INDIANA DEPARTMENT OF REVENUE 100 N. SENATE AVE. INDIANAPOLIS, IN 46204-2253 www.in.gov/dor/ SP 155 (R7/09-08) STATE OF INDIANA Nonprofit Organization Unrelated Business Income Tax Booklet 2008 Form IT-20NP This booklet contains forms and instructions for preparing the Indiana adjusted gross income tax return on unrelated income of nonprofit organizations. American LegalNet, Inc. www.FormsWorkflow.com Indiana Department of Revenue 2008 Nonprofit Organization Unrelated Business Income Tax Return Administrative and Legislative Tax Highlights For a complete summary of new legislation regarding taxation, please see 2008 Summary of State Legislation Affecting the Department of Revenue at www.in.gov/dor/3656.htm References to the Internal Revenue Code Public Law (PL) 131-2008, SEC. 12 updates references to the Internal Revenue Code in certain Indiana tax statutes. For tax year 2008, any reference to the Internal Revenue Code and subsequent regulations means the Internal Revenue (IRC) Code of 1986, as amended and in effect on Jan. 1, 2008. • The threshold for making electronic file transfer (EFT) payments for corporate estimated taxes is reduced from $10,000 to $5,000. For more information, get Income Tax Information Bulletin #11 at www.in.gov/dor/3650.htm • If the Department is unable to obtain payment on an EFT, a penalty of 10 percent of the unpaid tax or the EFT, whichever is less, will be assessed and will be subject to a penalty of 100 percent if the Department cannot obtain payment within 10 days of notification that the payment has not been received. Charity Gaming Responsibilities Transferred to Indiana Gaming Commission Effective July 1, 2006, the responsibility for the licensing, regulation, and enforcement of charity gaming laws was transferred from the Department to the Indiana Gaming Commission. Phase-in of Single-factor Sales Formula for Apportionment of Income PL 162-2006 SECTIONS 25 and 56 amended IC 6-3-2-2(b), effective Jan. 1, 2007, transitions to a single-factor formula based on sales to apportion business income. If you have a question regarding charity gaming, please call (317) 232-4646 or visit the Indiana Gaming Commission’s Web address at www.in.gov/igc/ Apportionment Schedule E is revised to apply the reduced factor values. Qualified Patents Income Exemption PL 223-2007 SECTIONS 1, 2 and 11 amends IC 6-3-1-3.5 and adds IC 6-3-2-21.7, effective Jan. 1, 2008. The total value of the sales, property, and payroll factors are gradually diminished for taxable years starting in 2007 and in each of the succeeding three taxable years. Income from qualified patents included in federal taxable income is exempt from the adjusted gross income of corporations and insurance companies for taxable years beginning after Dec. 31, 2007. For the 2008 factor apportionment, the numerator is the sum of the property factor plus the payroll factor plus the product of the sales factor multiplied by 4.67; the denominator is 6.67. Changes to Estimated Tax Filing Requirements • A qualified patent is a utility patent or a plant patent issued after Dec. 31, 2007, for an invention resulting from a devel- opment process conducted in Indiana. The term does not include a design patent. • For taxable years beginning after Dec. 15, 2007, a corporation is not required to file quarterly estimated payments if its annual unpaid liability is less than $2,500. The previous limitation was $1,000. • Corporations required to make quarterly estimated payments are permitted to use the annualized income installment method calculated in the manner provided by IRC Section 6655(e) as applied to the corporation’s adjusted gross income tax liability. • A qualified taxpayer is an individual or corporation with fewer than 500 employees, or a nonprofit organization domiciled in Indiana. The exemption from income includes licensing fees or other income received for the use of the patent, royalties received for the infringement, receipts from the sale of a qualified patent, and income from the taxpayer’s own use of the patent to produce the claimed invention. • The total amount of exemptions claimed by a taxpayer in a taxable year may not exceed $5 million. The exemption may not be claimed for more than 10 years. For the first five years, PL 211-2007 SECTIONS 24 and 53 amended IC 6-3-4-4.1, effective Dec. 16, 2007, changing a corporation’s filing requirements for making estimated tax payments. 2 American LegalNet, Inc. www.FormsWorkflow.com  50 percent of the amount of income received from the patent is exempt, and the percentage declines by 10 percent each year starting in the sixth year that the exemption is claimed (the percentage for both year 9 and year 10 is 10 percent). For more information, get Income Tax Information Bulletin #104 at: www.in.gov/dor/3650.htm ctivities that do not provide financial profit to the benefit of its members. Such corporations must obtain nonprofit or tax exempt status from the IRS and Indiana Department of Revenue to be free from certain tax burdens. Formation of Nonprofit Corporation Nonprofit entities can be organized formally or informally. Forming a corporation creates a specific legal entity. A nonprofit organization incorporated in this state (a domestic corporation) must have on file Articles of Incorporation 4162 with the Corporations Division of the Indiana Secretary of State. An organization incorporated in another state or foreign government must have on file an Application for Certificate of Authority 37035 with the Secretary of State. This allows a foreign (outside Indiana) corporation to do business in Indiana. View Estimated Tax Payments Online and Make Payments by ePay Corporate taxpayers can now verify their state estimated tax payments and balances online. This new feature saves time, helps to avoid delayed refunds, and identifies estimated discrepancies prior to filing. Visit www.in.gov/dor/epay/index.html to access your estimated tax information. Application for Nonprofit Status and Registration Contact the Internal Revenue Service for federal requirements to obtain nonprofit (commonly known as 501(c)(3)) status. The IRS publishes an information booklet titled “Tax Exempt Status for Your Organization,” Publication 557. Contact: Internal Revenue Service: (800) 829-1040 Publications: (800) 829-3676 www.irs.ustreas.gov/ Please have the following information available: • Name; • Taxpayer federal tax ID or employer identification number (EIN); • Current street address; and • Last payment amount; View by clicking Begin using IN e-pay at www.in.gov/dor/epay/index.html To register your nonprofit status with the state, you must submit a Nonprofit Organization Application for Sales Tax Exemption (NP-20A). Contact: Indiana Department of Revenue Tax Administration 100 N. Senate Ave. Indianapolis, IN 46204-2253 (317) 232-2045 If you have any questions, please call the Department at (317) 233-4017. Voluntary Compliance Program If you discover you have an unmet filing requirement with Indiana and want to know more about the Department’s Voluntary Disclosure Program, contact us at: Indiana Department of Revenue IGCN Room 203 - VCP Office 100 N. Senate Ave. Indianapolis, IN 46204 After nonprofit status