ATTORNEYS FOR PETITIONER : ATTORNEYS FOR RESPONDENT :

RANDAL J. KALTENMARK GREGORY F. ZOELLER ZIAADDIN MOLLABASHY ATTORNEY GENERAL OF INDIANA BARNES & THORNBURG LLP JESSICA R. GASTINEAU Indianapolis, IN DEPUTY ATTORNEY GENERAL Indianapolis, IN

____________ _________________________________________________________ 

# IN THE INDIANA TAX COURT

_____________________________________________________________________ COLUMBIA SPORTSWEAR USA ) CORPORATION, ) ) Petitioner, ) ) v. ) Cause No. 49T10
- 1 104
- TA
- 00032 ) INDIANA DEPARTMENT OF STATE ) REVENUE, ) ) Respondent. )

______________________________________________________________________ ORDER ON PARTIES’ CROSS
- MOTIONS FOR SUMMARY JUDGMENT FOR PUBLICATION December 18 , 2015 WENT WORTH, J. Columbia Sportswear USA Corporation challenges the Indiana Department of State Revenue’s assessment of adjusted gross income tax (AGIT) for the 2 005, 2006, and 2007 tax years ( the “ years at issue”). The matter is currently befo re the Court on t he parties’ cross
- motions for summary judgment. 1 The dispositive issue is whether the Department’s adjustment s to Columbia Sportswear ’s net income for each of the years at

1 The parties have designated evidence that contains confidential information. Accordingly, the Court will provide only that informatio n necessary for the reader to understand its disposition of the issues presented. See general ly Ind. Administrative Rule 9.2

issue were proper. 2 The Court finds that the y were not. FACTS AND PROCEDURAL HISTO RY The following facts are not in dispute. Columbia Sportswear , an Oregon corporation, was formed in October of 2003 to sell and distribute throughout the United States, including Indiana, the sporting/hiking apparel, footwear, and related accessories/ eq uipment ( collectively , “Products”) of its parent, Columbia Sportswear Company, Inc. ( CSC ) , and its affiliate, Mountain Hardwear, Inc

. ( See Second Stipulation of Facts (“Second Stip.”) ¶¶ 3
- 12 ; Pet’r Des’g Evid., App. E at 661 ¶ ¶ 32
- 34 .) CSC engaged an in dependent accounting firm to conduct a Transfer Pricing Study to determine arm’s
- length pricing for its and Mountain Hardwear’s 2005, 2006, and 2007
s ale s of the Products to Columbia Sportswear (the “ Intercompany Transactions ” ). ( See Second Stip. ¶ 16, Ex s. 19
- 21; Pet’r Des’g Evid., App. F at 879
- 80 ¶¶ 27, 29.) During each of the years at issue, Columbia Sportswear filed an Indiana corporate AGIT return on a separate company basis reporting that it was entitled to an overpayment credit. ( See First Stip ulation of Facts (“First Stip.”) ¶ 1, Exs. 2
- 4). In August 2008, Columbia Sportswear filed two amended returns that requested a refund of AGIT paid for the 2005 and 2006 tax years only . ( See First Stip. ¶ 2, Exs. 6
- 7.) The Department subsequently audite d Columbia Sportswear and determined that it needed to adjust Columbia Sportswear’s net income pursuant to Indiana Code § 6
- 3
- 2
- 2(l)(4) and Indiana Code § 6
- 3
- 2
- 2(m) because the Intercompany Transactions had distorted

2 The Department’s m otion for summary judgment presented two other issues: 1) whether the Department’s denial of Columbia Sports wear’s refund claims was proper; and 2) whether the Department’s assessments violated P.L. 86
- 272. ( See Resp’t Br. Supp. Mot. Summ. J. (“Resp’t Br.”) at 1, 5
- 12.) Columbia Sportswear has conceded that the Department’s actions were proper with respect to both of these issues. ( See Pet’r Br. Opp’n Resp’t Mot. Summ. J. (“Pet’r Br.”) at 1
- 2.)3

