ATTORNEYS FOR PETITIONER:                      ATTORNEYS FOR RESPONDENT:
RANDAL J. KALTENMARK                           CURTIS T. HILL, JR.
ZIA MOLLABASHY                                 INDIANA ATTORNEY GENERAL
BARNES & THORNBURG LLP                         WINSTON LIN
Indianapolis, IN                               PARVINDER K. NIJJAR
                                               DEPUTY ATTORNEYS GENERAL
JENNY A. AUSTIN                                Indianapolis, IN
THEODORE R. BOTS
BAKER & MCKENZIE LLP                                                       FILED
Chicago, IL                                                            Nov 30 2017, 3:08 pm

                                                                 CLERK
SCOTT L. BRANDMAN                                           Indiana Supreme Court
                                                               Court of Appeals
BAKER & MCKENZIE LLP                                             and Tax Court

New York, NY
______________________________________________________________________

                             IN THE
                       INDIANA TAX COURT
______________________________________________________________________

THE UNIVERSITY OF PHOENIX, INC.,      )
                                      )
     Petitioner,                      )
                                      )
                 v.                   )   Cause No. 49T10-1411-TA-00065
                                      )
INDIANA DEPARTMENT OF STATE           )
REVENUE,                              )
                                      )
     Respondent.                      )
______________________________________________________________________

                 ON APPEAL FROM A FINAL DETERMINATION OF
                 THE INDIANA DEPARTMENT OF STATE REVENUE

                                FOR PUBLICATION
                               NOVEMBER 30, 2017

WENTWORTH, J.

      The University of Phoenix, Inc. challenges the Indiana Department of State

Revenue’s assessments of adjusted gross income tax (AGIT) for the 2009, 2010, and

2011 tax years. The question is whether the University’s online campus revenue can be
sourced to Indiana based on a student’s Indiana billing address. The Court finds that it

cannot.

                        FACTS AND PROCEDURAL HISTORY

       The University, a wholly-owned subsidiary of Apollo Education Group, Inc., is a

private, accredited education service provider headquartered in Phoenix, Arizona.

(Second Stip. of Facts (“Second Stip.”) ¶¶ 1, 4, 35.) The University’s educational model

is directed toward students attempting to balance the demands of taking college classes

with the demands of work and/or family life. (Trial Tr. at 32-33, 35-36, 80-81, 114-15.)

The University offers associate’s, bachelor’s, master’s, and doctoral courses and degrees

in a variety of fields at both its online campus and its ground campus locations throughout

the United States. (Second Stip. ¶ 34; Trial Tr. at 31.)

       Online campus students participate in academic activities online, such as class

meetings and study groups, discussions with instructors or fellow students, online

research, accessing course materials, paying for courses, getting grades, and requesting

transcripts. (Second Stip. ¶ 37.) In addition, online campus students are permitted to

access facilities and resources at the ground campus locations. (Second Stip. ¶ 38.)

       During the years at issue, the University’s online campus offered classes year-

round to students in “sections” that were newly launched weekly. (Second Stip. ¶ 41.)

Students could access the sections at any time or location. (Trial Tr. at 35-36.) Online

campus associate degree class sections are nine weeks long, and students enroll in one

or two courses at a time. (Second Stip. ¶ 40.) The other online class sections are five to

eight weeks long, and students complete them one at a time - sequentially rather than

concurrently. (Second Stip. ¶ 40.) Students pay for each course as they attend them.



                                             2
(Second Stip. ¶ 42.)

       The University’s online educational services fall within four general categories: the

online eCampus platform, online faculty instruction, curriculum development, and

graduation assistance. (See generally Second Stip. ¶¶ 37, 48, 67, 72; Trial Tr. at 233-

34; Pet’r Trial Ex. 1 at 4.) First, the University’s eCampus provided a web-based platform

for students to access its educational services online. (Second Stip. ¶¶ 37, 39.) The

eCampus platform contained student resources and the online classroom environment –

where students attended class, participated in discussions and projects, communicated

with faculty, turned in assignments, and reviewed grades. (Second Stip. ¶¶ 37, 39.) The

eCampus platform was developed and maintained from locations in Arizona, Washington,

and California, but during 2011, one individual performed services related to the eCampus

from Indiana. (Second Stip. ¶ 20, Ex. S at 13; Trial Tr. at 460-61.)

