I. Select New Legislation
Senate Enrolled Act No. 1 (signed by Governor April 15, 2025)
Prior to the Act, the assessed value of a taxpayer’s tangible business personal property could not fall below 30% of the aggregate acquisition cost of the property (often described as “the 30% floor”). The Act eliminates the 30% floor for property placed in service after January 1, 2025 to allow taxpayers to benefit from greater depreciation over the life of that property. However, the Act does not change the 30% floor for property located in a tax increment financing (TIF) district.
The Act establishes new assessed value deductions that will automatically apply beginning with property taxes payable in 2026. The deductions apply to the class of real property that is subject to what is commonly referred to as a circuit breaker or property tax cap that limits tax liability to 2% of assessed value. This includes residential property that is not a homestead (such as rental property and apartments), long-term care facilities, and agricultural land. The deduction for 2026 is 6% of assessed value, with phased increases to 33.4% in 2031.
The Act authorizes local governments to levy new local income taxes.
House Enrolled Act No. 1427 (signed by Governor May 6, 2025)
Beginning with the January 1, 2026 assessment date, if the acquisition cost of a taxpayer’s total business personal property in a county is less than $2,000,00, then that property is exempt from taxation. The Act changes the previous exemption threshold amount of $80,000.
The Act creates a partial property tax exemption for employers that provide child care on the employer’s property for its employees, effective January 1, 2026. The exemption allows multiple businesses to enter agreements for employees of each of those businesses to use the same child care space.
The Act removes the prohibition from claiming most credits against the pass through entity tax (“PTET”). It allows a pass through entity to elect to claim credits for out-of-state taxes and for certain nonrefundable credits against PTET.
House Enrolled Act No. 1601 (signed by Governor May 1, 2025)
The Act enables local legislative bodies to enter into agreements with a business investing at least $100 million in quantum safe fiber network equipment for a property tax exemption of the network equipment. The Act includes a definition with detailed technical specifications for a “quantum safe fiber network.”
II. Select Administrative and Case Updates
A. Sales and Use
Letter of Findings: 01-20242001, et al. (Feb. 24, 2024) (posted April 30, 2025) (Income Tax) – Research Expense Credits
The Department audited an Indiana S-corporation tool-and-die maker (“Corporation”) for 2016-2019 and denied all research expense credits (“RECs”) passed through to its resident shareholders. Because Corporation is a pass-through entity, the denial generated additional Indiana adjusted gross income for both the entity and its resident shareholders, resulting in proposed assessments. Taxpayers (Corporation and two resident shareholders) protested.
The Department first set out the governing authority, noting that RECs under IC 6-3.1-4-4 incorporate the federal definition of “qualified research” in IRC § 41(d)(1), which imposes a four-part test—(1) Section 174 eligibility based on uncertainty about the concept of a model or product, (2) technological-in-nature, (3) business-component, and (4) process-of-experimentation—and excludes research that is funded by third parties.
Corporation claimed uncertainty whenever it received a first-time custom order. The Department concluded that Corporation provided only narrative project summaries and no contemporaneous records (design documentation, testing logs, engineering notes, etc.) demonstrating technical uncertainty or expenditures incurred to eliminate uncertainty. The Department acknowledged Corporation’s reliance on engineering and machining principles and did not dispute that Corporation’s research was technological-in-nature.
Corporation asserted that its qualifying activity was the development of “processes” for manufacturing unique parts, but the Department found the work to be standard custom-job production: employees refined customer-supplied designs, generated CNC code, machined prototype parts, and performed quality control. Designing or modifying products to meet customer specifications, without functional improvement to a broader business component, does not satisfy § 41(d)(1)(B)(ii).
Taxpayers produced CAD drawings and similar materials at protest but still failed to identify technical uncertainties, alternative hypotheses, or systematic testing. The Department found no documentation of evaluating multiple alternatives or iterative experimentation as required by Treas. Reg. § 1.41-4(a)(5).
Purchase orders transferred all inventions, data, designs, business information and other information generated under the contract to the buyer, leaving Corporation with no substantial rights. Payments were fixed-price and not contingent on research success; buyers cared only about receiving conforming parts. Accordingly, even if the activities otherwise met § 41, they were “funded” under IRC § 41(d)(2)(H) and Treas. Reg. § 1.41-4A(d).
Department concluded that Corporation had zero qualified research expenses for 2016-2019. Lacking qualified research expenses, neither Corporation nor its shareholders were entitled to Indiana RECs.
Letter of Findings: 04-20241336 (July 18, 2024) (Sales/Use Tax) – Mining Exemption for Excavating Contractor
Taxpayer, an Indiana excavating company, performed waste-removal and site-reclamation services for surface coal mines under lump-sum contracts. During a sales and use tax audit covering 2014-2016, the Department assessed roughly $250,000 in additional tax on Taxpayer’s purchases and rentals of heavy equipment, repair parts, tires, supplies, and a variety of capital assets. Taxpayer protested, asserting that all items “directly used” in its work qualified for the mining exemption in IC 6-2.5-5-5.1(b) and 45 IAC 2.2-5-9 because its excavation and transportation of the waste materials is part and parcel of the mining company’s production of coal and that the transportation of the waste requires purchases of equipment, repairs and parts used in the direct mining process and constitute an integral part of the mining process, citing example 2 of 45 IAC 2.2-5-9. The Department acknowledged that “the production of the coal would cease without Taxpayer’s participation in that process.” However, the Department rejected Taxpayer’s claim, emphasizing that the exemption extends only to machinery “directly used by the purchaser in extraction or mining” and requires an immediate and direct effect on the coal being produced.