Columbia Sportswear’s Indiana source i ncome. ( See First Stip. ¶¶ 3
- 4, Ex. 8 at 7
- 10.) On September 24, 2010, the Department issued Proposed Assessments for the years at issue to Columbia Sportswear , assessing it with an additional $948,369.69 in AGIT, penalties, and interest. ( See First Sti p. ¶¶ 5
- 6, Exs. 9
- 11.) Columbia Sportswear protested, and after conducting a hearing, the Department issued its final determination upholding the assessments of additional AGIT and interest only. ( See First Stip. ¶¶ 7
- 8, Exs. 12
- 13.) On April 28, 2011, Columbia Sportswear initiated an original tax appeal. On March 5, 2013, the Department filed its motion for summary judgment and designated, among other things, the Proposed Assessments as evidence. On April 22, 2013, Columbia Sportswear filed a cross
- mot ion for summary judgment. The Court held a hearing on the parties’ motions on July 31, 2013. Additional facts will be supplied as necessary. STANDARD OF REVIEW Summary judgment is proper when the designated evidence demonstrates that no genuine issues o f material fact exist and the moving party is entitled to judgment as a matter of law. Ind. Trial Rule 56(C). When the Department moves for summary judgment, it may make a prima facie case that there is no genuine issue of material fact regarding the val idity of an unpaid tax by properly designating its proposed assessments as evidence. Indiana Dep’t of State Revenue v. Rent
- A
- Center E., Inc. ( RAC II ), 963 N.E.2d 463, 466
- 67 (Ind. 2012)

. “The burden then shifts to the taxpayer to come forward with suffi cient evidence demonstrating that there is, in actuality, a genuine issue of material fact with respect to the unpaid tax [

. ] ” Id. at 467.4 LAW Each corporate taxpayer with Indiana adjusted gross income derived from sources within Indiana is required to r eport its AGIT liability on a separate company basis

. I ND
. C ODE § 6
- 3
- 2
- 1(b) (2005) (amended 2011); s ee also Kohl’s Dep’t Stores, Inc. v. Indiana Dep’t of State Revenue , 822 N.E.2d 297, 301 (Ind. Tax Ct. 2005). The computation of this liability “begins w ith federal taxable income, to which [the] taxpayer makes expressly enumerated adjustments under Indiana Code § 6
- 3
- 1
- 3.5(b)[.]” Indiana Dep’t of State Revenue v. Caterpillar, Inc. , 15 N.E.3d 579, 581 (Ind. 2014). Upon determining its Indiana tax base i n this manner, a taxpayer doing business in more than one state must next determine what portion of its adjusted gross income is derived from sources within Indiana. See I.C. § 6
- 3
- 2
- 1(b)

. This determination requires the taxpayer to apply the applicable allocation and apportionment rules set forth in Indiana Code § 6
- 3
- 2
- 2(a)
- (k) (the “Standard Sourcing Rules”). See I ND
. C ODE § 6
- 3
- 2
- 2(a)
- (k) (2005) (amended 2006). See also RAC II , 963 N.E.2d at 465. T he Standard Sourcing Rules provide that a taxpayer’ s “business income is apportioned between Indiana and other states using a three
- factor formula, 3 while [its] nonbusiness income is allocated to Indiana or another state.” See May Dep’t Stores Co. v. Indiana Dep’t of State Revenue , 749 N.E.2d 651, 656 (In d. Tax Ct. 2001) (footnote added and footnotes omitted). See also I.C. § 6
- 3
- 2
- 2(b)
- (k). In the event that the Department determines , as it has here, that the use of the Standard Sourcing Rules does not fairly reflect the taxpayer’s Indiana source incom e, it

3 Indiana’s standard three
- factor apportionment formula takes a corporate taxpayer’s business income from both within and without the state and multiplies that figure by a fraction, the numerator of which is the property factor plus the payroll factor plus the sales factor, and the denominator of which is three. See Hunt Corp. v. Dep’t of State Revenue , 709 N.E.2d 766, 771 (Ind. Tax Ct. 1999); I ND
. C ODE § 6
- 3
- 2
- 2(b)
- ( e) (2005) (amended 2006).5

may apply one of the alternative allocation and apportionment methods under Indiana Code § 6
- 3
- 2
- 2(l) through (p) (the “Alternative Apportionment Rules”)

