§ 6-3-2-2 — "Adjusted gross income derived from sources within Indiana"; apportionment; payroll factor; sales factor; property factor; pass through entities

Indiana § 6-3-2-2

• Jurisdiction: Indiana
• Art. 3: STATE INCOME TAXES
• Ch. 2: Imposition of Tax and Deductions

Text

(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 to
the extent that the income is apportioned to Indiana under this
section or if the income is allocated to Indiana or considered to be
derived from sources within Indiana under this section.
Income from a pass through entity shall be characterized in a manner
consistent with the income's characterization for federal income tax
purposes and shall be considered Indiana source income as if the
person, corporation, or pass through entity that received the income had
directly engaged in the income producing activity. Income that is
derived from one (1) pass through entity and is considered to pass
through to another pass through entity does not change these
characteristics or attribution provisions. 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 (s) is considered derived
from sources within Indiana. Income derived from Indiana shall be
taxable to the fullest extent permitted by the Constitution of the United
States and federal law, regardless of whether the taxpayer has a
physical presence in 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, 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 the following:
(1) For all taxable years that begin after December 31, 2006, and
before January 1, 2008, a fraction. The:
(A) numerator of the fraction is the sum of the property factor
plus the payroll factor plus the product of the sales factor
multiplied by three (3); and
(B) denominator of the fraction is five (5).
(2) For all taxable years that begin after December 31, 2007, and
before January 1, 2009, a fraction. The:
(A) numerator of the fraction is the property factor plus the
payroll factor plus the product of the sales factor multiplied by
four and sixty-seven hundredths (4.67); and
(B) denominator of the fraction is six and sixty-seven
hundredths (6.67).
(3) For all taxable years beginning after December 31, 2008, and
before January 1, 2010, a fraction. The:
(A) numerator of the fraction is the property factor plus the
payroll factor plus the product of the sales factor multiplied by
eight (8); and
(B) denominator of the fraction is ten (10).
(4) For all taxable years beginning after December 31, 2009, and
before January 1, 2011, a fraction. The:
(A) numerator of the fraction is the property factor plus the
payroll factor plus the product of the sales factor multiplied by
eighteen (18); and
(B) denominator of the fraction is twenty (20).
(5) For all taxable years beginning after December 31, 2010, the
sales factor.
(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. Regardless of
the f.o.b. point or other conditions of the sale, sales of tangible personal
property are in this state if:
(1) the property is delivered or shipped to a purchaser that is
within Indiana, other than the United States government; or
(2) the property is shipped from an office, a store, a warehouse, a
factory, or other place of storage in this state and the purchaser is
the United States government.
Gross receipts derived from commercial printing as described in IC 6-2.5-1-10 and from the sale of software shall be treated as sales of
tangible personal property for purposes of this chapter.
(f) Sales, other than sales of tangible personal property, are in this
state as follows:
(1) The receipts are attributable to Indiana:
(A) under subsection (s), (t), or (u); or
(B) under section 2.2 of this chapter.
(2) The receipts are from the provision of telecommunications
services and broadcast services, provided that:
(A) all of the costs of performance related to the receipts are
attributable to Indiana; or
(B) if the costs of performance are incurred both within and
outside this state, the greater portion of such costs are incurred
in this state than in any other state.
(3) Receipts, other than receipts described in subdivisions (1) and
(2), are in this state if the taxpayer's market for the sales is in this
state. The taxpayer's market for sales is in this state:
(A) in the case of sale, rental, lease, or license of real property,
if and to the extent the property is located in this state;
(B) in the case of rental, lease, or license of tangible personal
property, if and to the extent the property is located in this state;
(C) in the case of sale of a service, if and to the extent the
benefit of the service is received in this state;
(D) in the case of intangible property that is rented, leased, or
licensed, if and to the extent the property is used in this state,
provided that intangible property used in marketing a good or
service to a consumer is "used in this state" if that good or
service is purchased by a consumer who is in this state; and
(E) in the case of intangible property that is sold, if and to the
extent the property is used in this state, provided that:
(i) a contract right, government license, or similar intangible
property that authorizes the holder to conduct a business
activity in a specific geographic area is "used in this state" if
the geographic area includes all or part of this state;
(ii) receipts from intangible property sales that are contingent
on the productivity, use, or disposition of the intangible
property shall be treated as receipts from the rental, lease, or
licensing of such intangible property under clause (D); and
(iii) all other receipts from a sale of intangible property shall
be excluded from the numerator and denominator of the
receipts factor.
(4) If the state or states of attribution under subdivision (3) cannot
be determined, the state or states of attribution shall be
determined by the state or states in which the delivery of the
service occurs.
(5) If the state of attribution cannot be determined under
subdivision (3) or (4), such receipt shall be excluded from the
denominator of the receipts factor.
(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) for a taxable year beginning before January 1, 2011, the
exclusion of any one (1) or more of the factors, except the sales
