Indiana Administrative Code › Title 45 - DEPARTMENT OF STATE REVENUE › Article 3.1 - ADJUSTED GROSS INCOME TAX › Rule 1 - State Adjusted Gross Income Tax › Section 1-55 - Attribution of sales to state

Current through July 10, 2024
Authority: IC 6-8.1-3-3
Affected: IC 6-3-2-2
Sec. 55.
When Sales Other Than Sales of Tangible Personal Property Are
				  in This State. Gross receipts from transactions other than sales of tangible
				  personal property shall be included in the numerator of the sales factor if the
				  income-producing activity which gave rise to the receipts is performed wholly
				  within this state. Except as provided below if the income producing activity is
				  performed within and without this state such receipts are attributed to this
				  state if the greater proportion of the income producing activity is performed
				  here, based on costs of performance.
The term "income producing activity" means the act or acts
				  directly engaged in by the taxpayer for the ultimate purpose of obtaining gains
				  or profit. Such activity does not include activities performed on behalf of the
				  taxpayer, such as those conducted on its behalf by an independent contractor.
				  Accordingly, "income producing activity" includes but is not limited to the
				  following:
(1) The rendering of
				personal services by employees or the utilization of tangible and intangible
				property by the taxpayer in performing a service.
(2) The sale, rental, leasing, or licensing
				the use of or other use of tangible personal property.
(3) The sale, licensing the use of or other
				use of intangible personal property.
Income producing activity is deemed performed at the situs of
				  real, tangible and intangible personal property or the place where personal
				  services are rendered. The situs of real and tangible personal property is at
				  its physical location. The situs of intangible personal property is the
				  commercial domicile of the taxpayer (i.e., the principal place from which trade
				  or business of the taxpayer is directed or managed), unless the property has
				  acquired a "business situs" elsewhere. "Business situs" is the place at which
				  intangible personal property is employed as capital; or the place where the
				  property is located if possession and control of the property is localized in
				  connection with a trade or business so that substantial use or value attaches
				  to the property. Example: Taxpayer, a corporation whose principal business
				  activity is the manufacture and sale of hot water heaters, obtains notes for
				  the sale of such water heaters in connection with its Indiana business
				  activity. The property has a business situs in this state, therefore, interest
				  income derived from such notes is attributable to this state.
The term "costs of performance" means direct costs determined
				  in a manner consistent with generally accepted accounting principles and in
				  accordance with accepted conditions or practices in the trade or business of
				  the taxpayer.
If receipts from sales other than sales of tangible personal
				  property do not constitute a principal source of business income and such
				  receipts are included in the denominator of the receipts factor, such receipts
				  are in this state if:
(a) the income
				producing activity is performed wholly within this state; or
(b) the income producing activity is
				performed both in and outside this state and a greater proportion of the income
				producing activity is performed in this state than in any other state, based on
				costs of performance.
Examples:
(1) The
				taxpayer is engaged in the heavy construction business in which it uses cranes,
				tractors, and earth-moving vehicles. The taxpayer makes short-term rentals of
				the equipment when not needed on any project. The taxpayer rented some of the
				equipment to X for three weeks. The equipment was used by X for two weeks in
				this state and one week in State Y. The taxpayer's direct costs in connection
				with the equipment during the rental period was $500 each week. Accordingly,
				the greater proportion of such costs was incurred in this state. All of the
				rental receipts are business income and for purposes of the sales factor are
				included in the numerator for this state.
(2) Taxpayer, whose commercial domicile is in
				this state, manufactures and sells industrial chemicals. Taxpayer owns patents
				on certain of its products. The taxpayer licensed the production of the
				chemicals in foreign countries in return for which the taxpayer receives
				royalties which constitute a relatively minor amount of its income. The
				royalties are business income and for purposes of the sales factor are included
				in the numerator for the state of the taxpayer's commercial domicile.
Except as provided by special apportionment formulas,
				  receipts from sales other than sales of tangible personal property which
				  constitute a principal source of business income shall be attributed to this
				  state in accordance with the following:
(a) Gross receipts from the sale, lease,
				rental or other use of real property are in this state if the real property is
				located in this state.
(b) Gross
				receipts from the rental, lease, licensing the use of or other use of tangible
				personal property shall be assigned to this state if the property is within
				this state during the entire period of rental, lease, license or other use. If
				the property is within and without this state during such period, gross
				receipts attributable to this state shall be based upon the ratio which the
				time the property was physically present or was used in this state bears to the
				total time or use of the property everywhere during such period.
(c) Income from transportation between a
				point in Indiana and a point outside Indiana shall be attributed to this state
				on a mileage basis. See Regulation 6-3-2-2(l)(020)
[ 45 IAC 3.1-1-63
				]
.
(d) Gross receipts for
				the performance of personal services are attributable to this state to the
				extent such services are performed in this state. If the services are performed
				partly within and without this state, such receipts shall be attributed to this
				state based upon the ratio which the time spent in performing such services in
				this state bears to the total time spent in performing such services
				everywhere. Time spent in performing services includes the amount of time
				expended in the performance of a contract or other obligation which gives rise
				to such gross receipts. Personal service not directly connected with the
				performance of the contract or other obligation, as for example, time expended
				in negotiating the contract, is excluded from the computations.
Examples:
(1) The
				taxpayer, a road show, gave theatrical performances at various locations in
				State X and in this state during the tax period. All gross receipts from
				performances given in this state are attributed to this state.
(2) The taxpayer, a public opinion survey
				corporation, conducted a poll by its employees in State C and in this state for
				the sum of $9,000. The project required 600 man hours to obtain the basic data
				and prepare the survey report. Two hundred of the 600 man hours were expended
				in this state. The receipts attributable to this state are:
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(e) Gross receipts from intangible personal
				property shall, if classified as business income, be attributed to this state
				based upon the ratio which the total property and payroll factors in this state
				bears to the total of the property and payroll factors everywhere for the tax
				period as determined in Regulations 6-3-2-2(c)(010)
[ 45 IAC 3.1-1-40 ]
et seq. and 6-3-2-2(d)(010)
[ 45 IAC 3.1-1-47 ]
et
				seq.
(f) The provisions of this
				Regulation
[ 45 IAC 3.1-1-55 ]
shall also apply to sales other
				than sales of tangible personal property to the United States
				Government.