us-in/regulation/iac/45

loading…

us-in/regulation/iac/45 — Axiom

(3.1)(1-3)Allowed Internal Revenue Code deductions#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-1-3.5

Sec. 3. Internal Revenue Code Section 62 Deductions in Arriving at Indiana Adjusted Gross Income for Individuals. The following deductions contained in Internal Revenue Code Section 62 are allowed in determining Indiana Adjusted Gross Income:

(1) Trade and business deductions

(2) Certain trade or business deductions of employees

(3) Long-term capital gains deduction (Internal Revenue Code § 1202)

(4) Losses from the sale or exchange of property (Internal Revenue Code § 161 and following)

(5) Deductions attributable to rents and royalties (Internal Revenue Code § 161 and following, § 212, and § 611)

(6) Certain deductions of life tenants and income beneficiaries of property (Internal Revenue Code § 167 and § 611)

(7) Pension, profit-sharing, annuity, and bond purchase plans of self-employed individuals [Internal Revenue Code § 401 (c)(1), § 404, and § 405 (c)]

(8) Moving expense deduction–Indiana residents may take a deduction against gross income for moving expenses incurred in a move into or within Indiana, provided that the requirements outlined in Section 217 of the Internal Revenue Code are met. If a taxpayer moves out of Indiana he is not allowed to take this deduction. An exception to this rule occurs when the taxpayer remains a resident of Indiana after he changes locations. For example, an Indiana resident who is in the military remains an Indiana resident regardless of where he is stationed. If such person's duty station is changed he may take this deduction for expenses incurred in the move.

(9) Pension, profit-sharing, annuity, and bond purchase plans of electing small business corporations [Internal Revenue Code § 1379 (b) (3)]

(10) Retirement savings [Internal Revenue Code § 219 and § 220]

(11) Certain portions of lump-sum distributions from pension plans taxed under Internal Revenue Code § 402 (e) [IRC § 402 (e) (3)]

(12) Penalties for premature withdrawal of funds from time savings accounts or deposits (IRC § 165)

(13) Alimony (Internal Revenue Code § 215)

(3.1)(1-7)Allocation of income among states; reciprocity#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-1-3.5 ; IC 6-3-1-17 ; IC 6-3-2-2 ; IC 6-3-2-3.5 ; IC 6-3-5-1

Sec. 7. Allocation and Apportionment of Unearned Income for Individuals. (1) Interest, dividends, except earnings from Subchapter S corporations, rents and royalties are generally taxed by the state of legal residence.

(2) Income from a pension, annuity, profit-sharing, or stock-option plan that meets the qualifications of the Internal Revenue Code is taxed by the state of legal residence. Lump sum distributions from qualified plans are taxed by the state which, at the time of the distribution, is the taxpayer's legal residence. Whether a plan meets the qualifications of the Internal Revenue Code is determined by the Internal Revenue Service.

(3) Deferred compensation, other than that from a qualified retirement plan as described above, is directly attributable to services performed, and is taxed by the state where the services were performed.

(4) Accumulated vacation, bonus, serverance [sic.] and sick pay is directly attributable to services performed and is taxed by the state where the services were performed.

(5) Taxpayers with income attributable to services performed in the past (3 & 4 [subsections 3 and 4 of this section] above), who performed those services in more than one state, must report this income for Indiana tax purposes if Indiana was the last state in which the taxpayer was employed prior to retirement.

(6) Indiana residents with income from partnerships and Subchapter S corporations are subject to Adjusted Gross Income Tax on their distributive share of partnership or corporate income. Nonresidents with income from partnerships and Subchapter S corporations doing business in the state are also subject to Adjusted Gross Income Tax on their distributive shares of income. However, such income is apportioned to this state using the 3-factor formula outlined in IC 6-3-2-2 (b) if the partnership or Subchapter S corporation is doing business both within and without the state.

(7) Taxpayers with any of the types of income outlined in this regulation [ 45 IAC 3.1-1-7 ] who are taxed on such income by both Indiana and another state may be allowed a credit against their Indiana Adjusted Gross Income Tax liability for taxes paid to the other state. Such creidt [sic.] will be given only if the taxpayer meets the requirements of Regulations 6-3-3-3(a)(010) [ 45 IAC 3.1-1-74 ] or 6-3-3-3(b)(010) [ 45 IAC 3.1-1-77 ] .

(8) Reciprocity will apply in the usual manner to deferred compensation that consists of wages. [See Regulation 6-3-5-1(010) [ 45 IAC 3.1-1-115 ] .] All income other than wages such as pension, annuity, profit-sharing, and stock-option income is not covered by reciprocal agreements with other states.

(3.1)(1-22.5)Determination of domicile#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-1-12

Sec. 22.5. (a) The department may require documentation from a person to evaluate domicile.

(b) The one hundred eighty-three (183) day and permanent place of residence threshold in IC 6-3-1-12 (b) and section 21 of this rule is not a test for domicile.

(c) A person is presumed not to have abandoned their state of domicile and established a new state or other place of domicile in a given year if, during that year, the person maintained a permanent place of residence (whether as an owner, renter, or other occupier of the residence) in that state and the person did more than one (1) of the following: (1) Claimed a homestead credit or exemption or a military tax exemption on a home in that state. (2) Voted in that state. (3) Occupied a permanent place of residence in that state or other place of domicile for more days of the taxable year than in any other single state. (4) Claimed a benefit on the federal income tax return based upon that state being the principal place of residence. (5) Had a place of employment or business in that state. A person may rebut this presumption through the presentation of substantial contrary evidence.

(d) If a person's domicile is not resolved by subsection (c), the department may consider additional relevant factors to determine the person's state or other place of domicile, including the state or other place where the person: (1) maintained a driver's license or government issued identification card; (2) was registered to vote; (3) registered a vehicle; (4) claimed as dependents immediate family members who relied, in whole or in part, on the taxpayer for their support; (5) assigned or maintained a mailing address; (6) maintained bank accounts; (7) maintained active membership in a religious, social, cultural, or professional organization; (8) received professional services; and (9) kept valuables or family heirlooms. This list of additional, relevant factors is not exclusive.

(3.1)(1-23)Special cases of residency#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-1-12

Sec. 23. Residency As It Affects Tax Liability. (1) Taxpayer Moving to Indiana When a taxpayer moves to Indiana and becomes a resident and/or domiciliary of Indiana during the taxable year, Indiana will not tax income from sources outside Indiana which the taxpayer received prior to becoming an Indiana domiciliary. Indiana will, however, assess adjusted gross income tax on all taxable income after the taxpayer becomes an Indiana resident. (2) Taxpayer Moving from Indiana Any person who, on or before the last day of the taxable year, changes his residence or domicile from Indiana to a place without Indiana, with the intent of abiding permanently without Indiana, is subject to adjusted gross income tax on all taxable income earned while an Indiana resident. Indiana will not tax income of a taxpayer who moves from Indiana and becomes an actual domiciliary of another state or country except that income received from Indiana sources will continue to be taxable. (3) Nonresident Citizens An individual from Indiana who is permitted to file Federal income tax returns as a nonresident citizen is considered as being domiciled in Indiana and his income taxable as a resident citizen, if he maintains a place of abode in Indiana immediately prior to residing in a foreign country as a nonresident citizen of the United States, and has not permanently established his domicile in a foreign country or in another state. The fact that ordinary rights of citizenship, including voting at public elections are present but not exercised, shall not prevent a person from being classified as a resident if he meets the other tests set out in this regulation [ 45 IAC 3.1-1-23 ] . (4) Part-Time Resident Individuals Persons residing in Indiana but living part of the year in other states or countries will be deemed residents of Indiana unless it can be shown that the abode in the other state or country is of a permanent nature. Domicile is not changed by removal therefrom for a definite period or for a particular purpose. A domicile, once obtained, continues until a new one is acquired. (5) Military personnel Indiana residents who become members of the military service remain Indiana residents regardless of their geographical assignments. Military members can change their legal residence only by filing DD Form 2058, State of Legal Residence Certificate.

(3.1)(1-50)Sales factor for apportionment; sales defined#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-2-2

Sec. 50. Sales Factor–Sales Made in General Business Operations. "Sales" means all gross receipts of the taxpayer which are not subject to allocation as nonbusiness income. The following are examples of "sales" in various situations:

(1) If the taxpayer's business activity consists of manufacturing and selling or purchasing and reselling goods or products, "sales" includes all gross receipts from the sales of such goods or products (or other property which would be included as inventory of the taxpayer if on hand at the close of the tax year) held by the taxpayer primarily for sale in the ordinary course of business. Gross receipts for this purpose means gross sales price, less returns and allowances, and includes all interest income, service charges, carrying charges, or time-price differential charges incidental to such sales. Federal and state excise taxes (including sales taxes) shall be included as part of such receipts and shall be in the sales factor only if such taxes are included in the gross receipts or gross sales as reported on the taxpayer's Federal returns.

(2) If the taxpayer's business activity consists of providing services, such as the operation of an advertising agency, or the performance of equipment service contracts or research and development contracts, "sales" includes the gross receipts from the performance of such services including fees, commissions and similar items.

(3) If the taxpayer is working under a cost plus fixed fee contract, such as the operation of a government owned plant for a fee, gross receipts includes the entire reimbursed cost plus the fee.

(4) If the taxpayer is in the business of renting real or tangible personal property, "sales" includes the gross receipts from the rental, lease, or licensing the use of the property.

(5) If the taxpayer is in the business of selling, assigning, or licensing of intangible personal property such as patents and copyrights, "sales" includes the gross receipts therefrom.

In some cases, certain gross receipts should be disregarded in determining the sales factor to effectuate an equitable apportionment. See Regulation 6-3-2-2(l)(010) [ 45 IAC 3.1-1-62 ] . The sales factor should be consistent in the manner described in Regulation 6-3-2-2(c)(030) [ 45 IAC 3.1-1-42 ] .

(3.1)(1-53)In-state sales of tangible personal property#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-2-2

Sec. 53. When Sales of Tangible Personal Property Are in This State. Gross receipts from the sales of tangible personal property (except sales to the United States Government–See Regulation 6-3-2-2(e)(050) [ 45 IAC 3.1-1-54 ] are in this state: (a) if the property is delivered or shipped to a purchaser within this state regardless of the F.O.B. point or other conditions of sales; or (b) if the property is shipped from an office, store, factory, or other place of storage in this state, and the taxpayer is not taxable in the state of the purchaser. See Regulation 6-3-2-2(n)(010) [ 45 IAC 3.1-1-64 ] .

Examples:

(1) Property shall be deemed to be delivered or shipped to a purchaser within this state if the recipient is located in this state, even though the property is ordered from outside this state. Example: The taxpayer, with inventory in State A sold $100,000 of its products to a purchaser having branch stores in several states including this state. The order for the purchase was placed by the purchaser's central purchasing department located in State B. $25,000 of the purchase order was shipped directly to the purchaser's branch store in this state. The branch store in this state is the "purchaser within this state" with respect to $25,000 of the taxpayer's sales.

(2) Property is delivered or shipped to a purchaser within this state if the shipment terminates in this state, even though the property is subsequently transferred by the purchaser to another state. Example: The taxpayer makes a sale to a purchaser who maintains a central warehouse in this state at which all merchandise purchases are received. The purchaser reships the goods to its branch offices in other states for sale. All of taxpayer's products shipped to the purchaser's warehouse in this state is property "delivered or shipped to a purchaser within this state."

