45 IAC 3.1-1-7 Allocation of income among states; reciprocity

Authority: IC 6-8.1-3-3

Affected: IC 6-3-1-3.5; IC 6-3-1-17; IC 6-3-2-2; IC 6-3-2-3.5; IC 6-3-5-1

Sec. 7. Allocation and Apportionment of Unearned Income for Individuals. (1) Interest, dividends, except earnings from Subchapter S corporations, rents and royalties are generally taxed by the state of legal residence.

(2) Income from a pension, annuity, profit-sharing, or stock-option plan that meets the qualifications of the Internal Revenue Code is taxed by the state of legal residence. Lump sum distributions from qualified plans are taxed by the state which, 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) Deferred compensation, other than that from a qualified retirement plan as described above, is directly attributable to services performed, and is taxed by the state where the services were performed.

(4) Accumulated vacation, bonus, serverance $sic.$ and sick pay is directly attributable to services performed and is taxed by the state where the services were performed.

(5) Taxpayers with income attributable to services performed in the past (3 & 4 $subsections 3 and 4 of this section$ above), who performed those services in more than one state, must report this income for Indiana tax purposes if Indiana was the last state in which the taxpayer was employed prior to retirement.

(6) 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 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 the state.

(7) Taxpayers with any of the types of income outlined in this regulation $45 IAC 3.1-1-7$ who are taxed on such 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 $sic.$ 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) $45 IAC 3.1-1-77$.

(8) Reciprocity will apply in the usual manner to deferred compensation that consists of wages. See [Regulation 6-3-5-1(010)](/navigator/019edbd9-b779-74eb-bf32-e3286165ffd3/title_45.article_3_1.rule_1.section_115) _\[45 IAC 3.1-1-115_.] All income other than wages such as pension, annuity, profit-sharing, and stock-option income is not covered by reciprocal agreements with other states.

(Department of State Revenue; Reg 6-3-1-3.5(a)(070); filed Oct 15, 1979, 11:15 am: 2 IR 1516; errata, 2 IR 1743)