Indiana Tax Court Finds for Taxpayer in Online Education Case

DALLAS, Dec. 6, 2017 /PRNewswire/ -- In Indiana LOF 02-20140445, 1/28/15, the Indiana Department of Revenue ("Department") held that an online education company was required to source receipts to Indiana based on the market for its courses. That position was overturned by the Indiana Tax Court in Univ. of Phoenix v. Department of Revenue, Indiana Tax Court Doc. 2017-98382, release date, 11/30/2017. In a through and well-reasoned opinion, Judge Wentworth analyzed both the facts presented and the law and regulations to determine that Indiana is an "all or nothing" state that uses an operational approach to determine cost of performance.

The University of Phoenix is an accredited education service provider headquartered in Phoenix, Arizona. It used a cost accounting specialist to analyze its structure, who determined that the company had four general categories of service that generated revenue: 1) the eCampus platform, 2) the online campus faculty members, 3) curriculum development, and 4) the graduation team consisting of enrollment, academic, and financial advisors. The taxpayer presented evidence of the direct costs for each of these revenue streams. In each case, the majority of costs were incurred outside of Indiana. 

The Department argued that each item of income must be analyzed on a transaction-by-transaction basis, and that the only income-producing activity was providing the opportunity to attend an online class in return for a payment. The Department contended because the payments related to online class participation by Indiana residents, the "cost of performance" was in Indiana. 

The Court reasoned that the term "income-producing activity" found in the  Indiana statute and regulation¹ does not focus on the benefit derived from the buyer's perspective, but rather is based on the seller's acts. The Department merely presented an out-of-state case² based on statutes and regulations that materially differed from Indiana law. The Department did not provide any other evidence or assert any argument as to why an alternative apportionment methodology utilizing a "market-based" approach was more appropriate than the statutory cost of performance method. As a result, the Court found for the plaintiff and allowed the taxpayer to exclude the online tuition it received from Indiana residents from the numerator of its Indiana apportionment factor.

¹ I.C. § 6-3-2-2(f); 45 I.A.C. 3.1-1-55
² AT&T v. DOR, 358 P. 3d 973 (Or.2015)

About Ryan
Ryan, an award-winning global tax services and software provider, is the largest firm in the world dedicated exclusively to business taxes. With global headquarters in Dallas, Texas, the Firm provides an integrated suite of federal, state, local, and international tax services on a multi-jurisdictional basis, including tax recovery, consulting, advocacy, compliance, and technology services. Ryan is a five-time recipient of the International Service Excellence Award from the Customer Service Institute of America (CSIA) for its commitment to world-class client service. Empowered by the dynamic myRyan work environment, which is widely recognized as the most innovative in the tax services industry, Ryan's multi-disciplinary team of more than 2,100 professionals and associates serves over 14,000 clients in more than 45 countries, including many of the world's most prominent Global 5000 companies. More information about Ryan can be found at ryan.com.

TECHNICAL INFORMATION CONTACTS:

Mark Nachbar
Principal
Ryan
630.515.0477
[email protected] 

Mary Bernard
Director
Ryan
401.272.3363
[email protected] 

SOURCE Ryan

Related Links

http://www.ryan.com