(3) The term "purchaser within this state" shall include the ultimate recipient of the property if the taxpayer in this state, at the designation of the purchaser, delivers to or has the property shipped to the ultimate recipient within this state. Example: A taxpayer in Indiana sold merchandise to a purchaser in State A. The taxpayer directed the manufacturer or supplier of the merchandise in State B to ship the merchandise to the purchaser's customer in Indiana pursuant to the purchaser's instructions. The sale by the taxpayer is "in this state."

(4) When the property being shipped by a seller from the state of origin to a consignee in another state is diverted while enroute to a purchaser in this state, the sales are in this state. Example: The taxpayer, a produce grower in State A, begins shipment of perishable produce to the purchaser's place of business in State B. While enroute the produce is diverted to the purchaser's place of business in Indiana in which state the taxpayer is subject to tax. The sale by the taxpayer is attributed to Indiana.

(5) If the taxpayer is not taxable in the state of the purchaser, the sale is attributed to this state if the property is shipped from an office, store, warehouse, factory, or other place of storage in this state. Such sale is termed a "Throwback" sale. Example: The taxpayer has its head office and factory in State A. It maintains a branch office and inventory in Indiana. Taxpayer's only activity in State B is the solicitation of orders by a resident salesman. All orders by the State B salesman are sent to the branch office in Indiana for approval and are filled by shipment from the inventory in Indiana. Since the taxpayer is immune under P.L.86-272 from tax in State B, all sales of merchandise to purchasers in State B are attributed to Indiana, the state from which the merchandise was shipped.

(6) If a taxpayer whose salesman operated from an office located in Indiana makes a sale to a purchaser in another state in which the taxpayer is not taxable and the property is shipped directly by a third party to the purchaser, the sale will be attributed to the state from which the property is shipped if the taxpayer is taxable in that state. If the taxpayer is not taxable in the state from which the property is shipped, then the property will be deemed to have been shipped from Indiana and the sale is attributed to Indiana. Example: The taxpayer in Indiana sold merchandise to a purchaser in State A. Taxpayer is not taxable in State A. Upon direction of the taxpayer, the merchandise was shipped directly to the purchaser by the manufacturer in State B. If the taxpayer is taxable in State B, the merchandise is deemed to have been shipped from State B to the purchaser in State A. If the taxpayer is not taxable in State B, the merchandise is deemed to have been shipped from Indiana by the taxpayer to the purchaser in State A.

(7) Sales are not "in this state" if the purchaser picks up the goods at an out-of-state location and brings them back into Indiana in his own conveyance.

(3.1)(1-55.5)Definitions; attribution of sales to state#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-2-2 ; IC 6-3-2-2.2 ; IC 6-5.5-4-3 ; IC 6-5.5-4-13

Sec. 55.5. (a) The definitions in this section apply throughout this rule.

(b) "Airline rule" means the Special Rules: Airlines, adopted July 14, 1983, by the Multistate Tax Commission.

(c) "Construction contractor rule" means the Special Regulation: Construction Contractors, adopted July 10, 1980, by the Multistate Tax Commission.

(d) "MGAAR" means the Multistate Tax Commission Multistate General Allocation and Apportionment Regulations, adopted February 21, 1973, and as amended through February 24, 2017, including Section 18(c), adopted July 25, 2018.

(e) "Publishing rule" means the Special Rules: Publishing, adopted July 30, 1993, by the Multistate Tax Commission.

(f) "Railroad rule" means the Special Rules: Railroads, adopted July 16, 1981, by the Multistate Tax Commission.

(g) "Trucking rule" means the Special Rules: Trucking Companies, adopted July 11, 1986, by the Multistate Tax Commission and as amended July 27, 1989.

(h) The terms referenced in this rule have the same meaning as provided in MGAAR Reg. IV.17.(a)(3) unless the context specifically requires otherwise.

(i) If a provision of this rule lists multiple possible tests, the tests shall be applied as a hierarchy unless clearly indicated by the particular provision in this rule. The hierarchy is applied in the order by which the test is listed in the particular provision. For instance, subdivision (1) is the first test, and if subdivision (1) cannot result in a determination of a state, subdivision (2) is applied. However, if subdivision (4) states that subdivision (1) must be applied in a particular situation, the test in subdivision (2) is disregarded for that particular situation.

(j) The provisions of this rule do not apply to the following: (1) Receipts from insurance premiums. (2) Receipts from motorsports racing, including advertising that would otherwise be sourced under this rule. (3) Receipts from repatriated foreign dividends under Section 965 of the Internal Revenue Code or global intangible low-taxed income under Section 951A of the Internal Revenue Code. (4) Receipts from broadcast services. (5) Receipts from telecommunications services. (6) Receipts attributable under IC 6-3-2-2.2 .

(k) A provision of MGAAR that requires the exclusion of a receipt from a service because the taxpayer is not taxable in a jurisdiction shall be disregarded. However, the disregard for a MGAAR provision does not prevent the exclusion of receipts if: (1) the exclusion is specifically provided in IC 6-3 ; or (2) the receipts cannot be sourced to a jurisdiction under this rule. For purposes of this rule, if receipts can be attributed to any jurisdiction under this rule, but the taxpayer is not subject to tax in that jurisdiction, those receipts are treated as sourced to that jurisdiction.

(l) A receipt may be excluded from the receipts denominator only if and to the extent: (1) exclusion of the receipt is explicitly provided under IC 6-3-2-2 or IC 6-3-2-2.2 ; or (2) the jurisdiction to which the receipt can be attributed cannot be determined after applying the provisions set forth in this rule.

(m) A provision of MGAAR that requires a reasonable approximation in the absence of information, but provides a specific methodology for the reasonable approximation, shall be treated as if the specific methodology reflects the benefit of the intangible. However, if a substantial portion of the sales can be determined and the taxpayer or the department reasonably believes the remaining sales follow the same geographic distribution as the determinable sales, the taxpayer or the department may attribute those remaining receipts in the same proportion as the determinable sales.

(n) For a related party transaction, the information the customer has that is relevant to sourcing the receipts of the taxpayer is imputed to the taxpayer.

(o) For a sale, rental, lease, or license of real property, the receipts from the sale are in this state if and to the extent that the real property is in this state.

(p) For a rental, lease, or license of tangible personal property, the following conditions apply: (1) Receipts from the sale are in this state if and to the extent that the property is in this state. (2) If property is mobile property located both inside and outside this state during the lease or other contract period, the receipts attributable to this state are the receipts from the contract period multiplied by the ratio of the time the property is used in this state to the time the property is used everywhere. (3) For purposes of this rule, property in transit between locations of the customer shall be considered to be at the destination of the property. (4) Receipts from the rental, lease, or license of an automobile assigned to a traveling employee shall be included in the numerator of the factor of the state: (A) to the extent to which the employee's compensation would be assigned under IC 6-3-2-2 (c); or (B) in the state where the automobile is licensed if clause (A) cannot be determined.

(q) For purposes of this subsection, "in-person services" means the services described in MGAAR Reg. IV.17.(d)(2)(A). However, the term does not include legal, accounting, financial, consulting, architectural, engineering, or similar services described in MGAAR Reg. IV.17.(d)(4). For purposes of determining where in-person services are sourced, the following apply: (1) If a service is performed with respect to the body of an individual customer in this state (e.g., hair cutting or x-ray services) or in the physical presence of the customer in this state (e.g., live entertainment or athletic performances), the benefit of the service is received in the state where the service is performed. However, if the service is provided remotely, the following apply: (A) If a service would be considered an in-person service, but is offered remotely as opposed to in person, the service is in this state if the person receiving the service is in this state. For purposes of determining whether a person is in this state, the taxpayer shall first make a reasonable effort to determine the state or states where the service is received. If the taxpayer cannot determine that state, the receipts shall be sourced to the state from which the service was provided. (B) If a live entertainment event or athletic performance occurs in one (1) jurisdiction, but a ticket or other admissions price is paid to simulcast the event or performance at a location in this state, the ticket or admissions price is in this state. This does not apply to charges that would be considered broadcast services, such as pay-per-view charges. (2) If a service is performed with respect to the customer's real estate in this state or if the service is performed with respect to the customer's tangible personal property at the customer's residence, or in the customer's possession in this state, the service is received in this state. (3) If a service is performed with respect to the customer's tangible personal property and the tangible personal property is to be shipped or delivered to the customer, whether the service is performed within or outside this state, the service is received in this state if the property is shipped or delivered to the customer in this state.

(r) Services delivered to a customer by physical means shall be attributed to the extent the customer receives the benefit in Indiana, subject to the following conditions: (1) For mail, parcel, or similar delivery services of an item, the benefit is determined by the state to which the underlying item is delivered. (2) For services where an underlying product is to be delivered in one (1) or more states, the receipts from the services are attributable to this state in the proportion that the underlying product is apportioned to this state. This includes, but is not limited to, the following: (A) Products delivered to or on behalf of the customer. (B) Delivery of brochures, fliers, or other direct mail services. (3) For advertising delivered by physical means, the benefit of the service is as follows: (A) For billboard or fixed place advertising, where the billboard or fixed place is located. (B) For advertising services by television, radio, Internet, or broadcast means, the receipts shall be sourced based on the intended audience. In the absence of actual information, the ratio can be determined based on the targeted population in this state to the targeted population in all states. (C) For advertising by mail, parcel, or similar delivery means, the advertising shall be sourced based on the delivery address where the advertising is mailed.

(s) Services delivered to an individual customer by electronic transmission are sourced to Indiana if the customer receives the services in this state. In the absence of actual knowledge of the place of receipt, the taxpayer may source the receipts based on the customer's billing address.

(t) Services delivered to a business customer by electronic transmission shall be sourced to Indiana if and to the extent the employees or designees of the customer directly use the service in Indiana. If the taxpayer cannot determine the state or states where the service is used, the taxpayer shall use the following to determine sourcing: (1) If the taxpayer knows where the contract is principally managed by the customer, the receipts shall be sourced to that state. (2) If the taxpayer cannot determine the state as forth in subdivision (1), the taxpayer shall source the receipts to the state where the customer's order was placed. (3) If the taxpayer cannot determine the state set forth in subdivision (1) or (2), the taxpayer shall source the receipts to the state of the customer's billing address. (4) Notwithstanding subdivisions (2) and (3), if a taxpayer derives more than five percent (5%) of its receipts from the sale of services from any single customer and cannot reasonably determine where the service is used, the taxpayer shall source any receipts in accordance with subdivision (1). (5) Notwithstanding subdivisions (1) through (3), if a taxpayer engages in substantially similar service transactions with more than two hundred fifty (250) customers and a particular customer does not meet the criteria described in subdivision (4), the taxpayer may source the receipts according to the billing address of the customer. However, the taxpayer may only use this attribution for receipts under this subdivision if: (A) the taxpayer cannot determine the state where the service is used by the customer; and (B) the taxpayer sources all receipts under this subdivision, other than those described in subdivision (4), or the taxpayer can determine the state where the service is used by the customer. (6) If a sale under this subsection is made to a related party, the taxpayer shall source the receipts as provided in this subsection; however, if the taxpayer cannot determine the state or states where the service is used, the taxpayer shall attribute the receipts based on the related party's ratio of sales to Indiana to sales to all jurisdictions.

(u) For purposes of subsections (s) and (t), if the taxpayer cannot determine if a taxpayer is an individual or a business customer, the taxpayer shall treat the receipts as being attributable to a business customer.

