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Corporate income and franchise taxes

Taxable income

How is taxable income determined in your state? To what extent is the state income tax base aligned with the federal income tax base?

Indiana starts with taxable income as defined in Section 63 of the Internal Revenue Code, and then makes certain adjustments (additions and subtractions) specified by statute (Ind. Code § 6-3-1-3.5).

How is in-state income apportioned for multi-state businesses? Does your state regulate transfer pricing?

As set forth in Ind. Code § 6-3-2-2, Indiana generally apportions business income from the sale of tangible personal property based on a sales factor, with the numerator being sales in Indiana and the denominator being all sales. Indiana allocates non-business income. For service-based income, Indiana follows a ‘cost of performance’ test and not market-based sourcing.

Aside from its single sales factor, Indiana generally follows the Uniform Division of Income for Tax Purposes Act, with provisions for alternative apportionment and special treatment of certain industries.

In audits, the Indiana Department of Revenue (IDOR) has challenged transfer pricing and intercompany transactions if it believes there is distortion and made such modifications as deemed appropriate (e.g., disallowing deductions, excluding companies from consolidated returns, and forcing combined reporting).

Nexus

How is nexus determined for corporate income tax purposes?

Indiana applies a ‘facts and circumstances’ approach in determining nexus, applying its interpretation of the US constitutional requirements.  The Indiana Tax Court has stated that a physical presence is required for purposes of Indiana’s corporate income tax.

Is affiliate nexus recognized in your state? If so, to what extent? Has there been any notable case law in this area?

There is no affiliate nexus statute and no case law on affiliate nexus. 

Rates

What are the applicable corporate income tax rates?

The corporate income tax rates are currently subject to a phased-in reduction. Starting 1 July 2018, the rate is 5.75%, and will continue to decrease incrementally down to 4.9% in July 2021.

Exemptions, deductions and credits

What exemptions, deductions, and credits are available?

There are myriad exemptions, deductions and credits. Subject to various limitations and exceptions, Indiana generally exempts:

  • pass-through entities (e.g., S corporations, partnerships, limited liability companies);
  • organizations exempt under Section 501 of the Internal Revenue Code (other than income from unrelated trade or businesses);
  • banks and other financial institutions (which are subject to the financial institutions tax); and
  • insurance companies (which are subject to the insurance premiums tax).

Notable deductions for businesses include foreign source dividends and intercompany transactions among affiliates included in an Indiana consolidated or combined return.

Indiana also has numerous credits (e.g., the research expense credit) and other credits designed to promote investment in property and payroll in Indiana (e.g., the economic development for a growing economy (EDGE) credit and the Hoosier business investment tax credit). 

Filing requirements

What filing requirements and procedures apply? Are there special filing requirements for groups of company?

There are filing requirements and procedures for every listed tax, including the adjusted gross income tax.

Annual returns and tax payments are due on the 15th of the month following the due date of the federal return, although IDOR may extend the due date if the federal due date is extended, which extension shall be to the same date.

For calendar-year taxpayers, estimated taxes are due on the 20th of April, June, September and December, and for fiscal-year taxpayers, the 20th day of the fourth, sixth, ninth, and 12th months.

Taxpayers must file notice of federal modifications within 180 days of the modification being made (as defined by Ind. Code § 6-3-4-6).  For adjusted gross income tax purposes, Indiana is a separate return state, but offers an election to file a consolidated return, generally based on federal law, but only including those corporations with income derived from sources within Indiana.

Indiana is not a mandatory unitary combined return filing state, but taxpayers can request, and in some cases IDOR can require, combined returns for unitary groups. There are annual return filing and tax payment obligations, as well as estimated tax payment obligations. There are also special rules and procedures for filing claims for refund. Pass-through entities (e.g. partnerships, limited liability companies and S corporations) must file annual informational returns and also have tax withholding and payment obligations with respect to the income of a non-resident partner or shareholder (as detailed in Ind. Code §§ 6-3-4-12, -13). There are also rules addressing composite returns.  Credits based on economic development may include annual compliance filings with both IDOR and the Indiana Economic Development Corporation.

Corporate franchise tax

Does your state impose a corporate franchise tax? If so, is it imposed in lieu of or in addition to corporate income tax?

No.

If your state imposes a corporate franchise tax, please stipulate:

(a) The applicable tax base.

N/A.

(b) Tax rates.

N/A.

(c) Any exemptions or deductions.

N/A.

(d) Filing formalities.

N/A.

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