in-20260923-IR-045260311FNA: ADJUSTED GROSS INCOME TAX; LOCAL INCOME TAX

TITLE 45 DEPARTMENT OF STATE REVENUE Notice of First Public Comment Period LSA Document #26-311 ADJUSTED GROSS INCOME TAX; LOCAL INCOME TAX PURPOSE OF NOTICE The Department of State Revenue (department) is soliciting public comment on adding, amending, and repealing rules at 45 IAC 3.1 concerning adjusted gross income tax. ADDITIONAL DOCUMENTS Regulatory Analysis: 20260923-IR-045260311RAA Notice of Public Hearing: 20260923-IR-045260311PHA CITATIONS AFFECTED: 45 IAC 3.1 AUTHORITY: IC 6-8.1-3-3 OVERVIEW Basic Purpose and Background The proposed rules will provide certainty to businesses regarding Indiana's treatment of taxation of adjusted gross income. The rules provide guidance for how the department determines the applicability of adjusted gross income tax. Further, the rules provide benefits to businesses and the department by minimizing the scope of disputes. The implementation costs of the proposed rule are not expected to exceed the threshold set in IC 4-22-2-22.7(c)(6). For purposes of IC 4-22-2-28.1, small businesses affected by this rulemaking may contact the Small Business Regulatory Coordinator: For purposes of IC 4-22-2-28.1, the Small Business Ombudsman designated by IC 5-28-17-6 is: Resources available to regulated entities through the small business ombudsman include the ombudsman's duties stated in IC 5-28-17-6, specifically IC 5-28-17-6(9), investigating and attempting to resolve any matter regarding compliance by a small business with a law, rule, or policy administered by a state agency, either as a party to a proceeding or as a mediator. REQUEST FOR PUBLIC COMMENT The department is soliciting public comment on the proposed rule. Comments may be submitted in one of the following ways: COMMENT PERIOD DEADLINE All comments must be postmarked or time-stamped not later than October 23, 2026. The rule, Regulatory Analysis, appendices referenced in the Regulatory Analysis, and materials incorporated by reference (if applicable) are on file at the Department of State Revenue, Indiana Government Center North, 100 North Senate Avenue, Room N248, Indianapolis, Indiana and are available for public inspection. Copies of the rule, Regulatory Analysis, and appendices referenced in the Regulatory Analysis are available at the Department of State Revenue office. If the department does not receive substantive comments during the public comment period or public hearing, the rule may be adopted with text that is the same as or does not substantially differ from the text of the proposed rule published in this notice. PROPOSED RULE Sec. 1. Adjusted Gross Income for Individuals Defined. For individuals, adjusted gross income is adjusted gross income, as defined in Section 62 of the Internal Revenue Code § 62 (26 U.S.C. 62), modified as follows: Sec. 2. "Gross Income" Defined for Individuals. Indiana residents must report all income as defined by § 61 Section 61 of the Internal Revenue Code Sources of income include, but are not limited to: (26 U.S.C. 61). Nonresidents and part-year residents are also required to report gross income as defined above, derived from all Indiana sources. These taypayers are afforded a deduction for non-Indiana income as explained in Regulation 6-3-1-3.5(a)(050) [45 IAC 3.1-1-5]. Sec. 3. Internal Revenue Code Section 62 Deductions in Arriving at Indiana Adjusted Gross Income for Individuals. (a) The following deductions contained in allowable under Section 62 of the Internal Revenue Code Section 62 (26 U.S.C. 62) are allowed allowable in determining the individual's Indiana adjusted gross income before any modifications required under IC 6-3-1-3.5. (b) For an individual who is a nonresident at the time a deduction is allowable, only the portion of the deduction derived from Indiana sources is allowable to the individual. (c) For local income tax purposes, only the portion of the deduction attributable to income subject to county income tax is allowable. Sec. 4. Deductions from Federal Adjusted Gross Income Taken in Determining Federal Taxable Income Which Are Not Allowed in Determining Indiana Adjusted Gross Income for Individuals. Deductions under Internal Revenue Code Subchapter B, Parts VI and VII which are A deduction allowable in determining Federal taxable income (itemized deductions) are not allowable deductions in determining Indiana Adjusted Gross Income. for federal tax purposes after federal adjusted gross income is determined is not allowed in determining Indiana adjusted gross income before any modifications required or deductions permitted under IC 6-3-1-3.5. Sec. 7. Allocation and Apportionment of Unearned Income for Individuals. (1) (a) Interest, dividends (except earnings from Subchapter S corporations), rents, and royalties are generally taxed by the state of legal residence. (2) (b) Income from a pension, an annuity, profit-sharing, or a stock-option plan, or other retirement plan that meets the qualifications of the Internal Revenue Code 4 U.S.C. 114 is taxed by the state of legal residence. Lump sum distributions from qualified plans are taxed by the state which, that, at the time of the distribution, is the taxpayer's legal residence. Whether a plan meets the qualifications of the Internal Revenue Code is determined by the Internal Revenue Service. (3) (c) Deferred compensation, other than that from a qualified retirement plan as described above, in subsection (b), is directly attributable to services performed, and is taxed by the state where the services were performed. (4) (d) Accumulated vacation, bonus, serverance severance, and sick pay is directly attributable to services performed, and is taxed by the state where the services were performed. (5) (e) Taxpayers with income attributable to services performed in the past (3 & 4 above), subsections (c) and (d), who performed those services in more than one (1) state, must report this income for Indiana tax purposes if to the extent that the services were performed in Indiana. was the last state in which the taxpayer was employed prior to retirement. (6) (f) Indiana residents with income from partnerships and Subchapter S corporations are subject to adjusted gross income tax on their distributive share of partnership or corporate income. Nonresidents with income from partnerships and Subchapter S corporations doing business in the state are also subject to adjusted gross income tax on their distributive shares of income. However, such the income is apportioned to this state using the 3-factor formula outlined in IC 6-3-2-2(b) if the partnership or Subchapter S corporation is doing business both within and without outside the state. (7) (g) Taxpayers with any of the types of income outlined in this regulation [45 IAC 3.1-1-7] section who are taxed on such that income by both Indiana and another state may be allowed a credit against their Indiana adjusted gross income tax liability for taxes paid to the other state. Such creidt This credit will be given only if the taxpayer meets the requirements of Regulations 6-3-3-3(a)(010) [45 IAC 3.1-1-74] or 6-3-3-3(b)(010) [45 IAC 3.1-1-77] sections 74 or 77 of this rule. (8) (h) Reciprocity will apply in the usual manner to deferred compensation that consists of wages [See Regulation 6-3-5-1(010) [45 IAC 3.1-1-115].] unless the taxpayer's state of residence taxes deferred compensation in a manner inconsistent with reciprocal treatment. All income other than wages, such as pension, annuity, profit-sharing plans, and stock-option income, is not covered by reciprocal agreements with other states. Sec. 12. Determination of Indiana Taxable Adjusted Gross Income for Fiduciaries. (a) For purposes of the taxes imposed upon on the income of estates or trusts and paid by the fiduciary thereof, estates and trusts are classified as either resident or nonresident. The residence of an estate or trust is determined by whether the decedent was an Indiana resident at the time of the decedent's death. The residence of a trust is the place where it the trust is administered. (b) Resident estates or trusts are taxable on all income regardless of where earned. Deductions are limited to those deductions taken and allowable on the Federal Fiduciary U.S. Income Tax Return for Estates and Trusts (Form 1041). (c) Nonresident estates and trusts are taxable in Indiana on all income derived from Indiana sources. Income derived from sources within Indiana is divided into business and nonbusiness income. Sec. 13. Distribution Deduction of Distributable Net Income from A Fiduciary. (a) A deduction for the distribution of net income is allowed for Indiana adjusted gross income tax purposes in the same manner as provided under section Sections 651 and 661 of the Federal Internal Revenue Code (26 U.S.C. 651; 661). In the case of a "simple trust", the trustee is required to distribute all of its income currently, whether or not he the trustee actually does so. The distribution deduction is mandatory. (b) The distribution deduction as described in section Sections 651 and 661 of the Internal Revenue Code (26 U.S.C. 651; 661) is defined to mean that portion of the distributable net income required to be distributed to the beneficiaries. (c) When an estate or a trust is to be closed, or is required to distribute current income during the taxable year and there is distributable net income, the distribution deduction must be taken and the distributable net income allocated to the beneficiary's Indiana Individual Adjusted Gross Income Tax Return, either Form IT-40 or Form IT-40PNR. Sec. 14. Allocation of Distributable Net Income Distributed to Beneficiaries. (a) If an estate or a trust must use the distribution deduction, then such the estate or trust must complete the supplemental schedule of Form IT-41 (Schedule B) a composite schedule reporting all nonresident beneficiaries. (b) The fiduciary will allocate the Indiana portion of distributable net income to the beneficiaries and, will show the character of the distributable net income required to be distributed. if there is a distribution of distributable net income, the fiduciary will give the names, addresses, and Social Security numbers or other federal taxpayer identification numbers of the beneficiaries, and any modifications required under IC 6-3-1-3.5. The fiduciary will also show the amount of income required to be distributed by reason of a trust instrument. Nonresident trusts and estates operating businesses in Indiana will allocate and apportion their income using the 3-factor formula outlined in IC 6-3-2-2(b). Sec. 15. Allocation of Excess Deductions. (a) After the fiduciary of a trust or an estate in the year of termination has applied the allowable deductions against the income to which the deductions were directly attributable, he the fiduciary may apply the excess of such the deductions against any item of gross income subject to the following limitations. (b) Deductions allocable to tax exempt income must be used only against tax exempt income. Any excess of such these allocated deductions cannot be used to offset taxable income. Therefore, deductions allocable to tax exempt income will not be taken on Form IT-41. (c) Excess deductions other than deductions from business income, cannot can be extended to the beneficiary beneficiaries in the year of termination since these deductions are itemized deductions for Federal tax purposes and not allowable when filing the Individual Income Tax Return. to the extent the deduction is allowable in determining the beneficiary's federal adjusted gross income (for individuals) or federal taxable income (for all other taxpayers). An Indiana net operating loss carryover available in the year of termination is available to the beneficiaries, subject to any limitations under the Internal Revenue Code (U.S.C. Title 26), IC 6-3-2-2.5, and IC 6-3-2-2.6. The year in which the net operating loss arises is determined by when the estate or trust incurred the net operating loss. Sec. 17. Net Operating Losses