(v) For services delivered electronically through or on behalf of an individual or a business customer, receipts are sourced to this state to the extent that the end users or other intended recipients of the services are in this state, subject to the following conditions: (1) For purposes of this subsection, a service is delivered "on behalf of" a customer if: (A) a customer contracts for electronic delivery of a service; and (B) the recipient of the service is a third party. (2) A service is delivered "through" a customer to third party recipients only if the service is delivered to the customer for purposes of resale in substantially identical form to end users or third party recipients. (3) If a taxpayer selling advertising lacks specific information regarding the intended recipients in a particular state but has, or can reasonably obtain, a known list of subscribers for the advertising service, the taxpayer may use the total number of subscribers in a specific geographic area where the advertising is to be provided. In the absence of information regarding an intended audience or known subscribers, the ratio of the intended population in Indiana to the total population in the intended geographic area shall be used to determine the portion of receipts attributable to Indiana.

(w) For professional services provided to an individual customer, receipts from those services shall be sourced to the customer's state of primary residence, subject to the following conditions: (1) If the taxpayer cannot reasonably identify the customer's state of primary residence, the taxpayer shall source the receipts to the customer's billing address. (2) Notwithstanding subdivision (1), if a taxpayer receives more than five percent (5%) of its service receipts from an individual customer, the taxpayer shall identify the customer's state of primary residence and source the receipts to that location.

(x) For professional services provided to a business customer, receipts from those services are sourced as follows: (1) For professional services provided with regard to real or tangible personal property, including, but not limited to, architectural and engineering services, the location of the real or tangible personal property. (2) For other professional services, to the state from which the contract is principally managed. (3) If the state in subdivision (2) cannot be determined, the state of the customer's place of order. (4) If the state in subdivision (2) or (3) cannot be determined, the state of the customer's billing address. (5) Notwithstanding subdivision (3) or (4), if a taxpayer receives at least five percent (5%) of its receipts from a customer, the taxpayer is required to identify the state where the contract of sale is principally managed by the customer. (6) Notwithstanding any other provision of this subsection, for professional services provided to a related party, the portion of the taxpayer's services in Indiana must be in proportion to the related party's receipts from Indiana to the related party's receipts from all jurisdictions.

(y) For the license or lease of intangible property, receipts are attributable to this state to the extent the intangible is used in this state, subject to the following conditions: (1) A license of intangible property that conveys all substantial rights in the intangible property shall be treated and sourced as a sale of intangible property as provided in subsection (z). (2) Intangible property licensed as part of the sale or lease of tangible personal property shall be treated as the sale or lease of tangible personal property, and attributed in the same way as the associated tangible personal property. (3) For a marketing intangible, the receipts from the marketing intangible are attributed as follows: (A) If and to the extent that the taxpayer has actual evidence of the portion of the receipts attributable to this state, the receipts shall be attributed in that proportion. (B) If the taxpayer does not have the information needed to determine the proportion under clause (A), the proportion shall be determined based on the proportion of the population in the geographic area in this state as compared to the population of the entire geographic area of the intended market. (C) For the use of a marketing intangible regarding wholesale sales or transfers, the portion of the receipts attributable to this state shall be determined based on the geographic area where the product is ultimately marketed. The proportion is the population in the geographic area in this state as compared to the population of the entire geographic area. (D) For purposes of this subdivision, a marketing intangible includes the license of the following: (i) A service mark. (ii) A trademark. (iii) A trade name. (iv) A copyright. (v) A license of a film, television, or multimedia production or event for commercial distribution, if the receipts are not considered to be from telecommunications or broadcast services. (vi) A franchise agreement. (4) For receipts from the licensing of rights to use intangible goods other than in connection with the sale, lease, license, or other marketing of goods, services, or other items, and the license is to be used in a production capacity, hereinafter referred to as a "production intangible", the licensing fees shall generally be sourced as follows: (A) If the licensee is not a related party, to the state where the licensee uses the intangible, if this is known or reasonably should be known to the taxpayer. However, if that state is not known or cannot be determined: (i) to the state of the licensee's commercial domicile, if the licensee is a business; or (ii) to the state of the licensee's primary residence, if the licensee is an individual. (B) If the licensee is a related party, to the state where the manufacturing or production process takes place. (5) If a license of intangible property includes both a marketing intangible and a production intangible, the receipts shall be sourced as follows: (A) If the amounts are separately and reasonably stated in the licensing contract, those amounts shall be sourced separately. (B) If the amounts are not separately stated or the separate statement is unreasonable, the receipts shall be treated and sourced as the licensing of a marketing intangible unless, and only to the extent, either the department or the taxpayer can reasonably establish that an amount represents a production intangible. (6) If the license of intangible property resembles the sale of an electronically delivered good or service, the receipts from the intangible shall be sourced in the same way as the electronically delivered good or service. This includes licenses for which the customer intends to resell the good or service in a substantially identical form to end users or other recipients.

(z) For a sale or an exchange of intangible property, the following conditions apply: (1) For a sale or an exchange of property where the property is a contract right, government license, or similar intangible property that authorizes the holder to conduct a business activity in a specific geographic area, receipts are assigned if and to the extent the property is used in this state. (2) For a sale where the receipts depend on the productivity, use, or disposition of the intangible property, the sale shall be sourced in the manner prescribed in subsection (y). (3) For receipts from the sale of intangible property that resembles the sale of goods and services, the receipts shall be sourced in the same way as the sale of the underlying goods or services. (4) Any other receipts from the sale or disposition of intangible property shall be excluded from both the numerator and denominator for apportionment purposes.

(aa) For receipts from providing airline transportation, the receipts shall be attributed to Indiana in the ratio of departures from Indiana, measured by the value and cost of the aircraft, to the departures from all jurisdictions measured by the value and cost of the aircraft. For purposes of this rule, the following conditions apply: (1) The value and cost of the aircraft will be determined for each departure. Therefore, a plane making six (6) Indiana departures and thirty (30) total departures in which receipts would otherwise be counted will have the value and cost of the plane included in the numerator six (6) times and the denominator thirty (30) times. However, if the plane was operated by a foreign operating company with seven (7) of those flights occurring outside the United States, those seven (7) flights would not be included in the receipts denominator. (2) If a taxpayer operates multiple aircraft of a particular type that are ready for flight, the taxpayer may use the average cost or value of that aircraft. (3) For purposes of this rule, if an aircraft is both owned and operated by a taxpayer, the value and cost of the aircraft must be the original basis of the property for federal income tax purposes at the time of acquisition, adjusted by subsequent capital additions or improvements to the property and any partial disposition of the property. If the property is not acquired by purchase, the property shall be valued otherwise under MGAAR IV.11.(a). (4) For an aircraft leased or rented by an operator, the value and cost of the aircraft shall be eight (8) times the net annual rental rate, as determined under MGAAR IV.11.(b), including exceptions for subrentals, negative net rental rates, and nominal rental rates. (5) Any other matters not specifically addressed shall be determined in the manner provided by the airline rule.

(bb) For receipts from providing railroad transportation, the following conditions apply: (1) The attribution of receipts from the transportation of passengers, and freight and other tangible personal property, shall be determined separately. However, if tangible personal property is handled in passenger service, receipts from the transportation of the tangible personal property shall be considered to be from the transportation of passengers. (2) Receipts from intrastate transportation, whether in this state or any other state, shall be determined separately from receipts from interstate transportation. (3) Receipts from the transportation of passengers or property shall be determined as follows: (A) All receipts from transportation that originates and terminates at a point in Indiana shall be considered as being from this state. (B) For receipts from interstate transportation of passengers or property, the receipts are in this state determined by the ratio of miles traveled in this state to the total miles traveled everywhere. (4) Any other matters not specifically addressed shall be determined in the manner provided by the railroad rule.

(cc) For receipts from providing trucking or transportation services of tangible personal property, the following conditions apply: (1) All receipts from transportation that originates and terminates at a point in Indiana shall be considered as being from this state. (2) For receipts from interstate transportation, the receipts are in this state determined by the ratio of miles traveled in this state to the total miles traveled everywhere. (3) Any other matters not specifically addressed shall be determined in the manner provided by the trucking rule.

(dd) For receipts from construction contracts, the receipts from those contracts are in this state if the construction project is in this state, subject to the following conditions: (1) If the project is located partly within this state and partly outside this state, the portion in this state must be equal to the proportion of construction costs incurred in this state during the period that the receipts are to be otherwise included. (2) In general, receipts shall be considered to be received if, and to the extent, the receipts are included in income for federal income tax purposes. (3) If a taxpayer uses a completed contract method of accounting and stops doing business in this state before the contract is completed, the receipts and income from the contract up to the date the taxpayer stops doing business must be included in the taxpayer's receipts and income during the last year in which the taxpayer is doing business in Indiana. (4) Other matters not specifically addressed shall be determined in the manner provided by the construction contractor rule.

(ee) For newspaper and magazine publishers, the following conditions apply: (1) For receipts from the sales of magazines and newspapers by digital means, the receipts attributable to those sales are in this state if the purchaser is in this state. (2) Receipts from advertising are in this state based on the ratio of subscribers in this state to subscribers in all states. If advertising is intended to reach only a specified geographic area, the receipts shall be attributed based on the ratio of subscribers in this state in the specified geographic area to all subscribers in that specified geographic area. (3) Receipts from the sale of customer lists or similar subscriber data are in this state based on the ratio of subscribers in the list or data in Indiana compared to all subscribers in the list or data.

(ff) For receipts from lottery or gambling, the following conditions apply: (1) For a person receiving gambling winnings, such as a lottery ticket purchaser or player at a casino, the receipts from gambling winnings shall be sourced to this state if the gambling winnings are the result of the following: (A) A lottery ticket or an equivalent purchased from a location in Indiana, regardless of whether the contest is conducted solely in Indiana or in conjunction with another jurisdiction. (B) Wagers at a casino, horse track, sports betting facility, or similar operation conducted at a physical location in this state and from which the wager is placed in person at the location of the operator in this state. (C) Gambling conducted through Internet, telephone, or other remote means, if the person placing the wager is in this state. (2) For an operator of a casino, horse racing track, sports betting facility, or similar operation, the following applies: (A) Gambling receipts from the conduct of in-person gambling, horse racing, sports betting, or similar operations at a physical location in this state are considered to be receipts attributable to this state. (B) For gambling conducted through Internet, telephone, or other remote means, receipts are in this state if the person placing the wager is in this state. (C) For purposes of clauses (A) and (B), receipts from gambling activities must equal the portion of wagers, gross receipts, or adjusted gross receipts that are subject to tax if the activities had been conducted in Indiana.

(gg) Receipts from the sale, exchange, or assignment of tax credits, or from the refundable portion of a tax credit includible as income for federal tax purposes, are in this state if: (1) the tax credit is for a tax imposed by this state, or by or on behalf of a political subdivision of this state; or (2) the tax credit is a federal tax credit and is earned by doing business in Indiana.

(hh) Receipts described in IC 6-5.5-4-3 through IC 6-5.5-4-13 are attributable to this state in the same manner as provided in those citations, except as specifically provided in this rule, IC 6-3-2-2 , or IC 6-3-2-2.2 .

(3.1)(1-57)Rents and royalties from real property and tangible personal property as nonbusiness income#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-2-2

Sec. 57. Rents and Royalties from Real and Tangible Personal Property. Rental income from real and tangible property is nonbusiness income if the property with respect to which the rental income was received is not or could not be used in the taxpayer's trade or business or is not incidental thereto.

Examples:

(1) The taxpayer operates a multistate car rental business. The income from car rentals is business income since such activity is the taxpayer's principal business.

(2) The taxpayer is engaged in the heavy construction business in which it uses equipment such as cranes, tractors, and earthmoving vehicles. The taxpayer makes short-term leases of the equipment when particular pieces of equipment are not needed on any particular project. The rental income is business income.