. See I.C. § 6
- 3
- 2
- 2(l)
- (p). The Department will, however, only

depart from use of the standar d [sourcing] formula [] if the use of such formula works a hardship or injustice upon the taxpayer, results in an arbitrary division of income, or in other respects does not fairly attribute income to this state or other states. I t is anticipated that the se situations will arise only in limited and unusual circumstances (which ordinarily will be unique and nonrecurring) when the standard apportionment provisions produce incongruous results. 45 I ND
. A DMIN
. C ODE 3.1
- 1
- 62 (2005). See also Twentieth Century
- Fox Film Corp. v. Dep’t of Revenue , 700 P.2d 1035, 1039 ( Or. 1985) (stating that “some alternative method must be available to handle the constitutional problem [s] as well as the unusual cases” ( citing William J. Pierce, The Uniform Division of Income for State Tax Purposes , 35 Taxes 747, 781 (1957))). ANALYSIS Columbia Sportswear , in response to the Department’s prima facie case that its assessments are correct, contends that the Department’s adjustment s were improper because neither Indiana Code § 6
- 3
- 2
- 2(l)(4) nor Indiana Code § 6
- 3
- 2
- 2(m) authorized the Department to increase its net income tax base for purposes of assessing Indiana AGIT. 4 ( See Pet’r Br. Opp’n Resp’t Mot. Summ. J. (“ Pet’r Br. ”) at 6
- 16.) The

4 The Department has asserted that the Court need not address Columbia Sportswear’s claim that the Department lacked the authority to adjust its net income because a taxpayer can defeat the Department’s prima facie case only by d esignating evidence that demonstrates a genuine issue of material fact. ( See Hr’g Tr. at 14
- 22.) This assertion is incorrect because Trial Rule 56(C) and cases interpreting that Rule state that a claim for summary judgment may also be defeated when the u ndisputed material facts fail to establish that a litigant is entitled to judgment as a matter of law. See , e.g. , Mayhue v. Sparkman , 653 N.E.2d 1384, 1386 (Ind. 1995) (stating that “[w]here there is no genuine issue of material fact, we will only affirm a denial of summary judgment if we find that the moving party is not entitled to judgm ent as a matter of law”).6

Department, on the other hand, claims that both subsections of the statute authorized its adjustment s to Columbia Sportswear ’s net income. 5 ( See, e.g. , Resp’t Reply Pet’r Resp. Br. (“Resp’t Reply Br.”) at 8
- 9; Hr’g Tr. at 34
- 37.) Indiana Code § 6 - 3 - 2 - 2(l)(4) T he undisputed material facts establish that the Department sought to “adjust the business income [of Columbia Sportswear that would] be apportioned to Indiana . . . [to] give a more realistic view of the income and expense figures of the entire [consolidated] group[.]” (First Stip., Ex. 8 at 9.) The Department’s adjustments consisted of the following steps:

1) D etermining the average net profit ratio of the federal consolidated group for each of the years at issue by dividing the group’s gross receipts by its net income; 2) Recalculating Columbia Sportswear’s net income for each of the years at issue by multiplying Columbia Sportswear’s gross receipts by the Step 1 ratios; and then, 3) Ascertain ing the additional amount of Columbia Sportswear’s net income to be attributed to Indiana for each of the y ears at issue by subtracting Columbia Sportswear’s federal taxable income as reported on each year’s Pro Forma from the applicable amount in Step 2. ( See First Stip., Ex. 8 at 6
- 9.) The reafter, the Department did not recalculate Columbia Sportswear’s app ortionment percentage, but instead , applied the original apportionment percentage from its Indiana AGIT returns to the applicable Step 3 amount. ( Compare First Stip., Ex. 2 at 1, line 15(d), Ex. 3 at 1, line 15(d), and Ex. 4 at 1, line 15(d) with Ex.

5 The Department has asked the Court to remand this matter so that it may require Columbia Sportswear to file a combined income tax return unde r Indiana Code § 6
- 3
- 2
- 2(p) as the alternative method. ( See Hr’g Tr. at 5
- 8.) During the audit, however, the Department found that method inapplicable, concluding that an adjustment to Columbia Sportswear’s net income would correct the alleged distortion . ( See First Stipulation of Facts (“First Stip.”), Ex. 8 at 8.) Accordingly, the Court declines to provide the Department with the opportunity to take a second bite of the proverbial apple.7

