The Indiana Tax Court granted summary judgment to Columbia Sportswear USA Corp., (“Columbia”), determining that: (1) Indiana’s alternative apportionment statute did not permit the Department to equitably adjust Columbia’s tax base; and (2) Indiana’s standard sourcing rules clearly reflected Columbia’s Indiana source income because transfer pricing studies supported Columbia’s intercompany transactions as being consistent with Indiana’s conformity to I.R.C. § 482.

Columbia purchased its apparel and accessories from related entities that it distributed in Indiana and other states. An accounting firm prepared a series of transfer pricing studies to determine arm’s length prices for the intercompany purchases. Citing to its authority under the state’s alternative apportionment and I.R.C. § 482-type statues, the Department assessed Columbia by applying the consolidated group’s profit margin to each separate legal entity. The Department asserted that the transfer pricing studies were irrelevant in determining whether the statutory sourcing rules clearly reflect Columbia’s Indiana income because: (1) Indiana has not adopted nor enacted a statute similar to I.R.C. § 482 or its regulations; (2) I.R.C. § 482’s purpose is not to ensure a clear reflection of Indiana net income; and (3) the transfer pricing studies contained a disclaimer that prevented their application to state tax issues.

The Court rejected all of the Department’s arguments. The Court disposed of the Department’s first two arguments by citing to its recent decision in Rent-A-Center (noting the strong similarity between I.R.C. § 482 and Indiana’s statutory equivalent and that I.R.C. § 482’s purpose of ensuring the clear reflection of income between related organizations is relevant to the same determination under Indiana law) (prior coverage here). The Court concluded that the purpose of the disclaimer was only to limit the accounting firm’s professional responsibility regarding the transactions’ compliance with I.R.C. § 482 and does not render the studies irrelevant to a distortion analysis. The Court also determined that even if Columbia’s Indiana net income was distorted, the Department’s adjustment method was unreasonable. Finally, the Court rejected the Department’s request to remand the case to allow it to use forced combination as an alternative apportionment method because the Department had already concluded on audit that combination was inapplicable. Columbia Sportswear USA Corp., Indiana Dep’t of Revenue, No. 49T10-1104-TA-00032 (Ind. Tax Ct. Dec. 18, 2015).