(3) The taxpayer operates a multistate chain of men's clothing stores. The taxpayer purchases a five-story office building for use in connection with its trade or business. It used the street floor as one of its retail stores and the second and third floors for its general corporate headquarters. The remaining two floors are incidental to the operation of the taxpayer's trade or business. The rental income is business income.

(4) The taxpayer, who operates a multistate chain of grocery stores, purchases as an investment an office building in another state with surplus funds and leases the entire building to others. The net rental income is nonbusiness income.

(5) The taxpayer constructed a plant in 1930 as a part of its multistate manufacturing business. On June 30, of the tax year, the plant was closed and put up for sale. The plant was rented from July 1 of that year, until sold in November of the following year. Rental income is business income.

Net rents and royalties from real property, to the extent they constitute nonbusiness income, are allocated to the state where the property is located. Nonbusiness income from tangible personal property is allocated to Indiana to the extent the property is utilized in the state, or to Indiana in its 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.

(3.1)(1-59)Interest as nonbusiness income#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-2-2

Sec. 59. Interest. Interest income is nonbusiness income if the intangible with respect to which the interest was received did not arise out of or was not created in the regular course of the taxpayer's trade or business operations or where the purpose for acquiring and holding the intangible was not related to or incidental to such trade or business operations. The term "interest" as used in this regulation [ 45 IAC 3.1-1-59 ] includes service charges, time-price differentials, and all other charges for the use of money.

Examples:

(1) The taxpayer operates a multistate chain of department stores, selling for cash and on credit. Service charges, interest, or time-price differentials and the like are received with respect to installment sales and revolving charge accounts. These amounts are business income.

(2) The taxpayer conducts a multistate manufacturing business. During the year the taxpayer receives a Federal income tax refund and collects a judgment against a debtor of the business. Both the tax refund and the judgment bore interest. The interest income is business income.

(3) The taxpayer is engaged in a multistate manufacturing and wholesaling business. In connection with that business, the taxpayer maintains special accounts to cover such items as Workmen's Compensation claims, rain and storm damage, machinery replacement, etc. The monies in those accounts are invested as interest. Similarly, the taxpayer temporarily invests funds intended for payment of Federal, State and local tax obligations. The interest income is business income.

(4) The taxpayer is engaged in a multistate money order and traveler's checks business. In addition to the fees received in connection with the sale of the money orders and traveler's checks, the taxpayer earns interest income by the investment of the funds pending their redemption. The interest income is business income.

(5) The taxpayer is engaged in a multistate manufacturing and selling business. The taxpayer usually has working capital and extra cash totaling $200,000 which it regularly invests in short-term interest bearing securities. The interest income is business income.

(6) In January the taxpayer sold all stock of a subsidiary for $20,000,000. The funds are placed in a separate interest-bearing account pending a decision by management as to how the funds are to be utilized. The interest income is business income.

(7) The taxpayer, a multistate manufacturer, purchases and maintains a portfolio of interest-bearing securities for investment purposes. The interest from such securities is nonbusiness income.

Nonbusiness interest is allocated to Indiana if the taxpayer's commercial domicile is in this state.

(3.1)(1-60)Dividends as business income#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-2-2

Sec. 60. Dividends. Dividends are nonbusiness income if the stock with respect to which the dividends are received did not arise out of or was not acquired in the regular course of the taxpayer's trade or business operations or where the purpose for acquiring and holding the stock is not related to or incidental to such trade or business operation.

Examples:

(1) The taxpayer operates a multistate chain of stock brokerage houses. During the year the taxpayer receives dividends on stock it owns. The dividends are business income.

(2) The taxpayer is engaged in a multistate manufacturing and wholesaling business. In connection with that business the taxpayer maintains special accounts to cover such items as Workmen's Compensation claims, etc. A portion of the monies in those accounts is invested in interest-bearing bonds. The remainder is invested in various common stocks listed on national stock exchanges. Both the interest income and any dividends are business income.

(3) The taxpayer and several unrelated corporations own all of the stock of a corporation whose business operations consist solely of acquiring and processing materials for delivery to the corporate owners. The taxpayer acquired the stock in order to obtain a source of supply and materials used in its manufacturing business. The dividends are business income.

(4) The taxpayer is engaged in a multistate heavy construction business. Much of its construction work is performed for agencies of the Federal government and various state governments. Under state and Federal laws applicable to contracts for these agencies, a contractor must have adequate bonding capacity, as measured by the ratio of its current assets (cash and marketable securities) to current liabilities. In order to maintain an adequate bonding capacity the taxpayer holds various stocks and interest-bearing securities. Both the interest income and any dividends received are business income.

(5) The taxpayer receives dividends from the stock of its subsidiary or affiliate which acts as the marketing agency for products manufactured by the taxpayer. The dividends are business income.

(6) The taxpayer is engaged in a multistate glass manufacturing business. It also holds a portfolio of stock for investment purposes, the acquisition and holding of which are unrelated to the manufacturing business. The dividends received are nonbusiness income.

Nonbusiness dividends are allocated to Indiana if the taxpayer's commercial domicile is in this state.

(3.1)(1-63)Apportionment in absence of one or more factors#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-2-2

Sec. 63. Property, Payroll and Sales Factors–Special Circumstances. In the case of a taxpayer that lacks one or more of the factors in the 3-factor formula, the taxpayer's business income will generally be apportioned by use of the remaining factor or factors.

Examples:

(1) The taxpayer, a wholly-owned subsidiary of a manufacturing corporation, has no employees of its own in Indiana or any other state. The taxpayer will apportion its business income by a formula the numerator of which is the property and sales factors, and the denominator of which is two.

(2) The taxpayer, a sales subsidiary for a multistate manufacturer, has no property or payroll of its own in Indiana, but does in other states. The taxpayer's business income will be apportioned by a formula the numerator of which is the sales factor and the denominator of which is three.

Where in the computation of the property, payroll or sales factors, the taxpayer has not assigned part of its property, payroll, or sales to any state, the Department may require the exclusion of the unassigned property, payroll or sales from the denominator of the appropriate factor in order to prevent distortion of the apportionment.

Transportation Companies. IC 6-3-2-2 (b) requires that interstate carriers and all other multistate taxpayers use the three-factor formula in apportioning their business income. This method will assure consistency in the application of the Adjusted Gross Income Tax Act to multistate carriers. Business income for transportation companies is apportioned to Indiana by the use of the following formula: Definition of Factors (A) Tangible Property. Fixed properties such as buildings and land used in business, shop and terminal equipment and trucks or cars used locally or any other tangible property connected with the transportation business, will be assigned to the state in which such properties are located. The value of all movable equipment used in interstate transportation will be assigned to this State on the basis of total miles traveled in this State, as compared to total miles traveled everywhere. Fixed and movable property will then be combined to arrive at the total property factor, Indiana property over property everywhere. Property owned by the transportation company is valued at original cost. Property rented is valued at eight (8) times the annual rental rate less any annual subrental. (B) Payroll. Wages and salaries of employees assigned to fixed locations within this State shall be included in the payroll factor of this State. Wages of personnel operating interstate transportation equipment will be assigned to this State on the basis of total miles traveled in Indiana, as compared to total miles traveled everywhere. The payroll of permanent and transient personnel will then be combined to arrive at the total payroll factor, Indiana payroll over payroll everywhere. (C) Revenue from Transportation. The total revenue dollars from transportation (both intra-state and inter-state) are to be assigned to the states traversed on the basis of class or category mileage in each state in which or through which the freight or passengers move. Pipelines may substitute revenue miles with barrel miles, cubic foot miles, or other appropriate measures of product movement. In order to determine the percentage of revenue from transportation services in Indiana, the fraction of revenue miles in Indiana over revenue miles everywhere must be applied to total revenue from transportation. Example: Computation of Three-Factor Apportionment Formula A. Tangible Property Factor Fixed property in Indiana 40,000 Fixed property everywhere 1,000,000 Milage [sic.] Factor 2% (see C below) Movable property everywhere 24,000,000 1. Indiana value of movable property 2% × 24,000,000 = 480,000 2. Fixed and movable property is combined to arrive at the total property factor B. Payroll Factor Payroll at fixed Indiana location 20,000 Payroll at fixed location everywhere 1,000,000 Mileage Factor 2% (see C below) Payroll of employees operating interstate transportation everywhere 2,000,000 1. Indiana value of transient payroll 2% × 2,000,000 = 40,000 2. Fixed and transient payroll is combined to arrive at the total payroll factor C. Revenue From Transportation Factor Road miles over Indiana 90,000 Road miles everywhere 4,500,000 Total gross receipts from transportation 6,000,000 1. Mileage Factor 90,000 ÷ 4,500,000 = 2% Mileage factor is combined with total gross receipts to arrive at the revenue from transportation factor 2% × 6,000,000 = 120,000 120,000 ÷ 6,000,000 = 2% revenue from transportation factor D. Total Apportionment Percentage Property 2.08 Payroll 2.00 Revenue 2.00 6.08 ÷ 3 = 2.03% apportionment percentage

(3.1)(1-67)Subchapter S corporation reports; taxation of shareholders#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-2-2.8

Sec. 67. Subchapter S Corporations Filing Requirements. Qualified Subchapter S corporations will file an annual return, Form It-20S on or before the fifteenth day of the fourth month following the close of the corporation's tax year. The first annual return of the corporation must be accompanied by copies of Federal Form 2553, Election by Small Business Corporation, and by Federal Form 1120S covering the corporation's first-year business activities. Corporations must designate their Federal business activity code numbers in the appropriate place on the return, as well as designating their Federal identification numbers. Annual returns must be filed by any Subchapter S corporation incorporated in Indiana or having income from Indiana sources.

Indiana resident shareholders of a Subchapter S corporation that conducts business in more than one state are subject to the adjusted gross income tax on their entire share of the corporation's income. They may, however, be allowed a credit for any taxes paid to another state on this income. Such credit will be pursuant to the provisions of Regulation 6-3-3-3(a)(010) [ 45 IAC 3.1-1-74 ] .

Nonresident shareholders of a Subchapter S corporation conducting business both within and without Indiana must divide their income by using the corporate division of income provisions contained in Regulation 6-3-2-2(b)(010) [ 45 IAC 3.1-1-37 ] et seq. In particular, these shareholders must apportion their business income on the three-factor formula outlined in Regulation 6-3-2-2(b)(030) [ 45 IAC 3.1-1-39 ] .

Any Subchapter S corporation which is a member of a partnership, joint venture, or pool will cause such partnership, joint venture, or pool to become subject to gross and adjusted gross income tax. See Regulation 6-3-7-1(b)(010) [ 45 IAC 3.1-1-151 ] . In that case, the partnership, joint venture, or pool will file annual return IT-65T and pay the tax shown to be due thereon. Profits from such entities are deductible by the corporation on its annual return.

Subchapter S corporations are required to make information returns as described in Regulation 6-3-4-9(010) [ 45 IAC 3.1-1-104 ] .

(3.1)(1-68)Unrelated business income of exempt organizations#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-2-3.1

Sec. 68. Unrelated Business Income of Exempt Organizations. Under IC 6-3-2-3.1 , exempt organizations are subject to adjusted gross income tax and supplemental net income tax on income derived from an unrelated trade or business as defined in Internal Revenue Code §513. This section does not apply to the United States and its agencies and instrumentalities, nor to the State of Indiana, a state agency as defined in IC 34-4-16.5-2 [ IC 34-4 was repealed by P.L.1-1998, SECTION 221, effective July 1, 1998.] , nor a political subdivision of the state as defined in IC 34-4-16.5-2 [ IC 34-4 was repealed by P.L.1-1998, SECTION 221, effective July 1, 1998.] , all of which are exempt from adjusted gross income tax on all income. This section does apply to all other exempt organizations such as churches, fraternal organizations and professional societies.

