A new law signed by the governor on May 1, 2019 revised Indiana’s sourcing rules for apportionment of services and intangible products moving from a “Cost of Performance” sourcing method to a “Market-Based” sourcing method. With regard to corporations (including pass through entities) and nonresident persons:
“…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.”
Therefore, the sale of a service is attributed to Indiana to the extent the benefit of the service is received in Indiana rather than where the service is performed. The new law also includes authorizing the Department of Revenue emergency rulemaking to implement the new market-based sourcing provisions. Receipts from telecommunication services and broadcast services (as defined) are NOT sourced under the new market-based sourcing rules for service receipts.
This is a significant change for service-based businesses operating in multiple states. Please see your Somerset advisor for assistance in determining how this may impact your business.