and Capital Losses for Fiduciaries. For adjusted gross income tax purposes, fiduciaries and beneficiaries may use the same carryback and carryforward provisions of an estate or a trust for net operating losses and capital losses as provided in the Internal Revenue Code (U.S.C. Title 26) subject to the applicable modifications of the IC 6-3. Indiana Adjusted Gross Income Tax Act net operating losses are subject to the specific carryforward provisions under IC 6-3-2-2.5 and IC 6-3-2-2.6, and subject to the applicable modifications required under those citations. Indiana net operating losses cannot be carried back. Sec. 18. Charitable Contribution Deduction. The (a) A fiduciary of an estate or a trust shall be allowed to deduct without limitation any amount of the gross income of the estate or trust which that, by the terms of the will or instrument creating the trust, is required to be paid or permanently set aside during the taxable year for a purpose specified in section 170(c) of the Internal Revenue Code, or is to be used exclusively for religious, charitable, scientific, literary or educational purposes, or for the prevention of cruelty to children or animals, or for the establishment, acquisition, maintenance or operation of a public cemetery not operated for profit. permitted to be deducted under the Internal Revenue Code (U.S.C. Title 26). For nonresident estates and trusts, the deduction is based on the portion of the deduction attributable to Indiana source income. (b) In the case of a trust, the charitable contribution deduction will be subject to the limitations of Section 681 of the Internal Revenue Code (26 U.S.C. 681). (c) Trusts which that are exempt from federal income tax under Section 501 of the Internal Revenue Code (26 U.S.C. 501) are also exempt from taxation under the Indiana adjusted gross income tax, Act except for unrelated business taxable income as defined in Section 511 of the Internal Revenue Code (26 U.S.C. 511). Sec. 21. "Resident" Defined. An Indiana "resident" is: means one (1) of the following: Sec. 21.5. (a) "Permanent place of residence" means a building or structure where a person can live that: (b) A residence maintained by a person primarily for the purpose of obtaining an educational degree is not a permanent place of residence. (c) If a person is under a guardianship or conservatorship, the individual maintains a permanent place of residence in Indiana if he or she the individual satisfies the criteria of subsections (a) and (b) as a result of the guardian or conservator's acts. Sec. 22. (a) "Domicile" means a person's domicile is the state or other place in which a person intends to reside permanently or indefinitely and to return to whenever he or she the person leaves the place. A person has only one (1) domicile at a given time even though that person may be statutorily a resident of more than one (1) state. A person is domiciled in Indiana if he or she the person intends to reside in Indiana permanently or indefinitely and to return to Indiana whenever he or she the person leaves the state. (b) A person is domiciled in a state or other place until such time as he or she the person voluntarily takes affirmative action to become domiciled in another place. Once a person is domiciled in Indiana, that status is retained until such time as he or she the person voluntarily takes positive action to become domiciled in another state or country and abandons the Indiana domicile by relinquishing the rights and privileges of residency in Indiana. (c) In order To establish a new domicile, the person must be physically present at a place, and must have the simultaneous intent of establishing a permanent place of residence at that place. The intent to change one's domicile must be present and fixed and not dependent upon on the happening of some future or contingent event. It is not necessary that the person intend to remain there until death; however, if the person, at the time of moving to the new location, has definite plans to leave that new location, then no new domicile has been established. (d) There is no one (1) set of standards that will accurately indicate the person's intent in every relocation. The determination must be made on the totality of facts, supported by objective evidence, in each individual case. Sec. 22.5. (a) The department may require documentation from a person to evaluate their domicile. (b) The one hundred eighty-three (183) day and permanent place of residence threshold in IC 6-3-1-12(b) and section 21 of this rule is not a test for domicile. (c) A person is presumed not to have abandoned their state of domicile and established a new state or other place of domicile in a given year if, during that year, the person maintained a permanent place of residence, whether as an owner, a renter, or other occupier of the residence in that state and the person did more than one (1) of the following: A person may rebut this presumption through the presentation of substantial contrary evidence. (d) If a person's domicile is not resolved by subsection (c), the department may consider additional relevant factors to determine the person's state or other place of domicile, including the state or other place where the person: This list of additional, relevant factors is not exclusive. Sec. 23. Residency As It Affects Tax Liability. (1) Taxpayer Moving to Indiana (a) When a taxpayer moves to Indiana and becomes a resident and/or or domiciliary, or both, of Indiana during the taxable year, Indiana will not tax income from sources outside Indiana which that the taxpayer received prior to becoming an Indiana domiciliary. However, Indiana will however, assess adjusted gross income tax on all taxable income after the taxpayer becomes an Indiana resident. (b) Any person who, on or before the last day of the taxable year, changes his their residence or domicile from Indiana to a place without outside Indiana, with the intent of abiding residing permanently without outside Indiana, is subject to adjusted gross income tax on all taxable income earned while an Indiana resident. Indiana will not tax income of a taxpayer who moves from Indiana and becomes an actual domiciliary of another state or country, except that income received from Indiana sources will continue to be taxable unless the individual is a resident of Indiana as a result of section 21(2) of this rule. (c) An individual from Indiana who is permitted to file federal income tax returns as a nonresident citizen is considered as being domiciled in Indiana and his their income taxable as a resident citizen, if he maintains a place of abode in the individual is an Indiana domiciliary immediately prior to residing in a foreign country as a nonresident citizen of the United States and has not permanently established his their domicile in a foreign country or in another state. (d) The fact that ordinary rights of citizenship, including voting at public elections, are present but not exercised, shall not prevent a person from being classified as a resident if he the person meets the other tests set out in this regulation [45 IAC 3.1-1-23] section. Persons (e) People residing in Indiana but living part of the year in other states or countries will be deemed residents of Indiana unless it can be shown that the abode in the other state or country is of a permanent nature. Domicile is not changed by removal therefrom for a definite period or for a particular purpose. A domicile, once obtained, continues until a new one is acquired. (f) Indiana residents who become members of the military service remain Indiana residents regardless of their geographical assignments. Military members can change their legal residence only by filing DD Form 2058, State of Legal Residence Certificate. (g) A spouse of a military member may elect to be treated as being subject to tax in the military member's state of residence as permitted under federal law. Sec. 24. "Nonresident" Defined. A "nonresident" of Indiana is means any individual, estate, trust, or other entity not included in the definition of "resident" given in Regulation 6-3-1-12(010) [45 IAC 3.1-1-21] section 21 of this rule. Sec. 25. Nonresident's Indiana Adjusted Gross Income Tax Liability. (a) All persons who are not residents of Indiana are required to report that portion of their entire income directly or constructively from or attributable to business, activities, or any other source within Indiana, with the exception of nonresident members of the armed forces receiving compensation for military duty in Indiana. These latter persons will not be subject to the adjusted gross income tax on their military pay. A nonresident must include on his the nonresident's tax return all gross income received from a business, activities, or any other source in Indiana whether taxable or not. In order to avail himself of the deduction of non-taxable income, the nonresident must first include the non-taxable portion of his income in the total gross income figure. In order (b) To qualify as a nonresident, the taxpayer shall submit proof, upon on demand by the department, of having indicated his their bona fide intention to reside permanently elsewhere before the last day of the taxable year. Such (c) A person changing his their domicile during a taxable year may also be required to furnish evidence of compliance with the requirements of the other state with respect to taxation and the qualification as a resident citizen thereof. Sec. 27. "Taypayer" Defined. The term "Taxpayer" means any person or corporation subject to taxation under these Regulations [45 IAC]. IC 6-3 or this article. In the case of a partnership, an S corporation, a trust, or an estate, the term refers to both the entity and the recipient of any income, deduction, or other tax attribute passed through by those entities unless the context clearly requires otherwise. Sec. 28. "Taxable Year" Defined. The term "Taxable year" means the taxable year of the taxpayer as shown on the return required to be filed, or filed pursuant to the Internal Revenue Code (U.S.C. Title 26). When the Internal Revenue Code (U.S.C. Title 26) requires no return to be filed, the taxable year will be the calendar year. Sec. 29. "Business Income" Defined. (a) "Business income" is defined in the Act as income from transactions and activity in the regular course of the taxpayer's trade or business, including income from tangible and intangible property if the acquisition, management, or disposition of the property are integral parts of the taxpayer's regular trade or business. means any income that can be apportioned under the Constitution of the United States. All income is presumed to be apportionable under the Constitution of the United States unless the Supreme Court of the United States has determined that the income cannot be apportioned. (b) "Nonbusiness income" means all income other than business income. (c) The classification of income by the additional labels occasionally used in other contexts (e.g., in commercial law, contract law, etc.), such as manufacturing income, compensation for services, sales income, interest, dividends, rents, royalties, gains, operating income, nonoperating income, etc., is of no aid makes no difference in determining whether income is business or nonbusiness income. Income of any type or class and from any source is business income if it arises from transactions and activity occurring in the regular course of a trade or business. Accordingly, the critical element in determining whether income is "business income" or "nonbusiness income" is the identification of the transactions and activity which are the elements of a particular trade or business. Sec. 32. "Commercial Domicile" Defined. The term (a) "Commercial domicile" is defined in the Act as means the principal place from which the trade or business of the taxpayer is directed or managed. Commercial domicile is not necessarily in the state of incorporation. A corporation that is incorporated in a state, but that has little