Opinion ID: 2224697
Heading Depth: 1
Heading Rank: 4

Heading: The Regulation Relied upon by the Majority Indicates the Gross Income at Issue in this Case is Taxable.

Text: Under the heading Sources within Indiana, the majority refers to Indiana Administrative Code title 45, Regulation 1-1-51 as the interpreting regulation and suggests that the regulation provides the controlling interpretation of when gross income is derived from sources within Indiana. In fact, Regulation 1-1-51 of title 45 only purports to determine when income from intangibles is taxable and not whether income is derived from within Indiana. As I have already indicated above, one need not go beyond the unambiguous language of the gross income tax statute to see plainly that Bethlehem's gross income from the sale of federal tax benefits was derived from an activity, business, or other source within Indiana. But in my view, a correct reading of Regulation 1-1-51 would reveal that the proceeds from Bethlehem's sale-leaseback transactions are taxable. The regulation provides two tests for the taxability of intangibles that are really quite straightforward. First, if a taxpayer has established its commercial domicile in Indiana, then all income from intangibles is taxable in Indiana unless the income is directly related to an integral part of a business regularly conducted at a business situs outside Indiana. Ind. Admin. Code tit. 45, r. 1-1-51 para. 6 (1992). Bethlehem has not established its commercial domicile in Indiana, so this test is not applicable to this case. Second, if a taxpayer, regardless of whether its commercial domicile is in Indiana or not, has a business situs in Indiana, and the intangible forms an integral part of a business regularly conducted at [that] situs, then the income from that intangible is taxable. Ind. Admin. Code tit. 45, r. 1-1-51 para. 2 (1992). I believe that Bethlehem's income from its sale of federal tax benefits meets this test for the taxability of income from intangibles. The majority incorrectly states that by the terms of this test Indiana may not tax Bethlehem's income from the sales of tax benefits unless the sales form `an integral part' of Bethlehem's in-state business activities. In fact, the regulation provides that if either the intangible itself or the sales proceeds form an integral part of the business, the proceeds are subject to tax. Ind. Admin. Code tit. 45, r. 1-1-51 para. 2. The majority also incorrectly states that the regulation does not explain when an intangible or the income from an intangible forms an `integral part' of a business operation. [3] In fact, the regulation clearly indicates that the integral part test is met if the intangible or the income derived therefrom is connected with that business, either actually or constructively. Ind. Admin. Code tit. 45, r. 1-1-51 para. 3. The intangible here, of course, is the tax benefits, and they were created by the use of the equipment to which they related in Bethlehem's Indiana steel-making business. I do not think that it can be seriously maintained that the generation of investment tax credits and ACRS deductions by the use of steel-making equipment at Burns Harbor is not connected with Bethlehem's Burns Harbor business either actively or constructively.