Opinion ID: 2224697
Heading Depth: 1
Heading Rank: 3

Heading: Imposition Statute and Regulation

Text: Indiana imposes a gross income tax on the gross receipts of residents and domiciliaries and on the gross receipts of nonresidents and nondomiciliaries. [4] Ind. Code Ann. art. 6-2.1 (Burns 1989). The taxability of the income of a nonresident or nondomiciliary depends upon three determinations. First, the receipts must constitute gross income. Ind. Code Ann. § 6-2.1-1-2 (Burns 1989). In Hoosier Energy Rural Electric Coop. v. Indiana Dep't of State Revenue (1991), Ind., 572 N.E.2d 481, we determined that the proceeds from sales of federal tax benefits under § 168(f)(8) are gross income. Second, the receipts must be taxable gross income, which the statute defines as that portion of gross income not subject to exemption, Ind. Code Ann. ch. 6-2.2-3 (Burns 1989), or deduction, Ind. Code Ann. ch. 6-2.1-4 (Burns 1989). Ind. Code Ann. § 6-2.1-1-13 (Burns 1989). The provision relevant to this appeal exempts taxpayers with [g]ross income derived from business conducted in commerce between the state of Indiana and either another state or a foreign country ... to the extent the state of Indiana is prohibited from taxing that gross income by the United States Constitution. Ind. Code Ann. § 6-2.1-3-3 (Burns 1989). This, of course, is less a tax exemption than a recognition that the Commerce Clause limits state taxing authority. U.S. Const. art. I, § 8, cl. 3. Third, the imposition statute distinguishes between the income of residents and domiciliaries and the income of nonresidents and nondomiciliaries. The relevant provision reads: (a) An income tax, known as the gross income tax, is imposed upon the receipt of: (1) The entire taxable gross income of a taxpayer who is a resident or a domiciliary of Indiana; and (2) The taxable gross income derived from activities or businesses or any other sources within Indiana by a taxpayer who is not a resident or a domiciliary of Indiana. Ind. Code Ann. § 6-2.1-2-2(a). As a nondomiciliary, then, Bethlehem's gross receipts, including any proceeds from the sale of intangibles, are taxable only if they were derived from activities or businesses or any other sources within Indiana. Two questions thus present themselves under the statute. First, were Bethlehem's cash proceeds from the sale of the tax benefits accruing to its Indiana equipment derived from an activity or business or any other source within Indiana for the purposes of § 6-2.1-2-2(a)(2)? Second, even if these proceeds were derived from an Indiana source, would a gross income tax on those proceeds violate the Commerce Clause of the United States Constitution and trigger the exemption specified by § 6-2.1-3-3?