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26 March 2025

Indiana adopts market-based sourcing regulation

  • The Indiana Department of Revenue issued a new rule (45 IAC 3.1-1-55.5), reflecting legislation enacted in 2019 that shifted Indiana from a cost-of-performance approach for apportioning receipts to a market-based sourcing approach.
  • The new rule applies to various transactions, including real property sales, in-person services, and licensing of intangible property.
  • The new rule does not apply to, among other things, insurance premiums, motorsports racing, and repatriated foreign dividends under IRC Section 965 or global intangible low-taxed income under IRC Section 951A.
 

The Indiana Department of Revenue (IN DOR) has promulgated an administrative rule, 45 IAC 3.1-1-55.5 (new rule), which reflects legislation enacted in 2019 that moved Indiana to market-based sourcing for apportioning receipts.1 The new rule replaces 45 IAC 3.1.1-55, which reflected a cost-of-performance approach.

The new rule addresses various transactions, including those involving:

  • The sale, rental, lease or license of real property
  • The rental, lease or license of tangible personal property
  • In-person services
  • Services delivered to customers by physical means
  • Services delivered to individual and business customers by electronic means
  • The provision of professional services to individual and business customers
  • Licensing or leasing of intangible property, production intangibles and marketing intangibles
  • Sales or exchanges of intangible property

The new rule also provides guidance on when receipts from (1) the sale, exchange or assignment of tax credits, or (2) the refundable portion of a tax credit included in federal taxable income, will be sourced to Indiana.

The new rule generally references the Multistate Tax Commission's Multistate General Allocation and Apportionment regulations and the Multistate Tax Commission (MTC) model rules for certain industries, including airline transportation, railroad transportation, trucking or transportation services, construction contracts, newspapers and magazine publishers. The new rule, however, also highlights when IN DOR varies from the MTC rules.

The new rule does not apply to receipts from insurance premiums, motorsports racing, repatriated foreign dividends under IRC Section 965 or global intangible low-taxed income under IRC Section 951A, broadcast services and telecommunications services, or receipts attributable under Ind. Code Section 6-3-2-2.2 (regarding certain interest income, discounts, and receipts).

Implications

The new rule was published on January 29, 2025, and it took effect 30 days after that date. The new rule is intended to provide certainty on Indiana's sourcing of most services and intangible transactions.

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Endnote

1 Ind. Dept. of Rev., LSA Document #24-432 (final rule Feb. 26, 2025).

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Contact Information

For additional information concerning this Alert, please contact:

State and Local Taxation Group

Published by NTD’s Tax Technical Knowledge Services group; Jennifer Mannetta, legal editor

Document ID: 2025-0762

 

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