       Second, the University provided online classroom instruction taught by faculty

members to the students enrolled in each class section. (Second Stip. ¶¶ 41, 72-74; Trial

Tr. at 180-82, 289-90.) Faculty members were able to teach online course sections from

any location. (Trial Tr. at 181.) During each of the years at issue, the University had

more than 1,500 online campus faculty members located in Arizona while just 293 online

faculty members were located in Indiana in 2009, 354 in 2010, and 350 in 2011. (Second

Stip. ¶ 20, Ex. S at 2-3, 7-8, 12-13.)

       Third, the University had a curriculum team that centrally developed the online

curricula to maintain consistency across course sections. (Trial Tr. at 151-56.) The

curriculum development team created each course section’s online classroom and posted

all the course materials online. (Trial Tr. at 172-74.) All the University’s curriculum



                                             3
development activities were performed outside of Indiana, primarily in Arizona, during the

years at issue. (Trial Tr. at 155.)

       Finally, the University assigned a graduation team to each student to assist them

in completing their degree program. (Second Stip. ¶ 48; Trial Tr. at 58-59, 86-91.) Each

team included an enrollment representative, an academic advisor, and a financial advisor.

(Second Stip. ¶ 48; Trial Tr. at 58-62, 86-91.) The enrollment representative maintained

contact with a student through their first two courses to help them with classroom

participation, attendance, study habits, and time management. (Second Stip. ¶ 50; Trial

Tr. a t 56-58, 86-87.) The academic advisor helped the student manage program

requirements, policies, and course scheduling. (Second Stip. ¶¶ 57-59; Trial Tr. at

58-59; 84, 90-91.) The financial advisor ensured that the student had access to the

funding necessary to pay the cost of obtaining a degree. (See Second Stip. ¶¶ 63-65;

Trial Tr. at 129-31.) More than 6,000 graduation team members who assisted online

campus students were located in Arizona and only three were located in Indiana in 2009,

one in 2010, and none in 2011. (See Second Stip. ¶ 20, Ex. S at 2-3, 7-8, 12-13; Trial

Tr. at 85-86, 118.)

       The University filed Form IT-20 Indiana Corporation Adjusted Gross Income Tax

Returns for each of the years at issue. (Second Stip. ¶¶ 11-16, Exs. O-Q.) In computing

its Indiana adjusted gross income (AGI), the University sourced 100 percent of its

receipts attributable to its Indiana ground campus students to Indiana, but sourced none

of its receipts from its online campus students to Indiana. (Second Stip. ¶¶ 17-18.)

       Upon audit, the Department issued its report stating that the University should

have sourced all receipts from online students with an Indiana billing address to Indiana.



                                            4
(Second Stip. ¶¶ 21-25, Ex. T at 4.) Accordingly, the Department issued Proposed

Assessments for additional AGIT liabilities, interest, and penalties. (Second Stip. ¶¶ 22,

24, Ex. U.)

         On June 20, 2013, the University protested the Proposed Assessments.

(Second Stip. ¶ 26.) On September 11, 2014, the Department denied the University’s

protest of the additional AGIT assessments, but abated the penalties for each of the

years at issue. (Second Stip. ¶ 29, Ex. V.)

         On November 7, 2014, the University filed its original tax appeal. The Court held

the trial from February 28 through March 1, 2017, and heard oral argument on June 22,

2017. Additional facts will be supplied if necessary.

                                  STANDARD OF REVIEW

         This Court reviews final determinations of the Department de novo. See IND. CODE

§ 6-8.1-5-1(i) (2017). Accordingly, the Court is not bound by either the evidence or the

issues presented to the Department at the administrative level.               See Horseshoe

Hammond, LLC v. Indiana Dep’t of State Revenue, 865 N.E.2d 725, 727 (Ind. Tax Ct.