Final Order Denying Refund: 04-20210048 (Sept. 16, 2024) (Sales Tax) – Public Transportation Exemption
Taxpayer, an Indiana-based electric utility that generates, transmits, and distributes electricity, sought a refund of sales/use tax paid on purchases of tangible personal property (“TPP”) used to maintain its high-voltage transmission system. Taxpayer contended that the property qualified for Indiana’s public transportation exemption, IC 6-2.5-5-27. The Department denied the claim in full and, after hearing, issued a Final Order sustaining the denial.
The Department first noted that although the manufacturing exemption “does not apply to transactions involving distribution equipment or transmission equipment acquired by a public utility engaged in generating electricity,” utilities are not categorically barred from claiming a public transportation exemption. See IC 6-2.5-5-3(c).
The Department declined to apply the “transportation company” factor test contained in Sales Tax Information Bulletin 12 (July 2015) because that test is aimed at affiliated entities created solely to transport their parent’s goods. Taxpayer neither asserted it was a separate “transportation company” nor operated as one; rather, it transmitted third-party-owned electricity over assets it owned. Accordingly, the exemption was analyzed under the traditional “necessary and integral” single-direct test articulated in Wendt LLP v. Indiana Dep’t of State Revenue, 977 N.E.2d 480, 484 (Ind. Tax Ct. 2012).
To qualify under IC 6-2.5-5-27, the item or service must be directly used in “providing public transportation for persons or property.” Public transportation is defined by 45 IAC 2.2-5-61 as the movement of property for consideration by a “common carrier, contract carrier, household-goods carrier, carriers of exempt commodities, and other specialized carriers.” Although electricity is generally considered TPP after the amendment to IC 6-2.5-1-27, the Department emphasized that Indiana Waste Systems v. Indiana Dep’t of State Revenue, 633 N.E.2d 359, 366 (Ind. Tax Ct. 1994) requires the property being transported to be a physical object. The Department found that the electromagnetic energy purchased by consumers is intangible work, not a physical object, and therefore not “property” within the meaning of the regulation. Because Taxpayer did not transport a qualifying physical object and did not act as a common or contract carrier, its purchases were not “directly used” in providing public transportation. The Department therefore held the exemption inapplicable and denied the refund.
Letter of Findings: 04-20232364 (Oct. 21, 2024) (Sales/Use Tax) – Manufacturing Exemption
Taxpayer is an Indiana-based company engaged in the provision of mixed gases and welding supplies. The protest concerned additional sales and use tax assessments for tax years 2018, 2019, and 2020, following an audit that utilized statistical sampling. The Department reviewed whether certain purchases qualified for the manufacturing exemption under IC 6-2.5-5-3(b) and the “double direct” test. In support, Taxpayer provided an explanation of the manufacturing process and details regarding how each item is used during the process. Items such as valves, piping, cryogenic pump parts, odor additives, safety parts, safety stands, quality control equipment, liquid filling systems, and helium compressors were found to be directly used in manufacturing and thus exempt. However, an arrester flame (fire safety equipment) and a scale calibration system (used to weigh filled cylinders) were not considered directly involved in the manufacturing process and remained taxable. Taxpayer utilizes forklifts to move various cylinders during the pre-production process, the direct manufacturing process, and post-production process. Based on Taxpayer’s information, forklifts and related parts were used 65% in manufacturing and 35% in non-manufacturing activities; thus, only the manufacturing-use portion was exempt.
Letter of Findings: 04-20210084 (Nov. 1, 2024) (Sales/Use Tax) – Manufacturing Exemption
The Department audited a global manufacturing company with two Indiana facilities for tax years 2016-2018 and, using an agreed-upon statistical sample, assessed additional use tax on numerous purchases. Taxpayer protested, contending that many sampled items qualified for a manufacturing exemption. Citing IC 6-2.5-5-3 and the “double-direct” test, Taxpayer supplied invoices, photographs, videos, and process descriptions to show that certain machinery, tools, chemicals, dies, and material-handling equipment were essential and integral to its integrated production process. For instance, in-production and completed products are generally so large that they can only be moved by cranes and forklifts. Taxpayer also explained that its finished, oversized metal products must be packaged in a specified manner to prevent damage in transit, bringing related packaging materials within the exemption. The Department agreed that a “significant number” of the challenged purchases qualified for exemption, removed them from the sample, and ordered a supplemental audit to recalculate liability.
