Introduction -

In a period of 18 months, three state courts have refused to extend economic nexus approaches to the facts before them, despite prior decisions in those states that corporations without physical presence in the state were subject to tax. Most recently, it was the Indiana Tax Court that held in a published and precedential decision on a motion for summary judgment that physical presence is required for corporations to be subject to the Indiana corporate income tax and the Indiana premiums tax, which is imposed on insurance companies. The time for appeal has not yet expired.

The Indiana Tax Court’s UPS decision confirms that Indiana does not apply an economic nexus approach to corporate income tax. The court distinguished its earlier decision in MBNA Am. Bank NA v. Indiana Dep’t of State Revenue, 895 N.E.2d 140 (Ind. Tax Ct. 2008), which applied an economic nexus approach to the Indiana financial institutions tax (FIT). Corporations that have wondered whether MBNA would apply to the Indiana corporate income tax now have an answer from the tax court. Further, the decision demonstrates that the tide is changing in the nexus area, as Indiana joins the states that have recently curtailed economic nexus.

Originally published in Tax analysis on October 14, 2013.