…
The Department removed Sub L because the Department
determined that Sub L did not have Indiana source income from Taxpayer's
consolidated adjusted gross income tax returns. Sub L was excluded from the
returns because it did not meet the Indiana source income requirement found in
IC § 6-3-4-14. The out-of-state subsidiary reported zero Indiana property,
payroll, and sales.
…
During the course of the protest, Taxpayer asserted that
since the managers of Sub L were the same as the Indiana parent corporation's
managers, Sub L had a commercial domicile in Indiana. Taxpayer maintains that
Sub L's Indiana commercial domicile created nexus in Indiana. In effect,
Taxpayer is asserting that Sub L–which has no payroll, property, or sales of
their own in Indiana–can acquire nexus through the activities performed by the
managers of it and its Indiana filing affiliates. However, this cannot be the
case because of the statutory prerequisite that each entity in the consolidated
group have income derived from Indiana sources as provided in IC § 6-3-4-14.
Seemingly, Taxpayer is making an argument that a taxpayer
seeking to file a combined return would make in a petition to the Department as
provided in IC § 6-3-2-2(l), (q). Under IC § 6-3-2-2(l), if a taxpayer feels
"the allocation and apportionment provisions of this article do not fairly
represent the taxpayer's income derived from sources within the state of
Indiana, the taxpayer may petition for... the employment of [another] method to
effectuate an equitable allocation and apportionment of the taxpayer's
income." (Emphasis added). However, Taxpayer has not petitioned for a
combined return filing, thus, the issue here is consolidated returns.
Consolidated returns only include affiliated entities with Indiana source
income. Taxpayer's managers' activities do not show income, Indiana or
otherwise, to the excluded entity, therefore, the activities are not eligible
for consideration under IC § 6-3-4-14(a) and 45 IAC 3.1-1-111.