Regarding penalties, the Department found that Taxpayer had shown “reasonable cause” under IC 6-8.1-10-2.1(d) and 45 IAC 15-11-2, emphasizing Taxpayer’s reliance on prior Department refund determinations and its full cooperation during the audit, and therefore waived the negligence penalty.
Revenue Ruling # 2024-04-RST (Jan. 7, 2025) (Sales Tax) – Sales of Online Subscriptions, In-Game Items, and Virtual Currency
The Department addressed whether an out-of-state video-game publisher (the “Company”) must collect Indiana sales or use tax on three post-sale offerings related to its electronic video game: (1) a monthly online subscription that unlocks multiplayer functionality; (2) optional in-game items—including cosmetic items such as armor or costumes, gameplay/time-saving boosts, character-renaming services, and expansion packs; and (3) optional virtual currency redeemable for in-game items or subscription fees. Players may acquire subscriptions directly from the Company, via redemption of virtual currency, through third-party timecards, or through online platforms such as Steam or PlayStation. Virtual currency can be purchased directly with credit cards, Amazon Pay, or PayPal, and may be purchased in the future from online third-party sellers. None of the virtual currency may be redeemed for real-world money.
The Department first noted that Indiana imposes sales tax only on retail transactions involving transfers of “tangible personal property,” and although prewritten computer software is tangible personal property, software accessed remotely via an internet connection (SaaS) is not taxable. It further explained that IC 6-2.5-1-26.5 and IC 6-2.5-4-16.4(b) impose sales tax only on specifically defined digital products (digital audio works, digital audiovisual works, or digital books) when delivered electronically. Because the Company’s post-sale offerings are not tangible personal property and are not specified digital products, they fall outside the statutory definition of taxable property. Accordingly, the Department ruled that all three offerings are not subject to Indiana sales or use tax.
Supplemental Final Order Denying Refund: 04-20231602 (Feb. 19, 2025) (Sales Tax) – Purchases of Construction Materials
Taxpayer, an out-of-state “design-build” construction manager, entered into a time-and-materials contract to construct improvements at an Indiana generating facility owned by an exempt public utility. Relying on the utility’s Form ST-105 exemption certificate and Indiana’s utility exemption under IC 6-2.5-5-10, Taxpayer filed a GA-110L seeking approximately $350,000 of sales-tax refunds for materials it asserted were incorporated into the utility’s real property. In November 2023 a Memorandum of Decision partially sustained Taxpayer’s protest, concluding that Taxpayer could recover sales tax it personally paid on material purchases that qualified under a time-and-materials contract, provided it substantiated exemption eligibility. A supplemental audit issued a limited refund, after which Taxpayer protested again, claiming the audit failed to address additional transactions involving six subcontractors.
In the supplemental protest, Taxpayer argued it had “purchased” construction materials from its subcontractors, paid sales tax on those materials, resold the items to the utility, and therefore was entitled to a further refund. The Department examined the subcontract agreements and determined they were lump-sum, not time-and-materials, contracts. Under those agreements the subcontractors, not Taxpayer, purchased the materials from vendors, paid any sales tax, and then invoiced Taxpayer a fixed amount inclusive of the tax. Consequently, the Department found that (1) the subcontractors—not Taxpayer—were the taxpayers of record on the underlying taxable transactions; (2) any refund claim for mistakenly paid tax belonged exclusively to the subcontractors; and (3) Taxpayer provided insufficient documentation to prove that the disputed materials were exempt or that it itself had remitted the contested tax.
Revenue Ruling # 2025-02-RST (July 23, 2025) (Sales/Use Tax) – Taxability of Generative AI Services
The Department issued this ruling in response to a request from an out-of-state company (“Company”) that offers subscription-based generative artificial intelligence (“AI”) chatbot services. Customers interact with the chatbot exclusively through the Company’s website, a free mobile application, or an application programming interface (“API”). The underlying software is never downloaded or otherwise delivered—physically or electronically—to customers, and continued access to enhanced functionalities terminates if the customer ceases payment. The Company partners with third-party cloud providers for the infrastructure needed to build, train, and deploy its models and offers four web/app subscription plans as well as two API plans. The Company sought guidance on whether the gross receipts from these offerings are subject to Indiana sales or use tax.
Applying IC 6-2.5-4-1, IC 6-2.5-4-16.4, IC 6-2.5-4-16.7, IC 6-2.5-1-24, and IC 6-2.5-1-26.5, together with Sales Tax Information Bulletins #8, #34, and #93, the Department first reiterated that Indiana imposes sales tax only on (i) retail transactions involving tangible personal property (including prewritten computer software), (ii) specifically enumerated services, and (iii) specified digital products transferred electronically where the purchaser obtains a permanent right of use. Software-as-a-Service (“SaaS”)—defined as remotely hosted software accessed over the internet without any transfer of possession or control—does not fall within the definition of “tangible personal property.” Likewise, electronically delivered products are taxable only if they constitute “specified digital products,” a term limited to digital audio works, digital audiovisual works, and digital books.
