Section 6-3-2-2 - "Adjusted gross income derived from sources within Indiana"; apportionment; payroll factor; sales factor; property factor; pass through entities(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: (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.Amended by P.L. 93-2024,SEC. 54, eff. 7/1/2024.Amended by P.L. 156-2020,SEC. 23, eff. 7/1/2020.Amended by P.L. 234-2019,SEC. 10, eff. 1/1/2019.Amended by P.L. 158-2019,SEC. 7, eff. 1/1/2019.Amended by P.L. 214-2018SP1,SEC. 4, eff. 5/14/2018.Amended by P.L. 73-2017,SEC. 1, eff. 7/1/2017.Amended by P.L. 122-2016, SEC. 5, eff. 3/23/2016.Amended by P.L. 250-2015, SEC. 14, eff. 1/1/2016.Amended by P.L. 233-2013, SEC. 7, eff. 7/1/2013.Amended by P.L. 172-2011, SEC. 55, eff. 1/1/2011 (retroactive).(Formerly: Acts 1963(ss), c.32, s.204; Acts 1965, c.233, s.13; Acts1971 , 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.