An "unrelated trade or business" is one the conduct of which is not substantially related (aside from the needs of income or the use of the profits) to the performance by the exempt organization of the function constituting the basis for which it was granted exemption. However, under Internal Revenue Code § 513 the term does not include income from a trade or business:

(1) in which substantially all the work is done for the organization without compensation; or

(2) which is carried on primarily for the convenience of its members, employees, etc.; or

(3) which is the selling of merchandise substantially all of which has been received by the organization as gifts or contributions.

The exempt organization will compute its taxable unrelated business income in the same manner as any other taxpayer having business income. However, its business deductions are limited to those directly connected with the carrying on of the unrelated trade or business. Taxpayers should consult the Internal Revenue Code §§511-515 and the regulations established thereunder for a more detailed explanation of the Federal income tax on unrelated business income.

(3.1)(1-74)Credit for other state income taxes#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-3-3

Sec. 74. Credit for Taxes Paid To Other States. An Indiana resident must report income from all sources, including out-of-state income, in calculating Indiana adjusted gross income tax. If a resident is required and does pay an income tax to any other state (depending upon which state), possession or foreign country on income derived therefrom, he may, upon production of satisfactory evidence of such payment of tax, claim a credit against his Indiana Adjusted Gross Income Tax. The credit is the lesser of: (a) The amount of income tax actually paid to the other state on income from that state; or, (b) An amount equal to two percent (2%) of the income from the other state which is taxed by Indiana; or (c) The amount of state tax due to Indiana.

Credit is not allowed for city income or occupational taxes paid in other states or state income taxes paid in states allowing Indiana residents a nonresident credit.

Satisfactory evidence is as follows:

The credit taken must be supported by a separate calculation of the credit along with a copy of the tax return filed with the other state, certified as true, and/or having been received by the proper taxing authority of such state. Withholding statements or other evidence of tax payments without a certified copy of an annual tax return will not be acceptable.

Income from another state is that part of Federal gross income, minus all attributable Internal Revenue Code section 62 deductions, derived from sources without Indiana that is taxable in a particular state or country and is also taxable under this Act. EXAMPLE: Assuming the following facts: Income from Indiana $ 6,000.00 Income from other state 4,000.00 Total Indiana exemptions 3,000.00 Tax liability to other state 100.00 Calculate Indiana tax and credits as follows: Total income $10,000.00 Less: Exemptions 3,000.00 Taxable Income 7,000.00 Indiana tax rate .02 Indiana tax 140.00 Credit for tax paid to other state: Income from other state $ 4,000.00 Indiana rate .02 *Tax Credit $ 80.00 Balance of tax due Indiana $ 60.00

*[This amount cannot be larger than tax actually paid to other state.]

(3.1)(1-79)Credit for contributions to colleges#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-3-5

Sec. 79. College Credit. The Indiana Department of State Revenue will recognize credits taken on Individual, Fiduciary, and Corporation Income Tax Returns which are supported by contributions made to an "institution of higher education located in Indiana." In order to qualify for this credit, the contribution must be made directly to the institution of higher education, or to any corporation or foundation organized and operated solely for the benefit of any such institution of higher education, and/or to the Associated Colleges of Indiana.

However, any shareholder of a sub "S" corporation which makes a contribution to an accredited Indiana college, university or institution will not be eligible for college credit. This is because charitable contributions do not flow through to the shareholders for Federal tax purposes. Organizations which are not subject to the adjusted gross income tax, such as banks and savings and loan associations, may not claim the college credit.

The institution of higher education must grant an associate, bachelors, masters, or doctoral degree, or any combination thereof, and the school must be accredited to grant such degrees by one of the following agencies:

(1) North Central Association of Colleges and Secondary Schools;

(2) Indiana Department of Public Instruction; or

(3) American Association of Theological Schools.

Allowable Credit for Individuals, Trusts and Estates

An individual is entitled to a tax credit for gifts equal to fifty percent (50%) of the aggregate amount thereof, but not exceeding the lesser of:

(1) $100.00 for a single return, trust or estate;

(2) $200.00 for a joint return; or

(3) The individual's adjusted gross income tax liability for the year in which the gifts are made, less the amount of all other credits allowable against such tax under the Adjusted Gross Income Tax Act. With respect to the third limitation, the other credits presently allowed by the Act against adjusted gross income tax include the credit for taxes paid to other states and the credit for the elderly.

In no event will a tax credit for contribution to educational institutions in excess of tax owing in any year give rise to an overpayment of tax to be refunded.

A separate schedule, CC-40, will be available for reporting and claiming this credit. The schedule must be attached to the individual return, Form IT-40, the nonresident return, Form IT-40PNR, or the Fiduciary Return, Form IT-41.

Allowable Credit for Corporations

A corporation is entitled to a tax credit for gifts to institutions of higher education equal to fifty percent (50%) of their total gifts in that year, but not to exceed the lesser of (1) ten per cent (10%) of the corporation's adjusted gross income tax for the year in which the gifts are made; (2) the sum of $1000.00; or (3) the corporation's adjusted gross income tax for the year in which the gifts are made less the amount of all other credits allowable against such tax under the Adjusted Gross Income Tax Act. In no event will the sum of the credit for contributions to institutions of higher education and the credit for the Hard Core Unemployed be in excess of the tax due.

The tax credit may be applied against either the gross income tax or the adjusted gross income tax. The credit computation is based on the adjusted gross income tax. Thus, a corporation which has no taxable adjusted gross income would not be allowed this tax credit. A separate schedule, Form CC-20, is available for reporting and claiming this credit. The schedule must be attached to the corporation return, Form IT-20.

Following is a listing of the eligible schools in which the contributor may qualify for the college credit: INSTITUTION CITY Ancilla College Donaldson Anderson College Anderson The Associated Colleges of Indiana Indianapolis Ball State University Muncie Bethel College Mishawaka Butler University Indianapolis Calumet College Whiting Catholic Seminary Foundation of Indianapolis (St. Maur's Seminary) Indianapolis Christian Theological Seminary Indianapolis Concordia Senior College Fort Wayne DePauw University Greencastle Earlham College Richmond Fort Wayne Bible College Fort Wayne Franklin College of Indiana Franklin Goshen Biblical Seminary Elkhart Goshen College Goshen Grace Theological Seminary and Grace College Winona Lake Hanover College Hanover Huntington College Huntington Indiana Central University Indianapolis Indiana Institute of Technology Fort Wayne Indiana State University Terre Haute Indiana University Bloomington and Regional Facilities Indiana Vocational Technical College Indianapolis and Regional Facilities Manchester College North Manchester Marian College Indianapolis Marion College Marion Mennonite Biblical Seminary Elkhart Northwood Institute of Indiana West Baden Oakland City College Oakland City Purdue University West Lafayette and Regional Campuses Rose-Hulman Institute of Technology Terre Haute St. Francis College Fort Wayne St. Joseph College Rensselaer St. Mary-of-the-Woods College Terre Haute St. Mary's College Notre Dame St. Meinrad College St. Meinrad Taylor University Upland Tri- State College Angola University of Evansville Evansville University of Notre Dame Notre Dame (South Bend) Valparaiso University Valparaiso Vincennes University Vincennes Wabash College Crawfordsville

This is not necessarily a complete listing and taxpayers having any questions as to the eligibility of any particular contribution for credit should petition the Department in writing.

(3.1)(1-91)Declarations of estimated tax by individuals#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-4-4

Sec. 91. Declarations of Estimated Tax By Individuals. An individual who does not have Indiana Adjusted Gross Income Tax or County Adjusted Gross Income Tax withheld from his wages on a regular basis is required to file a Declaration of Estimated Tax if he owes $100.00 or more of Indiana Adjusted Gross Income Tax or County Adjusted Gross Income Tax. Specifically, he will declare the amount of tax estimated for the current year and submit quarterly payments to prepay the tax. Also, individuals who have tax withheld by an employer are required to file a declaration if they have income other than wages in excess of $5,000.00 which is not covered by withholding. The following schedule illustrates the determination of the declared amount: (A) Total Estimated Income in current year $ (B) Total Exemption $ (C) Amount subject to tax (line A less line B) $ (D) Amount of State Tax (line C x 2%) $ (E) Estimated State Tax Withheld by employer (if any) $ (F) Amount of State Declaration (line D less line E) (Enter this amount on Form IT-40, in the space for total State Estimated Tax) $ (G) Estimated Amount of County Tax (line C x appropriate county tax rate) $ (H) Estimated County Tax Withheld by employer (if any) $ (I) Amount of County Declaration (line G, less line H) (Enter this amount on Form IT-40 in the space provided for County Declaration of Estimated Tax) $

An individual subject to estimated tax must, when filling out his tax return for the previous year, make a Declaration of Estimated Tax for the current year; i.e., 1978 estimated tax must be declared and shown on the 1977 income tax return. The taxpayer is then required to add one fourth (1/4) of the declared estimated tax to his tax due for the preceding year. The remainder of his estimated tax due is to be made in three quarterly payments. The subsequent quarterly payments are to be made on voucher form ES-40.

If a taxpayer has estimated his tax in the previous year he will receive vouchers and envelopes with his return for quarterly payments of his estimated tax. If this is his first year to estimate, the vouchers and envelopes will be sent to him after he makes a declaration on his individual income tax return. EXAMPLE: Mr. Smith, while completing his 1977 Indiana return in March of 1978, determines that he will owe the State $100.00 of Indiana Adjusted Gross Income Tax for 1978. He then declares $100.00 for 1978 on the appropriate line of his 1977 return and includes $25.00 [one fourth (1/4) of his 1978 estimated tax] with his payment of 1977 taxes. He pays the remaining three fourths (3/4) of his estimated tax in three (3) quarterly payments of $25.00 (June 15, September 15, and January 15).

A declaration may be made after the Individual Income Tax Return has been filed by filling out a voucher which the Department of Revenue will furnish on request, along with a remittance in the appropriate amount. To amend an estimate, a voucher should be submitted with the necessary changes and remittance reflecting same. No other form is necessary.

However, an estimated tax payment may not be made on a prior-year return. If the taxpayer is not filing a current-year return, then estimated payments must be made on a voucher. NOTE: The Department does not send quarterly notices of estimated tax due, but rather it is the responsibility of the taxpayer to send in his payments with the appropriate voucher.

PENALTIES:

A penalty may be assessed for failure to make sufficient payment of estimated tax. Penalty is computed at a rate of 8% per annum on the amount of unpaid tax.

EXCEPTIONS:

If at least two-thirds (2/3) of total gross income from all sources is attributable to farming or fishing (including oyster farming) a declaration of estimated tax need not be made if the individual's income tax return is filed any time on or before March 1 of the succeeding year (IRC §6073b).

In addition, the Department will not assess penalty for underpayment of estimated tax if the taxpayer falls within the exceptions of IRC §6654d.

(3.1)(1-92)Declarations of estimated tax by corporations#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-4-4

Sec. 92. Declaration of Estimated Tax By Corporations. Corporations are required under Indiana law to make estimated payments of both gross and adjusted gross income tax, as well as supplemental net income tax.

Any corporation whose gross income tax liability exceeds $250.00 ($25.00 prior to January 1, 1978) per quarter is required to file a Corporation Quarterly Income Tax Return, Form IT-6, within thirty (30) days after the close of the quarter. Failure to make quarterly payments of gross income tax will result in a 10% penalty together with interest at 8% per annum.

