The Indiana Tax Court recently ruled in favor of The University of Phoenix, Inc. (“University of Phoenix”) on an important issue of first impression involving the sourcing of service revenue for purposes of computing Indiana’s corporate income tax apportionment factor. The University of Phoenix, Inc. v. Indiana Dep’t of State Revenue, Cause No. 49T10-1411-TA-00065 (Ind. Tax Ct. 2017). Baker & McKenzie LLP represented the University of Phoenix in the case. The Tax Court held that in sourcing service revenue, Indiana law requires a taxpayer activity/cost-based analysis and rejected the market/customer-based analysis historically advanced by the Indiana Department of State Revenue (“Department”).
Pop quiz: when it comes to business earnings, the State of Texas imposes: (a) an income tax; (b) a business activity tax that is not an income tax; or (c) no tax at all. Good news (or bad news)—no matter which answer you chose, you may be right (or wrong). Right now, the answer appears to be (b), but in a few months we may find out that the answer is actually (a), and barring a change of course by the State Legislature, the answer may be (c) in the near future. One thing is clear; the Texas Franchise Tax (or “margin tax,” as it is colloquially known), is in a state of flux.
The dispute in California over taxpayers’ ability to elect to use the evenly weighted, three-factor (i.e., property factor, payroll factor, and sales factor) business income apportionment formula provided by the Multistate Tax Compact (the “Compact”) has come to an end. On October 11, 2016, the US Supreme Court denied the taxpayers’ petition for certiorari in The Gillette Company, et al. v. California Franchise Tax Board, et al., No. 15-1442 — one of the most highly publicized MTC apportionment election cases.