The Indiana Tax Court granted a motion for partial summary judgment to AE Outfitters Retail Co. and held that the Indiana Department of State Revenue may require combined reporting only after first determining that other alternative apportionment methodologies would result in an equitable apportionment of the taxpayer’s income. AE Outfitters Retail Co. v. Ind. Dep’t of State Revenue (Ind. Tax Ct. Oct. 25, 2011).

The dispute in the case was whether the Department was required to first apply statutorily provided remedies to adjust a taxpayer’s income before applying combined reporting. Like many states, Indiana statutes provide alternative apportionment methods for re-determining income if the taxpayer’s income is not fairly represented, including separate accounting, the exclusion of factors, the inclusion of additional factors, or any other method to effectuate an equitable allocation and apportionment of the taxpayer’s income. Ind. Code § 6-3-2-2(l). Furthermore, in the case of commonly owned or controlled businesses, the statute allows the Department to “distribute, apportion or allocate the income derived from sources within the state of Indiana between and among those organizations, trades or businesses in order to fairly reflect and report the income derived from sources within the state of Indiana by various taxpayers.” Ind. Code § 6-3-2-2(m). The statute, however, limits the Department’s ability to use combined reporting in situations where it “is unable to fairly reflect the taxpayer’s adjusted gross income for the taxable year through use of other powers granted to the department by” those other statutory provisions.Continue Reading Indiana Combination Is Last Resort