The Department assessed additional corporate income tax against Taxpayer (“AirCo”), a C Corporation operating in Indiana. The Department found that AirCo had underreported the sales receipts in its Indiana numerator for apportionment purposes. AirCo had reported all of its Indiana receipts, but its return “listed a lower percentage than the return otherwise indicated.” The issues were: (a) whether AirCo qualified for the airport development zone exclusion and (b) if it qualified, whether AirCo properly claimed it. Indiana Code § 8-22-3.5-15, provides in part:
(c) As an incentive to attract or retain qualified airport development projects to Indiana, for a period of thirty-five (35) years, beginning January 1, 1991, persons that locate and operate a qualified airport development project in an airport development zone in a consolidated city shall not incur, notwithstanding any other law, any state income tax liability as a result of:
(1) activities associated with locating or retaining the qualified airport development project in the consolidated city;
(2) the construction, modification, alteration, or completion of the qualified airport development project;
(3) the employment of personnel or the ownership or rental of property at or in conjunction with the qualified airport development project; or
(4) the operation of, or the activities at or in connection with, the qualified airport development project.
The Department at 45 IAC 3.1-1-154(a) provides an example of how the exclusion operates:
In other words, the person’s apportionment factor will not change due to the completion or operation of the project. As an example, assume that the project is an airline maintenance facility. At the completion of the project, the facility is worth six hundred million dollars ($600,000,000). The payroll from operating the facility is two hundred million dollars ($200,000,000). The person also realizes fifty million dollars ($50,000,000) in its first year of operations from maintenance performed on airplanes belonging to other parties and from the sale of airplane parts delivered within the airport development zone. These amounts would not appear in either the numerator or the denominator of their respective factors. Also, the person will not be subject to adjusted gross income tax . . . on nonbusiness income earned by the person that is allocable to the airport development zone.
Without going into detail, the Department agreed that AirCo “provided sufficient information to conclude that it operates in a qualified airport development project (QADP) and qualifies for the” exclusion pursuant to Ind. Code § 8-22-3.5-15(c)(4).
As to how to claim the exclusion, the Department’s guidance to AicCo’s predecessor in interest stated: ”[Parent's] income from operations at the [QADP] will be determined based upon revenue from these operations and expenses directly attributable to these operations.” Here, AirCo didn’t report the breakdown of revenue and expenses “directly attributable” to the qualified operations. The Department ordered AirCo to “report the QADP activity separately as if the QADP activities were a separate company.” AirCo must “provide the revenue, expenses, sales by destination state or country, and the state to which the sales are attributed for income tax purposes for [AirCo’s] location at the QADP.” The Department agreed to re-compute AirCo’s “income and exclusion based on the information provided.”
The Department instructed that “future reporting and calculation of the exclusion should include this information as part of a schedule with the return.” AirCo should “include copies of any prior Department guidance (including this Letter of Findings) with the return as supporting documentation.” See Letter of Findings No. 02-20130042 (2011 Tax Year) (posted August 28, 2013).