factor;
(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.
Notwithstanding IC 6-8.1-5-1(c), a taxpayer petitioning for, or the
department requiring, the use of an alternative method to effectuate an
equitable allocation and apportionment of the taxpayer's income under
this subsection bears the burden of proof that the allocation and
apportionment provisions of this article do not fairly represent the
taxpayer's income derived from sources within this state and that the
alternative method to the allocation and apportionment provisions of
this article is reasonable.
(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) A taxpayer who desires to discontinue filing a combined income
tax return for any reason must petition the department within thirty (30)
days after the end of the taxpayer's taxable year for permission to
discontinue filing a combined income tax return.
(s) 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.
(t) This subsection applies to receipts derived from motorsports
racing.
(1) Any purse, prize money, or other amounts earned for
placement or participation in a race or portion thereof, including
qualification, shall be attributed to Indiana if the race is conducted
in Indiana.
(2) Any amounts received from an individual or entity as a result
of sponsorship or similar promotional consideration for one (1) or
more races shall be in this state in the amount received, multiplied
by the following fraction:
(A) The numerator of the fraction is the number of racing
events for which sponsorship or similar promotional
consideration has been paid in a taxable year and that occur in
Indiana.
(B) The denominator of the fraction is the total number of
racing events for which sponsorship or similar promotional
consideration has been paid in a taxable year.
(3) Any amounts earned as an incentive for placement or
participation in one (1) or more races and that are not covered
under subdivision (1) or (2) or under section 3.2 of this chapter
shall be attributed to Indiana in the proportion of the races that
occurred in Indiana.
This subsection, as enacted in 2013, is intended to be a clarification of
the law and not a substantive change in the law.
(u) For purposes of this section and section 2.2 of this chapter, the
following apply:
(1) For taxable years beginning after December 25, 2016, if a
taxpayer is required to include amounts in the taxpayer's federal
adjusted gross income, federal taxable income, or IRC 965
Transition Tax Statement, line 1 as a result of Section 965 of the
Internal Revenue Code, the following apply:
(A) For an entity that is not eligible to claim a deduction under
section 12 of this chapter, these amounts shall not be receipts
in any taxable year for the entity.
(B) For an entity that is eligible to claim a deduction under
section 12 of this chapter, these amounts shall be receipts in the
year in which the amounts are reported by the entity as adjusted
gross income under this article, but only to the extent of:
(i) any amounts includible after application of IC 6-3-1-3.5(b)(13), IC 6-3-1-3.5(d)(12), and IC 6-3-1-3.5(e)(12); minus
(ii) the deduction taken under section 12 of this chapter with
regard to that income.
This subdivision applies regardless of the taxable year in which
the money or property was actually received.
(2) If a taxpayer is required to include amounts in the taxpayer's
federal adjusted gross income or federal taxable income as a
result of Section 951A of the Internal Revenue Code the
following apply:
(A) For an entity that is not eligible to claim a deduction under
section 12 of this chapter, the receipts that generated the
income shall not be included as a receipt in any taxable year.
(B) For an entity that is eligible to claim a deduction under
section 12 of this chapter, the amounts included in federal gross
income as a result of Section 951A of the Internal Revenue
Code, reduced by the deduction allowable under section 12 of
this chapter with regard to that income, shall be considered a
receipt in the year in which the amounts are includible in
federal taxable income.
(3) Receipts do not include receipts derived from sources outside
the United States to the extent the taxpayer is allowed a deduction
or exclusion in determining both the taxpayer's federal taxable
income as a result of the federal Tax Cuts and Jobs Act of 2017
and the taxpayer's adjusted gross income under this chapter. If any
portion of the federal taxable income derived from these receipts
is deductible under section 12 of this chapter, receipts shall be
reduced by the proportion of the deduction allowable under
section 12 of this chapter with regard to that federal taxable
income.
Receipts includible in a taxable year under subdivisions (1) and (2)
shall be considered dividends from investments for apportionment
purposes.
(v) The following apply:
(1) The department may adopt rules under IC 4-22-2 to specify
where sales, receipts, income, transactions, or costs are
attributable under this section and section 2.2 of this chapter.
(2) Rules adopted under subdivision (1) must be consistent with
the Multistate Tax Commission model regulations for income tax
apportionment as in effect on January 1, 2019, including any
specialized industry provisions, except to the extent expressly
inconsistent with this chapter. A rule is valid unless the rule is not
consistent with the Multistate Tax Commission model
regulations. If a rule is partially valid and partially invalid, the
rule remains in effect to the extent the rule is valid.
(3) In the absence of rules, or to the extent a rule adopted under
subdivision (1) is determined to be invalid, sales shall be sourced
in the manner consistent with the Multistate Tax Commission
model regulations for income tax apportionment as in effect on
January 1, 2019, including any specialized industry provisions,
except to the extent expressly inconsistent with this chapter.
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; P.L.162-2006,
SEC.25; P.L.182-2009(ss), SEC.191; P.L.172-2011, SEC.55;
P.L.233-2013, SEC.7; P.L.250-2015, SEC.14; P.L.122-2016, SEC.5;
P.L.73-2017, SEC.1; P.L.214-2018(ss), SEC.4; P.L.158-2019, SEC.7;
P.L.234-2019, SEC.10; P.L.156-2020, SEC.23; P.L.93-2024,
SEC.54.