is granted, file the Indiana Nonprofit Organization’s Annual Report NP-20 to maintain state recognition of your sales tax exemption. If the organization has unrelated business income over $1,000 during the tax year, it must also file Form IT20NP with the Department. For information about nonprofit filing requirements, go to www.in.gov/dor/3650.htm and obtain Income tax Information Bulletin #17. Annual Public Hearing In accordance with the Indiana Taxpayer Bill of Rights, the Indiana Department of Revenue will conduct an annual public hearing on Tuesday, June 2, 2009. Please come and share your ideas on how the Department can better administer Indiana tax laws. The hearing will be held from 9 to 10 a.m., in the Indiana Government Center South, Conference Center - Room 32, 402 W. Washington St., Indianapolis, Indiana. If you are unable to attend, please submit your concerns in writing to Indiana Department of Revenue, Commissioner’s Office, 100 N. Senate Ave., Indianapolis, IN 46204. The Annual Report and income tax return are due on the fifteenth day of the fifth month following the close of the organization’s tax year. Forms for Specific Nonprofit Organizations Nonprofit Organization • Filing federal Form 990 or 990T, file: • If a utility service provider, also file: General Instructions for 2008 Form IT-20NP If you are filing federal Form 990 or 990T, enclose a copy of the federal return(s) with Form IT-20NP. Who Must File Form IT-20NP State Return(s) to File Form IT-20NP and Form NP-20; Form URT-1 A nonprofit organization or corporation must file Form IT-20NP and/or Form NP-20, Nonprofit Organization’s Annual Report. All nonprofit organizations must file Form IT-20NP to report any unrelated business income over $1,000 during the tax year. For further information concerning filing requirements and how to obtain status as a nonprofit organization, request Income Tax Information Bulletin #17 from Tax Administration by calling (317) 233-4015 or going to www.in.gov/dor/3650.htm The department recognizes the exempt status determined by the IRS. A nonprofit organization registered as a nonprofit registration is subject to the adjusted gross income tax, unless the income is specifically exempt from taxation under the provisions of the Adjusted Gross Income Tax Act (IC 6-3-2-2.8 and 6-3-2-3.1). The nonprofit organization is subject to both federal and state tax on income derived from an unrelated trade or business as defined in IRC section 513. Nonprofit Corporations (Domestic and Foreign) A corporation can be formed for profit or nonprofit purposes. A nonprofit organization is an association whose purpose is to engage 3 American LegalNet, Inc. www.FormsWorkflow.com Utility Service Provider: Are you in the business as a utility service? If so, you may also be subject to the utility receipts tax (URT) on those gross receipts. Gross receipts are defined as the value received for the retail sale of utility services. If you have more than $1,000 in gross receipts from the sale of utility services, you might be required to file Form URT-1 (Utility Receipts Tax Return) in addition to the annual Form IT-20 and 20NP. Refer to Commissioner’s Directive #18 at www.in.gov/dor/3617.htm for further information. You owe this tax if you furnish any electrical energy, natural gas, water, steam, sewage, or telecommunications services. The URT is due on the retail sale of these services in Indiana. The URT rate of tax is 1.4 percent. Refer to Commissioner’s Directive #18 at www.in.gov/dor/3617.htm for more information. Entities subject to this tax must also file Form URT-1. The URT-1 return is due on the fifteenth day of the fourth month following the close of the taxpayer’s tax year. Utility Services Use Tax Form USU-103 Your organization may be subject to an excise tax of 1.4 percent on the consumption of utility services if you purchase utility services from outside Indiana and become the end user in Indiana. Utility services use tax (USUT) is due if the utility receipts tax is not payable by the seller. The person who consumes the utility service in Indiana is liable for the USUT tax based on the price of the purchase. Unless the seller of the utility service is registered with the Department to collect the USUT on your behalf, you must pay the tax on Form USU-103. For more information refer to Commissioner’s Directive #32, available at www.in.gov/dor/3617.htm The tax return on unrelated business income (Form IT-20NP) and annual report (Form NP-20) are due on the fifteenth day of the fifth month following the close of the organization’s tax year. The URT-1 tax return is due on the fifteenth day of the fourth month following the close of the organization’s tax year. Homeowner’s Association (IRC section 831) State Return(s) to File • Filing Form 1120-H, file: Form IT-20 A condominium management, residential real estate management, or timeshare association is subject to tax as a corporation if it elects to be treated as a homeowner’s association. These are not considered nonprofit organizations for Indiana tax purposes. Therefore, they must file as for-profit corporations using Form IT-20. The USU-103 return is due monthly by the thirtieth day following the end of each month. Accounting Methods and Taxable Year The Department requires the use of the method of accounting that is used for federal income tax purposes. The taxable year for the unrelated business income tax must be the same as the accounting period adopted for federal adjusted gross income tax purposes. If the apportionment provisions do not fairly reflect the organization’s Indiana income, the taxpayer must petition the department for permission to use an alternative method. The state tax return is due on the fifteenth day of the fourth month following the close of the entity’s tax year. Political Organization (IRC section 527) • Filing federal Form 1120-POL, file: State Return(s) to File Form IT-20 Political organizations filing federal Form 1120POL or 1120H are not considered nonprofit organizations. They must file as regular corporations on Form IT-20. Due Date for Filing Form IT-20NP Form IT-20NP return is due on or before the fifteenth day of the fifth month, following the close of the tax year. The state tax return is due on the fifteenth day of the fourth month following the close of the organization’s tax year. Religious or Apostolic Organization (exempt under section 501(d)) • Filing federal Form 1065, file: When an organization does not file a federal return pursuant to the Internal Revenue Code, its tax year shall be the calendar year unless permission is otherwise granted. State Return(s) to File Form IT-65 Exempt Organization The unrelated business income of an exempt organization is subject to the Adjusted Gross Income Tax and must be reported on Form IT-20NP. If any part of the gross income received by such organization is used for the private benefit or gain of any member, trustee, shareholder, employee, or associate, the organization will not be granted an exemption. The term “private benefit or gain” does not include reasonable compensation paid to employees for work or services actually performed. Religious or apostolic organizations filing