Allocation and Apportionment (Determination of Indiana-Sourced Income)

Question 1

Allocation

Answer 1

Method of dividing income between Indiana and other states by tracing income or property to its source and attributing it entirely to one state, thereby making that income taxable by only that one state

Typically used for a TAXPAYER’S NONBUSINESS INCOME

Question 2

Apportionment

Answer 2

Method of dividing income between states by use of a formula that attributes income to different states

Typically used for a TAXPAYER’S BUSINESS INCOME

Question 3

Business Income

Answer 3

Income that arises from transactions in the ordinary course of a taxpayer’s business

Question 4

Apportionment Based on Sales Factor

Answer 4

Taxpayer’s total sales in Indiana for the taxable year divided by taxpayer’s total sales during the taxable year

Sales in Indiana/Total Sales

Question 5

Nonbusiness Income

Answer 5

Any income that is not business income

Generally ALLOCATED

Question 6

Nonbusiness Income: Interest and Dividends

Answer 6

If the taxpayer’s commercial domicile is in Indiana, interest and dividends are allocated ENTIRELY to Indiana

Question 7

Nonbusiness Income: Capital Gains and Losses from Real Property

Answer 7

Capital gains and losses from the sale of real property are allocated ENTIRELY to Indiana if the real property is located in Indiana

If the real property is located outside of Indiana, capital gains and losses from the sale of such property are allocated outside of Indiana

Question 8

Nonbusiness Income: Capital Gains and Losses from Personal Property

Answer 8

Capital gains and losses from the sale of personal property will be allocated ENTIRELY to Indiana if:

(1) the personal property was situated in Indiana at the time of the sale; or
(2) the corporation’s commercial domicile was in Indiana and the taxpayer is not taxable in the state in which the personal property was situated at the time of the sale

Question 9

Nonbusiness Income: Rents and Royalties from Real Property

Answer 9

Rents and royalties from real property that is located within Indiana are allocated ENTIRELY to Indiana

If the real property is not located within Indiana, the rents and royalties are allocated outside of Indiana

Question 10

Nonbusiness Income: Rents and Royalties from Personal Property

Answer 10

Rents and royalties from personal property are allocated to Indiana to the extent the personal property is used within Indiana

If Indiana is the corporation’s commercial domicile and the corporation is not organized under the laws of any state where the personal property is used, rents and royalties from the personal property are allocated ENTIRELY to Indiana

Question 11

Nonbusiness Income: Patent and Copyright Royalties

Answer 11

Royalties from patents and copyrights will be allocated to Indiana if and to the extent the taxpayer used the patent or copyright in Indiana, or if and to the extent the patent or copyright is used in a state in which the taxpayer is not taxable and the taxpayer’s commercial domicile is in Indiana