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.