By Zachary Atkins and Timonthy Gustafson

The Indiana Department of State Revenue determined that a corporation that entered into a factoring arrangement with its parent did not have nexus for Indiana Financial Institutions Tax (FIT) purposes. The out-of-state corporation purchased accounts receivable from its parent and, thereafter, was responsible for servicing those accounts. The parent had nexus with Indiana, but the out-of-state subsidiary contended it did not have nexus and had never conducted the business of a financial institution in Indiana. According to Indiana regulations, a corporation is deemed to be conducting the business of a financial institution and is subject to the FIT if 80% or more of its gross income during the taxable year is derived from extending credit, leasing that is the economic equivalent of extending credit, or credit card operations. The Department concluded that purchasing and collecting on accounts receivable, which involves routine payment for a purchase within an established period of time, is not the same as extending credit or purchasing loans, which involve the return of money or property with or without interest. Accordingly, the out-of-state corporation was not conducting the business of a financial institution and thus was not subject to Indiana’s FIT. Ind. Dep’t of Revenue, Letter of Findings No. 18-20130319 (Apr. 30, 2014).