The Department concluded that the Company’s chatbot offerings constitute non-enumerated services rather than transfers of prewritten software or specified digital products. Customers obtain only remote, subscription-based access to functionality; they do not receive the software itself, any copy of code, or a permanent right of use that survives non-payment. Because the AI services therefore do not involve a taxable retail transaction, do not meet the definition of “tangible personal property,” and are not “specified digital products,” no Indiana sales or use tax is imposed.
B. Property Tax
Target Corporation v. Clark County Assessor, Pet. Nos. 10-013-20-1-4-00206-21, et al. (Ind. Bd. Tax Rev. Sept. 10, 2024) – Big Box Retail Valuation
The Indiana Board of Tax Review addressed the valuation of a 124,880-square-foot retail store on 10 acres in Clarksville, Indiana, originally assessed at $6,156,600 for 2022. Both Taxpayer and the Assessor presented expert appraisals using the cost, sales comparison, and income capitalization approaches. The Board emphasized that market-based evidence such as sales data and appraisals prepared in accordance with generally accepted appraisal principles must be relied upon. For large-format retail, the Board reiterated that the income capitalization approach – when supported by objectively verifiable, market-based data and clear, well-explained adjustments – offers the most reliable measure of value. The Board was persuaded that trends in e-commerce “provide some support for the existence of external obsolescence” for big box stores, and that functional obsolescence existed for the build-to-suit subject property because buyers typical modify such properties for their continued retail use. The Board was critical of comparable sales that were converted to multi-tenant or non-retail uses, or that were part of a portfolio sale, noting that simply asserting another property is “similar” because of its location does not constitute probative evidence. The Board found Taxpayer’s appraiser more persuasive, ultimately adopting the income approach (with adjustments made by the Board concerning square footage and tenant improvement allowance) and reducing the 2022 assessment to $5,648,700, with 2020 and 2021 values trended to $5,366,300 and $5,479,200, respectively.
Kohl’s Indiana, LP v. Clark County Assessor, Pet. Nos. 10-009-19-1-4-00838-21, et al. (Ind. Bd. Tax Rev. Oct. 28, 2024) – Big Box Retail Valuation
The Indiana Board of Tax Review considered the assessment of a big box retail property in Jeffersonville, Indiana—an 89,476-square-foot store originally assessed at $5,106,500 for 2022. Both Taxpayer and the Assessor presented expert appraisals using the cost, sales comparison, and income capitalization approaches. This decision reinforced several broader valuation principles for Indiana property tax appeals involving large-format retail properties. The Board stressed that credible, market-based evidence is essential, with the income approach often being the most reliable method when adjustments are well-supported by objective data. It cautioned against reliance on portfolio sales or distant, non-comparable properties, emphasizing that all adjustments must be supported by objective evidence. The Board also highlighted that appraisers must account for functional and external obsolescence in light of ongoing changes in the retail market, such as the growth of e-commerce, the oversupply of big-box stores, and the trend toward smaller store formats. The Board concluded that Taxpayer’s appraiser “demonstrated a deeper understanding of the big-box retail market and more thoroughly investigated the underlying data.” The Board found Taxpayer’s appraiser more persuasive – particularly his income capitalization approach, after removing an unsupported tenant improvement allowance. Based on the appraiser’s analysis, the Board reduced the 2022 assessment to $4,267,100, with years 2019-2021 valued between $4M and $4.1M.
Lake County Assessor v. O’Day Holdings, LLC, No. 23T-TA-00015 (Ind. Tax Ct. Dec. 12, 2024) – Valid Appraisal Evidence and Burden of Proof
Taxpayer appealed a range of assessments for 2014, 2015, 2018, 2019, and 2020 and provided an appraisal supporting lower values. The Assessor contested Taxpayer’s appraisal because it likely included some elements of personal property, which are supposed to be kept separate for assessments. See BP Prods. N. Am., Inc. v. Matonovich, 842 N.E.2d 901, 905-06 (Ind. Tax Ct. 2006). The Indiana Board disagreed with the Assessor and found that Taxpayer successfully showed that its property was over-assessed and used Taxpayer’s appraisal to set an upper limit for the property’s value. The Assessor appealed the Board’s conclusion. The Court held that the Board was correct in relying on an appraisal that included personal property in assessing real property value. The Court reasoned that the inclusion of personal property does not deprive the appraisal of its probative value. Optimal evidence to overturn an assessment is an appraisal that has no personal property included, but an appraisal with some personal property mixed into the valuation is still valid evidence for a taxpayer to prove that their property has been over-assessed.
The Court further held that the Board imposed the correct burden of proof on Taxpayer. Indiana courts have consistently imposed a burden on taxpayers to demonstrate only that an assessment does not accurately reflect the property’s true tax value. See, e.g., Eckerling v. Wayne Twp. Assessor, 841 N.E.2d 674, 677 (Ind. Tax Ct. 2006). Historically, this burden of proof has not explicitly required taxpayers to also provide a precise true tax value. Although establishing the precise true tax value is a method to prove an assessment is incorrect, other forms of evidence can also be used to overturn an assessment, such as an imprecise appraisal that includes real and personal property, thus setting an upper limit of value.