8 at 12
- 14.) The Department maintains that Indiana Code § 6
- 3
- 2
- 2(l)(4) authorized its adjustments because it merely “allocated” back the sales that Columbia Sportswear improperly sent away from Indiana to ensure that the Department had “an accurate starting point” for determining Columbia Sportswear’s AGIT liability. ( See Hr’g Tr. at 28
- 29.) The Department’s use of the word “allocated , ” however, simply refers to the word’s ordinary meaning to distribute or attribute, not to its technical meaning under Indi ana Code § 6
- 3
- 2
- 2(l)(4) to divide a taxpayer’s tax base among the states in which it does business. Compare W EBSTER ’ S T HIRD N EW I NT ’ L D ICTIONARY 57 (2002 ed.) (defining “allocate” as “to give (a share of money, land, or responsibility) to a person”) with Hunt Corp. v. Dep’t of State Revenue , 709 N.E.2d 766 , 772 n.15 (Ind. Tax Ct. 1999) (defining the concepts of allocation and apportionment of the tax base under Indiana Code § 6
- 3
- 2
- 2(l)) and I ND
. C ODE § 1
- 1
- 4
- 1(1) (2005) (providing that “[t]echnical words and phrases having a peculiar and appropriate meaning in law shall be understood according to their technical import”). D uring the years at issue, Indiana Code § 6
- 3
- 2
- 2(l)(4) provided that: If the allocation and apportionment provisions of this article do not fairly represent the taxpayer’s income derived from sources within the state of Indiana, . . . the department may require, in respect to all or any part of the taxpayer’s business activity, if reasonable . . . the employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer’s income

. I.C. § 6
- 3
- 2
- 2(l)(4). “When income is allocated, it is deemed to come in its entirety from a particular state, thereby making that income taxable by only one state.” Hunt , 709 N.E.2d at 772, n.15. “When income is apportioned, it is divided for tax purposes among the various states in which the taxpayer receives such income.” Id. (citation omitted).8

Thus , the concepts of allocation and apportionment under Indiana Code § 6
- 3
- 2
- 2(l)(4) involve the division of the tax base among the states, not the computation of the tax base itself. The Uniform Division of Income for Tax Purposes Act (“UDITPA ) supports this conclusion. UDITPA was drafted in the mid
- 1950s to “‘promote uniformi ty in allocation practices among the states that impose tax on or measured by the net income of a corporation.’” May , 749 N.E.2d at 656
- 57. As such, Professor William J. Pierce, UDITPA’s principal drafter, has explained that this uniform rule “assumes th at the existing state legislation has defined the base of the tax and[, thus,] the only remaining problem is the amount of the base that should be assigned to the particular taxing jurisdiction.” (Pet’r Des’g Evid., Ex. H at 1015
- 16 (emphasis omitted) .) Thus, UDITPA

“ does not deal with the problem of ascertaining the items used in computing income or the allowable items of expense. ” (Pet’r Des’g Evid., Ex. H at 1015
- 16.) Indiana has not formally adopted UDITPA. May , 749 N.E.2d at 656. Nevertheless , the allocation and apportionment provisions of Indiana Code § 6
- 3
- 2
- 2 generally follow the provisions of UDITPA , which the Department’s regulations expressly recognize

. See 45 I ND
. A DMIN
. C ODE 3.1
- 1
- 37 (2005). In fact , Indiana Code § 6
- 3
- 2
- 2(l) uses near ly the same language as Section 18 of UDITPA

. Compare, e.g. , I.C. § 6
- 3
- 2
- 2(l) with (Pet’r Des’g Evid., Ex. H at 1015.) Specif ically, Indiana Code § 6
- 3
- 2
- 2(l) provides:

If the allocation and apportionment provisions of [Article 3] do not fairly reflect the taxpayer’s income derived from sources within the state of Indiana, the taxpayer may petition for or the department may require, in respect to all or any part of the taxpayer’s business activity, if reasonable:9 (1) separate accounting; (2) the exclusion of a ny one (1) or more of the factors; (3) the inclusion of one (1) or more additional factors which will fairly represent the taxpayer’s income derived from sources within the state of Indiana; or (4) the employment of any other method to effectuate an equitable al location and apportionment of the taxpayer’s income. I.C. § 6
- 3
- 2
- 2 (l)

. By comparison , Section 18 of UDITPA provides:

