Attribution of sales to state

Sec. 55. When Sales Other Than Sales of Tangible Personal Property Are in This State. Gross receipts from transactions other than sales

of tangible personal property shall be included in the numerator of the sales factor if the income-producing activity which gave rise to the receipts

is performed wholly within this state. Except as provided below if the income producing activity is performed within and without this state such

receipts are attributed to this state if the greater proportion of the income producing activity is performed here, based on costs of

performance.

The term "income producing activity" means the act or acts directly engaged in by the taxpayer for the ultimate purpose of obtaining gains

or profit. Such activity does not include activities performed on behalf of the taxpayer, such as those conducted on its behalf by an independent

contractor. Accordingly, "income producing activity" includes but is not limited to the following: (1) The rendering of personal services by

employees or the utilization of tangible and intangible property by the taxpayer in performing a service. (2) The sale, rental, leasing, or licensing

the use of or other use of tangible personal property. (3) The sale, licensing the use of or other use of intangible personal property.

Income producing activity is deemed performed at the situs of real, tangible and intangible personal property or the place where personal

services are rendered. The situs of real and tangible personal property is at its physical location. The situs of intangible personal property is the

commercial domicile of the taxpayer (i.e., the principal place from which trade or business of the taxpayer is directed or managed), unless the

property has acquired a "business situs" elsewhere. "Business situs" is the place at which intangible personal property is employed as capital; or the

place where the property is located if possession and control of the property is localized in connection with a trade or business so that substantial

use or value attaches to the property. Example: Taxpayer, a corporation whose principal business activity is the manufacture and sale of hot water

heaters, obtains notes for the sale of such water heaters in connection with its Indiana business activity. The property has a business situs in this state,

therefore, interest income derived from such notes is attributable to this state.

The term "costs of performance" means direct costs determined in a manner consistent with generally accepted accounting principles and

in accordance with accepted conditions or practices in the trade or business of the taxpayer.

If receipts from sales other than sales of tangible personal property do not constitute a principal source of business income and such receipts

are included in the denominator of the receipts factor, such receipts are in this state if: (a) the income producing activity is performed wholly within

this state; or (b) the income producing activity is performed both in and outside this state and a greater proportion of the income producing activity

is performed in this state than in any other state, based on costs of performance.

Examples:

(1) The taxpayer is engaged in the heavy construction business in which it uses cranes, tractors, and earth-moving vehicles. The taxpayer

makes short-term rentals of the equipment when not needed on any project. The taxpayer rented some of the equipment to X for three weeks. The

equipment was used by X for two weeks in this state and one week in State Y. The taxpayer's direct costs in connection with the equipment during

the rental period was $500 each week. Accordingly, the greater proportion of such costs was incurred in this state. All of the rental receipts are

business income and for purposes of the sales factor are included in the numerator for this state.

(2) Taxpayer, whose commercial domicile is in this state, manufactures and sells industrial chemicals. Taxpayer owns patents on certain

of its products. The taxpayer licensed the production of the chemicals in foreign countries in return for which the taxpayer receives royalties which

constitute a relatively minor amount of its income. The royalties are business income and for purposes of the sales factor are included in the

numerator for the state of the taxpayer's commercial domicile.

Except as provided by special apportionment formulas, receipts from sales other than sales of tangible personal property which constitute

a principal source of business income shall be attributed to this state in accordance with the following:

(a) Gross receipts from the sale, lease, rental or other use of real property are in this state if the real property is located in this

state.

(b) Gross receipts from the rental, lease, licensing the use of or other use of tangible personal property shall be assigned to this state

if the property is within this state during the entire period of rental, lease, license or other use. If the property is within and without this state during

such period, gross receipts attributable to this state shall be based upon the ratio which the time the property was physically present or was used in

this state bears to the total time or use of the property everywhere during such period.

(c) Income from transportation between a point in Indiana and a point outside Indiana shall be attributed to this state on a mileage

basis. See Regulation 6-3-2-2(l)(020) [45 IAC 3.1-1-63].

(d) Gross receipts for the performance of personal services are attributable to this state to the extent such services are performed in

this state. If the services are performed partly within and without this state, such receipts shall be attributed to this state based upon the ratio which

the time spent in performing such services in this state bears to the total time spent in performing such services everywhere. Time spent in performing

services includes the amount of time expended in the performance of a contract or other obligation which gives rise to such gross receipts. Personal

service not directly connected with the performance of the contract or other obligation, as for example, time expended in negotiating the contract,

is excluded from the computations.

Examples:

(1) The taxpayer, a road show, gave theatrical performances at various locations in State X and in this state during the tax period. All gross

receipts from performances given in this state are attributed to this state.

(2) The taxpayer, a public opinion survey corporation, conducted a poll by its employees in State C and in this state for the sum of $9,000.

The project required 600 man hours to obtain the basic data and prepare the survey report. Two hundred of the 600 man hours were expended in

this state. The receipts attributable to this state are:

*OLE*

(e) Gross receipts from intangible personal property shall, if classified as business income, be attributed to this state based upon the

ratio which the total property and payroll factors in this state bears to the total of the property and payroll factors everywhere for the tax period as

determined in Regulations 6-3-2-2(c)(010) [45 IAC 3.1-1-40] et seq. and 6-3-2-2(d)(010) [45 IAC 3.1-1-47]

et seq.

(f) The provisions of this Regulation [45 IAC 3.1-1-55] shall also apply to sales other than sales of tangible

personal property to the United States Government.