federal Form 1065 must also file state Form IT-65. The state partnership return is due on the fifteenth day of the fourth month following the close of the organization’s tax year. Other Related Income Tax Filing Requirements of a Nonprofit Organization To preserve the exemption, a specific group or organization cannot be organized or maintained for private gain or profit. Utility Receipts Tax Form URT-1 IC 6-2.3-2-1 imposes a utility receipts tax of 1.4 percent on the gross receipts from the retail sale of utility services. The utility services subject to tax include electrical energy, natural gas, water, steam, sewage, and telecommunications. Charity Gaming Activities If your organization conducts bingo games, raffles, charity game nights, or other games of chance, you need to know the licensing, reporting, and withholding rules. Legal charity gaming is limited to bingo; raffles; door prizes; charity gaming nights; a festival event; and the sale of pull tabs, punchboards, and tip boards. Each of these activities requires notification and/or licensing. Gross receipts are defined as the value received for the retail sale of utility services. 4 American LegalNet, Inc. www.FormsWorkflow.com All nonprofit organizations planning to conduct charity gaming activities must register with the Indiana Gaming Commission by filing Form CG-1, Charity Gaming Qualification Application. Activities such as auctions, midway-style games, and games of skill are not regulated by the charity gaming law. between the taxpayer and the Department, the period for filing a claim for refund is likewise extended. Estimated Quarterly Tax Payments A nonprofit organization whose adjusted gross income tax liability on unrelated business income exceeds $2,500 for a taxable year must file quarterly estimated tax payments. The previous threshold in effect was $1,000 through Dec. 15, 2007. To obtain revised Charity Gaming Publication 2, contact: Indiana Gaming Commission Suite 950, South Tower 115 W. Washington St. Indianapolis, IN 46204-3408 Web address: www.in.gov/igc/ If the organization’s estimated payments exceed the tax liability, credit should be claimed on the annual return, Form IT20-NP, to request a refund or carry over the excess amount to the next year’s estimated tax account. If an estimated account needs to be established, obtain Form E-6 to remit the initial payment and to request preprinted quarterly estimated IT-6 returns. For more information, call (317) 23-BINGO (317-232-4646). Extensions for Filing Return The Department accepts the federal extension of time application (Form 7004) or the federal electronic extension. If you have an extension, you do not need to contact the Department prior to filing the annual return. Returns postmarked within 30 days after the last date indicated on the federal extension are considered timely filed. When an organization does not need a federal extension of time but needs one for filing the state return, a letter requesting such an extension should be submitted to the Department prior to the due date of the annual return. The quarterly estimated tax payments are submitted with an appropriate Indiana voucher, Form IT-6, or by electronic funds transfer (EFT), depending on the amount of the payment due. The quarterly due dates for estimated income tax payments for calendar year organizations are April 20, June 22, Sept. 21, and Dec. 21, 2009. Fiscal year and short tax year filers must remit by the twentieth day of the fourth, sixth, ninth, and twelfth months of their tax period. Claim credit for all of your estimated payments on lines 16 and 17 of Form IT-20NP. Taxpayers should note that refunds reflected on the annual corporate income tax return may be applied to the next taxable year’s estimated liability by entering the amount to be credited on line 28 of the IT-20NP return. An overpayment of estimated payments must be claimed on the annual return to obtain a refund. After a check is remitted for the remainder of a year’s estimated income tax liability, no further estimated returns should be filed with the Department after the date of payment. All checks remitted to the Department should be accompanied by a return or a complete explanation for the payment. A zero liability for a quarter does not require Form IT-6 to be filed. To request an Indiana extension of time to file, contact the Indiana Department of Revenue, Data Control Business Tax, Returns Processing Center, 100 N. Senate Ave., Indianapolis, IN 46204-2253. An extension of time granted under IC 6-8.1-6-1 waives the late payment penalty for the extension period on the balance of tax due provided 90 percent of the current year’s total tax liability is paid on or prior to the original due date. Form IT-6 should be used to make an extension payment for your taxable year. This payment will be processed as a “fifth” estimated payment. (See Income Tax Bulletin #15 at www.in.gov/dor/3650.htm for more details.) Any tax paid after the original due date must include interest. Effective beginning in 2008, the quarterly estimated payment must be equal to the lesser of 25 percent of the adjusted gross income tax liability for the taxable year or the annualized income installment calculated in the manner provided by IRC Section 6655(e) as applied to the corporation’s liability for adjusted gross income tax. Interest on the balance of tax due must be included with the return when it is filed. Interest is computed from the original due date until the date of payment. In October of each year, the Department establishes the interest rate for the next calendar year. See Departmental Notice #3 at www.in.gov/dor/3618.htm for interest rates. Also, as of Jan. 1, 2008, if a taxpayer’s estimated liability exceeds $5,000 per quarter, the taxpayer is required to remit the tax by electronic funds transfer (EFT). If the estimated payment is made by EFT, the taxpayer is not required to file Form IT-6. Questions relating to EFT payments should be directed to (317) 232-5500. If you have a valid extension of time or a federal electronic extension to file, you must check box L1 on the front of the return. If applicable, enclose a copy of the federal extension of time with the return when filing your state return. Amended Returns If you need to establish an estimated account, contact the Department to remit the initial payment and to request preprinted quarterly estimated IT-6 returns. For further instructions, refer to Information Bulletin #11 at www.in.gov/dor/3650.htm To amend a previously filed Form IT-20NP, a corrected copy of the original form must be filed. Check box A1 at the top of the form if you are filing an amended return. To claim a refund of an overpayment, the return must be filed within three years from the latter of the date of overpayment or the due date of the return. Penalty for Underpayment of Estimated Taxes Organizations estimating their income taxes are subject to a 10 percent underpayment penalty if they fail to timely file estimated tax payments or fail to remit a sufficient amount. To avoid the penalty, the required quarterly estimated payments must be at least 20 percent of the total income tax liability for the current taxable