which this subdivision applies includes testing or inspection
to determine whether particular units of materials or
products conform to specified parameters. Quality control
testing does not include testing to determine if the design of
a product is appropriate.
(2) Efficiency surveys.
(3) Management studies.
(4) Consumer surveys.
(5) Advertising or promotions.
(6) The acquisition of another's patent, model, production,
process, or other product.
(7) Research in connection with literary, historical, or similar
projects.
(8) Activities to ascertain the existence, location, extent, or
quality of any deposit of oil, gas, ore, or other mineral.
(9) Assembly, construction, or installation of property that is
placed in service or held for sale, lease, or license.
(d) As used in this section, "uncertainty" means the
unavailability to the taxpayer of information necessary to
establish the capability or method for developing or improving the
product or the appropriate design of the product.
(e) Transactions involving tangible personal property are
exempt from the state gross retail tax if the person acquiring the
property acquires it for direct use in research and development.
section 2.2 of this chapter.
In the case of nonbusiness income described in subsection (g), (e),
only so much of such income as is allocated to this state under the
provisions of subsections (h) (f) through (k) (i) shall be deemed to be
derived from sources within Indiana. In the case of business income,
only so much of such income as is apportioned to this state under the
provision of subsection (b) shall be deemed to be derived from sources
within the state of Indiana. In the case of compensation of a team
member (as defined in section 2.7 of this chapter) only the portion of
income determined to be Indiana income under section 2.7 of this
chapter is considered derived from sources within Indiana. In the case
of a corporation that is a life insurance company (as defined in Section
816(a) of the Internal Revenue Code) or an insurance company that is
subject to tax under Section 831 of the Internal Revenue Code, only so
much of the income as is apportioned to Indiana under subsection (r)
(p) is considered derived from sources within Indiana.
(b) Except as provided in subsection (l), (j), if business income of
a corporation or a nonresident person is derived from sources within
the state of Indiana and from sources without the state of Indiana, then
the business income derived from sources within this state shall be
determined by multiplying the business income derived from sources
both within and without the state of Indiana 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 (3). However,
after a period of two (2) consecutive quarters of income growth and
one (1) additional quarter (regardless of any income growth), the
fraction shall be computed as follows:
(1) For all taxable years that begin within the first calendar year
immediately following the period, the numerator of the fraction is
the sum of the property factor plus the payroll factor plus one
hundred thirty-three percent (133%) of the sales factor, and the
denominator of the fraction is three and thirty-three hundredths
(3.33).
(2) For all taxable years that begin within the second calendar year
following the period, the numerator of the fraction is the property
factor plus the payroll factor plus one hundred sixty-seven percent
(167%) of the sales factor, and the denominator of the fraction is
three and sixty-seven hundredths (3.67).
(3) For all taxable years beginning on or after January 1 of the
third calendar year following the period, the numerator of the
fraction is the property factor plus the payroll factor plus two
hundred percent (200%) of the sales factor, and the denominator
of the fraction is four (4).
For purposes of this subsection, income growth occurs when the
state's nonfarm personal income for a calendar quarter increases in
comparison with the state's nonfarm personal income for the
immediately preceding quarter at an annualized compound rate of five
percent (5%) or more, as determined by the budget agency based on
current dollar figures provided by the Bureau of Economic Analysis of
the United States Department of Commerce or its successor agency.
The annualized compound rate shall be computed in accordance with
the formula (1+N)4-1, where N equals the percentage change in the
state's current dollar nonfarm personal income from one (1) quarter to
the next. As soon as possible after two (2) consecutive quarters of
income growth, the budget agency shall advise the department of the
growth.
(c) The property factor is a fraction, the numerator of which is the
average value of the taxpayer's real and tangible personal property
owned or rented and used in this state during the taxable year and the
denominator of which is the average value of all the taxpayer's real and
tangible personal property owned or rented and used during the taxable
year. However, with respect to a foreign corporation, the denominator
does not include the average value of real or tangible personal property
owned or rented and used in a place that is outside the United States.
Property owned by the taxpayer is valued at its original cost. Property
rented by the taxpayer is valued at eight (8) times the net annual rental
rate. Net annual rental rate is the annual rental rate paid by the taxpayer
less any annual rental rate received by the taxpayer from subrentals.
The average of property shall be determined by averaging the values at
the beginning and ending of the taxable year, but the department may
require the averaging of monthly values during the taxable year if
reasonably required to reflect properly the average value of the
taxpayer's property.
(d) The payroll factor is a fraction, the numerator of which is the
total amount paid in this state during the taxable year by the taxpayer for
compensation, and the denominator of which is the total compensation
paid everywhere during the taxable year. However, with respect to a
foreign corporation, the denominator does not include compensation
paid in a place that is outside the United States. Compensation is paid in
this state if:
(1) the individual's service is performed entirely within the state;
(2) the individual's service is performed both within and without
this state, but the service performed without this state is incidental
to the individual's service within this state; or
(3) some of the service is performed in this state and:
(A) the base of operations or, if there is no base of operations,
the place from which the service is directed or controlled is in
this state; or
(B) the base of operations or the place from which the service
is directed or controlled is not in any state in which some part
of the service is performed, but the individual is a resident of
this state.