If the allocation and apportionment provisions of this Act do not fairly represent the extent of the taxpayer’s business activity in thi s state, the taxpayer may petition for or the [tax administrator] may require, in respect to all or any part of the taxpayer’s business activity, if reasonable: (1) Separate accounting; (2) The exclusion of any one or more of the factors; (3) The inclusion of one o r more additional factors which will fairly represent the taxpayer’s business activity in this state; or (4) The employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer’s income. (Pet’r Des’g Evid., Ex. H at 101 5.) Accordingly , the plain language of India na Code § 6
- 3
- 2
- 2(l), like that of Section 18 of UDITPA , “deals only with the question of the fairness of the [allocation or apportionment] of income, not with the determination of the tax base itself.” ( See Pe t’r Des’g Evid., Ex. H at 1015.) Finally , t he method by which a corporate taxpayer computes its Indiana AGIT liability also supports the conclusion that the concepts of allocation and apportionment under Indiana Code § 6
- 3
- 2
- 2(l)(4) solely involve divid ing the tax base among the10

states, not computing the tax base

. As stated above, Indiana’s AGIT liability calculation begins with federal taxable income (“FTI”): specifically, a corporate taxpayer first transfers the amount of its FTI from line 28 of its federal income tax return (Form 1120) to the state tax return (IT
- 20) as the starting point for its Indiana liability calculation. See I ND
. C ODE § 6
- 3
- 1
- 3.5(b) (2005) (amended 2006). ( Compare also, e.g. , First Stip., Ex. 2 at 1 3 ( Columbia Sportswear ’s Fe deral Pro Forma) 6 with Ex. 2 at 11 ( Columbia Sportswear ’s 2005 Indiana AGIT return) .) The taxpayer then adjusts this starting point by making the applicable statutorily prescribed modifications to its FTI. See I.C. § 6
- 3
- 1
- 3.5(b). ( See also, e.g. , First Stip., Ex. 2 at 1.) Only then can the taxpayer divide its Indiana net income tax base by applying the Standard Sourcing Rules. See I.C. § 6
- 3
- 2
- 2(b)
- (k). ( See also, e.g. , First Stip., Ex. 2 at 1, lines 15
- 18.) Accordingly, the allocation and apportion ment provisions under Indiana Code § 6
- 3
- 2
- 2(l) are distinct from the provisions that determine the Indiana tax base under Indiana Code § 6
- 3
- 1
- 3.5 (b) . Therefore , to conclude that Indiana Code § 6
- 3
- 2
- 2(l) authorizes the Department to make changes outside the context of allocation and apportionment would be like trying to pound a square peg into a round hole

. See Uniden Am. Corp. v. Indiana Dep’t of State Revenue , 718 N.E.2d 821, 828 (Ind. Tax Ct. 1999) (stating that the Legislature

6 CSC filed federal consolidated income tax returns during each of the years at issue that reported the income and losses of CSC, Mountain Hardwear, Columbia Sportswear, and three other corporate affiliates as if they were one entity. ( See, e.g. , First Stip., Ex. 2 at 2
- 3, Ex. at 8 at 3
- 4.) See also American Standar d, Inc. v. U.S. , 602 F.2d 256, 261 (Ct. Cl. 1979) (explaining that the purpose of consolidated filing “is to permit affiliated corporations, which may be separately incorporated for various business reasons, to be treated as a single entity for income tax purposes as if they were, in fact, one corporation”). For state tax reporting purposes, CSC prepared a federal Pro Forma income tax return to report income and losses on a separate company basis for each affiliate during the years at issue. See 26 C.F.R. § 1.1502
- 11(a) (2005) (requiring each member of the consolidated group to calculate its taxable income separately). While the Department has urged the Court to disregard Columbia Sportswear’s federal Pro Formas, claiming that they contain “made
- up” numbe rs, ( see, e.g. , Hr’g Tr. at 4
- 5), it has not designated any ev idence to support its claim or explain ed how the numbers are improper. Accordingly, the Court will not address this argument.11