year or 25 percent of the organization’s final income tax liability for the previous tax IC 6-8.1-9-1 entitles a taxpayer to claim a refund because of a reduction in tax liability resulting from a federal modification. The claim for refund should be filed within six months from the date of modification by the Internal Revenue Service. If an agreement to extend the statute of limitations for an assessment is entered into 5 American LegalNet, Inc. www.FormsWorkflow.com year. The penalty for the underpayment of estimated tax is assessed on the difference between the actual amount paid by the organization for each quarter and 25 percent of its final income tax liability for the current tax year. Refer to the instructions for Schedule IT-2220, Penalty for the Underpayment of Corporate Income Taxes, which is available from the Department upon request. Please use the full legal name of the organization and its current mailing address. For a name change, check box B1 at the top of the return and enclose copies of the amended Articles of Incorporation 4162 or Amended Certificate of Authority filed with the Indiana Secretary of State with the return. The federal identification number shown in the box in the upper-right corner of the return must be accurate and the same as used for federal purposes. Use Schedule IT-2220 to show an exception to the penalty if the nonprofit organization underpaid its income tax for any quarter. If an exception to the penalty is not met, payment of the computed penalty must be included with the return. For 2009, the required estimate should exceed the annualized income installment calculated in the manner provided by IRC Section 6655(e) as applied to the corporation’s liability (effective Dec. 16, 2007), or 25 percent of the final tax liability for the prior taxable year. If either one of these conditions is met, no penalty will be assessed for the estimated period. Enter the number of your business activity code in the designated box under the federal identification number. Use the six-digit principal business activity code derived from the North American Industry Classification System (NAICS), as reported on your federal (Form 990-T) income tax return. You can find a listing of these codes through the Department’s Web site: www.in.gov/dor/3742.htm Electronic Funds Transfer Requirements Other Unrelated Business Activity numbers that might be applicable: 900000 Unrelated debt-financed activities (other than rental or real estate) A nonprofit organization’s quarterly estimated tax must be remitted by EFT if the amount of tax on unrelated business income of the organization exceeds an average liability of $5,000 per quarter (or $20,000 annually), effective Jan. 1, 2008. Previously, the threshold in effect was $10,000 per quarter through Dec. 15, 2007. Because there is no minimum amount of payment, the Department encourages all taxpayers not required to remit by EFT to participate voluntarily in our EFT program. 900002 Rental of tangible personal property 900003 Passive income activities with controlled organizations 900004 Exploited exempt activities Note: Taxpayers remitting by EFT should not file quarterly IT-6 coupons. The amounts are reconciled when filing the annual income tax return. 900001 Investment Activities by Section 501(c) (7), (9), or (17) organizations 999999 Unclassified establishments (unable to classify) A condensed list is published as part of the Indiana Business Tax Application, Form BT-1. This form is available through our Tax Forms Order Line at (317) 615-2581 or at www.in.gov/dor/3731.htm If the Indiana Department of Revenue notifies an organization of its requirement to remit by EFT, the organization must: 1. Complete and submit the EFT Authorization Agreement (Form EFT-1); and 2. Begin remitting tax payments via EFT by the date/tax period specified by the Department. Questions K and L Check or complete all boxes that apply for your return. K-1 Is this filing your initial return for the State of Indiana? K-2 Is this filing your final return for the state of Indiana? Check this box only if the organization is dissolved, is liquidated, or withdrew from the state. Also, you must timely file Form BC-100 to close out any sales and withholding accounts. Go to www.in.gov/dor/3508.htm to complete this form online. Failure to comply will result in a 10 percent penalty on each quarterly estimated income tax liability not sent by EFT. Note: The Indiana Code does not require the extension of time to file payment or final payment due with the annual return to be paid by EFT. You must be certain to claim any EFT payment as an extension or estimated payment credit. Do not file a return indicating an amount due if you have paid, or will pay, any remaining balance by EFT. K-3 Check this box if the organization is in bankruptcy. K-4 Check this box if filing Indiana Schedule M, Alternate Adjusted Gross Income Tax Calculation. If you determine you meet the requirements to remit by EFT, contact the Department’s EFT Section, by calling (317) 232-5500. Instructions for Completing Form IT-20NP L-1 Check this box if an extension of time to file your return is in effect. If applicable, enclose a copy of federal Form 7004 when filing your state return. Filing Period and Identification How to Report Charity Gaming Receipts File a 2008 Form IT-20NP return for a taxable year ending Dec. 31, 2008, a short tax year beginning in 2008 and ending in 2008, or a fiscal tax year beginning in 2008 and ending in 2009. For a short or fiscal tax year, fill in at the top of the form the beginning month and day and the ending date of the taxable year. Exempt nonprofit organizations do not pay income taxes on the proceeds from licensed charity gaming events. For further information, see Charity Gaming Publication 2, which is available from Indiana Gaming Commission, Suite 950 South Tower, 115 W. Washington St., Indianapolis, IN 46204-3408, and online at www.in.gov/igc/ The identification section of the return must be completed regarding the tax year, name, address, county, date organized, federal identification number, business activity code number, and telephone number. All nonprofit organizations must report unrelated business income. The corporate adjusted gross income tax is computed on the nonprofit organization unrelated business income return. 