Corporations are required to make quarterly payments of the adjusted gross income tax when the estimated annual amount of such tax exceeds the gross income tax by more than $1,000.00. Quarterly payments of supplemental net income tax are required when the estimated annual amount of such tax exceeds $1,000.00. Failure to make quarterly payments will result in an 8% penalty as explained in IC 6-3-4-4 (c).

Tax booklets which include the necessary quarterly and annual tax returns will be mailed automatically once the corporation is established on the mailing list after the initial return is filed.

Use of the correct Federal Identification Number is most important in assuring credit to the proper account. If the I.D. number is changed in any way, an explanation for the change should be sent to the Department immediately.

All taxpayers are cautioned that fifth quarter or supplemental payments with extensions are to be clearly designated as such so that the payment is not applied to a subsequent taxable year. In addition, all taxpayers should note that refunds derived from filing the annual corporate income tax return cannot be applied to the next taxable year's quarterly estimated liability. If a taxpayer has overpaid quarterly payments, the credit must be claimed on the annual corporate return to obtain a refund. If a taxpayer remits one check for the entire remainder of a year's estimated liability, no further quarterly returns should be filed with the Department after the date of the payment. It is important to note that all checks remitted to the Department should be accompanied by a return or a complete explanation for the payment. EXAMPLES OF QUARTERLY INCOME TAX PAYMENTS EXAMPLE A (1) Estimated Adjusted Gross Income for the quarterly period $1,025,000 (2) Estimated Adjusted Gross Income Tax (3%) 30,750 (3) Gross Income Tax 30,250 (4) Excess Line 2 minus Line 3 500 Quarterly Tax Payments-Gross Income Tax $30,250 Adjusted Gross Income Tax 500 Total $ 30,750.00 Supplemental Net Income Tax- Supplemental Net Income for the quarterly period-Subtract the greater of the estimated adjusted gross income tax or gross income tax from adjusted gross income $994,250.00 Supplemental Net Income Tax (3%) 29,827.50 Quarterly tax payment $ 29,827.50 Total Quarterly Payment $ 60,577.50 EXAMPLE B (1) Estimated Adjusted Gross Income for the quarterly period $1,000,000.00 (2) Estimated Adjusted Gross Income Tax (3%) 30,000.00 (3) Gross Income Tax31,250.00 (4) Excess Line 2 minus Line 3 -0- Quarterly Tax Payment-Gross Income tax $31,250.00 Adjusted Gross Income Tax -0- Total $ 31,250.00 Supplemental Net Income Tax Supplemental Net Income for the quarterly period-Subtract the greater of the estimated adjusted gross income tax or gross income tax from adjusted gross income $968,750.00 Supplemental Net Income Tax (3%) $29,062.50 Quarterly tax payment $ 29,062.50 Total Quarterly Payment $ 60,312.50

PENALTIES

Eight percent (8%) penalty per annum shall be assessed by the Department on corporations failing to make payments as required of the adjusted gross income tax and the supplemental net income tax; however, no penalty shall be assessed as to any quarterly payment which equals or exceeds twenty percent (20%) of the final tax liability for such taxable year, or as to any quarterly payment which shall equal or exceed twenty-five percent (25%) of the final tax liability for the taxpayer's previous taxable year. The eight percent (8%) per annum penalty as to any underpayment of tax on a quarterly return shall only be assessed on the difference between the actual amount paid by the corporation on such quarterly return and twenty-five percent (25%) of the corporation's final adjusted gross income tax liability or supplemental net income tax liability, as the case may be for such taxable year.

NOTE: The information contained herein with regard to the adjusted gross income tax and the supplemental net income tax is not applicable to municipal corporations and not-for-profit organizations which are exempt from Federal income taxes.

(3.1)(1-97)Returns and reports by withholding agents#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-4

Sec. 97. Withholding Agent's Returns and Reports to the Department. Employers who make payments of wages subject to the Adjusted Gross Income Tax Act, and who are required to withhold Federal taxes pursuant to the Internal Revenue Code (USC Title 26), are required to withhold from employees' wages Adjusted Gross and County Adjusted Gross Income Tax.

Withholding agents who are required to withhold Indiana Adjusted Gross Income Tax and County Adjusted Gross Income Tax (where applicable), shall make return of and payment to the Department monthly whenever the amount of tax due, for either County and State, exceeds an aggregate of $50 per month with such payment due on the thirtieth (30th) day of the following month. Where the aggregate amount of tax due under the Adjusted Gross Income Tax or County Adjusted Gross Income Tax does not exceed $50 per month, payment and return of the amount of tax due shall be made quarterly, with such payment due on the last day of the month following the end of the quarter. The following criteria should be used:

(1) A withholding agent who falls within the monthly reporting system, due to maintaining an aggregate of fifty dollars ($50) per month, but who in any month thereafter may maintain an aggregate of less than fifty dollars ($50) per month, should remit that lesser amount on a monthly basis so as to maintain the status of being on the monthly system.

(2) A withholding agent who falls within the quarterly reporting system, due to not maintaining an aggregate of fifty dollars ($50) per month, but who in any month thereafter does maintain an aggregate of fifty dollars ($50) per month, should then, and thereafter, begin reporting and making returns on a monthly basis and thereby maintain the status of being on the monthly system.

EXAMPLES:

(1) A withholding agent withheld $45.00 state income tax and $20.00 county income tax during July, 1978. Since the aggregate withheld exceeds $50.00 per month the withholding agent falls within the monthly system and must submit the return and make payment for the month of July no later than August 30, 1978.

(2) A withholding agent withheld $30.00 state income tax and $10.00 county income tax during July, 1978. Since the aggregate does not exceed $50.00 per month the withholding agent must submit a return and make payment on a quarterly basis with such return and payment due on or before the last day of the month following the end of the quarter.

All amounts deducted and withheld by an employer shall immediately upon deduction become the money of the State. All employers who make a declaration of withholding must provide each employee annually, but not later than January 30, a statement on Form W-2 of the total amount of wages paid, and adjusted gross and county adjusted gross income tax withheld. In the case of delinquency or nonpayment of withholding tax, the employer is liable for such tax, penalties, and interest. If the employer is a corporation or partnership, all officers, employees, or members under a duty to withhold and remit adjusted gross income tax are personally liable for such taxes, penalty, and interest.

The withholding provisions of this Act apply to both resident and nonresident employers having employees resident and/or working in the state (except employees resident in states having reciprocal agreements with Indiana).

(3.1)(1-98)Withholding and returns by interstate transportation companies#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-4

Sec. 98. Withholding of Compensation Paid To Employees of Interstate Transportation Companies. The following policy prescribed by the Department applies to the withholding of state income tax on transportation companies including railroads, motor carriers, airlines, and water carriers on compensation paid to their employees who work in more than one state.

Transportation companies who employ Indiana residents in this State will continue to withhold the Indiana Adjusted Gross Income Tax as prescribed under Section 408 of the Indiana Adjusted Gross Income Tax Act of 1963, as amended. In the event that the Indiana resident earns more than 50% of his compensation outside of Indiana the employer, under Public Law 91-569, is required to withhold the tax for the state in which more than 50% of the compensation is earned; however, if more than 50% of the compensation is not earned in any state, the employer must withhold on the basis of residency. If tax is withheld on an Indiana resident and remitted to a state other than Indiana, the employer must file an annual information return reporting any wages on those Indiana residents subject to the withholding provisions of another state.

It is the opinion of this Department that the 50% test prescribed under this Federal Act does not apply to Indiana residents employed by a railroad, motor carrier, airline or water carrier in the States of Georgia, Illinois, Kentucky, Michigan, Mississippi, North Carolina, Ohio and Wisconsin. Since Indiana has reciprocal tax agreements with the above states for transportation company employees, any tax assessed on an Indiana transportation employee other than Indiana adjusted gross income tax would be inoperative as a result of these agreements. Nonresident transportation employees who are employed in Indiana and receive more than 50% of their compensation for services performed in this state, are subject to the withholding of the Indiana adjusted gross income tax; however, if the employees subject to Public Law 91-569 are residents of Georgia, Illinois, Kentucky, Michigan, Mississippi, North Carolina, Ohio or Wisconsin, these nonresident employees are not subject to the withholding tax provisions in accordance with the previously mentioned reciprocal agreements. Nonresident employees who are residents of those states having a reciprocal agreement with Indiana should file a certificate of residency with the employer, and the employer should withhold on the basis of residency.

Information returns are required to be submitted by the transportation company to the state of residency of those employees subject to withholding tax as a nonresident employee.

In determining whether more than 50% is earned in the state of employment, the measurement in determining compensation on the various workers is as follows: Railroad employees assigned to track borne vehicles = Mileage traveled in a state Maintenance and terminal employees = Time worked in a state Motor Carrier employees operating vehicle = Mileage traveled in a state Employees operating a water carrier = Time worked in a state Employees operating an aircraft = Scheduled flight time

(3.1)(1-100)Withholding from certain types of employees and incomes#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-4-8 ; IC 6-3-4-8.1 ; IC 6-3-4-9 ; IC 6-8-8-1

Sec. 100. Withholding Information For Part-Time Employees and Other Miscellaneous Withholding Requirements. WITHHOLDING FROM INCOME OF PART-TIME OR "SUMMER" EMPLOYEES

Withholding agents are required to withhold tax, at the applicable rate stated on the rate schedules, from the income of part-time or "summer" employees just as though they were full-time or permanent employees. The fact that the employer or the employee are reasonably, or even absolutely, certain that the employee will not earn income in excess of his or her $1,000.00 exemption has no bearing on withholding the tax by the withholding agent. Similarly, the Internal Revenue Service rules which allow the employee to waive withholding, for federal tax purposes, when the income is not expected to be in excess of the Federal filing requirements and income allowances, have no bearing on withholding taxes from the income of part-time employees for Indiana tax purposes. WITHHOLDING FROM SUPPLEMENTAL UNEMPLOYMENT COMPENSATION BENEFIT INCOME

Supplemental Unemployment Compensation Benefits paid to an individual are treated as if they were income, to the extent such benefits are includable in the gross income of such individuals, and therefore are subject to withholding by the withholding agent for Indiana tax purposes. WITHHOLDING FROM PENSION INCOME AND ANNUITY PAYMENTS

Withholding is not required on pension and annuity payments that meet certain qualifications of the Internal Revenue Service, unless the recipient requests that federal income tax be withheld. If such a request is made, the payor must also withhold and remit Indiana adjusted gross income tax.

Pensions and annuities that do not meet the Internal Revenue Service qualifications are considered to be deferred compensation and, therefore, require withholding in the same manner as for wages and salaries. WITHHOLDING FROM AGRICULTURAL OR CASUAL EMPLOYEES

Withholding agents are not required to withhold Indiana state income tax from payments made to agricultural laborers or casual laborers, such as yardworkers, or domestic employees. Withholding of taxes in such cases must be agreed to by both employer and employee. If the employer does not withhold taxes he should report total annual payments made to each such employee on the Federal Form 1099, or the Indiana Form IT-12A. WITHHOLDING FROM ATHLETES AND ENTERTAINERS

Athletes and entertainers generally perform under one of the three following types of contracts: (1) Employees of the promoter or organizer (2) "Independent contractors" (3) Employees of a "production company"

The different types of contracts have different withholding requirements and thus, must be treated separately.

(1) The first situation involves athletes and entertainers performing on a salaried basis for example, basketball, hockey, and baseball players. These performers are under contract for a specific time period and they receive a predetermined salary regardless of the number or the location of performances.

