The Indiana Department of Revenue recently concluded that a company that earned royalty income from licensing trademarks and trade names to two of its Indiana affiliates, and had no physical presence in the state, nonetheless had nexus with the state for corporate income tax purposes. Although the DOR acknowledged the Indiana Tax Court’s statement that the Indiana corporate income tax does not use an economic presence standard of nexus, the DOR did not address the company’s argument that the tax court required physical presence for purposes of imposing the state’s corporate income tax in UPS Inc. v. Indiana Department of Revenue, 995 N.E.2d 20 (Ind. Tax Ct. 2013).

UPS -

In UPS, the tax court addressed whether a foreign reinsurance company must be physically present in Indiana to be subject to Indiana’s premiums tax. If the foreign reinsurer were subject to the premiums tax, it could not be in a combined corporate income tax return. The court found that the foreign reinsurer with no physical presence was not subject to the premiums tax, saying, ‘‘There is no tension between Indiana’s premiums tax and its corporate income tax because each uses a physical presence standard.’’ In ruling that physical presence was required for corporations to be subject to the Indiana corporate income tax and the Indiana premiums tax, the tax court distinguished an earlier decision in which it had confirmed an economic nexus standard for the Indiana financial institutions tax.

Originally published in State Tax Notes on September 8, 2014.