6 American LegalNet, Inc. www.FormsWorkflow.com Report of Unrelated Business Income All organizations exempt under IC 6-2.5-5-21 described in Internal Revenue Code (IRC) 501(c) and IRC 401(a), including churches, religious organizations, hospitals, social organizations, business leagues, pension trusts, and all other institutions, that are subject to the tax imposed by IRC 511 are also subject to Indiana adjusted gross income tax on their unrelated business income. IC 6-3-2-3.1 provides that only the unrelated business income (as defined in IRC 513) of an organization otherwise exempt from adjusted gross income tax under IC 6-3-2-2.8(1) is subject to adjusted gross income tax. (This section does not apply to the United States, its agencies or instrumentalities, or to the State of Indiana, its agencies or political subdivisions.) Pension trusts that would be taxed as a trust were it not for the exemption under IRC Section 501(a) will be taxed as a trust on any unrelated business income (as defined in IRC Section 513) and should file a Form IT-41 for Indiana tax purposes. Income from bingo events; raffles; door prizes; charity game nights; festival events; and the sale of pull tabs, punchboards, and tip boards are considered unrelated business income unless the organization uses completely volunteer labor and is properly registered with the Indiana Gaming Commission to conduct such activities. that stimulates interest in, and demand for, the products of a particular industry or segment of an industry; (7) Certain charity gaming events as long as the organization is properly licensed; (8) Certain pole rentals, by a mutual or cooperative telephone or electric company; (9) Certain distributions of low-cost articles, incidental to the solicitation of charitable contributions, and the exchange or rental of mailing lists by charitable organizations; and (10) Sponsorship payments for which the payer receives no substantial return benefit other than the use or acknowledgement of the name, logo, or product lines of the payer’s trade or business in connection with the organization’s activities. Adjusted Gross Income Tax Computation for Unrelated Business Income Under the Adjusted Gross Income Tax Act, the Department recognizes the method of accounting used for federal income tax purposes. If income is received from activity outside Indiana that is subject to tax in another state, the three-factor apportionment formula must be used. Enclose the completed IT-20 Apportionment of Income Schedule E with the return. The organization may have income from the sources enumerated on IT-20NP schedules that is not subject to tax as unrelated business income. To be subject to tax, the income must be from a trade or business activity regularly carried on by the nonprofit organization that is not substantially related to its exempt purpose. Indiana follows the Internal Revenue Service’s rulings regarding types of income substantially related to or not related to an organization’s exempt purpose. Refer to Internal Revenue Service Publication 598. Line 1. Enter unrelated business taxable income (before net operating loss deduction and specific deductions) from federal Form 990T, Exempt Organization Business Income Tax Return. Line 2. In computing unrelated business taxable income, a specific deduction of $1,000 is allowed. However, the $1,000 specific deduction is not allowed in computing a net operating loss deduction. Generally, the deduction is limited to $1,000 regardless of the number of unrelated businesses in which the organization is engaged. An exception is provided in the case of a diocese, a province of a religious order, or a convention or an association of churches that may claim a specific deduction for each parish, individual church, district, or other local unit, to the extent these unrelated businesses are not separate legal entities. In these cases, the specific deduction is limited to the lower of $1,000 or the gross income derived from an unrelated trade or business regularly carried on by the local unit. Exclusions from Unrelated Business Income Exceptions that do not constitute income from an “unrelated trade or business” include (1) Any trade or business in which substantially all the work is performed for the organization without compensation; (2) Any trade or business carried on by a charitable organization or by a state college or university primarily for the convenience of its members, students, patients, officers, or employees; (3) Any trade or business consisting of selling merchandise, substantially all of which has been received by the organization as gifts or contributions; (4) The furnishing by a qualified hospital at or near cost of certain common services, including purchasing, billing and collection, and record keeping, to small hospitals, i.e. serving fewer than 100 in-patients; (5) Qualified public entertainment activities of certain types of exempt organizations when a qualifying organization regularly conducts as one of its substantial exempt purposes an agriculture and educational fair or exposition; (6) Qualified convention and trade show activities of a qualifying organization that regularly conducts, as one of its substantial exempt purposes, a show Line 3. Enter interest, after deducting all related expenses, on United States government obligations included on the federal income tax return, Form 990T. Refer to Income Tax Information Bulletin #19 at www.in.gov/dor/3650.htm for a listing of eligible items. Line 4. Enter the amount of income from qualified utility and plant patents. Line 7. Enter all other adjustments and modifications to unrelated business income: • Charitable Contributions - Enter an amount equal to any IRC 170 deduction deducted on the federal return. • State Income Taxes - Enter all income taxes (based on or measured by income levied at the state level) deducted on the federal return. 7 American LegalNet, Inc. www.FormsWorkflow.com • Bonus Depreciation - Add or subtract an amount to bonus depreciation in excess of any regular depreciation that would be allowed had not an election under IRC Section 168(k) been made as applied to property in the year that it was placed into service. Taxpayers that own property for which additional first-year special depreciation for qualified property, including 50 percent bonus depreciation, was allowed in the current taxable year or in an earlier taxable year must add or subtract an amount necessary to make their adjusted gross income equal to the amount computed without applying any bonus depreciation. The subsequent depreciation allowance is to be calculated on the state’s stepped-up basis until the property is disposed. Line 9. If apportioning income, enter the Indiana percentage (rounded to two decimal places) from line 4(c) of IT-20 Schedule E, Apportionment of Adjusted Gross Income. Do not enter 100 percent. Enclose completed return page 3. See instructions on page 15 for this schedule. Line 10. Multiply line 8 by Indiana apportionment percentage modification on the allowance of depreciation for state tax on line 9. If line 9 is not applicable, enter the amount from line 8. Line 11. Enter as a positive figure the full amount of your available Indiana net operating loss carryover deduction as calculated on revised Schedule IT-20NOL. If you are carrying a net operating loss deduction, Schedule IT20-NOL, as effective on or after Jan. 1, 2004, must be enclosed. Commissioner’s Directive #19 (www.in.gov/dor/3617.htm) explains this initial required modification on the allowance of depreciation for state tax purposes. Add or subtract the amount necessary to make the adjusted gross income of the organization that placed any IRC Section 179 property in service in the current taxable year or in an earlier taxable year equal to the amount of adjusted gross income that would have been computed had an election not been made for the year in which the property was placed in service to take deductions (as defined in IRC Section 179) in a total amount exceeding $25,000. This corporate form is