2007), review denied. “The notice of proposed assessment is prima facie evidence that

the [D]epartment’s claim for the unpaid tax is valid.” I.C. § 6-8.1-5-1(c) (emphasis added).

As a result, “[t]he burden of proving that the proposed assessment is wrong rests with the

person against whom the proposed assessment is made.” I.C. § 6-8.1-5-1(c).

                                              LAW

         In Indiana, every corporation is subject to a tax “on [ the] part of the adjusted gross

income derived from sources within Indiana[.]” IND. CODE § 6-3-2-1(b) (2009) (amended

2011).     Income derived from        Indiana sources is      determined by multiplying a



                                                5
corporation’s total business income by an apportionment factor. See IND. CODE § 6-3-

2-2(b) (2009). During the years at issue, Indiana followed a multi-factor apportionment

formula that included a weighted sales factor, a property factor, and a payroll factor.

See I.C. § 6-3-2-2(b).

       The sales factor is a fraction that puts the taxpayer’s worldwide gross receipts

during the tax period as the denominator and the taxpayer’s sales sourced to Indiana

during that period as the numerator. See I.C. § 6-3-2-2(e). Receipts from the sales of

other than tangible personal property, like the sales of educational services at issue here,

are sourced to the Indiana numerator if:

         (1) the income-producing activity is performed in this state; or

         (2) the income-producing activity is performed both within and without
         this state and a greater proportion of the income-producing activity
         is performed in this state than in any other state, based on costs of
         performance.

I.C. § 6-3-2-2(f). Moreover, the Department has explained that

         Gross receipts from transactions other than sales of tangible personal
         property shall be included in the numerator of the sales factor if the
         income-producing activity which gave rise to the receipts is performed
         wholly within this state. Except as provided below if the income
         producing activity is performed within and without this state such
         receipts are attributed to this state if the greater proportion of the
         income producing activity is performed here, based on costs of
         performance.

         The term “income producing activity” means the act or acts directly
         engaged in by the taxpayer for the ultimate purpose of obtaining gains
         or profit. Such activity does not include activities performed on behalf
         of the taxpayer, such as those conducted on its behalf by an
         independent contractor. Accordingly, “income producing activity”
         includes but is not limited to the following: (1) The rendering of
         personal services by employees or the utilization of tangible and
         intangible property by the taxpayer in performing a service. (2) The
         sale, rental, leasing, or licensing the use of or other use of tangible
         personal property. (3) The sale, licensing the use of or other use of

                                             6
         intangible personal property.

         Income producing activity is deemed performed at the situs of real,
         tangible and intangible personal property or the place where personal
         services are rendered.

                                          *****

         The term “costs of performance” means direct costs determined in a
         manner consistent with generally accepted accounting principles and
         in accordance with accepted conditions or practices in the trade or
         business of the taxpayer.

45 IND. ADMIN. CODE 3.1-1-55 (2009). This case is the first to consider the contours of

the apportionment of service income under Indiana Code § 6-3-2-2(f).

                                         ANALYSIS

       The Department’s Proposed Assessments constitute prima facie evidence that the

University’s revenue received from online educational services provided to students with

Indiana billing addresses was correctly sourced to Indiana. See I.C. § 6-8.1-5-1(c). The

University claims, however, that the Department’s Proposed Assessments are incorrect

for three reasons. First, the University asserts that it directly engaged in four “income-

producing activities,” as that term is used in Indiana Code § 6-3-2-2(f). (See Pet’r Post-

Trial Br. (“Pet’r Br.”) at 9, 11, 18, 22 (citing I.C. § 6-3-2-2(f)).) Second, the University

claims that because its income-producing activities were performed both inside and

outside Indiana, the Department’s market-based sourcing method was contrary to the

statutory method required by Indiana Code § 6-3-2-2(f)(2). (See Pet’r Br. at 15-18.)

Finally, the University asserts that its online educational services revenue should not be

sourced to Indiana because a greater proportion of its income-producing activities were

performed outside of the state. (See Pet’r Br. at 18-24.)




