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Indiana: Sourcing rules for corporate income tax; marketplace facilitators

Indiana: Sourcing rules for corporate income tax

Indiana’s governor has signed tax legislation that includes changes to the state’s corporate income tax laws and that requires marketplaces and marketplace facilitators to collect sales and use tax.

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Sourcing rules, corporate income tax law changes

Senate Bill 563 (signed May 1, 2019) makes clear that for Indiana corporate income tax purposes, physical presence is not required to establish nexus (effective January 1, 2019). Specifically, the corporate income tax law has been revised and provides that:

“…income derived from Indiana shall be taxable to the fullest extent permitted by the Constitution of the United States and federal law, regardless of whether the taxpayer has a physical presence in Indiana.”

This is a change from prior Indiana law that provided that sales (other than sales of tangible personal property) were sourced to Indiana if the income-producing activity was performed in Indiana, and receipts were sourced to Indiana if the income-producing activity was performed both within and without Indiana and a greater proportion of the income-producing activity was performed in Indiana than in any other state, based on costs of performance. 

Effective retroactively for tax years beginning after December 31, 2018, Senate Bill 563 adopts:

  • Market-based sourcing rules and also makes certain other changes to Indiana’s apportionment provisions. Moreover, under Senate Bill 563, receipts—other than receipts from sales of tangible personal property, telecommunications services and broadcasting services—are attributed to Indiana if the taxpayer’s market for the sale is in Indiana. The new law provides rules for determining when a taxpayer’s market for the sale will be considered in Indiana.
  • A new rule to address receipts from the maturity, redemption, sale, exchange, loan, or other disposition of stocks, bonds, notes, options, forward contracts, futures contracts, and similar instruments. These receipts will be attributable to Indiana if a taxpayer's commercial domicile is in the state. Only the portion of the receipts required to be included in the taxpayer's sales denominator will be attributable to Indiana.
  • Treatment that receipts from the provision of telecommunications services and broadcast services (as defined) are not sourced under the new market-based sourcing rules for service receipts. Taxpayers that derive receipts from performing these services will continue to use the traditional all-or-nothing costs of performance approach.
  • A measure authorizing the Department of Revenue to adopt rules, including emergency rules, that will be applied retroactively to January 1, 2019, to address the sourcing changes. Any rules adopted must be consistent with the Multistate Tax Commission’s model apportionment regulations as in effect on January 1, 2019, including any specialized industry provisions, unless otherwise inconsistent with Indiana law.

Marketplace and marketplace facilitator provisions

Indiana (since October 1, 2018) has required remote sellers to collect and remit sales and use tax if: (1) the seller’s gross revenue from sales of tangible personal property or services delivered into Indiana, or products transferred electronically into Indiana, exceeds $100,000; or (2) the seller has 200 or more separate transactions of services, tangible personal property, or electronically transferred products for delivery into Indiana.

House Bill 1001 (effective July 1, 2019) requires certain marketplace facilitators to collect and remit sales and use tax on sales to Indiana customers if the marketplace facilitator meets the economic nexus thresholds. For purposes of measuring whether the thresholds are met, the marketplace facilitator will include its own sales and sales facilitated for sellers. If a marketplace facilitator meets the thresholds, sellers measuring their own sales will not need to include the sales made through the marketplace in determining whether they have a collection obligation.

The new law defines a “marketplace facilitator” and a “marketplace” with references to retail transactions involving a seller's products (including tangible personal property, specified digital products, rooms, lodgings, or accommodations, or enumerated services).

A marketplace facilitator will be considered the retail merchant for each transaction it facilitates if it does any of the following on behalf of the seller:

  • Collects the sales price or purchase price of the seller's products
  • Provides access to payment processing services, either directly or indirectly
  • Charges, collects, or otherwise receives fees or other consideration for transactions made on its electronic marketplace

Regardless of whether a transaction is made by the marketplace facilitator on its own behalf or facilitated on behalf of a seller, a marketplace facilitator must collect and remit the gross retail tax, and comply with all applicable procedures and requirements as befits its position as the retail merchant in the facilitated transactions. House Bill 1001 includes fairly extensive provisions addressing circumstances in which the marketplace facilitator will be relieved of liability for failure to collect and remit the correct amount of tax.

 

Read a May 2019 report [PDF 169 KB] prepared by KPMG LLP

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