Indiana’s mass appraisal system is not intended to provide the precise true tax value for every property; rather, it is meant to provide reasonably accurate estimates. A persuasive and specific estimate of the upper limit of a property’s true tax value is sufficient because it would be overly burdensome to ask taxpayers and courts to determine an exact true tax value in every case. In conclusion, the Board was right to decide, based on Taxpayer’s appraisal, that the assessments ranging from $1.4 million to $1.6 million were too high and that the assessments had an upper limit ranging from $800,000 to $870,000.
Anderson v. Delaware County Assessor, Pet. No. 18-017-23-1-5-00397-24 (Ind. Bd. Tax Rev. Dec. 17, 2024) – Asking Price; Burden of Proof
Taxpayer appealed the 2023 assessment of his 12,000-square-foot commercial/industrial property in Yorktown, Indiana, which increased from $146,200 in 2022 to $230,000 in 2023 – a 57% increase. Under Ind. Code § 6-1.1-15-20, this triggered a shift in the burden of proof to the Assessor. The Assessor presented an asking price of $600,000 from a listing and an unsigned purchase agreement for $485,000 as evidence of value, but did not provide a closed sale, appraisal, or other market-based analysis. The Board found that neither the listing price nor the unsigned purchase agreement constituted probative evidence. The Board stated, “[t]he listing shows only the property’s asking price. Conceivably, an asking price might set a ceiling on a property’s market value, at least where there is evidence that the property was actively marketed without drawing any offers at that price. But the Assessor did not offer the property’s asking price to establish a ceiling on the property’s value. And aside from the undated listing, she offered nothing to show the steps taken to market the property.” Regarding the unsigned purchase agreement, the Board noted, “[b]ecause the document is unsigned, the Assessor has not even shown that it represents a conveyed offer. And the offer it purported to reflect was highly contingent.” The Board explained that the party with the burden of proof must present objectively verifiable, market-based evidence of the property’s value, such as “sales data, appraisals, or other information compiled in accordance with generally accepted appraisal principles.” Because the Assessor failed to meet this standard, the Board ordered the 2023 assessment reduced to the prior year’s level of $146,200.
KN Enterprises, LLC v. Monroe County Assessor, Pet. Nos. 53-005-21-1-4-00826-21, et al. (Ind. Bd. Tax Rev. Dec. 23, 2024) – Appraisal Methodology; Market-Based Evidence
Taxpayer appealed the 2021 and 2022 assessments of its 26,560-square-foot, single-tenant office building in Bloomington, Indiana, assessed at $3.6M. Both Taxpayer and the Assessor presented USPAP-compliant appraisals using the cost, sales comparison, and income capitalization approaches. Taxpayer’s appraiser concluded to values of $2,800,000 (2021) and $3,100,000 (2022), while the Assessor’s appraiser concluded to $3,750,000 and $4,000,000, respectively. The Board found the Assessor’s appraiser’s analysis more credible. His sales comparison approach relied on five single-tenant office sales in Indiana, with careful adjustments for location, size, and age/condition, resulting in indicated values of $3,870,000 (2021) and $3,880,000 (2022). His income approach used four single-tenant leases, adjusted for market conditions and property characteristics, and a capitalization rate of 8.25%, resulting in values of $3,570,000 (2021) and $3,560,000 (2022). The Board noted that his cost approach was also well-supported, with detailed depreciation and functional obsolescence analysis. In contrast, the Board found Taxpayer’s appraiser’s reliance on leased-fee sales and multi-tenant lease data problematic, stating, “the reliability of the data supporting [his] sales comparison approach is significantly undermined by his use of leased-fee sales without providing evidence demonstrating that their rental rates reflected market rent.” The Board also found his several adjustments for pandemic-related impact were unsupported by reliable data. The Board ordered the assessments changed to $3,750,000 (2021) and $4,000,000 (2022).
Gary II LLC v. Lake County Assessor, No. 23T-TA-00012 (Mar. 13, 2025) (Review Requested) – Constitutional Tax Cap Classifications Based on “Use”
Taxpayer appealed the Assessor’s base rates claiming the process, timing, and comparable properties used in establishing the valuation of its properties was improper. The Indiana Board issued five nearly identical determinations finding that the Taxpayer had no probative market-based evidence to demonstrate each subject property’s market value-in-use for 2017, thus failing to make a prima facie case for a lower assessment. The Court affirmed the Indiana Board’s conclusion that the Taxpayer failed to provide probative, market-based evidence to show that the Taxpayer’s properties were over-assessed.
Taxpayer also challenged that its properties’ tax cap classifications were contrary to law, alleging that the statutory definitions were inconsistent with Indiana’s constitutional requirements for classifying properties for property tax cap purposes. The Indiana Board found that the Taxpayer’s tax cap arguments were ineffective because the plain language of the tax cap statutes, not the zoning classification, determines the appropriate property tax cap to apply. The statute generally maintains that a property is “residential” because of its relation to, or existence as, a dwelling. Further, the Indiana Board reasoned the properties fit under the statutory definition of nonresidential real property because the Taxpayer’s property is undeveloped land that is not part of a homestead or other residential property as defined by Indiana Code.