                                             7
                            I. Income-Producing Activities

       Indiana apportions business income received from performing services based on

the geographic location of the income-producing activities. See I.C. 6-3-2-2(f). If the

income-producing activities are wholly within Indiana, the service income is sourced

entirely to Indiana. I.C. 6-3-2-2(f)(1). If, however, the income-producing activities are

performed both in Indiana and in other states, the service income is sourced entirely to

Indiana only if a greater proportion of them are performed in Indiana than are performed

in any other state. I.C. 6-3-2-2(f)(2). Therefore, deciding which subsection applies first

requires identifying the income-producing activity.

       The University asserts that it directly engaged in four identified income-producing

activities. (See Pet’r Br. at 18.) In support, the University presented, among other things,

the testimony of its expert witness in cost accounting, James D. Allen III, and the cost

study he prepared. (See Trial Tr. at 207-13, 227, 231-32, 276-77; Pet’r Trial Ex. 1 at

3, 33-36.) The cost study addressed four questions: (1) what were the University’s

items of income; (2) what were the income-producing activities associated with the

items of income; (3) what were the direct costs incurred in performing those income-

producing activities; and (4) where were those direct costs incurred? (Pet’r Trial Ex. 1

at 4; Trial Tr. at 276.) Accordingly, the cost study identified (1) the University’s income-

producing activities, and (2) the location and costs of performing those income-producing




                                             8
activities for the years at issue.1 (See Pet’r Trial Ex. 1 at 4-5; Trial Tr. at 276-77.)

       The cost study defined the University’s income-producing activities as those

activities that directly benefitted a student. (See Trial Tr. at 283-85, 290 (stating that

“the service that [students are] actually paying for is directly associated with the income-

producing activities”).) Accordingly, certain activities, such as information technology,

training, and candidate qualification, were not considered income-producing activities

because they were a step removed from the student attending a class. (See Trial Tr. at

290-295.)

       Then, the cost study grouped the University’s activities that directly benefited

students into four categories of income-producing activities: (1) the eCampus platform,

(2) classroom instruction, (3) curriculum development, and (4) the graduation team. (Pet’r

Trial Ex. 1 at 4; Trial Tr. at 233-34.) The cost study identified activities related to the

University’s eCampus and its online classroom instruction as directly benefiting students

because they facilitated interactions and the exchange of information in the online

classroom. (See Pet’r T ria l Ex. 1 at 15, 20; Trial Tr. at 286, 289-90.) Curriculum

development activities directly benefited students because                they resulted in the

University’s program content. (See Pet’r Tria l Ex. 1 at 15, 20; Trial Tr. at 287.) Finally,

the graduation team’s activities directly benefited students because they ensured

students were properly enrolled in courses, correctly aligned with their degree


1
  Mr. Allen is a partner at BI Solutions Group, LLC, specializing in cost accounting for service
industries. (See Pet’r Trial Ex. 1 at 33-36; Trial Tr. at 207-13, 224-25.) Mr. Allen prepared a
cost study for Apollo to determine where the University delivered its services with respect to all
states or jurisdictions. (See Trial Tr. at 347-48.) Mr. Allen employed an aggregate or
operational-level approach to the cost study upon which the University relies, although he
also provided a cost study using a transactional-level approach in the event the Court
determined Indiana law required that approach. (See Pet’r Trial Ex. 1 at 4; Oral Arg. Tr. at 26-27;
Third Stip. of Facts ¶ 9, Ex. YY.)
                                                9
programs, and had the means to finance the necessary courses for graduation. (See

Pet’r Trial Ex. 1 at 14; Trial Tr. at 287-90.)

       The Department, on the other hand, contends that the University’s “only literal and

statutory income-producing activity – [the University] providing the opportunity to attend

a class online in return for payment and an Indiana resident agreeing to do so – was

performed in Indiana.” (See Resp’t Br. at 7). As applied to these facts, the Department

explains that “income-producing activities” are “[t]he indispensable acts . . . that lead to

the production of income [that] occur when an Indiana resident – at home, in a coffee

shop, or in a public library – is presented with the offer to take a class, accepts, and

attends that class.” (See Resp’t Br. at 7-8 (citing 45 I.A.C. 3.1-1-55 (“‘Income[-]producing

activity is deemed performed at . . . the place where personal services are rendered’”)).)