Based on these facts, athletes employed by an Indiana professional sports team or an Indiana promoter incur a tax liability on their entire salary. No apportionment will be permitted for out-of-state appearances because the athlete's compensation is unaffected by such appearances.

Because these performers are considered to be employees, withholding is required on their salaries in accordance with the provisions of Regulation 6-3-4-8(010) [ 45 IAC 3.1-1-97 ] . Because this compensation is considered to be salary, the reciprocal agreements defined in Regulation 6-3-5-1 (010) [ 45 IAC 3.1-1-115 ] are applicable.

(2) The second situation involves performers who directly receive payment for Indiana performances. This situation might include performers in tennis and golf tournaments, nightclubs, and concerts. These performers are not engaged in an employer-employee relationship.

Based on these facts, "independent contractors" incur a tax liability by performing within Indiana. Independent contractors who are Indiana residents are taxable on their entire income, but may receive a credit for taxes paid to other states in accordance with Regulation 6-3-3-3(a)(010) [ 45 IAC 3.1-1-74 ] . Because this income is not wages or salary, reciprocity will not apply.

Withholding is not required on this income since it is not wages or salary. These individuals are, however, required to make estimated tax payments if they expect to have an Indiana income tax liability of $100 or more. (See Regulation 6-3-4-4(010) [ 45 IAC 3.1-1-92 ] .

There are several means of enforcing the income tax liability of an independent contractor. The Department may issue a jeopardy assessment against a taxpayer in accordance with the provisions of Regulation 6-3-6-1(g)(010). This same regulation allows the Department to accept a surety bond from the taxpayer. In addition, the Reciprocal Full Faith and Credit Act ( IC 6-8-8-1 et seq.) authorizes the Department to bring suit against a taxpayer in his or her state of residence.

(3) The third situation arises when a performer organizes a "production company" to receive payment for his performances rather than receiving payment directly. The production company then pays the performer a salary.

The withholding requirements for payments made to a production company vary. If the company is incorporated, gross income tax must be withheld from any payments, as provided in IC 6-2-1-22 (f) [Repealed by P.L.77-1981, SECTION 22. Recodified as IC 6-2.1-6-1 .] If the company is a partnership or a sole proprietorship, withholding is not required; however, the partners or proprietor are required to make estimated tax payments as provided in Regulation 6-3-4-4(010) [ 45 IAC 3.1-1-91 ] . Enforcement of the tax liability in case of a failure to make estimated tax payments is accomplished through the means outlined above for enforcing the liability of an independent contractor.

The withholding requirements for payments made by a production company to its employees vary. If the employees are paid on a salaried basis, their situation is analogous to that of professional team athletes explained above, and withholding is required if the production company has an Indiana business situs, or if the employee is an Indiana resident. Payments made to those who are not employees i.e., payments made on a per-performance basis, do not require withholding because this income is not wages. The recipient must make estimated tax payments, and enforcement is identical to the enforcement of the liability of independent contractors.

(3.1)(1-106)Partner's distributive share#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-1-3.5 ; IC 6-3-2-2 ; IC 6-3-4-11

Sec. 106. (a) A partnership is not subject to the adjusted gross income tax. The partners will include their share of partnership income whether distributed or undistributed on their separate or individual returns.

(b) An individual will report as follows: (1) The distributive share of a resident partner will be reported in total no matter where the partnership's business is located or in which states it does business. (2) The distributive share of a nonresident partner will be reported after apportionment to determine the partnership income derived from sources within Indiana. This determination will be accomplished by use of the apportionment formula described in IC 6-3-2-2 (b). (3) A resident partner's distributive share of income will be adjusted by the partner's proportionate share of the partnership's income that is exempt from taxation under the Constitution and statutes of the United States and by the partner's proportionate share of the partnership's deductions allowed or allowable under Section 62 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 or for taxes on property levied by any subdivision of any state of the United States. (4) A nonresident partner's distributive share of income will be adjusted by the partner's proportionate share of the partnership's income that is exempt from taxation under the Constitution and statutes of the United States and by the partner's proportionate share of the partnership's deductions allowed or allowable under Section 62 of the Internal Revenue Code for taxes based on or measured by income levied at the state level by any state of the United States or for taxes on property levied by any subdivision of any state of the United States determined by use of the apportionment formula described in IC 6-3-2-2 (b).

(3.1)(1-107)Partnership withholding requirements#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-2-2 ; IC 6-3-4-12 ; IC 6-3.5

Sec. 107. (a) A partnership is required to withhold income taxes at the rates provided for under IC 6-2.1 , IC 6-3 , and IC 6-3.5 on any nonresident partner's distributive share of partnership income at the time the income is paid or credited to such partner as follows: (1) For an individual partner, the adjusted gross income tax withheld shall be based on Indiana source income only, as determined by use of the apportionment formula described in IC 6-3-2-2 (b), if applicable. This withholding requirement does not apply to withdrawals from the partner's drawing accounts, but applies to distributions to their accounts in the form of credits or payments based on anticipated profits or actual current profits. (2) For a partner other than an individual partner, the income tax withheld may be calculated using any reasonable method designed to reflect the ultimate tax liability due Indiana because of the partnership's activities. As used in this section, "nonresident corporate partner" does not include a foreign corporation qualified to do business in Indiana.

(b) The partnership shall file a return and pay the tax on a monthly basis. The return and payment are due the thirtieth day of the month following the month for which the tax was withheld. However, if the total income taxes withheld by the partnership are less than fifty dollars ($50) per month, the tax shall be paid and returns remitted quarterly on a calendar year basis, with payment due the last day of the month following the close of the calendar quarter. If a partnership is withholding on a monthly basis but in any month withholds less than fifty dollars ($50), the lesser amount shall be remitted on a monthly basis to maintain the status of monthly reporting.

(c) If the partnership pays or credits amounts to its nonresident partners only one (1) time each year, it will be permitted to file one (1) return and payment each year. The return and payment are due thirty (30) days after the partnership's year end.

(d) The withholding requirements of IC 6-3-4-12 do not relieve any partnership from filing its annual return, IT-65, nor do they relieve any nonresident partner from filing an annual income tax return.

(e) For individual partners only, a partnership is allowed to file a composite adjusted gross income tax return on behalf of some or all non-Indiana resident partners if the partnership complies with all of the requirements outlined in Income Tax Information Bulletin #72 that is in effect for the taxable year in question. An individual nonresident partner who properly elects to participate in the composite return will not be required to file an individual adjusted gross income tax return.

(3.1)(1-111)Membership in affiliated groups; bank holding companies#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-2-2 ; IC 6-3-4-14

Sec. 111. Affiliated Group. The Adjusted Gross Income Tax Act adopts the definition of "affiliated group" contained in Internal Revenue Code section 1504, except that no member of the affiliated group may be included in the Indiana return unless it has adjusted gross income derived from sources within the state, as that phrase is defined in IC 6-3-2-2 . For purposes of this subsection, "Adjusted Gross Income derived from sources within the state" means either income or losses derived from activities within the state.

Domestic International Sales Corporations (DISC'S) which are prohibited under the Internal Revenue Code from filing consolidated returns may not be included in the affiliated group for Indiana adjusted gross income tax purposes.

If any bank is a member of an affiliated group for Federal income tax purposes, it cannot be included as an affiliated member for Indiana adjusted gross income tax purposes, since the banking entity is not subject to the adjusted gross income tax. Any gross income tax liability of a bank must be added separately after the composite tax of the affiliated group has been computed. For supplemental net income tax purposes, the members of an affiliated group, including the banking entity, may compute the supplemental net income tax on a consolidated basis. Since banks are not included in the consolidation under the Adjusted Gross Income Tax Act, a separate schedule must accompany the consolidated return in order to compute the adjusted gross income of the affiliated group and subsequently the supplemental net income tax liability.

In the case of a bank holding company, the holding company may be allowed a special deduction for dividends received from its banking entity for Indiana adjusted gross income tax purposes in accordance with section 243(a)(1) of the Internal Revenue Code. The 100% dividend exclusion for those holding companies filing a consolidated return does not apply since, for Indiana adjusted gross income tax purposes, the banking entity is not taxable under the Act and thus cannot be part of the consolidation.

(3.1)(1-153)Taxation of a corporate partner#

Authority: IC 6-8.1-3-3

Affected: IC 6-3

Sec. 153. (a) A corporate partner's share of profit or loss from a partnership will be included in its federal taxable income and therefore generally subject to the same rules as any other adjusted gross income.

(b) If the corporate partner's activities and the partnership's activities constitute a unitary business under established standards, disregarding ownership requirements, the business income of the unitary business attributable to Indiana shall be determined by a three (3) factor formula consisting of property, payroll, and sales of the corporate partner and its share of the partnership's factors for any partnership year ending within or with the corporate partner's income year, with the following modifications: (1) The value of property which is rented or leased by the corporate partner to the partnership or vice versa shall, with respect to the corporate partner, be excluded from the property factor of the partnership or eliminated to the extent of the corporate partner's interest in the partnership, whichever the case may be, in order to avoid duplication. (2) Intercompany sales between the corporate partner and the partnership shall be eliminated from the corporate partner's sales factor as follows: (A) Sales by the corporate partner to the partnership to the extent of the corporate partner's interest in the partnership. (B) Sales by the partnership to the corporate partner not to exceed the corporate partner's interest in all partnership sales.

(c) If the corporate partner's activities and the partnership's activities do not constitute a unitary business under established standards, disregarding ownership requirements, the corporate partner's share of the partnership income attributable to Indiana shall be determined as follows: (1) If the partnership derives business income from sources within and without Indiana, the business income derived from sources within Indiana shall be determined by a three (3) factor formula consisting of property, payroll, and sales of the partnership. (2) If the partnership derives business income from sources entirely within Indiana, or entirely without Indiana, such income shall not be subject to formula apportionment.

(d) A partner's distributive share of income will be adjusted by the partner's proportionate share of the partnership's income that is exempt from taxation under the Constitution and statutes of the United States and by the partner's proportionate share of the partnership's deductions allowed or allowable under 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 or for taxes on property levied by any subdivision of any state of the United States.

(e) After determining the amount of business income attributable to Indiana under subsection (c), the corporate partner's distributive share of such income shall be added to the corporate partner's other business income apportioned to Indiana and its nonbusiness income, if any, allocable to Indiana, in determining the corporate partner's total taxable income.

(3.1)(1-154)Airport development zones#

Authority: IC 6-8.1-3-3 ; IC 8-22-3.5-15

Affected: IC 6-3 ; IC 8-22-3.5-3 ; IC 36-3-1

Sec. 154. (a) A person who locates and operates a qualified airport development project in an airport development zone in a consolidated city shall not incur any adjusted gross income tax liability or supplemental net income tax liability as a result of the following activities: (1) Locating the project in the consolidated city. (2) The construction or completion of the project. (3) The employment of personnel or the ownership or rental of property at or in conjunction with the project. (4) The operation of the project or the activities at or in connection with the project. In other words, the person's apportionment factor will not change due to the completion or operation of the project. As an example, assume that the project is an airline maintenance facility. At the completion of the project, the facility is worth six hundred million dollars ($600,000,000). The payroll from operating the facility is two hundred million dollars ($200,000,000). The person also realizes fifty million dollars ($50,000,000) in its first year of operations from maintenance performed on airplanes belonging to other parties and from the sale of airplane parts delivered within the airport development zone. These amounts would not appear in either the numerator or the denominator of their respective factors. Also, the person will not be subject to adjusted gross income tax or supplemental net income tax on nonbusiness income earned by the person that is allocable to the airport development zone.

(b) As used in subsection (a), "qualified airport development project" has the same meaning as set forth in IC 8-22-3.5-3 .