intends statutes to be applied logically to prevent absurd results). The effect of each of the Department’s audit adjustment s was to increase Columbia Sportswear ’s Indiana net income tax base by approximately $100,000,000 for each of the years at issue, 7 not to divide its tax b ase differently than Columbia Sportswear had done under the Standard Sourcing Rules . ( See First Stip., Ex. 8 at 12
- 14.) Indiana Code § 6
- 3
- 2
- 2(l)(4) authorized the Department to use reasonable alternative methods to those provided un d er the Standard Sour cing Rules only for dividing the tax base. Therefore, Indiana Code § 6
- 3
- 2
- 2(l)(4) did not authorize the Department to make adjustment s that incre ased Columbia Sportswear’ s FTI and , thus , its Indiana net income tax base . Accordingly, the Department is no t entitled to summary judgment on this basis. Indiana Code § 6 - 3 - 2 - 2(m) During the years at issue, Indiana Code 6
- 3
- 2
- 2(m) provided that: In the case of two (2) or more organizations, trades, or businesses owned or controlled directly or indirectly by th e same interests, the department shall distribute, apportion, or allocate the income derived from sources within the state of Indiana between and among those organizations, trades, or businesses in order to fairly reflect and report the income derived from sources within the state of Indiana by various taxpayers. I.C. § 6
- 3
- 2
- 2(m). This language is nearly identical to the language of IRC § 482, indicating that both have a similar purpose. See , e.g. , Rent
- A
- Center E., Inc. v. Indiana Dep’t of State Revenu e ( RAC III ), No. 49T10
- 0612
- TA
- 00106, 2015 WL 5269719, at *5
- 6 (Ind. Tax Ct. Sept. 10, 2015) , pet ition for review filed

. The purpose of IRC § 482, and accordingly Indiana Code § 6
- 3
- 2
- 2( m), is “to ensure that taxpayer s clearly reflect

7 For example, the Department’s adjustment to Columbia Sportswear ’ s net income for the 2005 tax year increased its Indiana tax base from $8,572,365.00 to $107,848,438.00. ( See First Stip., Ex. 2 at 11, Ex. 8 at 12.)12

income attributable to controlled transactions and to prevent the avoidance of taxes with respect to such transactions.” See 26 C.F.R. § 1.482
- 1(a)(1) (2015)

. A transfer pricing study done in accordance with IRC § 482 and its associated regulations provides evidence of a ra nge of pricing for intercompany transactions between related entities that is similar to the pricing of comparable transactions between unrelated third parties ( i.e., arm’s
- length pricing)

. See generally , e.g. , 26 C.F.R. § 1
- 1482
- 1; 26 C.F.R. § 1.482
- 3 (2 015). This arm’s
- length standard is relevant for evaluating whether intercompany transactions are inappropriate tax avoidance mechanisms that distort the true generation of income in various jurisdictions for both federal and state tax purposes. See, e.g . , RAC III , No. 49T10
- 0612
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- 00106, 2015 WL 5269719, at *4
- 7. In fact, Indiana’s Legislature has ackno wledged the value of this arm’s
- length standard by expressly incorporating IRC § 482 and its associated regulations as a safe harbor from having to add back certain intercompany intangible expenses when computing an Indiana AGIT liability. See generally I ND
. C ODE § 6
- 3
- 2
- 20 (2006) (amended 2007). If the Standard Sourcing Rules do not fairly reflect a taxpayer’s Indiana source income, Indiana Code § 6
- 3
- 2
- 2(m) authorizes the Department to adjust intercompany expense deductions that reduce a taxpayer’s Indiana tax base, such as deductions for the costs of goods sold to an affiliate. See I.C. § 6
- 3
- 2
- 2(m). The Department claims, therefore, that its adju stments to Columbia Sportswear’s net income tax base were authorized by Indiana Code § 6
- 3
- 2
- 2(m) . ( See, e.g. , Resp’t Reply Br. at 8.) Indeed, the Department maintains that Columbia Sportswear ’s state tax treatment of its Intercompany Transactions improp erly “reduced [its] profit by almost two
- thirds” because CSC and Mountain Hardwear purchased the Products from independent13

