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The Department determined that, for
purposes of calculating taxpayer's Indiana tax liability, the receipts from
sales to out-of-state customers should be thrown back to Indiana because the
sales were made within jurisdictions where the taxpayer did not have nexus with
the state. The audit based its decision on Example 5 of 45 IAC
3.1-1-53 which states that "[i]f the taxpayer is not taxable in the
state of the purchaser, the sale is attributed to [Indiana] if the property is
shipped from an office, store, warehouse, factory, or other place of storage in
this state." Such sales are designated as "throw-back" sales.
Id.
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Taxpayer asserts that it has nexus
in several states and, therefore, the throw-back rule is not applicable.
Taxpayer maintains that in addition to its sales force in these states, it has
employees that supervise clinical trials that are being conducted by
independent investigator/physicians. Taxpayer states that these supervisory
duties give it nexus in these states where the clinical trials were conducted.
During the protest, Taxpayer
provided additional documentation–including supervisors' travel documentation,
lists of the clinical trial locations, and supervisors' log sheets. Based upon
this documentation, Taxpayer has established that in these states where the
clinical trials are located it has "nexus" and, therefore, was subject
to "a net income tax, a franchise tax measured by net income, a franchise
tax for the privilege of doing business, or a corporate stock tax," sales
to customers in these states should not be thrown back to Indiana. Thus,
Taxpayer's protest is sustained in part to the extent that sales to these
states where Taxpayer presented documentation that clinical trials were being
conducted have been thrown back to Indiana. However, Taxpayer's protest is
denied to the extent that sales to these states where Taxpayer failed to
present documentation of the conducting of the clinical trials. The file will
be returned to the audit division where they are requested to review the
submitted documentation and make whatever adjustments it deems appropriate.
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