or no activity in that state, has not established a commercial domicile there. (b) Each corporation has one (1), and only one (1), commercial domicile. Generally, it is where the executive authority of the business is concentrated. However, if such the authority is not centralized in one (1) state, then the commercial domicile is the place where the majority of the corporation's daily operational decisions are made. There are several factors to be considered in determining the commercial domicile of a corporation. These factors include, but are not limited to, the following: Sec. 35. "State" Defined. The term (a) For taxpayers other than foreign operating companies, "state" means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States, and any foreign country or political subdivision thereof. (b) For foreign operating companies, as defined in IC 6-3-2-2.4, the term "state" does not include a foreign country or political subdivision thereof. Sec. 37. Division of Income in General. (a) Corporations doing business both within and without outside Indiana shall determine their income from Indiana sources through the use of the allocation and apportionment provisions contained in IC 6-3-2-2(b)-(n), IC 6-3-2-2(b) through IC 6-3-2-2(n), IC 6-3-2-2.2, and IC 6-3-2-3.2, which generally follow the Uniform Division of Income For Tax Purposes Act. The multistate corporation must first determine what part of its adjusted gross income constitutes business income, [See Regulation 6-3-1-20(010) [45 IAC 3.1-1-29]] as defined in section 29 of this rule, and what part is nonbusiness income. Business income is apportioned to this state based on the 3-factor single receipts factor (or other approved) formula. Nonbusiness income is allocated to specific jurisdictions pursuant to paragraphs (g)-(k) of IC 6-3-2-2. IC 6-3-2-2(g) through IC 6-3-2-2(k). Business income apportioned to this state, plus nonbusiness income allocated to Indiana plus the modifications required by IC 6-3-1-3.5(b), gives the total of the taxpayer's net income which that is subject to adjusted gross income tax. (b) As used above in this rule, the word following definitions apply: Sec. 38. Doing Business. For apportionment purposes, a taxpayer is "doing business" in a state if it operates a business enterprise or activity in such that state including, but not limited to, the following: As stated in Regulation 6-3-2-2(b)(010) [45 IAC 3.1-1-37], corporations doing business in Indiana as well as other states are subject to the allocation and apportionment provisions of IC 6-3-2-2(b)-(n). Sec. 39. Apportionment of Business Income. All corporations subject to the allocation and apportionment provisions of IC 6-3-2-2(b)-(n) IC 6-3-2-2(b) through IC 6-3-2-2(n) shall apportion their business income by use of the 3-factor formula described below single receipts factor, unless the taxpayer obtains a ruling which that permits, or the department requires, the use of a different formula which more that fairly reflects its income from Indiana sources. See IC 6-3-2-2(1). The 3-factor formula is as follows: Sec. 50. Sales Factor-Sales Made in General Business Operations. (a) "Sales" means all gross receipts of the taxpayer which that are not subject to allocation as nonbusiness income except as specifically provided in the definition of sales under IC 6-3-1-24 or IC 6-3-2-2. The following are examples of sales in various situations: (b) In some cases, certain gross receipts should may be disregarded in determining the sales factor to effectuate an equitable apportionment See Regulation 6-3-2-2(l)(010) [45 IAC 3.1-1-62]. The sales factor should be consistent in the manner described in Regulation 6-3-2-2(c)(030) [45 IAC 3.1-1-42]. if the taxpayer follows the procedures provided in section 62 of this rule. Sec. 51. Denominator of Sales Factor. The denominator of the sales factor includes all gross receipts from the taxpayer's sales, except as noted in Regulation 6-3-2-2(l)(010) [45 IAC 3.1-1-62] where the taxpayer has provided evidence to effectuate an alternative equitable apportionment under section 62 of this rule. The denominator shall not include sales made between members of an affiliated group filing consolidated returns under IC 6-3-4-14 or between corporations filing a combined return under IC 6-3. Sec. 52. Numerator of Sales Factor. The numerator of the sales factor generally includes gross receipts from sales attributable to this state, and includes all interest income, service charges, carrying charges, or time-price differential charges incidental to such those sales regardless of the place where the accounting records are maintained or the location of the contract or other evidence of indebtedness. The numerator shall not include sales between members of an affiliated group filing consolidated returns under IC 6-3-4-14 or between corporations filing a combined return under IC 6-3. Sec. 53. When Sales of Tangible Personal Property Are in This State. Gross receipts from the sales of tangible personal property, except sales to the United States government See Regulation 6-3-2-2(e)(050) [45 IAC 3.1-1-54] as provided in section 54 of this rule, are in this state (a) if the property is delivered or shipped to a purchaser within this state regardless of the F.O.B. point or other conditions of sales. or (b) if the property is shipped from an office, store, factory, or other place of storage in this state, and the taxpayer is not taxable in the state of the purchaser. See Regulation 6-3-2-2(n)(010) [45 IAC 3.1-1-64]. Examples: Sec. 54. Sales to United States Government. Gross receipts from the sales of tangible personal property to the United States government are in this state if the property is shipped from an office, a store, a warehouse, a factory, or any other place of storage in this state. For the purposes of this regulation [45 IAC 3.1-1-54] section, only sales for which the United States government makes direct payment to the seller pursuant to the terms of the contract constitute sales to the United States government. Thus, as a general rule, sales by a subcontractor to the prime contractor, the party to the contract with the United States government, do not constitute sales to the United States government. However, sales made to a prime contractor will be considered sales to the United States government where the prime contractor is authorized to act as an agent for the United States government, and, for this reason only, qualifies to purchase under Federal Supply Contracts entered into between the taxpayer and the United States government. Examples: Sec. 55.5. (a) The definitions in this section apply throughout to this rule. (b) "Airline rule" means the Special Rules: Airlines, adopted July 14, 1983, by the Multistate Tax Commission. (c) "Construction contractor rule" means the Special Regulation: Construction Contractors, adopted July 10, 1980, by the Multistate Tax Commission. (d) "MGAAR" means the Multistate Tax Commission Multistate General Allocation and Apportionment Regulations, adopted February 21, 1973, and as amended through February 24, 2017, including Section 18(c), adopted July 25, 2018. (e) "Publishing rule" means the Special Rules: Publishing, adopted July 30, 1993, by the Multistate Tax Commission. (f) "Railroad rule" means the Special Rules: Railroads, adopted July 16, 1981, by the Multistate Tax Commission. (g) "Trucking rule" means the Special Rules: Trucking Companies, adopted July 11, 1986, by the Multistate Tax Commission and as amended July 27, 1989. (h) The terms referenced in this rule have the same meaning as provided in MGAAR Reg. IV.17.(a)(3) unless the context specifically requires otherwise. (i) If a provision of this rule lists multiple possible tests, the tests shall be applied as a hierarchy unless clearly indicated by the particular provision in this rule. The hierarchy is applied in the order by which the test is listed in the particular provision. For instance, subdivision (1) is the first test, and if subdivision (1) cannot result in a determination of a state, subdivision (2) is applied. However, if subdivision (4) states that subdivision (1) must be applied in a particular situation, the test in subdivision (2) is disregarded for that particular situation. (j) The provisions of this rule do not apply to the following: (k) A provision of MGAAR that requires the exclusion of a receipt from a service, because the taxpayer is not taxable in a jurisdiction, shall be disregarded. However, the disregard for a MGAAR provision does not prevent the exclusion of receipts if: For purposes of this rule, if receipts can be attributed to any jurisdiction under this rule, but the taxpayer is not subject to tax in that jurisdiction, those receipts are treated as sourced to that jurisdiction. (l) A receipt may be excluded from the receipts denominator only if and to the extent: (m) A provision of MGAAR that requires a reasonable approximation in the absence of information but provides when determining whether and to what extent the market for a sale other than the sale of tangible personal property is in Indiana, with a specific methodology for the reasonable approximation for the sale of the service or intangible property, shall be treated as if the specific methodology reflects the benefit of the service or the intangible property. However, if a substantial portion of the sales can be determined and the taxpayer or the department reasonably believes the remaining sales follow the same geographic distribution as the determinable sales, the taxpayer or the department may attribute those remaining receipts in the same proportion as the determinable sales. (n) For a related party transaction, the information the customer has that is relevant to sourcing the receipts of the taxpayer is imputed to the taxpayer. (o) For a sale, rental, lease, or license of real property, the receipts from the sale are in this state if and to the extent that the real property is in this state. (p) For a rental, lease, or license of tangible personal property, the following conditions apply: (q) For purposes of this subsection, "in-person services" means the services described in MGAAR Reg. IV.17.(d)(2)(A). However, the term does not include legal, accounting, financial, consulting, architectural, engineering, or similar services described in MGAAR Reg. IV.17.