For the second time, the Indiana Tax Court has ruled that Miller Brewing’s sales to Indiana customers from Miller Brewing’s Ohio facility were not considered Indiana sales for purposes of inclusion in the sales factor numerator. Miller Brewing Co. v. Indiana Dep’t of State Revenue, No. 49T10-0607-TA-69, 2011 WL 3630147 (Ind. Tax Ct. Aug. 18, 2011) (Miller Brewing II). The Indiana Tax Court previously addressed the identical issue for Miller Brewing’s 1994-1996 tax years and held in favor of Miller Brewing. Miller Brewing Co. v. Ind. Dep’t of State Revenue, 831 N.E.2d 859 (Ind. Tax Ct. 2005) (Miller Brewing I).

Miller Brewing’s Indiana customers picked up its purchased product at Miller Brewing’s facility. The customers’ common carriers took possession of the property in Ohio and title transferred in Ohio. For purposes of Indiana’s gross income tax and supplemental net income tax for tax years 1997 through 1999, Indiana sourced sales of tangible personal property to the state “if the property is delivered or shipped to a purchaser, other than the United States government within this state, regardless of the f.o.b. point or other conditions of the sale.” Ind. Code § 6-3-2-2(b). Additionally, Indiana’s regulations provided that “sales are not ‘in this state’ if the purchaser picks up the goods at an out-of-state location and brings them back into Indiana in his own conveyance.” 45 Ind. Admin. Code § 3.1-1-53(7) (the “sourcing regulation”). 

In Miller Brewing I, the Indiana Tax Court held that, pursuant to the sourcing regulation, Miller Brewing’s sales to Indiana customers were not included in Miller Brewing’s Indiana sales factor numerator. The Department re-strategized after losing Miller Brewing I and argued that its statutory sourcing rule for sales of tangible personal property should be interpreted as an ultimate destination rule. The state argued that other states have interpreted similar statutory language as encompassing an ultimate destination rule. The court rejected these arguments and found that the Department’s sourcing regulation—upon which the court based its holding in Miller Brewing I—controlled the outcome of this case. 

It seems unlikely that the Department will continue to challenge this issue. However, the Department could take steps to modify the sourcing regulation.