The Court, however, held that under Indiana’s Constitution, classification was determined based on “use.” Thus, the Court held that the statute did not fully capture all properties that could be classified as “residential,” and therefore the question became whether the Taxpayer’s property could be classified as residential under the constitutional “use” standard.
The Taxpayer presented all five property record cards as evidence that the Assessor classified the properties as “residential” under the 2011 Real Property Assessment Manual (“Manual”) and Guidelines (“Guidelines”). The Guidelines determined classifications primarily from “use.” The Court found that the Manual and Guidelines’ emphasis on classifying properties based on “use” is consistent with Indiana’s Constitution, and thus property record cards based on the Manual and Guidelines are probative evidence. Since the Assessor provided no evidence to the contrary for classification based on “use,” the Court held that the properties did fall under “residential” tax caps, and remanded for further proceedings.
C. Income Tax
Memorandum of Decision: 02-20241498 (July 12, 2024) (Corporate Income Tax) – Statute of Limitations; “Federal Modification” Exception
Taxpayer, an out-of-state automobile manufacturer routinely filing Indiana corporate income tax returns, submitted amended Indiana returns for tax years 2012-2014 on July 29, 2021, seeking refunds attributable to an Advance Pricing Agreement (“APA”) it executed with the Internal Revenue Service on January 28, 2021. The APA established an approved transfer-pricing methodology and required Taxpayer to report income consistent with that methodology on its federal returns. Taxpayer filed amended federal returns on March 25, 2021, expressly reflecting the APA adjustments.
The Department initially denied the refund claims as untimely, citing the general three-year limitation under IC 6-8.1-9-1(a). Taxpayer protested, contending that the APA and corresponding amended federal returns constituted a “federal modification” that triggered the extended refund window in IC 6-8.1-9-1(j) and IC 6-3-4-6(c), (e). Those provisions permit a taxpayer to file an Indiana refund claim within 180 days after a federal modification that reduces the taxpayer’s liability.
The Department observed an APA by itself does not create a federal modification, but “in Taxpayer’s unusual circumstances, the IRS agreed to an acceptable methodology of calculating Taxpayer’s federal taxable income.” Accordingly, the Taxpayer’s Indiana amended returns—filed 126 days after the amended federal returns—were timely.
Revenue Ruling # 2024-02CCP (Jan. 3, 2025) (Corporate Income Tax) – Toll Manufacturing Income Inclusion and Apportionment
A foreign-domiciled corporation (“Taxpayer”) requested guidance on the amount of Indiana adjusted gross income it must report given its participation in a U.S. partnership (“Toll Manufacturer”) that carries on toll manufacturing activities, including operations in Indiana. Under the arrangement, Taxpayer retains title to all raw materials and work-in-process inventory throughout production. Upon completion, Taxpayer sells the finished goods to Toll Manufacturer, which then sells them to customers nationwide. Although Taxpayer has no U.S. employees or property other than the in-process inventory, it acknowledges Indiana nexus through its partnership interest in Toll Manufacturer, and Taxpayer and Toll Manufacturer are unitary.
Because an applicable federal income tax treaty excludes Taxpayer’s profit or loss from the finished-goods sales from its federal taxable income, Indiana—whose starting point is federal taxable income under IC 6-3-1-3.5(b)—must likewise exclude that profit or loss from Taxpayer’s Indiana adjusted gross income. By contrast, Taxpayer’s distributive share of Toll Manufacturer’s income is included in federal taxable income and therefore must be included in Indiana adjusted gross income.
The ruling also addresses apportionment mechanics necessitated by the disparate treatment of the two income streams. To avoid distortion under IC 6-3-2-2(l), Taxpayer may not include any of its own receipts (i.e., from the finished-goods sales) in either the numerator or denominator of its Indiana sales factor. Pursuant to 45 IAC 3.1-1-153, however, Taxpayer is required to include its share of Toll Manufacturer’s receipts for apportionment purposes.
Accordingly, the Department ruled, based on the information presented, that Taxpayer is permitted (and required) to exclude its income from its finished-goods sales. Taxpayer is also required to exclude any receipts from its apportionment factors other than those required to be included from Toll Manufacturer.
