United States

Indiana: Indiana-Based Company was a Service Provider whose Income-Producing Activities Occurred in Indiana

Jun 12, 2017
From KPMG TaxWatch

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Recently, the Indiana Department of Revenue denied a taxpayer’s requested refunds, which were based on the taxpayer sourcing certain of its sales out-of-state to where its customers were located. The taxpayer, three separate, but related Indiana-based companies, manufactured electrical equipment and also galvanized metal products for in-state and out-of-state customers. During the galvanization process, a coat of zinc metal was applied to the customer’s products. The taxpayer originally filed returns sourcing all of its sales to Indiana. Later, it amended its returns and removed from the sales factor receipts associated with galvanizing products for out-of-state customers. The taxpayer’s position was that it was selling tangible personal property to customers—the zinc used in the galvanization process—and therefore its receipts from out-of-state customers were not Indiana sales.

Under Indiana law, receipts from sales of other than tangible personal property are attributed to Indiana if the income producing activity is performed in Indiana.  In the Department’s view, the taxpayer was providing a galvanizing service and was not a purveyor of zinc metal. As support for its position, the Department noted that the taxpayer’s 10K report described the taxpayer’s galvanizing business as a “services segment.” The Department concluded that the taxpayer’s income, which it characterized as service income, was properly sourced to Indiana where the income-producing activities occurred. For more information on this protest, please contact Marc Caito at 317-951-2434.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.