(d)(4). For purposes of determining where in-person services are sourced, the following apply: (r) Services delivered to a customer by physical means shall be are attributed to Indiana to the extent the customer receives the benefit in Indiana, subject to the following conditions: (s) Services delivered to an individual customer by electronic transmission are sourced to Indiana if the customer receives the services in this state. In the absence of actual knowledge of the place of receipt, the taxpayer may source the receipts based on the customer's billing address. (t) Services delivered to a business customer by electronic transmission shall be sourced to Indiana if and to the extent the employees or designees of the customer directly use the service in Indiana. If the taxpayer cannot determine the state or states where the service is used, the taxpayer shall use the following to determine sourcing: (u) For purposes of subsections (s) and (t), if the taxpayer cannot determine if a taxpayer is an individual or a business customer, the taxpayer shall treat the receipts as being attributable to a business customer. (v) For services delivered electronically through or on behalf of an individual or a business customer, receipts are sourced to this state to the extent that the end users or other intended recipients of the services are in this state, subject to the following conditions: (w) For professional services provided to an individual customer, receipts from those services shall be sourced to the customer's state of primary residence, subject to the following conditions: (x) For professional services provided to a business customer, receipts from those services are sourced as follows: (y) For the license or lease of intangible property, receipts are attributable to this state to the extent the intangible is used in this state, subject to the following conditions: (z) For a sale or an exchange of intangible property, the following conditions apply: (aa) For receipts from providing airline transportation, the receipts shall be attributed to Indiana in the ratio of departures from Indiana, measured by the value and cost of the aircraft, to the departures from all jurisdictions measured by the value and cost of the aircraft. For purposes of this rule, the following conditions apply: (bb) For receipts from providing railroad transportation, the following conditions apply: (cc) For receipts from providing trucking or transportation services of tangible personal property, the following conditions apply: (dd) For receipts from construction contracts, the receipts from those contracts are in attributed to this state if the construction project is in this state, subject to the following conditions: (ee) For newspaper and magazine publishers, the following conditions apply: (ff) For receipts from lottery or gambling, the following conditions apply: (gg) Receipts from the sale, exchange, or assignment of tax credits, or from the refundable portion of a tax credit includible as income for federal tax purposes, are in this state if: (hh) Receipts described in IC 6-5.5-4-3 through IC 6-5.5-4-13 are attributable to this state in the same manner as provided in those citations, except as specifically provided in this rule, IC 6-3-2-2, or IC 6-3-2-2.2. Sec. 56. Allocation of Nonbusiness Income. Rents, royalties, capital gains, interest, and dividends, when considered nonbusiness income, are allocated to specific jurisdictions as outlined in Regulations 6-3-2-2(h) through 6-3-2-2(k) [45 IAC 3.1-1-57-45 IAC 3.1-1-61]. Such sections 58 and 59 of this rule. This income, and the deductions connected therewith, are not taken into consideration in computing the taxpayer's apportionment formula. When the taxpayer has deductions applicable to both business and nonbusiness income, such the deductions must be prorated to determine what part is subject to allocation. Sec. 58. Capital Gains and Losses. Capital gains and losses from the sale of real property formerly used to produce nonbusiness income are allocated to the state where the property is located. Capital gains and losses from the sale of nonbusiness tangible personal property used to produce nonbusiness income are allocated to Indiana if the property had a situs in the state when sold. or if the taxpayer's commercial domicile is in Indiana and it is not taxable in the state in which the property had a situs. Capital gains and losses from sales of nonbusiness intangible property are allocated to Indiana if the taxpayer's commercial domicile is in this state. Sec. 59. Interest. Interest income is nonbusiness income if the intangible with respect to which the interest was received did not arise out of or was not created in the regular course of the taxpayer's trade or business operations or where the purpose for acquiring and holding the intangible was not related to or incidental to such trade or business operations. The term "interest" as used in this regulation [45 IAC 3.1-1-59] includes service charges, time-price differentials, and all other charges for the use of money. Examples: Nonbusiness interest is and dividends are allocated to Indiana if the taxpayer's commercial domicile is in this state. Nonbusiness patent and copyright royalties are allocated to Indiana to the extent used in this state. Sec. 62. Special Formulas for Division of Income. All corporations doing business in more than one (1) state shall use the allocation and apportionment provisions described in Regulations 6-3-2-2(b)-(k) [45 IAC 3.1-1-37-45 IAC 3.1-1-61] sections 37 through 59 of this rule unless such these provisions do not result in a division of income which that fairly represents the taxpayer's income from Indiana sources. In such this case, the taxpayer must request in writing or the department may require the use of a more equitable formula for determining Indiana income. However, the department will depart from use of the standard formula only if the use of such that formula works a hardship or injustice upon on the taxpayer, results in an arbitrary division of income, or in other respects does not fairly attribute income to this state or other states. It is anticipated that these situations will arise only in limited and unusual circumstances (which ordinarily will be unique and nonrecurring) when the standard apportionment provisions produce incongruous results. Sec. 64. "Taxable in Another State" Defined. A corporation is "taxable in another state" under the Act IC 6-3 when such that state has jurisdiction to subject it to a net income tax. This test applies if the taxpayer's business activities are sufficient to give the state jurisdiction to impose a net income tax under the Constitution and statutes of the United States. Jurisdiction to tax is not present where the state is prohibited from imposing the tax by reason of the provision of Public Law 86-272, 15 U.S.C.A. § 381-385. 15 U.S.C. 381-385. In the case of any state, as defined in IC 6-3-1-25, other than a state of the United States or political subdivision of such that state, the determination of whether such the state has jurisdiction to subject the taxpayer to a net income tax shall be made by application of the jurisdictional standards applicable to that state. of the United States. If jurisdiction to tax is otherwise present, such the state is not considered as being without jurisdiction to tax by reason of the provisions of a treaty between that state and the United States. Example: Taxpayers are not subject to throwback on sales into states in which they are taxable under this regulation [45 IAC 3.1-1-64]. See Regulation 6-3-2-2(e)(040) [45 IAC 3.1-1-53]. Sec. 65. Exempt Organizations. (a) Organizations exempt from federal income tax under IRC §501 (a) Section 501(a) of the Internal Revenue Code (26 U.S.C. 501(a)) are exempt from adjusted gross income tax. However, this exemption extends only to income of such those organizations which that is not taxable for federal tax purposes, Thus so organizations subject to tax under IRC §511 Section 511 of the Internal Revenue Code (26 U.S.C. 511) on their unrelated business income are also subject to Indiana's adjusted gross income tax on such that income. Exempt organizations are required to file an annual report by the fifteenth day of the fifth month following the close of the tax year. Those (b) Organizations described in subsection (a) having unrelated business income must report such this income by filing an annual income tax return no not later than the time the annual report is due. fifteenth day of the fifth month after the close of the taxable year. The organization must make quarterly payments of adjusted gross income tax and file quarterly income tax returns if its adjusted gross income tax liability exceeds its gross income tax liability by $1000. See Regulation 6-3-4-4 (020) [45 IAC 3.1-1-92]. in the same manner as a for-profit corporation. For the supplemental net income tax liability of exempt organizations having unrelated business income, see Regulation 6-3-2-3.1 (010) [45 IAC 3.1-1-68]. Sec. 66. Subchapter S Corporations. (a) Corporations electing Subchapter S status under Section 1372 of the Internal Revenue Code §1372 and which comply with the withholding requirements of IC 6-3-4-13 (26 U.S.C. 1372) are exempt from adjusted gross and supplemental net income tax on all income except capital gains income subject to tax under Internal Revenue Code §1378. at the corporate level for federal purposes. This exemption is effective until the corporation's shareholders terminate the election with the Internal Revenue Service. or until the corporation engages in transactions which disqualify it from Subchapter S status. A complete or partial corporate liquidation or the intent to dissolve will not in itself terminate the election. (b) Subchapter S corporation shareholders are taxed on their distributive shares of income at the individual income tax rate or, in the case of a nonprofit shareholder taxed as a corporation on unrelated business taxable income, the rate applicable to corporations. The character of the income (as capital gains or ordinary income) also passes through to the shareholders. (c) Although Subchapter S corporations are generally not subject to adjusted gross income tax, they are subject to use tax, and intangibles tax, and must report and pay such this tax at the time the annual return is filed or by filing a consumer use tax return through the department's online tax filing program. Subchapter S corporations must also withhold adjusted gross income tax on any nonresident shareholder's share of corporate income See Regulation 6-3-4-13(010) [45 IAC 3.1-1-109] et seq. under section 109 of this rule. For filing requirements of Subchapter S corporations, see Regulation 6-3-2-3(b)(020) [45 IAC 3.1-1-67]. Sec. 67. Subchapter S Corporations Filing Requirements. (a) Qualified Subchapter S corporations will must file an annual return, Form IT-20S, on or before the fifteenth day of the fourth month following the close of the corporation's tax year. The first annual return of the corporation must be accompanied by copies of Federal Form 2553, Election by Small Business Corporation, and by Federal Form 1120S, covering the corporation's first-year business activities. Corporations must designate their federal business activity code numbers in the appropriate place on the return, as well as designating their federal identification numbers. Annual returns must be filed by any Subchapter S corporation incorporated in Indiana or having income from Indiana sources. (b) Indiana resident shareholders of a Subchapter S corporation that conducts business in more than one (1) state are subject to the adjusted gross income tax on their entire share of the corporation's income. They may, however, be allowed a credit for any taxes paid to another state on this income. Such This credit will be pursuant to the provisions of Regulation 6-3-3-3(a)(010) [45 IAC 3.1-1-74]. section 74 of this rule. (c) Nonresident shareholders of a Subchapter S corporation conducting business both within and without outside Indiana must divide their income by using the corporate division of income provisions contained in Regulation 6-3-2-2(b)(010) [45 IAC 3.1-1-37] et seq. sections 37 through 59 of this rule. In particular, these shareholders must apportion their business income on using the three-factor single receipts factor formula outlined in Regulation 6-3-2-2(b)(030) [45 IAC 3.1-1-39]. section 39 of this rule. Any Subchapter S corporation which is a member of a partnership, joint venture, or pool will cause such partnership, joint venture, or pool to become subject to gross and adjusted gross income tax. See Regulation 6-3-7-1(b)(010) [45 IAC 3.1-1-151]. In that case, the partnership, joint venture, or pool will file annual return IT-65T and pay the tax shown to be due thereon. Profits from such entities are deductible by the corporation on its annual return. (d) Subchapter S corporations are required to make information returns as described in Regulation 6-3-4-9(010) [45 IAC 3.1-1-104]. section 104 of this rule. Sec. 68. Unrelated Business Income of Exempt Organizations. (a) Under IC 6-3-2-3.1, IC 6-3-2-2.8(1), exempt organizations are subject to adjusted gross income tax and supplemental net income tax on income derived from an unrelated trade or business as defined in section 513 of the Internal Revenue Code §513. (26 U.S.C. 513). This section does not apply to the United States and its agencies and instrumentalities, nor to the state of Indiana, a state agency, as defined in IC 34-4-16.5-2, nor a political subdivision of the state, as defined in IC 34-4-16.5-2, all of which are exempt from adjusted gross income tax