foreign manufacturers and then resold them to Columbia Sportswear “at an inflated price[.]” ( See Resp’t Reply Br. at 2; First Stip., Ex. 8 at 7.) The Department points out that Columbia Sportswear’s net income must be distorted because the consolidated group’s effective tax rate decreased from 33.6% in 2006 to 30.6% in 2007 despite the fact that its net sales increased by at least 5% during each of the years at issue, its gross profit increased from 42.0% in 2006 to 42.8% in 2007, and its net income increased from $123.0 million in 2006 to $144.5 million in 2007. ( See Resp’t Br. at 2 ( citing Resp’t Des’g Evid., Exs. B at 25, C at 25, Ex. D at 25
- 26).) Columbia Sportswear , in response, presented three Transfer Pricing Studies as evidence that its Intercompany Transactions were c onducted at arm’s
- length rates and, therefore, its Indiana source income was f airly reflected under the Stand ard Sourcing Rules. ( See Pet’r Br. at 17, 21
- 22, 30
- 32; Second Stip., Exs. 19
- 21.) Columbia Sportswear also maintains that its Indiana source income was fairly reflected because “[m]ost of the value inherent in the Products [was] derived from [ CSC and Mo untain Hardwear’s out
- of
- state] research, design, sourcing, manufacturing, and advertising activities[,]” and not derived from Columbia Sportswear ’s in
- state distribution and sale activities as evidenced by, among other things, the Transfer Pricing Studies . ( See Pet’r Br. at 26
- 29 ( citing Pet’r Des’g Evid., App. E at 657 ¶ 11, 662
- 69 ¶¶ 37
- 42, 45
- 46, 48
- 56, App. F. at 876
- 77 ¶¶ 14
- 16).) The Department counters , however, that the se Transfer Pricing Studies do not rebut its prima facie case that its assessm ents are correct because:

1) Indiana has neither adopted nor enacted a statute similar to IRC § 482 or its related regulations; 2) the purposes of IRC § 482, ( i.e., “combat[ing] off
- shore tax14 evasion by multi
- national corporations”) are entirely differe nt from those of Indiana Code § 6
- 3
- 2
- 2(m) ; and 3) the Transfer Pricing Studies contain a disclaimer, stating that they “do not reach any conclusions regarding state tax issues.” ( See Resp’t Reply Br. at 5
- 6 ( citing Pet’r Des’g Evid., App. D, Ex. 19 at 331); Hr’g Tr. at 90
- 92.) The Department’s arguments fail for the following two reasons. First, the Court has recently addressed the Department’s first two arguments and found them un persuasive. See RAC III , No. 49T10
- 0612
- TA
- 00106, 2015 WL 5269719,
a t *5
- 7. T he Court will not restate its RAC III rationale here, but incorporates it by reference. See i d. Second, the disclaimer s in Columbia Sportswear’s Transfer Pricing Studies state : This report is limited to issues concerning compliance for the sp ecified transaction(s) with [IRC § 482]. Additional issues may exist that could affect the U.S. or foreign tax treatment of the transaction(s) that are the subject of this report and our report does not consider or provide a conclusion with respect to any additional issues. With respect to any significant tax issues outside the limited scope of this submission, the submission is not intended by [the accounting firm] to be used by any person for the purposes or advice or avoiding any penalties that may be imposed on any taxpayer. ( See, e.g. , Pet’r Des’g Evid., App. D, Ex. 19 at 331.) B oth the above language in the Transfer Pricing Studies and the affidavit of the economist that prepared them indicate that this standard disclaimer is provided to “limit [th e accounting firm’s] professional responsibility to only the question of whether . . . the purchase price paid between related entities satisfies the requirements of [IRC § 482].” ( See Pet’r Des’g Evid., App. G at 966
- 67 ¶¶ 27, 30.) Therefore, the Court is not persuaded that the disclaimers render the Transfer Pricing Studies irrelevant to the issue of whether Columbia Sportswear’s income is fairly reflected under the Standard Sourcing Rules.15

In this case, the Department’s Trial Rule 30(B)(6) witness t estified that the Department did “not take exception to” the comparable profits method that was utilized in the Transfer Pricing Studies because that method is “generally accepted . . . [by] everybody.” ( See Pet’r Des’g Evid., App. H, Ex. 46 at 1009
- 10.) The Department has neither subsequently alleged nor provided designated evidence to show that Columbia Sportswear ’s Transfer Pricing Studies are invalid or unreliable because they failed to comply with IRC § 482 and its related regulations. ( See generall y Resp’t Br.; Resp’t Reply Br.; Hr’g Tr.) Rather , the Department merely alleged that the Standard Sourcing Rules must have distorted Columbia Sportswear ’s Indiana source income because of the “big variance” between the percentages of gross profit for the consolidated group in comparison to Columbia Sportswear . ( See First Stip., Ex. 8 at 6
- 7; Pet’r Des’g Evid., App. H, Ex. 45 at 1004
- 05.) ( See also Hr’g Tr. at 23
- 24 (where the Department states the determination of whether a taxpayer’s Ind iana source inco me is distorted involves “something of a common sense test[ or] a gut feeling approach”).) The Department’s allegation, however, is insufficient to entitle it to judgment as a matter of law. See C & C Oil Co. v. Indiana Dep’t of State Revenue , 570 N.E.2d 1376 , 1379
- 80 (Ind. Tax Ct. 1991) (providing that while suppositional musings create hypotheticals, hypotheticals do not create genuine issues of material fact); Herb v. State Bd. of Tax Comm’rs , 656 N.E.2d 890, 893 (Ind. Tax Ct. 1995) (stating that “[a]l legations, unsupported by factual evidence, remain mere allegations”). The designated evidence establishes that Columbia Sportswear ’s Intercompany Transactions were conducted at arm’s length
rates and, therefore, the Standard Sourcing Rules fairly reflect ed Columbia Sportswear ’s Indiana source income for purposes of Indiana Code § 6
- 3
- 2
- 2(m).16