available from the Department at www.in.gov/dor/3517.htm The depreciation allowances in the year of purchase and in later years must be adjusted to reflect the additional first-year depreciation deduction, including the special depreciation allowance for 50 percent bonus depreciation property, until the property is sold. Line 13. Indiana adjusted gross income tax for taxable year - Multiply the amount on line 12 by 8.5 percent if not otherwise qualified for a reduced rate of tax. Please review revised Schedule IT-20NOL and its instructions before entering an amount on line 11. Line 12. Taxable Indiana unrelated business income - Subtract line 11 from line 10. Effective Jan. 1, 2005, qualified taxable income derived from a designated Indiana Military Base Enhancement Area (MBEA) is subject to tax at the rate of 5 percent. If line 12 is a loss figure, enter zero. Indiana adopted the former expensing limit provided by The Jobs Creation and Workers Assistance Act of 2002 and has since specified an expensing cap of $25,000. The additional depreciation may be excluded in subsequent years from the amounts to be added back on line 7 when excess IRC Section 179 deduction or bonus depreciation was elected. • Domestic Product Deduction - Enter an amount equal to the amount claimed as a deduction for qualified domestic produc- tion activities under IRC Section 199 for federal income tax purposes. If you qualify as an MBEA taxpayer under IC 6-3-2-1.5, complete and enclose a copy of Schedule M, Alternate Adjusted Gross Income Tax Calculation and check question box K4 (Schedule M) on the front of Form IT-20NP. This form is available in the current year Indiana Corporate Income Tax Booklet. • Deduction for Lottery Prize Money - A portion of prize money received from the purchase of a winning Indiana lottery game or ticket included in federal taxable income should be excluded. Beginning after June 30, 2002, the proceeds of up to $1,200 are deductible from each winning lottery game or ticket paid through the Hoosier State Lottery Commission. Enter the total computed adjusted gross income tax based on your Indiana taxable unrelated business income reported on line 12. Summary of Calculations Line 14. Sales/Use Tax: IC 6-2.5-3-2 imposes a use tax at the rate of 6 percent on the use, storage, and consumption of tangible personal property in Indiana when sales tax was not paid at the point of purchase and no exemption from tax exists. Nonprofit organizations qualify for exemption from use tax under the following conditions: (1) The nonprofit organization is exempt from the gross retail sales tax under IC 6-2.5-5-22 through 26; (2) The property or service is used to further its nonprofit purpose; or (3) The organization is not operated predominantly for social purposes. Note: If the net amount determined for line 7 is a negative figure, because of a higher depreciation basis in subsequent years, enter the total amount in . If the unrelated business income is a loss, this adjustment, when added back, increases a loss. Enclose a statement with the return to explain any adjustment claimed on line 7. Purchases of tangible personal property to be used by organizations operated predominately for social purposes are subject to use tax. If more than 50 percent of the expenditures are for or related to social 8 American LegalNet, Inc. www.FormsWorkflow.com activities such as food and beverage services, golf courses, swimming pools, dances, parties, and other similar social activities, the organization is considered to be predominately operated for social purposes. In no instance will purchases for the private benefit of any member of the organization or any other individual, such as meals or lodging, be eligible for exemption. to the corporation’s adjusted gross income tax liability. If using this method, please check the box on this line and enclose a copy of your calculations when filing your tax return. The Department will review each request on a case-by-case basis. Note: Effective for tax year 2008, if a taxpayer’s annual liability exceeds $2,500, filing quarterly estimated payments to remit 25 percent of the estimated annual tax liability is required. The previous threshold in effect was $1,000 through tax year 2007. If you are a registered merchant for Indiana, you must report nonexempt purchases on Form ST-103, Indiana Sales/Use Tax Return. If you are not required to file Form ST-103, or have failed to properly include all taxable purchases on the ST-103 return, complete the Sales/Use Tax Worksheet on page 2 of the return and report the tax due on this line. Caution: Do not report the totals from the ST-103 on this worksheet or on Form IT-20NP. You can get additional information regarding sales/use tax for nonprofit organizations by requesting Sales Tax Information Bulletin #10 at www.in.gov/dor/3650.htm or by calling (317) 233-4015. Line 23. Enter any interest due. Contact the Department for the current rate of interest charged by calling (317) 233-4015, or visit our Web site at www.in.gov/dor/3618.htm and get Departmental Notice #3. Line 24. Enter the penalty amount that applies: A. If the return with payment is made after the original due date, a penalty that is the greater of $5 or 10 percent of the balance of tax due on line 21 must be entered. The penalty for paying late is not imposed if all three of the following conditions are met: (1) A valid extension of time to file exists; (2) At least 90 percent of the tax liability was paid by the original due date; and (3) The remaining tax is paid by the extended due date. B. If the return showing no tax liability, line 15, is filed late, a penalty for failure to file by the due date will be $10 per day that the return is past due, up to a maximum of $250. Line 15. Enter the total use tax and unrelated business income tax from lines 13 and 14. Credits and Payment Computation Line 16. Enter the total amount of estimated quarterly income tax payments made for the calendar year 2008 or for a fiscal tax year beginning in 2008 and ending in 2009. Itemize each payment in the spaces provided. Line 17. Enter the total amount paid with valid extension. Line 25. Total amount owed. Add lines 21 through 24. Make a separate payment for each return filed. Payments to the Department must be made with U.S. funds. Line 18. Enter the amount of prior-year overpayment credit. Line 19. Claim other allowable tax liability credit by entering the name, credit ID code number, and amount. The total of nonrefundable tax liability credit is limited to the amount of income tax on line 13, unless otherwise noted. If your claim exceeds the amount of your tax liability, you must adjust by recalculating the credit to the amount you may apply. See the listing of Other Tax Liability Credits beginning on page 16. Refer to Income Tax Information Bulletin #59 at www.in.gov/dor/3650.htm for more information about Indiana tax credits available to taxpayers. Line 26. Overpayment - Enter the sum of line 20 minus lines 15, 22, and 24. Line 27. Enter the portion of the overpayment to be refunded. Line 28. If electing to credit all or a portion of the overpayment to the following year’s estimated adjusted gross income