Accordingly, the Department’s definition of “income-producing activities” derives from the

student/buyer’s perspective, focusing on the activities that provide a student the

opportunity to attend an online class in return for the student’s payment for that class.

(See Resp’t Br. at 7). This definition, however, is not consistent with the use of the term

“income-producing activity” in the sourcing statute or its interpretive regulation. See I.C.

§ 6-3-2-2(f); 45 I.A.C. 3.1-1-55.

       Indiana Code § 6-3-2-2(f) sources a taxpayer’s revenue to the Indiana numerator

based on the seller’s acts: the performance of acts from the perspective of sales, thus,

the seller, not from the view of the buyer or consumer - to generate income. See I.C. §

6-3-2-2(f). The Department’s regulation takes the same view, stating that the term

“‘income producing activity’ means the act or acts directly engaged in by the taxpayer for

the ultimate purpose of obtaining gains or profit.” 45 I.A.C. 3.1-1-55 (emphasis added).



                                                 10
Accordingly, income producing activities are not limited to what those students directly

pay for, as the Department urges, but encompass acts a seller directly engaged in with

the purpose to generate revenue.

       It bears stating that the Department did not put forth any probative evidence,

testimony or otherwise, in support of its own claims or to rebut the University’s evidence.

(See Trial Tr. at 486.) See also Miller Pipeline Corp. v. Indiana Dep’t of State Revenue,

52 N.E.3d 973, 979 (Ind. Tax Ct. 2016) (finding the Department failed to rebut the

taxpayer’s evidence where it did not present its own evidence or impeach the taxpayer’s

testimony). Indeed, the Department merely attempted to cast doubt on the reliability of

the University’s evidence in cross-examination and by putting forth alternative legal

standards unsupported by any evidence or full-throated reasoning. The Department’s

lack of evidence in rebuttal together with the compatibility of the University’s identification

of its income-producing activities with the language of the statute and regulation

persuades the Court that the University properly defined its income-producing activities

in this matter.

                           II. Costs of Performance Sourcing

       Second, the University claims that because its income-producing activities were

performed both inside and outside Indiana, the Department’s market-based sourcing

method was contrary to the statutory method required by Indiana Code § 6-3-2-2(f)(2).

(See Pet’r Br. at 15-18.) When income-producing activities are performed both in Indiana

and in other states, the service income is sourced under Indiana Code §6-3-2-2(f)(2),

which sources income from the sale of services entirely to Indiana only if a greater

proportion of the income-producing activities are performed in Indiana than are performed



                                              11
in any other state. See I.C. 6-3-2-2(f)(2). Moreover, the statute deems the location of the

greater proportion of income-producing activities to be where the greater proportion of the

costs of performing the income-producing activities are located. See I.C. § 6-3-2-2(f)(2).

Consequently, the statute requires a cost-based analysis, not a market-based or

customer-based analysis to determine where to source receipts from service income.2

       The University’s cost study identified and geographically located the direct costs

the University incurred in performing its four income-producing activities, concluding that

they occurred in Indiana as well as in other states. (See Pet’r Trial Ex. 1 at 5, 30; see

also generally Second Stip. ¶ 20, Ex. S.) The Department provided no evidence in

rebuttal. As a result, the Court is persuaded that the income-producing activities were

performed both in Indiana and in other states, and therefore, the University’s online

educational services income must be sourced under Indiana Code § 6-3-2-2(f)(2).

       The Department does not dispute that it used a market-based method to source

the University’s online income to Indiana. (See Oral Arg. Tr. at 28-31, 58-61.) Indeed,

the Department sourced all the receipts from students with Indiana billing addresses to

the Indiana numerator.       (Second Stip. ¶¶ 23, 25, Ex. T at 4-6.)            Moreover, the

Department did not present facts or argument to show it was entitled to use market-based

sourcing as an alternative apportionment method to the cost-based method required

under Indiana Code § 6-3-2-2(f)(2). See, e.g., I.C. § 6-3-2-2(l) (requiring the party seeking



