax; or
(2) that state has jurisdiction to subject the taxpayer to a net
income tax regardless of whether, in fact, the state does or does
not.
(o) Notwithstanding subsections (l) and (m), the department may
not, under any circumstances, require that income, deductions, and
credits attributable to a taxpayer and another entity be reported in a
combined income tax return for any taxable year, if the other entity
is:
(1) a foreign corporation; or
(2) a corporation that is classified as a foreign operating
corporation for the taxable year by section 2.4 of this chapter.
(p) Notwithstanding subsections (l) and (m), the department may
not require that income, deductions, and credits attributable to a
taxpayer and another entity not described in subsection (o)(1) or
(o)(2) be reported in a combined income tax return for any taxable
year, unless the department is unable to fairly reflect the taxpayer's
adjusted gross income for the taxable year through use of other
powers granted to the department by subsections (l) and (m).
(q) Notwithstanding subsections (o) and (p), one (1) or more
taxpayers may petition the department under subsection (l) for
permission to file a combined income tax return for a taxable year.
The petition to file a combined income tax return must be completed
and filed with the department not more than thirty (30) days after the
end of the taxpayer's taxable year.
(r) This subsection applies to a corporation that is a life insurance
company (as defined in Section 816(a) of the Internal Revenue Code)
or an insurance company that is subject to tax under Section 831 of
the Internal Revenue Code. The corporation's adjusted gross income
that is derived from sources within Indiana is determined by
multiplying the corporation's adjusted gross income by a fraction:
(1) the numerator of which is the direct premiums and annuity
considerations received during the taxable year for insurance
upon property or risks in the state; and
(2) the denominator of which is the direct premiums and
annuity considerations received during the taxable year for
insurance upon property or risks everywhere.
The term "direct premiums and annuity considerations" means the
gross premiums received from direct business as reported in the
corporation's annual statement filed with the department of
insurance.
(Formerly: Acts 1963(ss), c.32, s.204; Acts 1965, c.233, s.13; Acts
1971, P.L.64, SEC.4.) As amended by P.L.82-1983, SEC.4;
P.L.16-1984, SEC.4; P.L.75-1985, SEC.4; P.L.78-1989, SEC.8;
P.L.347-1989(ss), SEC.6; P.L.65-1991, SEC.1; P.L.71-1993,
SEC.13; P.L.63-1997, SEC.1; P.L.192-2002(ss), SEC.71.
Last modified: May 28, 2006