tax account, enter the amount of the overpayment to be applied. Also, this line may include a refundable Economic Development for a Growing Economy (EDGE) job retention credit. EDGE credit information is listed on page 18. A detailed explanation or supporting schedule must be enclosed with the return for any credits claimed on line 19. If you have state credit for withholding on Form WH-18, claim Indiana credit by enclosing copy C with the return and using credit ID code 841 on this line. The sum of lines 27 and 28 must equal the amount of the total overpayment on line 26. If the overpayment is reduced due to an error on the return or an adjustment by the Department, the amount to be refunded, line 27, will be corrected before any changes are made to the amount on line 28. Any refund due may be applied to other liabilities under IC 6-8.1-9-2(a) and IC 6-8.1-9-5. Certification of Signatures and Authorization Section Be sure to sign, date, and print your name on the return. If a paid preparer completes your return, you can authorize the Department to discuss your tax return with the preparer by checking the authorization box above the signature line. Line 20. Add the total credits, but certain credits may not exceed the amount of tax liability on lines 13 and 14. An officer of the organization must show his/her title and sign and date the tax return. Please enter your daytime telephone number so we can call you if we have any questions about your tax return. Also, enter your e-mail address if you would like us to contact you via e-mail. Line 21. Balance of net taxes due. If line 15 is greater than line 20, enter the difference. Line 22. Enter the amount of calculated penalty for the underpayment of income taxes from Schedule IT-2220. Enclose a completed Schedule IT-2220, which is available from the Department upon request. Corporations required to make quarterly estimated payments are permitted to use the annualized income installment method calculated in the manner provided by IRC Section 6655(e) as applied Personal Representative Information Typically, the Department contacts you if there are any questions or concerns about your tax return. If you want the Department to be able to discuss your tax return with someone else (such as the person who prepared it or a designated person), you must complete this area. 9 American LegalNet, Inc. www.FormsWorkflow.com First, you must check the “Yes” box that follows the sentence “I authorize the Department to discuss my tax return with my personal representative.” Next, enter: • The name of the individual you are designating as your personal representative; • The individual’s telephone number; and • The individual’s complete address. If you complete this area, you are authorizing the Department to be in contact with your personal representative, other than you, concerning information about this tax return. After your return is filed, the Department will communicate primarily with your designated personal representative. Note: You can decide at any time to revoke the authorization for the Department to be in contact with your personal representative. If you do, you must tell us that in a signed statement. Include your name, your Social Security number, and the year of your tax return. Mail your statement to Indiana Department of Revenue, P.O. Box 40, Indianapolis, IN 46206-0040. Paid Preparer Information Fill out this area if a paid preparer completed this tax return. Note: This area needs to be completed even if the paid preparer is the same individual designated as your personal representative. The paid preparer must provide: • The name and address of the firm that he/she represents; • His/her identification number (check one box for federal ID number, PTIN, or Social Security number); • His/her telephone number; • His/her complete address; and • His/her signature with date. Make sure you keep a copy of your completed return. Mailing Options Please mail completed returns with filled-in 2D bar codes to: Indiana Department of Revenue P.O. Box 7231 Indianapolis, IN 46207-7231 All other prepared returns must be mailed to: Indiana Department of Revenue 100 N. Senate Ave. Indianapolis, IN 46204-2253 10 American LegalNet, Inc. www.FormsWorkflow.com Indiana Department of Revenue Indiana Nonprofit Organization Unrelated Business Income Tax Return Calendar Year Ending December 31, 2008 or Form IT-20NP State Form 148 (R7/8-08) Fiscal Year Beginning AA __________/_______/ 2008 and Ending BB __________/_______/______ Check box if amended. A1 Check box if name changed. B1 Federal Identification Number (FID) Name of Organization B A Principal Business Activity Code Number and Street Indiana County or O.O.S. C D H G I ( City State E F K Check all boxes that apply: 1 Initial Return 2 ZIP Code Final Return 3 Telephone Number In Bankruptcy ) Schedule M 4 L Do you have on file a valid extension of time to file your return (federal Form 7004 or an electronic extension of time)? Due Date: 15th day of the fifth month following close of the tax year. 1 Yes 2 No Adjusted Gross Income Tax Calculation on Unrelated Business Income 1. Unrelated business taxable income (before net operating loss deduction and specific deduction)  from federal return Form 990T (attach Form 990T)......................................................................................... 2. Specific deduction (generally $1,000; see instructions)................................................................................... . 3. Interest on U.S. government obligations on the federal return less related expenses.................................... 4. Deduction for qualified patents income............................................................................................................ 5. Enter total from lines 2 through 4...................................................................................................................... 6. Subtotal for unrelated business income (subtract line 5 from line 1)................................................................ 7. Add back: Charitable contributions, state income taxes, net bonus depreciation (excess IRC 179 deduction), and IRC Section 199 deductions; enter negative adjustments in ...................................................... 8. Unrelated business income, as adjusted (add lines 6 and 7). (If not apportioning, enter same amount on line 10)............................................................................................................................................. 9. Enter Indiana apportionment percentage, if applicable, from line 4(c) of IT-20 Schedule E apportionment (attach schedule)............................................................................................................................................... . 10. Unrelated business apportioned to Indiana (multiply line 8 by line 9; otherwise enter line 8 amount)............ 11. Enter Indiana NOL deduction without specific deduction (attach Schedule IT-20NOL; see instructions)...... 12. Taxable Indiana unrelated business income (line 10 less line 11) . ................................................................. 