(d) As used in subsection (a), "consolidated city" means a city with a population of two hundred fifty thousand (250,000) or more that has become a consolidated city under IC 36-3-1 .

(e) The exemption provided by subsection (a) is effective for a period of thirty-five (35) years beginning January 1, 1991.

Rule 2. Supplemental Net Income Tax

(3.1)(4-4)Persons and income subject to tax; exemptions; joint returns#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-1-3.5 ; IC 6-3.6

Sec. 4. (a) An individual is subject to county tax if he or she lives or works in an adopting county on January 1 of the tax year as follows: (1) A taxpayer's county of residence and principal place of business or employment on this date alone determine whether he or she is subject to local income tax (LIT) for the entire year. (2) If a taxpayer lives in an adopting county on January 1 and later in the year moves to a nonadopting county, he or she is subject to county tax on his or her adjusted gross income for the entire year. (3) If a taxpayer lives in a nonadopting county on January 1 and later in the year moves to an adopting county, he or she is not subject to county tax for that year except as provided in subsection (b).

(b) If, on January 1, a taxpayer's county of residence is a nonadopting county, but his or her county of principal place of business or employment is an adopting county, he or she must pay LIT on the income derived from his or her principal place of business or employment for the entire year. Even though he or she may later begin working in a nonadopting county, he or she must pay county tax for the entire year on the income earned from his or her principal activity, even if the principal activity is later conducted in another county.

(c) However, if an individual neither lived nor maintained his or her principal place of business or employment in an adopting county on January 1, he or she is not subject to LIT on any part of his or her income even though his or her county of residence or principal place of business or employment changes to an adopting county during the year.

(d) An individual who as of January 1 maintains his or her principal place of business or employment in an adopting county but is a nonresident of Indiana, or is a resident of Indiana on January 1 but moves out of Indiana during the tax year, is subject to LIT only on income derived from Indiana sources. An individual who as of January 1 had his or her county of residence in an adopting Indiana county is not liable for LIT on income earned outside the state while not a resident of the state.

(e) An individual who as of January 1 lives in an adopting county and moves out-of-state to a reciprocal state, while maintaining his or her Indiana principal place of business or employment, will not owe adjusted gross income tax on the wage income earned after moving out of Indiana. However, LIT will be due on the wage income earned after moving out of Indiana. It should be reported in the county tax schedule of the appropriate tax return.

(f) If an individual is subject to LIT on income from his or her principal place of business or employment, the tax rate shall apply to the taxpayer's adjusted gross income derived from his or her principal place of business or employment for the entire year. Adjusted gross income derived from principal place of business or employment is defined as federal adjusted gross income from that activity after modifications required under IC 6-3-1-3.5 (a) against such income.

(g) For purposes of determining whether a deduction is allowable against the adjusted gross income from a principal place of business or employment, the deduction shall be allocated in a manner consistent with the allocation used on the state income tax form filed by the individual. In the case of a filer permitted to complete a return reporting only income derived from activities covered by a reciprocal agreement, the allocation of modifications shall be done in a manner consistent with individuals who otherwise would file a nonresident or part-year resident tax return. For purposes of the county tax portion of a return required for a taxpayer with only income derived from activities covered by a reciprocal agreement, no exemptions shall be permitted on the return.

(3.1)(4-5)Treatment of married individuals filing jointly#

Authority: IC 6-8.1-3-3

Affected: IC 6-3.6

Sec. 5. (a) Each individual spouse is treated separately under local income tax (LIT). Accordingly, each spouse must determine his or her respective county of residence and county of principal place of business or employment as of January 1 and will compute his or her respective county tax due, based on his or her separate adjusted gross income. (1) However, for purposes of calculating LIT on a return of a married couple filing jointly, if one (1) spouse has a negative adjusted gross income and the other spouse has a positive adjusted gross income, the negative income may be used to offset the other spouse's positive income. (2) If one (1) spouse uses the other spouse's negative adjusted gross income to offset the spouse's positive adjusted gross income, the other spouse shall report zero (0) adjusted gross income and shall not be permitted to carry forward any negative adjusted gross income used by the spouse to succeeding tax years.

(b) Except as permitted in subsection (a), if a person files a joint return with his or her spouse and only the person or the person's spouse is taxable for LIT, then the person who is taxable may take all the exemptions claimed on the joint return except the exemptions attributable to the other spouse (for instance, the personal exemption for the spouse and the exemption for taxpayers over sixty-five (65) years of age or blind, or both, for that spouse).

(c) If a person files a joint return and the person is taxable at one (1) rate on his or her income and the person's spouse is taxable at another rate on the spouse's income, then the spouses may allocate each whole exemption taken on the joint return between themselves except for the exemptions attributable to the other spouse. The other spouse should then use the exemptions attributable to that spouse.

(d) The computation of LIT is to be completed on the county tax schedule, which is an attachment to the individual income tax return. The county tax computed on the county tax schedule is to be carried to the designated area on the applicable state income tax form.

(3.1)(4-10)Credit for taxes paid to out-of-state local governments#

Authority: IC 6-8.1-3-3

Affected: IC 6-3-3-3 ; IC 6-3.6

Sec. 10. (a) Taxpayers subject to county tax at the resident rate may take a credit against local income tax (LIT) liability for taxes paid to localities outside of Indiana.

(b) The credit is limited to: (1) the amount of tax paid to the out-of-state locality; (2) the county rate times the amount of adjusted gross income that was taxed by the other locality; or (3) the amount of LIT due, whichever is the least. This does not apply to income taxed by any state but only to income taxed by any subdivision of any state, such as a city or county, outside of Indiana.

(d) To claim the credit under subsection (b), the tax must actually be paid. If the tax is reduced by any credit, other than a credit for taxes withheld, the tax paid will be reduced by such credit.

(e) The credit is limited only to taxes for which the individual is personally liable or for taxes reported by a pass-through entity on behalf of the individual by inclusion in a composite tax return filed by the entity. If the individual owns an interest in a partnership, S corporation, trust, or similar entity for which the entity is subject to a local income tax but the individual is not subject to local income tax on that income, the tax paid by the entity is not eligible for this credit. To claim the credit, the taxpayer must provide evidence of payment of the claimed tax to the out-of-state subdivision. A copy of the tax return filed with the other locality or a tax statement indicating such payment, such as a Form W-2 or Form 1099, must be attached to the Indiana return.

(f) The credit will not be allowed if the laws of such city or county provide for a credit to the taxpayer for the amount of LIT payable.

(g) The credit is not permitted for any state-level taxes paid in excess of the amount permitted under IC 6-3-3-3 .

(3.1)45 IAC Article 3.1: Adjusted Gross Income Tax (Department of State Revenue)#

(3.1)(1-1)Definition of adjusted gross income for individuals#

(3.1)45 IAC Article 3.1: Adjusted Gross Income Tax (Department of State Revenue)#

(3.1)(1-1)Definition of adjusted gross income for individuals#

(3.1)(1-2)Definition of gross income for individuals#

(3.1)(1-3)Allowed Internal Revenue Code deductions#

(3.1)(1-4)Disallowed Internal Revenue Code deductions#

(3.1)(1-5)Modifications to federal adjusted gross income to determine Indiana adjusted gross income (Repealed)#

(3.1)(1-6)Net operating loss deduction for individuals (Repealed)#

(3.1)(1-7)Allocation of income among states; reciprocity#

(3.1)(1-8)Definition of adjusted gross income for corporations (Repealed)#

(3.1)(1-9)Allowance of corporate net operating loss; modifications (Repealed)#

(3.1)(1-10)Definition of adjusted gross income for fiduciaries (Repealed)#

(3.1)(1-11)Exemptions for trusts and estates (Repealed)#

(3.1)(1-12)Resident and nonresident trusts and estates#

(3.1)(1-13)Deduction for distribution from estate or trust#

(3.1)(1-14)Report of distribution; allocation by nonresident estate or trust#

(3.1)(1-15)Application of excess deductions of estate or trust#

(3.1)(1-16)Final account and certificate of clearance of fiduciary#

(3.1)(1-17)Net operating losses and capital losses for fiduciaries and beneficiaries#

(3.1)(1-18)Charitable contributions of trust estate; exempt trusts#

(3.1)(1-19)Definition of gross income#

(3.1)(1-20)Definition of corporation#

(3.1)(1-21)Definition of resident#

(3.1)(1-21.5)"Permanent place of residence" defined#

(3.1)(1-22)"Domicile" defined#

(3.1)(1-22.5)Determination of domicile#

(3.1)(1-23)Special cases of residency#

(3.1)(1-24)Definition of nonresident#

(3.1)(1-25)Tax liability of nonresident#

(3.1)(1-26)Definition of person#

(3.1)(1-27)Definition of taxpayer#

(3.1)(1-28)Taxable year#

(3.1)(1-29)Definition of business income#

(3.1)(1-30)Trade or business construed#

(3.1)(1-31)Definition of nonbusiness income#

(3.1)(1-32)Definition of commercial domicile#

(3.1)(1-33)Definition of compensation#

(3.1)(1-34)Definition of sales#

(3.1)(1-35)Definition of state#

(3.1)(1-36)Tax rates#

(3.1)(1-37)Allocation and apportionment of income of multistate corporations#

(3.1)(1-38)Definition of doing business#

(3.1)(1-39)Apportionment of business income by corporations#

(3.1)(1-40)Property factor for apportionment (Repealed)#

(3.1)(1-41)Property included in property factor (Repealed)#

(3.1)(1-42)Consistency among reports#

(3.1)(1-43)Numerator of property factor (Repealed)#

(3.1)(1-44)Valuation of owned property (Repealed)#

(3.1)(1-45)Valuation of rented property (Repealed)#

(3.1)(1-46)Methods of averaging property values (Repealed)#

(3.1)(1-47)Payroll factor for apportionment (Repealed)#

(3.1)(1-48)Denominator of payroll factor (Repealed)#

(3.1)(1-49)Numerator of payroll factor (Repealed)#

(3.1)(1-50)Sales factor for apportionment; sales defined#

(3.1)(1-51)Denominator of sales factor#

(3.1)(1-52)Numerator of sales factor#

(3.1)(1-53)In-state sales of tangible personal property#

(3.1)(1-54)Definition of sales to United States government#

(3.1)(1-55)Attribution of sales to state (Repealed)#

(3.1)(1-55.5)Definitions; attribution of sales to state#

(3.1)(1-56)Allocation of nonbusiness income#

(3.1)(1-57)Rents and royalties from real property and tangible personal property as nonbusiness income#

(3.1)(1-58)Allocation of capital gains and losses#

(3.1)(1-59)Interest as nonbusiness income#

(3.1)(1-60)Dividends as business income#

(3.1)(1-61)Patent and copyright royalties as nonbusiness income#

(3.1)(1-62)Special cases of allocation and apportionment#

(3.1)(1-63)Apportionment in absence of one or more factors#

(3.1)(1-64)Definition of taxable in another state#

(3.1)(1-65)Exempt organizations and income; report#

(3.1)(1-66)Subchapter S corporations and shareholders#

(3.1)(1-67)Subchapter S corporation reports; taxation of shareholders#

(3.1)(1-68)Unrelated business income of exempt organizations#

(3.1)(1-69)Federal civil service annuity income#

(3.1)(1-70)Military pay#

(3.1)(1-71)Credits and adjustments for taxes withheld#

(3.1)(1-72)Credit for other taxes paid by corporation (Repealed)#

(3.1)(1-73)Completed contract accounting; credit for taxes paid (Repealed)#

(3.1)(1-74)Credit for other state income taxes#