2
  Indiana Code § 6-3-2-2(f) mirrors Section 17 of the Uniform Division of Income for Tax Purposes
Act (“UDITPA”), which sets forth a cost-based method for sourcing service receipts. See, e.g.,
Miller Brewing Co. v. Indiana Dep’t of State Revenue, 903 N.E.2d 64, 71 (Ind. 2009) (noting that
Indiana’s statutory apportionment formula tracks the language of UDITPA). Although some states
have deviated from Section 17 of UDITPA by expressly enacting statutes to source service
receipts under a customer location or market-based method, Indiana has not. See, e.g., ME. REV.
STAT. ANN. tit. 36, § 5211(16-A) (2017); MICH. COMP. LAWS § 208.1305(2)(a) (2017).
                                               12
alternative apportionment to demonstrate that sourcing income under I.C. 6-3-2-2(f)(2)

does not fairly reflect the taxpayer’s business conducted in Indiana and that the

alternative sourcing method is reasonable). As a result, the Department’s market-based

sourcing method used to calculate the Proposed Assessments is contrary to the explicit

direction in Indiana’s sourcing statute.3 See I.C. § 6-3-2-2(f)(2).

            III. The Greater Proportion of Income-Producing Activities

       Finally, the University asserts that none of its online educational services income

should be sourced to Indiana because a greater proportion of its income-producing

activities were performed outside of the state. (See Pet’r Br. at 18-24 (citing I.C. § 6-3-2-

2(f)(2)).) Indiana Code § 6-3-2-2(f)(2) provides an “all-or-nothing” method for sourcing

service income: if the greater proportion of the costs of performing the income-producing

activities are performed within Indiana, all the service income is attributed here. See I.C.

§ 6-3-2-2(f)(2). Moreover, if the greater proportion of the costs are incurred outside the

state, none of the income is attributed to Indiana. See I.C. § 6-3-2-2(f)(2).

       The University’s cost study identified and geographically located the direct costs

the University incurred in performing its four income-producing activities as follows: in

2009, costs of $410,381,000 in Arizona versus $4,796,000 in Indiana; in 2010, costs of

$492,300,000 in Arizona versus $5,128,000 in Indiana; and in 2011, costs of




3
  The University has additionally claimed that the Department read Indiana Code § 6-3-2-2(f) in a
manner that uses market-based sourcing for out-of-state taxpayers and cost-based sourcing for
in-state taxpayers, violating the Due Process and Commerce Clauses of the United States
Constitution and the Equal Protection provisions of the United States and Indiana Constitutions.
(See Pet’r Post-Trial Br. (“Pet’r Br.”) at 17-18.) Given the Court’s holding on the requirements of
Indiana Code § 6-3-2-2(f), the Court does not address the University’s claim.


                                                13
$478,645,000 in Arizona versus $6,226,000 in Indiana.4 (See Pet’r Trial Ex. 1 at 5, 30.)

It therefore concluded that the greater proportion of the University’s costs of performing

its four income-producing activities were incurred in Arizona. (See Pet’r Trial Ex. 1

at 5, 30; Trial Tr. at 235.)

       The Department claims that the University’s identification and location of the costs

it incurred to perform its income-producing activities is unreliable and thus fatal to its

position because the cost study was based on an operational-level approach rather than

a transaction-by-transaction approach. (See Resp’t Br. at 3-10; Oral Arg. Tr. at 57, 60-

62, 64-66.) In preparing the cost study, the University does not dispute that Mr. Allen

employed an aggregate or operational-level approach, which looked at the operations

of the University across its national platform. (See Pet’r Trial Ex. 1 at 4; Trial Tr. at

347-48, 352.) The Department specifically maintains that the University’s cost study

instead should have identified the income-producing activities and determined their

associated direct costs on a transaction-by-transaction basis – looking at each transaction

that produced income. (See Resp’t Br. at 3-6 (citing AT&T Corp. v. Dep’t of Revenue,

358 P.3d 973 (Or. 2015); Cable One, Inc. v. Idaho State Tax Comm’n, 337 P.3d 595

(Idaho 2014)).)