D. Special Fuel Tax
Final Order Denying Refund: 14-20210048 (Oct. 3, 2024) (Special Fuel Tax) – Non-Highway Use Exemption
Taxpayer is a multistate package-delivery company seeking recovery of special-fuel tax remitted on diesel consumed in Indiana during the first half of 2018. Taxpayer contended that a quantifiable portion of its Indiana diesel purchases powered vehicles while they traversed non-public parking lots and private drives, and therefore the fuel fell within the exemption for special fuel used for nonhighway purposes in IC 6-6-2.5-30(a)(8). Taxpayer supported its claim with GPS-enabled telematics that tracked each delivery vehicle’s location, speed, and fuel economy, and produced a mapping analysis purporting to segregate “highway” from “non-highway” travel. There is a presumption under 45 IAC 13-4-4 that all motor fuel placed into a fuel supply tank of a commercial motor vehicle is consumed by that vehicle solely for the purpose of propelling the vehicle along highways. Regardless of whether Taxpayer’s vehicles are operating on a highway or in a parking lot, the purpose of the fuel placed in the vehicles’ tanks is to propel the vehicles upon a highway. Taxpayer’s travel of its vehicles on private drives and parking lots is an ancillary use, similar to the ancillary nature of the of auxiliary equipment discussed in Roehl Transport, Inc. v. Indiana Dep’t of Revenue, 653 N.E.2d 539 (Ind. Tax Ct. 1995). In order to complete its business purpose of delivering packages, Taxpayer must utilize private drives and parking lots; however, the main purpose of purchasing special fuel and placing it in the fuel tanks is to propel the vehicles upon the highway to deliver packages to a final destination. The Department therefore sustained its original denial.
E. Financial Institution Tax
Letter of Findings: 18-20241499 (May 9, 2025) (Financial Institution Tax) – Unitary Group
Taxpayer, an out-of-state bank holding company (“Parent Company”) and its subsidiaries filed combined Indiana Financial Institution Tax (“FIT”) returns for 2017-2019. During audit, the Department removed Parent Company and several related entities from the combined group, concluding those entities neither transacted business in Indiana nor satisfied the statutory definition of a unitary group member. The removal increased Indiana-apportioned income and produced a proposed assessment, which Taxpayer timely protested.
Taxpayer first asserted that IC 6-5.5-5-2 obligates the Department to include every unitary affiliate in a combined return once any member conducts the business of a financial institution in Indiana. Taxpayer argued that Parent Company—a registered bank holding company deriving receipts from custody services, interest income and Federal Reserve clearing services—was itself “transacting business” in Indiana under IC 6-5.5-3-1, and that the Department lacked authority to exclude it from the group.
The Department determined that receiving dividends as a holding company does not constitute transacting business in Indiana under IC 6-5.5-3-1. Taxpayer provided no additional documentation to show other transactions between the entities and Parent Company. While Taxpayer is part of the unitary group, because it does not transact business in the state of Indiana, it is not a unitary business. The Department held that the proposed assessment was prima facie valid and Taxpayer had not met its burden of proof to show it was erroneous.
F. Administrative/Procedural
Madison County Assessor v. Kohl’s Indiana, LP, No. 24T-TA-00009 (Ind. Tax Ct. Dec. 06, 2024) – Property Tax; Sufficiency of Findings
Taxpayer, who owns and operates a retail store in Anderson, Indiana, appealed the 2019, 2020, and 2021 assessed property values of approximately $4.5 million. During the appeal to the Indiana Board of Tax Review, both parties submitted appraisals using the three recognized appraisal approaches including the sales comparison approach, the income approach, and the cost approach. The conclusions of the Assessor’s appraiser were nearly double that of the Taxpayer’s. The Board determined that Taxpayer’s appraisal was the most persuasive, finding that the appraisal was sufficient to make a prima facie case. Although the Board ultimately favored the Taxpayer, the gravamen of the Board’s findings noted significant deficiencies in all three approaches to value developed by Taxpayer’s appraiser. Nonetheless, the Board found that the more serious deficiencies in the Assessor’s appraisal tipped the scale in Taxpayer’s favor.
The Assessor appealed to the Tax Court, arguing that the Board’s decision was an abuse of discretion and unsupported by substantial evidence. The Court agreed, finding that the Board’s explanation of its decision was inadequate to permit a meaningful review. The Court emphasized that administrative agencies, like the Board, must articulate reasons underlying its decision, citing Perez v. U.S. Steel Corp., 426 N.E.2d 29, 32 (Ind. 1981). Detailed findings and an agency’s reasoning are necessary so parties can formulate intelligent and specific arguments that help facilitate judicial review. The Court found that the Board offered no justification for concluding that Taxpayer’s appraisal was adequate to establish true tax value, given all of the deficiencies identified by the Board. The Court noted that the Board’s determination lacked the “connective tissue” between its extensive criticisms of Taxpayer’s appraisal and its ultimate conclusion. Citing Ind. Code § 6-1.1-15-4(j), the Court emphasized that the Board must identify the preponderance of evidence that supports the ultimate finding and state why it supports that finding. The Court remanded the case to the Board to explain its findings and conclusions consistent with the Court’s opinion.
Madison County Assessor v. Kohl’s Indiana, LP, No. 24T-TA-00009 (Ind. Tax Ct. Aug. 22, 2025) – Property Tax; Appraisal Evaluation Standard
This appeal arrived at the Tax Court after a prior Tax Court decision remanding the case to the Indiana Board of Tax Review. See Madison County Assessor v. Kohl’s Indiana, LP, No. 24T-TA-00009 (Ind. Tax Ct. Dec. 06, 2024). On remand, the Board issued another final determination reducing Taxpayer’s 2019–2021 real property assessments from roughly $4.5 million to about $2.36 million, relying on a Taxpayer appraisal the Board deemed “somewhat less egregiously flawed” than the Assessor’s. Both parties had presented USPAP-compliant appraisals; the Board found extensive defects in each but nonetheless concluded that, because the Taxpayer’s appraisal was prepared by a qualified expert and conformed to generally accepted appraisal principles, it sufficed—standing alone—to establish a prima facie case and to carry the ultimate burden of persuasion. The Assessor appealed.
