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. 49T10-1104-TA-00032 

)

INDIANA DEPARTMENT OF STATE )

REVENUE, )

)

Respondent. )

______________________________________________________________________

ORDER ON PARTIES’ CROSS-MOTIONS FOR SUMMARY JUDGMENT

FOR PUBLICATION

December 18, 2015

WENTWORTH, J.

Columbia Sportswear USA Corporation challenges the Indiana Department of 

State Revenue’s assessment of adjusted gross income tax (AGIT) for the 2005, 2006, 

and 2007 tax years (the “years at issue”). The matter is currently before the Court on 

the parties’ cross-motions for summary judgment.1 The dispositive issue is whether the 

Department’s adjustments 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 information necessary for the reader to understand its disposition of 

the issues presented. See generally Ind. Administrative Rule 9. 
2

issue were proper.2 The Court finds that they were not.

FACTS AND PROCEDURAL HISTORY

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/equipment (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 independent accounting firm to conduct a Transfer Pricing Study to 

determine arm’s-length pricing for its and Mountain Hardwear’s 2005, 2006, and 2007 

sales of the Products to Columbia Sportswear (the “Intercompany Transactions”). (See

Second Stip. ¶ 16, Exs. 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 Stipulation 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 audited 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 motion for summary judgment presented two other issues: 1) whether the 

Department’s denial of Columbia Sportswear’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 income. (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 Stip. ¶¶ 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-motion 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 of 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 validity 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 sufficient 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 report its AGIT liability on a separate company 

basis. IND. CODE § 6-3-2-1(b) (2005) (amended 2011); see 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 with 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 in 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 IND. CODE § 6-3-2-

2(a)-(k) (2005) (amended 2006). See also RAC II, 963 N.E.2d at 465. The 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 (Ind. 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 income, 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); IND. CODE § 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 standard [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. It is 

anticipated that these 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 IND. ADMIN. CODE 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 adjustments 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 designating 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 undisputed 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 judgment as a matter of law”).
6

Department, on the other hand, claims that both subsections of the statute authorized 

its adjustments 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)

The 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) Determining 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) Ascertaining the additional amount of Columbia Sportswear’s 

net income to be attributed to Indiana for each of the years 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.) Thereafter, the Department did not recalculate Columbia 

Sportswear’s apportionment 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 under 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 Indiana 

Code § 6-3-2-2(l)(4) to divide a taxpayer’s tax base among the states in which it does 

business. Compare WEBSTER’S THIRD NEW INT’L DICTIONARY 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 IND. CODE § 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”). 

During 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 uniformity 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 that 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 IND. ADMIN. CODE 3.1-1-37 (2005). In fact, Indiana Code § 

6-3-2-2(l) uses nearly 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.) Specifically, 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 any 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 allocation 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 this 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 or 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 1015.) Accordingly, the plain language of Indiana 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 Pet’r Des’g Evid., Ex. H at 1015.) 

Finally, the 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 dividing the tax base among the 
10

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

IND. CODE § 6-3-1-3.5(b) (2005) (amended 2006). (Compare also, e.g., First Stip., Ex. 2 

at 13 (Columbia Sportswear’s Federal 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 apportionment 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 Standard, 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” numbers, (see, e.g., Hr’g Tr. at 4-5), it has not 

designated any evidence to support its claim or explained 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 adjustments was to increase 

Columbia Sportswear’s Indiana net income tax base by approximately $100,000,000 for 

each of the years at issue,7not to divide its tax base 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 under the Standard Sourcing Rules only for 

dividing the tax base. Therefore, Indiana Code § 6-3-2-2(l)(4) did not authorize the 

Department to make adjustments that increased Columbia Sportswear’s FTI and, thus,

its Indiana net income tax base. Accordingly, the Department is not 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 the same interests, the 

department shall distribute, apportion, or allocate the income 

derived from sources within the state of Indiana between and 

among those organizations, trades, or businesses in order to fairly 

reflect and report the income derived from sources within the state 

of Indiana by various taxpayers.

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 Revenue (RAC III), No. 49T10-0612-TA-00106, 2015 WL 5269719, at *5-

6 (Ind. Tax Ct. Sept. 10, 2015), petition for review filed. The purpose of IRC § 482, and 

accordingly Indiana Code § 6-3-2-2(m), is “to ensure that taxpayers 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 range 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 (2015). 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-TA-00106, 2015 WL 5269719, at *4-7. 

In fact, Indiana’s Legislature has acknowledged 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 IND. CODE § 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 adjustments 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 improperly “reduced [its] profit by almost two-thirds” 

because CSC and Mountain Hardwear purchased the Products from independent 
13

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 conducted at arm’s-length rates and, 

therefore, its Indiana source income was fairly reflected under the Standard 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 Mountain 

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 these Transfer Pricing Studies do not

rebut its prima facie case that its assessments 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 tax 
14

evasion by multi-national corporations”) are entirely different 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 unpersuasive. See RAC III, No. 49T10-0612-TA-00106, 2015 WL 5269719, 

at *5-7. The Court will not restate its RAC III rationale here, but incorporates it by 

reference. See id. 

Second, the disclaimers in Columbia Sportswear’s Transfer Pricing Studies state: 

This report is limited to issues concerning compliance for the 

specified 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.) Both 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 [the 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 testified 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 generally 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 Indiana source income 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]llegations, unsupported by factual 

evidence, remain mere allegations”). The designated evidence establishes that 

Columbia Sportswear’s Intercompany Transactions were conducted at arm’s lengthrates and, therefore, the Standard Sourcing Rules fairly reflected 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 either. 

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 adjustments

to Columbia Sportswear’s net income tax base were unreasonable. Specifically, the 

Department has explained that its adjustments 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 adjustments, 

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 (citing

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, payroll, and 

sales factors, none of which the Department challenged. (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 formulaproduced 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 distorted result’” (quoting Hans 

Rees’ Sons, Inc. v. North Carolina ex rel. Maxwell, 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 impliedly conferred by the General Assembly. See IND. CODE § 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 generally 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 Standard 

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 

improper 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 Wentworth, Judge

Indiana Tax Court

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