(e) (c) The sales factor is a fraction, the numerator of which is the
total sales of the taxpayer in this state during the taxable year, and the
denominator of which is the total sales of the taxpayer everywhere
during the taxable year. Sales include receipts from intangible property
and receipts from the sale or exchange of intangible property. However,
with respect to a foreign corporation, the denominator does not include
sales made in a place that is outside the United States. Receipts from
intangible personal property are derived from sources within Indiana if
the receipts from the intangible personal property are attributable to
Indiana under section 2.2 of this chapter. Sales of tangible personal
property are in this state if:
(1) the property is delivered or shipped to a purchaser, other than
the United States government, within this state, regardless of the
f.o.b. point or other conditions of the sale; or
(2) the property is shipped from an office, a store, a warehouse,
a factory, or other place of storage in this state and:
(A) the purchaser is the United States government; or
(B) the taxpayer is not taxable in the state of the purchaser.
Gross receipts derived from commercial printing as described in
IC 6-2.5-1-10 shall be treated as sales of tangible personal property for
purposes of this chapter.
(f) (d) Sales, other than receipts from intangible property covered by
subsection (e) (c) and sales of tangible personal property, are in this
state if:
(1) the income-producing activity is performed in this state; or
(2) the income-producing activity is performed both within and
without 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.
(g) (e) Rents and royalties from real or tangible personal property,
capital gains, interest, dividends, or patent or copyright royalties, to the
extent that they constitute nonbusiness income, shall be allocated as
provided in subsections (h) (f) through (k). (i).
(h)(1) (f)(1) Net rents and royalties from real property located in this
state are allocable to this state.
(2) Net rents and royalties from tangible personal property are
allocated to this state:
(i) if and to the extent that the property is utilized in this state; or
(ii) in their entirety if the taxpayer's commercial domicile is in this
state and the taxpayer is not organized under the laws of or taxable
in the state in which the property is utilized.
(3) The extent of utilization of tangible personal property in a state
is determined by multiplying the rents and royalties by a fraction, the
numerator of which is the number of days of physical location of the
property in the state during the rental or royalty period in the taxable
year, and the denominator of which is the number of days of physical
location of the property everywhere during all rental or royalty periods
in the taxable year. If the physical location of the property during the
rental or royalty period is unknown or unascertainable by the taxpayer,
tangible personal property is utilized in the state in which the property
was located at the time the rental or royalty payer obtained possession.
(i)(1) (g)(1) Capital gains and losses from sales of real property
located in this state are allocable to this state.
(2) Capital gains and losses from sales of tangible personal property
are allocable to this state if:
(i) the property had a situs in this state at the time of the sale; or
(ii) the taxpayer's commercial domicile is in this state and the
taxpayer is not taxable in the state in which the property had a
situs.
(3) Capital gains and losses from sales of intangible personal
property are allocable to this state if the taxpayer's commercial domicile
is in this state.
(j) (h) Interest and dividends are allocable to this state if the
taxpayer's commercial domicile is in this state.
(k)(1) (i)(1) Patent and copyright royalties are allocable to this state:
(i) if and to the extent that the patent or copyright is utilized by
the taxpayer in this state; or
(ii) if and to the extent that the patent or copyright is utilized by
the taxpayer in a state in which the taxpayer is not taxable and
the taxpayer's commercial domicile is in this state.
(2) A patent is utilized in a state to the extent that it is employed in
production, fabrication, manufacturing, or other processing in the
state or to the extent that a patented product is produced in the
state. If the basis of receipts from patent royalties does not permit
allocation to states or if the accounting procedures do not reflect
states of utilization, the patent is utilized in the state in which the
taxpayer's commercial domicile is located.
(3) A copyright is utilized in a state to the extent that printing or
other publication originates in the state. If the basis of receipts
from copyright royalties does not permit allocation to states or if
the accounting procedures do not reflect states of utilization, the
copyright is utilized in the state in which the taxpayer's
commercial domicile is located.
(l) (j) 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 taxpayer may petition for or the department
may require, in respect to all or any part of the taxpayer's business
activity, if reasonable:
(1) separate accounting;
Revenue Code) or an insurance company that is subject to tax under
Section 831 of the Internal Revenue Code. The corporation's adjusted
gross income that is derived from sources within Indiana is determined
by multiplying the corporation's adjusted gross income by a fraction:
(1) the numerator of which is the direct premiums and annuity
considerations received during the taxable year for insurance upon
property or risks in the state; and
(2) the denominator of which is the direct premiums and annuity
considerations received during the taxable year for insurance upon
property or risks everywhere.
The term "direct premiums and annuity considerations" means the gross
premiums received from direct business as reported in the corporation's
annual statement filed with the department of insurance.
corporation's property.
(d) The United States payroll factor of a corporation is a fraction.
The numerator of the fraction is the total compensation to individuals
paid in the United States during the taxable year by the corporation, and
the denominator of the fraction is the total compensation to individuals
paid anywhere in the world during the taxable year by the corporation.
Compensation to an individual is paid in the United States if:
(1) the individual's service is performed entirely within the United
States;
(2) the individual's service is performed both within and outside
the United States, but the service performed outside the United
States is incidental to the individual's service within the United
States; or
(3) the individual is a resident of the United States, some of the
service is performed in the United States, and:
(A) the base of operations or, if there is no base of operations,
the place from which the service is directed or controlled is in
the United States; or
(B) the base of operations or, if there is no base of operations,
the place from which the service is directed or controlled is not
in a jurisdiction that is outside the United States and that is
where some part of the service is performed.