On appeal, the Assessor contended that the Board had applied an improper per-se rule that automatically credited any USPAP-compliant expert appraisal without critically weighing its substantive reliability. The Tax Court agreed, holding that Indiana law requires the Board to determine—by a preponderance of the evidence—whether an assessment is incorrect and what value more likely than not reflects the property’s true tax value. Merely labeling an appraisal USPAP-compliant does not satisfy that standard; the Board must evaluate the data, analysis, and reasoning supporting the appraisal’s conclusions. Because the Board never decided whether Taxpayer’s appraisal, independent of the Assessor’s competing appraisal, actually met the preponderance standard, it misapplied the law and abused its discretion.
The Court further found the error prejudicial. The Board’s own findings characterized every valuation approach in Taxpayer’s appraisal as “minimally probative” and identified flaws that struck at the heart of its sales-comparison, income, and cost analyses. Absent the improper per-se rule, those findings provided little support for adopting Taxpayer’s values, making it unlikely the same result would obtain on a proper weighing of the evidence.
Accordingly, the Tax Court reversed the Board’s determination and—for the second time—remanded for proceedings consistent with its opinion.
Final Order Denying Refund: 02-20241657 (Oct. 10, 2024) (Corporate Income Tax) – Collection Costs
Taxpayer is an out-of-state private equity fund that timely filed a 2021 Indiana Partnership Return (Form IT-65), anticipating a refund of approximately $42,000. The Department reviewed the return and determined that Taxpayer had not attached the requisite Schedule IN K-1 information needed to substantiate pass-through withholding. On November 1, 2022, the Department issued a Notice of Proposed Assessment asserting roughly $200,000 in composite tax, penalties, and interest. When Taxpayer neither paid the remaining balance nor provided the requested documentation by the January 31, 2023 deadline set forth in a Demand Notice for Payment, the Department—pursuant to IC 6-8.1-8-2 and IC 6-8.1-8-4—referred the liability to its third-party collection agency.
The collection agency mailed an initial demand letter, placed eleven telephone calls, and—on February 21, 2023—levied Taxpayer’s bank account, causing the bank to remit approximately $147,000. In April 2023, Taxpayer supplied the missing K-1 information; the Department subsequently adjusted the account, recognizing the withheld amounts and refunding all but approximately $23,000, representing the collection agency’s collection fee and related costs.
Taxpayer filed a claim for refund of the collection costs, arguing that Taxpayer had been in “near-constant communication” with the Department, so escalation to a third-party collector was unreasonable. Taxpayer also argued that under Crown Property Group, LLC v. Indiana Department of State Revenue, 135 N.E.3d 671 (Ind. Tax Ct. 2019), the Department’s failure to provide adequate notice entitled Taxpayer to a refund of all collection fees. The Department denied the refund, noting that unlike the circumstances in Crown Property, the Department’s notices were properly addressed and presumed received; Taxpayer therefore had the “last, best opportunity” to resolve the matter before the levy occurred. Under P/S, Inc. v. Ind. Dep’t of State Revenue, 853 N.E.2d 1051 (Ind. Tax Ct. 2006), the presumption of notice is not rebutted merely by a taxpayer’s assertion of non-receipt. Accordingly, the Final Order affirmed the denial of Taxpayer’s refund claim and sustained the Department’s retention of approximately $23,000 in collection costs.
Letter of Findings: 02-20242808 (Feb. 19, 2025) (Corporate Income Tax) – Late and Underpayment Penalties
The Department issued a Letter of Findings addressing a multinational conglomerate’s protest of late-payment and underpayment penalties assessed for tax year 2022. Taxpayer filed its combined Indiana corporate income tax return six months late and failed to remit sufficient estimated tax, prompting a Notice of Proposed Assessment. Relying on IC 6-3-4-4.1 and IC 6-8.1-10-2.1, the Department determined that both penalties were properly imposed but could be waived upon a showing of “reasonable cause” under IC 6-8.1-10-2.1(d) and 45 IAC 15-11-2.
In its written protest, Taxpayer explained that the return consolidates numerous domestic and foreign affiliates, many of which provide late-arriving Schedule K-1 information and other data outside Taxpayer’s control. Taxpayer detailed its internal processes for gathering subsidiary data, calculating estimated payments, and monitoring adjustments, contending that any filing and payment errors resulted from the complexity of multi-entity compliance rather than negligence or willful neglect. The Department reviewed Taxpayer’s historical filing record, the size and structure of the corporate group, and the specific circumstances surrounding the 2022 filing.
Concluding that Taxpayer exercised ordinary business care and prudence, the Department found “reasonable cause” existed and abated both the late-payment and underpayment penalties.
September 3, 2025