Accordingly, the Department was not authorized to make its adjustments under Indiana Code § 6
- 3
- 2
- 2(m), and it is not entitled to summary judgment on this basis eith er. Finally, even if the Court assumed that the Standard Sourcing Rules distorted Columbia Sportswear ’s Indiana source income for purposes of Indiana Code § 6
- 3
- 2
- 2(m), the Department ’s summary judgment claim would still fail because its adjustment s to Columbia Sportswear ’s net income tax base were unreasonable. S pecifically, the Department has explained that it s adjustment s sought to effect what it calls an equitable profit for each of the entities in the consolidated group consistent with the “golden rule

. ” ( See Resp’t Br. at 14
- 15; Hr’g Tr. at 8, 24
- 27.) The Department’s adjustment s , however, attributed over 99% of the gross income to one entity, Columbia Sportswear , without adjusting its apportionment percentage at all. ( See Pet’r Br. at 20
- 21 ( ci ting First Stip., Ex. 8 at 9 , 12 ).) The Court finds the attribution of nearly all of the consolidated group’s gross income to Columbia Sportswear to be out of all appropriate proportion to its Indiana business activities as evidenced by its property, payr oll, and sales factors , none of which the Department challenge d . ( See First Stip., Ex. 8 at 12. ) See also Moorman Mfg. Co. v. Bair , 437 U.S. 267, 274 (1978) ( explaining that because

“ States have wide latitude in the selection of apportionment formulas [, ] a formula
produced assessment will only be disturbed when the taxpayer has proved . . . that the income attributed to the State is in fact ‘out of all appropriate proportion to the business transacted

. . . in that State’ . . . or has ‘led to a grossly d istorted result ’” ( quoting Hans Rees’ Sons, Inc. v. North Carolina ex rel. Ma x well , 283 U.S. 123, 135 (1931); Norfolk & Western R. Co. v. State Tax Comm’n , 390 U.S. 317, 326 (1968))).17 CONCLUSION The Department is an administrative agency and may exercise only those powers expressly or impl iedly conferred by the General Assembly. See I ND
. C ODE § 6
- 8.1
- 2
- 1 (2005); Auburn Foundry, Inc. v. State Bd. of Tax Comm’rs , 628 N.E.2d 1260, 1263 (Ind. Tax Ct. 1994). Any ambiguous grants of power, therefore, must gen erally be resolved against the Department. See Gary Cmty. Sch. Corp. v. Indiana Dep’t of Local Gov’t Fin. , 15 N.E.3d 1141, 1146 (Ind. Tax Ct. 2014). In this case, the Department’s reliance on Indiana Code § 6
- 3
- 2
- 2(l)(4) was improper because that statute permits the Department to use only methods that divide the tax base, not methods that recalculate the tax base. The Department’s reliance on Indiana Code § 6
- 3
- 2
- 2(m) was also improper because the designated evidence simply does not show that the Standar d Sourcing Rules failed to fairly represent Columbia Sportswear ’s Indiana source income. Finally , even if Columbia Sportswear ’s Indiana source income was not fairly reflected under the Standard Sourcing Rules , the Department’s adjustments would still be i mproper because they were unreasonable. For all of these reasons, the Court therefore GRANTS summary judgment in favor of Columbia Sportswear and against the Department. SO ORDERED this 18th day of December 2015.

Martha Blood Wentwo rth, Judge Indiana Tax Court

DISTRIBUTION: Randal J. Kaltenmark, Ziaaddin Mollabashy, Jessica R. Gastineau