The Indiana Department of Revenue required an out-of-state clothing company and its subsidiary to file a combined Indiana corporate income tax return, determining that the taxpayer’s transfer pricing study was insufficient to establish that its intercompany transactions were conducted at arm’s length. The taxpayer was the parent of a multistate, multinational business that sold premium-priced clothing and fashion accessories. The taxpayer’s subsidiary operated a distribution and consumer service facility outside of Indiana, shipping the taxpayer’s products to the taxpayer’s own branded stores, other department stores and directly to consumers. The subsidiary owned all domestic trademarks used by the taxpayer in its stores and licensed the use of the trademark names to its parent. The Department found the taxpayer and its subsidiary had a “unitary relationship” because the taxpayer was involved in all transactions both before and after goods were sold to the subsidiary; the taxpayer was involved in the design of all products sold by both entities; and all corporate-wide decisions, including all corporate marketing, payroll, tax and technology-related decisions, were made solely by the taxpayer. The Department relied upon Ind. Code § 6-3-2-2(l) for its position. This statutory provision authorizes the Department to correct the inaccurate reflection of a taxpayer’s Indiana source income by requiring, if reasonable, separate accounting, the exclusion or inclusion of one or more factors, or any other method to equitably allocate and apportion the taxpayer’s income. As additional support for its position, the Department cited Ind. Code § 6-3-2-2(l), a statute modeled on IRC § 482 that allows for adjustments by the Department to fairly reflect income derived from sources within Indiana. The taxpayer argued unsuccessfully that Ind. Code § 6-3-2-2(p) limits the Department’s authority to require a taxpayer to file a combined report to instances where the Department is “unable to fairly reflect the taxpayer’s Indiana source income using any other method allowable under” the provisions cited by the Department. In support, the taxpayer produced a 12-year-old transfer pricing study to establish that its intercompany transactions were conducted at arm’s length. The Department disregarded the study, however, finding it was dated and limited in scope, did not account for brand value, and did not analyze proper or sufficient comparable business enterprises. In its analysis, the Department did not cite to IRC § 482 or apply an analysis consistent with federal tax principles. While acknowledging the transfer pricing study “may have had a certain, limited value at the time it was first issued and which may have assisted the parties in better understanding the financial and organizational relationship between the affected parties,” the study was “insufficient to establish the [Department] acted outside its statutory authority in requiring Taxpayer and [its subsidiary] file combined income tax returns.” Indiana Dep’t of Revenue, Ltr. of Findings No. 02-20130155 (Feb. 26, 2014).