on all income. This section does apply to all other exempt organizations, such as churches, fraternal organizations, and professional societies. An "unrelated trade or business" is one the conduct of which is not substantially related (aside from the needs of income or the use of the profits) to the performance by the exempt organization of the function constituting the basis for which it was granted exemption. However, under Internal Revenue Code § 513 the term does not include income from a trade or business: The exempt organization will compute its taxable unrelated business income in the same manner as any other taxpayer having business income. However, its business deductions are limited to those directly connected with the carrying on of the unrelated trade or business. Taxpayers should consult the Internal Revenue Code §§511-515 and the regulations established thereunder for a more detailed explanation of the Federal income tax on unrelated business income. (b) For 2018 and later, Indiana follows federal law with regard to businesses with income from multiple trades or businesses, including the limitations on the use of net operating losses against each line of business. However, Indiana will allow net operating losses from 2018 to 2020 that were carried back for federal purposes to 2017 and earlier to be applied against the income of any trade or business. In addition, if a trade or business has an Indiana net operating loss in a year in which the trade or business has federal taxable income, that loss can be applied against the income of other trades or businesses without limitation. Sec. 71. Individual Withholding Credits. To claim credit for taxes withheld under this Act IC 6-3, an individual taxpayer must attach a copy of the wage and tax statement, Form W-2, or any other form or schedule on which Indiana tax is withheld, to the Indiana individual income tax return. No credit may be claimed for tax withheld to for any other state or political subdivision of any other state, with the exception of local taxes paid against County Adjusted Gross Indiana local income tax. Amounts withheld for local income taxes under provisions of IC 6-3-1-3.5(a)(5) may be deducted as an adjustment (but not as a credit) to the extent allowed. Sec. 74. Credit for Taxes Paid To Other States. An Indiana resident must report income from all sources, including out-of-state income, in calculating Indiana adjusted gross income tax. If a resident is required to pay and does pay an income tax to any other state (depending upon on which state), possession, or foreign country on income derived therefrom, he the resident may, upon production of satisfactory evidence of such the payment of tax, claim a credit against his their Indiana adjusted gross income tax. The credit is the lesser of: Credit is not allowed for city income or occupational taxes county, municipal, or other local taxing district income taxes paid in other states or state income taxes paid in states allowing Indiana residents a nonresident credit against the state adjusted gross income tax. Credit is not allowed for taxes paid by a business entity other than a withholding tax, composite tax, or pass through entity tax allowed under IRS Notice 2020-75. Satisfactory evidence is as follows: The credit taken must be supported by a separate calculation of the credit along with a copy of the tax return filed with the other state, certified as true, and/or having been received by the proper taxing authority of such state. Withholding statements or other evidence of tax payments without a certified copy of an annual tax return will not be acceptable. Income from another state is that part of Federal gross income, minus all attributable Internal Revenue Code section 62 deductions, derived from sources without Indiana that is taxable in a particular state or country and is also taxable under this Act. EXAMPLE: Assuming the following facts: Income from Indiana $ 6,000.00 Income from other state 4,000.00 Total Indiana exemptions 3,000.00 Tax liability to other state 100.00 Calculate Indiana tax and credits as follows: Total income $10,000.00 Less: Exemptions 3,000.00 Taxable Income 7,000.00 Indiana tax rate .02 Indiana tax 140.00 Credit for tax paid to other state: Income from other state $ 4,000.00 Indiana rate .02 *Tax Credit $ 80.00 Balance of tax due Indiana $ 60.00 *[This amount cannot be larger than tax actually paid to other state.] Sec. 75. Credit Agreement States. (a) Credit for taxes paid to other states will not be allowed for taxes paid to states which that allow Indiana residents a nonresident credit. Credit should instead be obtained from the state imposing the tax upon on Indiana residents. These states include the following: Arizona Maryland West Virginia California New Mexico Washington D.C. (b) All income received from these the states listed in subsection (a) is reported in the same manner as if it were received from Indiana. No credit may be taken on the Indiana tax return for any taxes withheld or otherwise paid to the other state. Instead, after filing the Indiana tax return, the taxpayer should file a nonresident tax return with the other state, taking credit for the Indiana tax. This nonresident return must be filed in accordance with the instructions received from the other state. EXAMPLE: Taxpayer is Full-Year Indiana Resident Income from Indiana $6,000.00 Income from Arizona 4,000.00 Total Income Exemptions 3,000.00 Total liability to Arizona 120.00 Calculate Indiana tax and credits as follows: Total income $10,000.00 Less: Exemptions 3,000.00 Taxable Income 7,000.00 Indiana tax rate .02 Indiana tax 140.00 Credit for tax paid to Arizona NONE Take credit on nonresident return filed with Arizona for tax paid to Indiana based on Arizona income. Sec. 76. Reciprocal Agreements States. (a) Residents who have income consisting of salaries, wages, and commissions from the following states with which Indiana has a reciprocal tax agreement must report all such this income as if it were from Indiana: These states include: Illinois Michigan Pennsylvania Kentucky Ohio Wisconsin (b) Credit cannot be taken for any taxes withheld by or paid to any of these the states listed in subsection (a) in connection with salaries, wages, or commissions received from such those states. If tax has been withheld by any of these states, a claim for refund should be filed with the state which that withheld the taxes. EXAMPLE: Taxpayer is Full-Year Indiana Resident Income from Indiana $6,000.00 Income from Illinois (wages) 4,000.00 Total Income Exemptions 3,000.00 Total liability to Illinois -0- Calculate Indiana tax and credits as follows: Total income $10,000.00 Less: Exemptions 3,000.00 Taxable Income 7,000.00 Indiana tax rate .02 Indiana tax 140.00 Credit for tax paid to Illinois: NONE No credit is allowed taxpayer since Indiana and Illinois have a reciprocal agreement. Taxpayer must file with Illinois to recover any withholding to Illinois. (c) For income other than salaries, wages, and commissions, a credit will be allowed under the procedures for claiming credit for taxes paid to other states as outlined in Regulation 6-3-3-3(a)(010) [45 IAC 3.1-1-74]. section 74 of this rule. Likewise, (d) A resident of another reciprocal agreement state who works in Indiana and has Indiana withholding tax deducted from his their wages, salaries, or commissions may claim a refund of the amount so withheld To claim a refund, an individual must file by filing an Indiana nonresident tax return indicating residency in a reciprocal state and attaching a wage and tax statement (Form W-2) showing that Indiana taxes were withheld. Sec. 77. Reverse Credit for Nonresidents. A credit is allowed against adjusted gross income tax imposed upon on nonresidents who reside in states which that grant similar credits to Indiana residents who become subject to tax under the laws of those states. The Indiana credit (reverse credit) is the amount of income tax actually paid to the taxpayer's resident state but only on income derived from Indiana sources, or two percent (2%) of such the Indiana adjusted gross income tax imposed on that income, whichever is less. The list of those states which that grant a similar credit and the method for computing the allowable amount of credit are outlined under Regulation 6-3-3-3(a)(020) [45 IAC 3.1-1-75]. section 75 of this rule. In order to claim this credit, the taxpayer must file an Indiana Part-Year or Nonresident Tax Return along with a certified copy of the return filed with his resident state, reporting income which is subject to tax under this Act and under the laws of taxation of the other state. Sec. 94. Notice of Modification. (a) All taxpayers except resident individuals, are required to file a notice of final federal determinations with the department within: 120 days after a modification of a Federal income tax return or a modification of Federal income tax liability explaining the modification. For individual taxpayers, Form IT-40X must be used for this purpose. Taxpayers other than individuals should use the proper annual income tax return, and should mark it "amended." (b) If the Internal Revenue Service requires a taxpayer to file an amended return with the Internal Revenue Service to report a final federal determination, the amended return shall be treated as a final federal determination by the Internal Revenue Service, made on the day the amended return is filed with the Internal Revenue Service. (c) If a taxpayer enters into a settlement with the Internal Revenue Service on one (1) or more issues and the settlement is part of a final determination, the changes agreed upon for income, deductions, credits, or other tax attributes in the settlement agreement shall be treated as the final federal determination of those amounts or attributes. Sec. 97. Withholding Agent's Returns and Reports to the Department. (a) Employers who that make payments of wages subject to the Indiana adjusted gross income tax, and who that are required to withhold federal taxes pursuant to the Internal Revenue Code (U.S.C. Title 26), are required to withhold from employees' wages Indiana adjusted gross income tax and County Adjusted Gross Indiana local income tax. (b) Withholding agents who that are required to withhold Indiana adjusted gross income tax and County Adjusted Gross local income tax (where applicable), shall make return of and payment to the department monthly whenever the amount of tax due, for either county and state, exceeds an aggregate of $50 one thousand dollars ($1,000) per month year, with such the payment due on the thirtieth (30th) day of the month following the month Where the aggregate amount of tax due under the Adjusted Gross Income Tax or County Adjusted Gross Income Tax does not exceed $50 per month, payment and return of the amount of tax due shall be made quarterly, with such payment due on the last day of the month following the end of the quarter. The following criteria should be used: in which the withholding occurs. EXAMPLES: (c) All amounts deducted and withheld by an employer shall immediately upon deduction become the money of the state. All employers who that make a declaration of withholding must provide each employee annually, but not later than January 30, a statement on Form W-2 of the total amount of wages paid, and adjusted gross and county adjusted gross local income tax withheld. In the case of delinquency or nonpayment of withholding tax, the employer is liable for such the tax, penalties, and interest. If the employer is a corporation or partnership, all officers, employees, or members under a duty to withhold and remit adjusted gross income tax are personally liable for such the taxes, penalty, and interest. (d) The withholding provisions of this Act IC 6-3 apply to both resident and nonresident employers having employees resident and/or or working, or both, in the state, except employees resident in states having reciprocal agreements with Indiana. Sec. 98. Withholding of Compensation Paid