       The Department’s argument relies on out-of-state case law based on state-specific

administrative regulations that define an income-producing activity. See AT&T, 358 P.3d

at 975. See also Cable One, 337 P.3d at 599. For example, Oregon’s regulation explains

that “[t]he term ‘income-producing activity’ applies to each separate item of income and

means the transactions and activity directly engaged in by the taxpayer . . . for the ultimate


4
 The stated values are the amount of direct costs incurred for all four of the income-producing
activities combined, separated only by year and location. (See Pet’r Trial Ex. 1 at 5, 30.)
                                              14
purpose of obtaining gains or profit.” See AT&T, 358 P.3d at 975 (citation omitted).

Likewise, Idaho’s regulatory language defines an income-producing activity with identical

language to that in Oregon’s regulation. See Cable One, 337 P.3d at 599 (examining

Idaho’s regulation defining income-producing activity). But cf. Boston Prof’l Hockey Ass’n

v. Comm’r of Revenue, 820 N.E.2d 792, 797 (Mass. 2005) (discussing Massachusetts’

regulation defining income-producing activity as “[a] transaction, procedure, or operation

directly engaged in by a taxpayer which results in a separately identifiable item of income”

(citation omitted)).

       The Department submits that the plain language of its regulation stating that

“[g]ross receipts from transactions other than sales of tangible personal property shall be

included in the numerator” requires the use of a transaction-by-transaction methodology

just like the Oregon and Idaho regulations. (See Resp’t Br. at 3 (quoting 45 I.A.C. 3.1-1-

55).) Indiana’s regulation, however, does not refer to looking at each separate item of

income; instead, it defines an income-producing activity more broadly as “the act or acts

directly engaged in by the taxpayer for the ultimate purpose of obtaining gains or profit.”

See 45 I.A.C. 3.1-1-55. To find that a transaction-by-transaction approach is required

merely because the word “transactions” appears in the regulation, would be tantamount

to forcing a square peg into a round hole. Rather, the use of the word “transactions” in

45 IAC 3.1-1-55 describes what type of transactions are subject to the regulation’s

direction, i.e., transactions from sales of other than tangible personal property. See 45

I.A.C. 3.1-1-55. Accordingly, the word “transactions” is used to identify what the regulation

applies to, not how it is to be applied.

       In a case of first impression, as we have here, the Court may properly consider the



                                             15
reasoning in cases from other jurisdictions. See Linton v. Davis, 887 N.E.2d 960, 967-68

(Ind. Ct. App. 2008) (using out-of-state case law as guidance when deciding issues of

first impression), trans. denied. Nonetheless, the Court will not read into the law, whether

a statute or a regulation, language that is simply not there. See DeKalb Cnty. E. Cmty.

Sch. Dist. v. Dep’t of Local Gov’t Fin., 930 N.E.2d 1257, 1260 (Ind. Tax Ct. 2010) (“When

the language of a statute is clear and unambiguous, the Court may not expand or contract

the meaning of a statute by reading into it language to correct any supposed omissions

or defects” (citation omitted)); see also State Bd. of Tax Comm’rs v. Two Market Square

Assocs. Ltd. P’ship, 679 N.E.2d 882, 886 (Ind. 1997) (explaining that the Court will not

give weight to an agency’s interpretation of an administrative regulation that is

inconsistent with the language of the regulation itself).     Under Indiana’s regulation,

therefore, the University was not required to use a transaction-by-transaction approach

as the basis of its cost study. Accordingly, the University’s cost study is probative

evidence that the Court finds persuasively demonstrates that the greater proportion of the

University’s income-producing activities were performed outside of Indiana.

                                      CONCLUSION

       After weighing the evidence and for all the reasons stated above, the Court holds

that the Department erroneously calculated the Proposed Assessments for 2009, 2010,

and 2011 by sourcing the University’s revenue according to the location of its market,

rather than the location of the costs of its income-producing activities as required by

Indiana Code § 6-3-2-2(f)(2).      The Court further finds persuasive the University’s

calculation of its Indiana sourced income reported on its original tax returns for the years

at issue. As a result, the Department’s Proposed Assessments are vacated.



                                            16
17
