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Indiana Tax Court holds taxpayer not required to file combined return

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On Sept. 10, 2015, the Indiana Tax Court granted a taxpayer’s motion for summary judgment and held that the Indiana Department of Revenue could not require the taxpayer to file a combined return with nonresident affiliates. The Court held that the taxpayer’s separate return properly reflected the taxpayer’s income derived from Indiana. In rejecting the Department’s arguments, the Court determined that a taxpayer cannot be required to file a combined return solely because it operates as a member of a unitary business. There was no evidence that the taxpayer engaged in any improper tax avoidance measures. The taxpayer’s intercompany transactions were conducted at arm’s-length rates as established in a transfer pricing study. The fact that the taxpayer had zero tax liability even though the affiliated group had greater profits than the preceding year largely could be explained by statutory amendments changing the tax basis during the relevant tax years.

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