To Employees of Interstate Transportation Companies. The following policy prescribed by the Department applies to the withholding of state income tax on transportation companies including railroads, motor carriers, airlines, and water carriers on compensation paid to their employees who work in more than one state. (a) Transportation companies, who including railroads, motor carriers, airlines, and water carriers that employ Indiana residents in this state, will continue to withhold the Indiana adjusted gross income tax as prescribed under Section 408 of the Indiana Adjusted Gross Income Tax Act of 1963, as amended. In the event that the Indiana resident earns more than 50% of his compensation outside of Indiana the employer, under Public Law 91-569, is required to withhold the tax for the state in which more than 50% of the compensation is earned; however, if more than 50% of the compensation is not earned in any state, the employer must withhold on the basis of residency. If tax is withheld on an Indiana resident and remitted to a state other than Indiana, the employer must file an annual information return reporting any wages on those Indiana residents subject to the withholding provisions of another state. IC 6-3-4-8. It is the opinion of this Department that the 50% test prescribed under this Federal Act does not apply to Indiana residents employed by a railroad, motor carrier, airline or water carrier in the States of Georgia, Illinois, Kentucky, Michigan, Mississippi, North Carolina, Ohio and Wisconsin. Since Indiana has reciprocal tax agreements with the above states for transportation company employees, any tax assessed on an Indiana transportation employee other than Indiana adjusted gross income tax would be inoperative as a result of these agreements. Nonresident transportation employees who are employed in Indiana and receive more than 50% of their compensation for services performed in this state, are subject to the withholding of the Indiana adjusted gross income tax; however, if the employees subject to Public Law 91-569 are residents of Georgia, Illinois, Kentucky, Michigan, Mississippi, North Carolina, Ohio or Wisconsin, these nonresident employees are not subject to the withholding tax provisions in accordance with the previously mentioned reciprocal agreements. Nonresident employees who are residents of those states having a reciprocal agreement with Indiana should file a certificate of residency with the employer, and the employer should withhold on the basis of residency. (b) Withholding by transportation companies is not required for nonresidents, but a water carrier that employs a nonresident of this state who receives more than fifty percent (50%) of their compensation in Indiana is subject to withholding in the same manner as any other nonresident employee. Sec. 99. Withholding Instructions for Church and Clergy. (a) Ministers are not subject to the withholding tax but may allow their tax to be withheld on a voluntary basis. Those ministers whose Indiana adjusted gross income tax liability is $100.00 in excess of any taxes withheld must file a Declaration of Estimated Tax on Form IT-40ES by April 15. (b) Every withholding agent who that employs any persons in the performance of personal service is subject to the same rules and regulations contained in the Internal Revenue Code. Even though a minister may or may not choose to have the tax withheld on his the minister's own salary, others employed by the church in the performance of a personal service must pay withholding tax, and the church would must act as the withholding agent, as follows: Liability of Withholding Agent: Sec. 100. Withholding Information For (a) With regard to part-time employees, and Other Miscellaneous withholding Requirements. WITHHOLDING FROM INCOME OF PART-TIME OR "SUMMER" EMPLOYEES withholding agents are required to withhold tax, at the applicable rate stated on the rate schedules, from the income of part-time or "summer" employees just as though they were full-time or permanent employees. The fact that the employer or the employee are reasonably, or even absolutely, certain that the employee will not earn income in excess of his or her ($1,000.00) their one thousand dollar ($1,000) exemption has no bearing on withholding the tax by the withholding agent. Similarly, the Internal Revenue Service rules which that allow the employee to waive withholding, for federal tax purposes, when the income is not expected to be in excess of the federal filing requirements and income allowances, have no bearing on withholding taxes from the income of part-time employees for Indiana tax purposes. WITHHOLDING FROM SUPPLEMENTAL UNEMPLOYMENT COMPENSATION BENEFIT INCOME Supplemental Unemployment Compensation Benefits paid to an individual are treated as if they were income, to the extent such benefits are includable in the gross income of such individuals, and therefore are subject to withholding by the withholding agent for Indiana tax purposes. WITHHOLDING FROM PENSION INCOME AND ANNUITY PAYMENTS (b) Withholding is not required on pension and annuity payments that meet certain qualifications described in Section 3405(a), (b), or (d) of the Internal Revenue Service Code (26 U.S.C. 3405(a), (b), or (d)), unless the recipient requests that federal Indiana adjusted gross income tax or local income tax, or both, be withheld. If such a this request is made, the payor must also withhold and remit Indiana adjusted gross income tax and local income tax under the recipient's instructions, and remit the withheld amounts to the department in the time and manner required for employee tax withholding. Pensions and annuities that do not meet the Internal Revenue Service qualifiacations are considered to be deferred compenstation and, therefore, require withholding in the same manner as for wages and salaries. WITHHOLDING FROM AGRICULTURAL OR CASUAL EMPLOYEES (c) Withholding agents are not required to withhold Indiana state adjusted gross income tax from payments made to agricultural laborers or casual laborers, such as yardworkers, or domestic employees if withholding of taxes in such cases must be agreed to by both employer and employee. If the employer does not withhold taxes he should report total annual payments made to each such employee on the Federal Form 1099, or the Indiana Form IT-12A. is required on the wages under the Internal Revenue Code (U.S.C. Title 26). If federal withholding is permissive on their wages under the Internal Revenue Code (U.S.C. Title 26), Indiana withholding is required only if the employer and employee agree to federal withholding. WITHHOLDING FROM ATHLETES AND ENTERTAINERS (d) Athletes and entertainers generally perform under one of the three following types of contracts The different types of contracts and, depending on the type of contract, the athlete or entertainer will have different withholding requirements, and thus, which must be treated separately as follows: The withholding requirements for payments made by a production company to its employees vary. If the employees are paid on a salaried basis, their situation is analogous to that of professional team athletes explained above, and withholding is required if the production company has an Indiana business situs, or if the employee is an Indiana resident. Payments made to those who are not employees i.e., payments made on a per-performance basis, do not require withholding because this income is not wages. The recipient must make estimated tax payments, and enforcement is identical to the enforcement of the liability of independent contractors. Sec. 101. Annual Reconciliation of Employers Withholding Tax, Form WH-3. Each withholding agent shall send or deliver the state copy of each withholding tax statement they prepared by him, to the department not later than the last day of February January, immediately following the end of the prior calendar year. They shall The statements must be attached to a report showing the amount of Indiana adjusted gross income tax, if any, withheld and paid to the department for the calendar year, as indicated by the monthly or quarterly returns, and a reconciliation with the total amount of tax withheld during this calendar year, as reflected by the withholding statement. The County Adjusted Gross local income tax shown on Form WH-3 should be indicated in the same manner as on Form WH-1, with no breakdown by county of individual tax withheld. Only on Form W-2 will the county local income tax be indicated as previously described. All reports and returns shall be on a calendar year basis, even though the withholding agent is on a fiscal year reporting basis. Sec. 102. Refiling of State Form WH-4. (a) The Employee's Withholding Exemption and County Residence Status Certificate (Form WH-4) must be refiled with the employer to show any change in residence or number of exemptions as follows: (b) Other decreases in exemptions, such as the death of a spouse or a dependent, do not affect your withholding until the next year, but require the filing of a new Form WH-4 by December 1 of the year in which they occur, even though they do not affect an employee's withholding until the next year. Sec. 103. Refunds of Excess Withholding and Income Tax Credits. (a) If the amount of withholding exceeds an employee's tax as imposed by these regulations [45 IAC 3.1] this article, the Indiana department of Revenue will refund the amount of excess withholding deduction, however, such except in the following circumstances: (b) An excess withholding deduction in no way relieves any employee from the obligation of filing an Indiana individual income tax return by the fifteenth day of the fourth month following the close of the individual's taxable year. In the case of withholding deductions not exceeding or not equaling the amount of tax due, the unpaid tax must be paid on the due date of the return. Sec. 105. (a) A partnership must file an annual return, Form IT-65, with the department, disclosing each partner's distributive share of partnership income, on or before the fifteenth day of the fourth month following the close of the partnership's accounting year. Any A partnership doing business in Indiana or deriving gross income from sources within Indiana is required to file the return. (b) As used in this section, "partner's distributive share" means the amount determined under Section 704 of the Internal Revenue Code (26 U.S.C. 704) and its prescribed regulations before any modifications required by Indiana tax statutes. (c) A Form IT-65 must be filed with Indiana by a bank with common trust funds filing a Form 1065 for federal income tax purposes. When reporting for Indiana purposes, a bank with common trust funds must comply with the provisions of Regulation Treas. Reg. 1.6032-1 of the Internal Revenue Code (26 CFR 1.6032-1). Sec. 106. (a) A partnership is not subject to the adjusted gross income tax. The partners will include their share of partnership income, whether distributed or undistributed, on their separate or individual returns. (b) An individual will report as follows: (c) A corporate partner will report its share in accordance with section 153 of this rule. Sec. 107. (a) A partnership is required to withhold income taxes at the rates provided for under IC 6-2.1, IC 6-3 and IC 6-3.5 and IC 3.6 on any nonresident partner's distributive share of partnership income at the time the income is paid or credited to such that partner as follows: (b) The partnership shall file a return and pay the tax on a monthly basis. The return and payment are due the thirtieth day of the month following the month for which the tax was withheld. However, if the total income taxes withheld by the partnership are less than fifty dollars ($50) per month, the tax shall be paid and returns remitted quarterly on a calendar year basis, with payment due the last day of the month following the close of the calendar quarter. If a partnership is withholding on a monthly basis but in any month withholds less than fifty dollars ($50), the lesser amount shall be remitted on a monthly basis to maintain the status of monthly reporting. (c) (b) If the partnership pays or credits amounts to its nonresident partners only one (1) time each year, it will be permitted to file one (1) return and payment each year. The return and payment are due thirty (30) days after the partnership's year end. on the fifteenth day of the fourth month after the taxpayer's taxable year ends. (c) If a partnership elects to be subject to the pass through entity tax imposed under IC 6-3-2-1, the requirements of subsection (b) do not affect the partnership's due dates for the pass through entity tax. (d) The withholding requirements of IC 6-3-4-12 do not relieve any partnership from filing its annual return, IT-65, nor do they relieve any nonresident partner other than an individual from filing an annual income tax return. A nonresident individual is relieved from the requirement of filing a return only if all the individual's Indiana source income is reported via one (1) or more partnerships, and the partnership determines the partner's withholding tax or pass through entity tax without any permitted reductions against that tax. (e) For individual partners only, A partnership is allowed required to file a composite adjusted gross income tax return on behalf of some or all non-Indiana resident partners if the partnership complies with all of the requirements outlined in Income Tax Information Bulletin #72 that is in effect for the taxable year in question. An individual nonresident partner who properly elects to participate in the composite return will not be required to file an individual adjusted gross income tax return. and all corporate and partnership partners not domiciled in Indiana. Sec. 108. Partnership Withholding Returns. Partnerships required to withhold adjusted gross income tax under IC 6-3-4-12 shall make returns (Form WH-1 IT-6WTH) with each payment of tax to the department, disclosing thereon the total amounts paid or credited to nonresident partners, the tax withheld therefrom, and such any other information as the department may require. The partnership must also file an annual withholding return, Form WH-3 (including a copy of the WH-18 furnished to each nonresident) within thirty (30) days of the close of the calendar year. The partnership must furnish Form WH-18 Schedule IN K-1 to each nonresident partner subject to withholding not later than thirty (30) days from the fifteenth day of the fourth month following the close of the calendar partnership's taxable year as proof that the tax upon his on the partner's share of the partnership income has been withheld. Sec. 109. Subchapter S Corporations-Withholding Requirements. Small business corporations electing Subchapter S status under Section 1372 of the Internal Revenue Code section 1372 (26 U.S.C. 1372) are required to withhold Indiana adjusted gross income tax and county adjusted gross local income tax on any nonresident shareholder's share of taxable income of the corporation, whether distributed or undistributed, and pay such those amounts to the department in the manner described in Regulation 6-3-4-12(010) [45 IAC 3.1-1-107] and (020) [45 IAC 3.1-1-108]. Such sections 107 and 108 of this rule. These corporations shall make monthly (or quarterly) and annual returns as provided in Regulation 6-3-4-12(020) [45 IAC 3.1-1-108] section 108 of this rule and furnish a copy of form WH-18 Schedule IN K-1 to each nonresident shareholder as provided in that regulation. Sec. 110. Consolidated Returns. (a) An affiliated group, as defined in IC 6-3-4-14(b), may file consolidated returns for adjusted gross income tax and Supplemental Net Income Tax purposes if the members of the affiliated group consent to follow the provision of IC 6-3-4-14 and the regulations established thereunder, including federal regulations promulgated pursuant to Section 1502 of the Internal Revenue Code section 1502 (26 U.S.C. 1502), which are incorporated by reference in IC 6-3-4-14. The inclusion of a member of an affiliated group in the consolidated return is deemed to be its consent to the consolidated filing. Once an election is made to file consolidated, a taxpayer must obtain written permission from the department to change from this method of reporting. (b) Taxpayers filing consolidated returns should must notify the department of their election to so file by attaching to their first consolidated return a statement indicating which corporations are joining in the return. In addition, a worksheet must accompany all consolidated returns showing the consolidated income of the affiliates. Sec. 111. Affiliated Group. The Adjusted Gross Income Tax Act adopts (a) The definition of "affiliated group" contained in Section 1504 of the Internal Revenue Code section 1504, (26 U.S.C. 1504) is adopted for purposes of this article, except that no member of the affiliated group may be included in the Indiana return unless it has adjusted gross income derived from sources within the state, as that phrase is defined in IC 6-3-2-2. For purposes of this subsection, "adjusted gross income derived from sources within the state" means either income or losses derived from activities within the state. (b) Domestic International Sales Corporations (DISC'S) which (DISC) that are prohibited under the Internal Revenue Code from filing consolidated returns may not be included in the affiliated group for Indiana adjusted gross income tax purposes. (c) If any bank is a member of an affiliated group for federal income tax purposes, it cannot be included as an affiliated member for Indiana adjusted gross income tax purposes, since the banking entity is not subject to the adjusted gross income tax. Any gross income tax liability of a bank must be added separately after the composite tax of the affiliated group has been computed. For supplemental net income tax purposes, the members of an affiliated group, including the banking entity, may compute the supplemental net income tax on a consolidated basis. Since banks are not included in the consolidation under the Adjusted Gross Income Tax Act, a separate schedule must accompany the consolidated return in order to compute the adjusted gross income of the affiliated group and subsequently the supplemental net income tax liability. In the case of a bank holding company, the holding company may be allowed a special deduction for dividends received from its banking entity for Indiana adjusted gross income tax purposes in accordance with section 243(a)(1) of the Internal Revenue Code. The 100% dividend exclusion for those holding companies filing a consolidated return does not apply since, for Indiana adjusted gross income tax purposes, the banking entity is not taxable under the Act and thus cannot be part of the consolidation. Sec. 112. Consolidated Indiana Gross Income Tax and Federal Income Tax Returns. Whether an affiliated group is or is not filing Indiana gross and/or federal income tax returns on a consolidated basis has no bearing on its eligibility to file consolidated Indiana adjusted gross income tax returns. However, the Department strongly recommends that taxpayers filing on a consolidated basis for purposes of one tax, do likewise for purposes of all taxes. If returns are filed separately for one tax and consolidated for the other, the burden will be on the taxpayers to provide a complete breakdown of the affiliated corporations' gross, adjusted gross, and supplemental net income tax liabilities, quarter payments, and other credits. Sec. 113. Withholding on Distributions To Nonresident Beneficiaries of Indiana Trusts and Estates. Beginning January 1, 1978, (a) Indiana trusts and estates distributing income subject to withholding to nonresident beneficiaries are required to withhold adjusted gross income tax from such a distribution. "Income subject to withholding" is defined as all income subject to adjusted gross income tax, except interest and dividends. An allowance is made for expenses, administrative fees, a personal exemption, and other allowable adjustments. Examples of income subject to withholding include farm income, business income, and rents and royalties from Indiana real estate. These (b) The withholding provisions of this section apply only to distributions to nonresident beneficiaries. A beneficiary's residency should be determined at the time of the distribution. However, if a resident beneficiary later becomes a nonresident, the fiduciary is required to withhold on all subsequent payments to that beneficiary. Part-year residents and nonresidents should take credit on their adjusted gross income tax returns for any tax withheld. (c) The withholding rate for these fiduciaries is two percent (2%). the rate determined for the beneficiary under IC 6-3-2-1. Any deficiency in taxes withheld and remitted to the state will subject the trust or estate to the penalties and interest imposed by IC 6-3-6 IC 6-8.1. The department may, at its option, require the withholding agent to post a bond to ensure payment of the tax. Sec. 114. Withholding Returns and Remittances of Trusts and Estates. (a) Trusts and estates required to withhold adjusted gross income tax by IC 6-3-4-15 will must file monthly returns on Form WH-1. IT-6WTH. Remittance will must be made with the return and such remittance will be is due on the thirtieth day of the month following the month during which the tax was withheld. If the fiduciary cannot determine what part of the distribution is made up of income subject to withholding, as defined in section 113 of this rule, the department will permit the tax to be remitted when such the determination can be made (i.e., at the end of the calendar or fiscal year when the net profits of a business can be determined). (b) Trusts and estates must furnish to each nonresident beneficiary a Form WH-18 by the thirtieth day of the month IT-41 Schedule IN K-1 following the close of the taxable year. This statement will must indicate the total distributions to the beneficiary for the year and the amount of tax withheld, and will must accompany the beneficiary's annual return as proof of payment. Sec. 115. Reciprocity Agreements. Indiana has reciprocal income tax agreements now exist between Indiana and with the states of Illinois, Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin. The agreements provide that Indiana will not impose its adjusted gross income tax on salaries, wages, and commissions earned by legal residents of these states in Indiana and they in turn will not impose their individual income tax on wages, salaries, and commissions earned by legal residents of Indiana in those states. Employees resident in any of the above-mentioned states and working in Indiana must submit to their Indiana employer an affidavit as to their legal residence as proof that no withholding of Indiana taxes adjusted gross income tax is required. (See Regulation 6-3-3-3(a)(030) [45 IAC 3.1-1-76]). Sec. 153. (a) A corporate partner's share of profit or loss from a partnership will be included in its federal taxable income and therefore is generally subject to the same rules as any other adjusted gross income. (b) If the corporate partner's activities and the partnership's activities constitute a unitary business under established standards, disregarding ownership requirements, the business income of the unitary business attributable to Indiana shall be determined by a three (3) factor formula consisting of property, payroll, and sales of the corporate partner and its share of the partnership's factors for any partnership year ending within or with the corporate partner's income year, with the following modifications: (2) but intercompany sales between the corporate partner and the partnership shall be eliminated from the corporate partner's sales factor as follows: (c) If the corporate partner's activities and the partnership's activities do not constitute a unitary business under established standards, disregarding ownership requirements, the corporate partner's share of the partnership income attributable to Indiana shall be determined as follows: (d) A partner's distributive share of income will be adjusted by the partner's proportionate share of the partnership's income that is exempt from taxation under the Constitution and statutes of the United States, and by the partner's proportionate share of the partnership's deductions allowed or allowable under Section 63 of the Internal Revenue Code (26 U.S.C. 63) for taxes based on or measured by income and levied at the state level by any state of the United States, or for taxes on property levied by any subdivision of any state of the United States. and for any modifications required for corporations under IC 6-3-1-3.5. (e) After determining the amount of business income attributable to Indiana under subsection (c), the corporate partner's distributive share of such that income shall be added to the corporate partner's other business income apportioned to Indiana and its nonbusiness income, if any, allocable to Indiana, in determining the corporate partner's total taxable income. Sec. 1. (a) The local income tax (LIT) is imposed on individuals who are residents of adopting counties and on individuals who are residents of nonadopting counties but who have their principal place of business or employment in an adopting county. (b) For residents of adopting counties, the tax is imposed on adjusted gross income as defined in IC 6-3-1-3.5(a). (c) For residents of nonadopting counties and nonresidents of the state with a principal place of business or employment in an adopting county, the tax is imposed only on the adjusted gross income derived from the principal place of business or employment. (d) For purposes of determining the adjusted gross income, the adjusted gross income shall be is the amount as defined under IC 6-3-1-3.5(a) and shall include includes all deductions from adjusted gross income permitted under IC 6-3. (e) For periods ending before January 1, 2017, these rules apply to the county adjusted gross income tax, county option income tax, and county economic development income tax, except as otherwise expressly provided in this rule. Sec. 2. (a) Effective January 1, 2017, the local income tax (LIT) is imposed on residents and nonresidents at the same rate. (b) Prior to January 1, 2017: If a county has a combination of subdivisions (1) and (3) or subdivisions (2) and (3), the resident rates and nonresident rates for each tax type are added together to determine the aggregate resident and nonresident tax rates. Sec. 3. (a) For a resident of an adopting county, the following applies: (b) For a resident of a nonadopting county and out-of-state residents, if an individual resides in a nonadopting county or outside the state of Indiana, but his or her the individual's principal place of business or employment is in an Indiana adopting county, only the adjusted gross income derived from his or her the individual's principal place of business or employment in Indiana will be subject to LIT. (c) For purposes of determining what income is subject to LIT, all income derived from an Indiana county in which the principal place of business or employment is located is subject to LIT as follows: Sec. 4. (a) An individual is subject to county tax if he or she the individual lives or works in an adopting county on January 1 of the tax year as follows: (b) If, on January 1, a taxpayer's county of residence is a nonadopting county, but his or her the taxpayer's county of principal place of business or employment is an adopting county, he or she the taxpayer must pay LIT on the income derived from his or her the taxpayer's principal place of business or employment for the entire year. Even though he or she the taxpayer may later begin working in a nonadopting county, he or she the taxpayer must pay county tax for the entire year on the income earned from his or her the taxpayer's principal activity, even if the principal activity is later conducted in another county. (c) However, if an individual neither lived nor maintained his or her their principal place of business or employment in an adopting county on January 1, he or she the individual is not subject to LIT on any part of his or her the individual's income even though his or her their county of residence or principal place of business or employment changes to an adopting county during the year. (d) An individual who, as of January 1, maintains his or her their principal place of business or employment in an adopting county but is a nonresident of Indiana, or is a resident of Indiana on January 1 but moves out of Indiana during the tax year, is subject to LIT only on income derived from Indiana sources. An individual who, as of January 1, had his or her their county of residence in an adopting Indiana county is not liable for LIT on income earned outside the state while not a resident of the state. (e) An individual who, as of January 1, lives in an adopting county and moves out-of-state to a reciprocal state, while maintaining his or her their Indiana principal place of business or employment, will not owe adjusted gross income tax on the wage income earned after moving out of Indiana. However, LIT will be due on the wage income earned after moving out of Indiana. It should be reported in the county tax schedule of the appropriate tax return. (f) If an individual is subject to LIT on income from his or her their principal place of business or employment, the tax rate shall apply applies to the taxpayer's adjusted gross income derived from his or her the individual's principal place of business or employment for the entire year. Adjusted gross income derived from a principal place of business or employment is defined as federal adjusted gross income from that activity after modifications required under IC 6-3-1-3.5(a) against such that income. (g) For purposes of determining whether a deduction is allowable against the adjusted gross income from a principal place of business or employment, the deduction shall be allocated in a manner consistent with the allocation used on the state income tax form filed by the individual. In the case of a filer permitted to complete a return reporting only income derived from activities covered by a reciprocal agreement, the allocation of modifications shall be done in a manner consistent with individuals who otherwise would file a nonresident or part-year resident tax return. For purposes of the county tax portion of a return required for a taxpayer with only income derived from activities covered by a reciprocal agreement, no exemptions shall be permitted on the return. Sec. 5. (a) Each individual spouse is treated separately under local income tax (LIT). Accordingly, each spouse must determine his or her their respective county of residence and county of principal place of business or employment as of January 1, and will compute his or her their respective county tax due, based on his or her the spouses' separate adjusted gross income. (b) Except as permitted in subsection (a), if a person files a joint return with his or her their spouse and only the person or the person's spouse is taxable for LIT, then the person who is taxable may take all the exemptions claimed on the joint return except the exemptions attributable to the other spouse (for instance, the personal exemption for the spouse and the exemption for taxpayers over sixty-five (65) years of age or blind, or both, for that spouse). (c) If a person files a joint return and the person is taxable at one (1) rate on his or her their income and the person's spouse is taxable at another rate on the spouse's income, then the spouses may allocate each whole exemption taken on the joint return between themselves except for the exemptions attributable to the other spouse. The other spouse should then use the exemptions attributable to that spouse. (d) The computation of LIT is to be completed on the county tax schedule, which is an attachment to the individual income tax return. The county tax computed on the county tax schedule is to be carried to the designated area on the applicable state income tax form. Sec. 6. (a) The local income tax (LIT) is in effect until affirmatively changed by the adopting body for the county, the date otherwise specified in the ordinance, or the date mandated by the appropriate provision of Indiana law. (b) This subsection applies only to a LIT rate change as follows: Sec. 7. (a) A person's county of residence is determined based on the following criteria: (b) The local income tax (LIT) applies against the entire adjusted gross income of an employee whose county of residence adopts the LIT. If the employee resides in a nonadopting county but has his or her principal place of business or employment in an adopting county, the LIT applies only to that adjusted gross income earned from the principal place of business or employment. Sec. 8. (a) An individual's county of principal (nontemporary) place of business or employment is that county where the taxpayer receives the greatest percentage of his or her the individual's gross income from salaries, wages, commissions, fees, and similar income. (b) If an individual is self-employed, the county of principal place of business or employment is that county where the individual's principal place of business is located as follows: (c) An individual is not considered to have a principal place of business or employment in an Indiana county solely based on ownership of a partnership or corporation or beneficial interest in a trust that conducts business in Indiana. Sec. 9. County fiscal bodies of adopting counties may enter into reciprocity agreements with taxing authorities outside Indiana to exempt the income from the residents of out-of-state localities from local income tax (LIT), and likewise exempt county residents from that locality's local income tax. LIT. Reciprocity agreements must coincide with calendar years, and a certified copy of the agreement must be sent to the department. To be valid, the agreement must be approved by the other government governmental entity and must have been previously approved by the department. Sec. 10. (a) Taxpayers subject to county tax at the resident rate may take a credit against their local income tax (LIT) liability for taxes paid to localities outside of Indiana. (b) The credit is limited to: (c) For each locality, the credit and the limitations under subsection (b) shall be computed separately. (d) To claim the credit under subsection (b), the tax must actually be paid. If the tax is reduced by any credit, other than a credit for taxes withheld, the tax paid will be reduced by such that credit. (e) The credit is limited only to taxes for which the individual is personally liable or for taxes reported by a pass through entity on behalf of the individual by inclusion in a composite tax return filed by the entity. If the individual owns an interest in a partnership, an S corporation, a trust, or a similar entity for which the entity is subject to a local income tax LIT but the individual is not subject to local income tax LIT on that income, the tax paid by the entity is not eligible for this credit. To claim the credit, the taxpayer must provide evidence of payment of the claimed tax to the out-of-state subdivision. A copy of the tax return filed with the other locality or a tax statement indicating such this payment, such as a Form W-2 or Form 1099, must be attached to the Indiana return. (f) The credit will not be allowed if the laws of such the city or county provide for a credit to the taxpayer for the amount of LIT payable. (g) The credit is not permitted for any state-level taxes paid in excess of the amount permitted under IC 6-3-3-3. Documents Incorporated by Reference: None Received by Publisher Small Business Regulatory Coordinator: Bruce Kolb, Senior Counsel, Department of State Revenue, Indiana Government Center North, 100 North Senate Avenue, Room N248, Indianapolis, IN 46204, (317) 232-2566, bkolb@dor.in.gov