13. Indiana tax on unrelated business income (multiply line 12 by 8.5% (.085)). See instructions for line 13.. 14. Sales/use tax on purchases subject to use tax from Sales/Use Tax Worksheet ........................................... 15. Total tax due (add lines 13 and 14). .................................................................................................Total Tax .  Credit for Estimated Tax and Other Payments 16. Quarterly estimated tax paid: Qrt. 1 Qrt. 2 Qtr. 3 Qtr. 4 Enter total 17. Amount paid with extension ............................................................................................................................. 18. Amount of overpayment credit (from tax year ending a ).............................................................. . 19. Enter name of other credit Code No. 19a 20. Total credits (add lines 16, 17, 18, and 19b) .............................................................................. Total Credits 21. Balance of tax due (line 15 minus 20; if line 20 is greater than line 15, proceed to lines 22, 24, and 26) ...... 22. Penalty for the underpayment of income tax. Attach Schedule IT-2220 ........................................................ Check box if using annualization method 23. Interest: If payment is made after the original due date, compute interest....................................................... 24. Penalty: If paid late, enter 10% of line 21; see instructions. If line 15 is zero, enter $10 per day filed past due date......................................................................................................................... . 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 . % 16 17 18 19b 20 21 22 23 24 25. Total payment due (add lines 21 through 24). (Payment must be made in U.S. funds) PAY THIS AMOUNT 25 26. Total overpayment (line 20 minus lines 15, 22, and 24). ................................................................................. 26 . 27. Amount of line 26 to be refunded ...................................................................................................................... 27 28. Amount of line 26 to be applied to the following year's estimated tax account................................................. 28 You must go to the certification and authorization section on page 2 to complete this return. VN *205081101* 205081101 11 American LegalNet, Inc. www.FormsWorkflow.com IT-20NP 2008 Indiana Department of Revenue Indiana Nonprofit Organization Unrelated Business Income Additional Explanation or Adjustment State Form 49189 (R7/8-08) Line (a) Explanation (b) Amount (c) Certification of Signatures and Authorization Section Under penalties of perjury, I declare I have examined this return, including all accompanying schedules and statements, and to the best of my knowledge and belief it is true, correct and complete. I authorize the Department to discuss my return with my personal representative (see page 9) CC 1 Yes 2 No Organization's E-mail address EE  FF Paid Preparer: Firm’s Name (or yours if self-employed.) Signature of Officer Date LL MM Print or Type Name of Officer OO Check One: 1 [ ]Federal I.D. Number 2 [ ]PTIN OR 3 [ ]Social Security Number Title NN QQ Personal Representative’s Name (Print or Type) Telephone number PP Address GG Telephone number RR City HH Address SS II State City TT ZIP Code + 4 JJ  Paid Preparer's Signature ZIP Code + 4VV StateUU Date Sales/Use Tax Worksheet List all purchases made during 2008 from out-of-state companies. Column A Description of personal property purchased from out-ofstate retailer Column B Date of Purchase(s) Made from 1/1/08 Through 3/31/08 Column C Purchase Price of Property(s) from Column B Column D Date of Purchase(s) Made from 4/1/08 Through 12/31/08 Column E Purchase Price of Property(s) from Column D Magazine subscriptions: Mail order purchases: Internet purchases: Other purchases: 1. Total purchase price of property subject to the sales/use tax: Enter total of Columns C and E........................................................................... 1C 1E 2. Sales/use tax: Multiply line 1C by .06; multiply line 1E by .07............................. 2C 2E 3. Sales tax previously paid on the above items (up to 6% per item in Column C; up to 7% per item in Column E)........................................................................... 3C 3E 4. Total amount due: Subtract line 3C from line 2C and line 3E from line 2E. Add lines 4C and 4E. Carry to Form IT-20NP, line 14. If the amount is negative, enter zero and put no entry on line 14 of the IT-20NP......................................... 4C 4E Please mail forms to: Indiana Department of Revenue, 100 N. Senate Ave., Indianapolis, IN 46204-2253 *205081201* 205081201 12 American LegalNet, Inc. www.FormsWorkflow.com IT-20NP Schedule E State Form 49179 (R7/8-08) Indiana Department of Revenue Apportionment of Income for Indiana For Tax Year Beginning AA _________/_______/ 2008 and Ending BB _________/______/_________ Name as shown on return Federal Identification Number A B Each filing entity having income from sources both within and outside Indiana must complete a three-factor apportionment schedule except financial institutions and certain insurance companies that use a single receipts factor. Interstate transportation entities must use Schedule E-7, Apportionment for Interstate Transportation revised 8-08. Combined unitary filers must use the apportioning method (relative formula percentage) as outlined in Tax Policy Directive #6. Omit cents - percents should be rounded two decimal places - read apportionment instructions. Column C Column A Column B Part I - Indiana Apportionment of Indiana Percentage Total Within Indiana Total Within and Outside Indiana Adjusted Gross Income 1. Property Factor - Average value of owned property from the beginning and the end of the tax year. (Value of and pro rata share of real and tangible personal property at original cost.) (a) Property reported on federal return (average for tax year)........................ (b) Fully depreciated assets still in use at cost (average value for tax year)... (c) Inventories, including work in progress (average value for tax year)........ (d) Other tangible personal property (average value for tax year).................. (e) Rented property (8 times the annual net rental)..................................... 1B Total Property Values: Add lines 1(a) through 1(e).............................. 1A 1C . 2. Payroll Factor - Wages, salaries, commissions, and other compensa- tion of employess and pro rate share of payroll reportable on the return. 2B 2C . Total Payroll Value: ............................................................................. 2A 3. Sales/Receipts Factor (less returns and allowances) - Include all non-exempt apportioned gross business income. Do not use non-unitary partnership income of previously apportioned income that must be separately reported as allocated income. Sales delivered or shipped to Indiana: % (a) Shipped from within Indiana......................................................... % (b) Shipped from outside Indiana. ..................................................... . Sales shipped from Indiana to: (c) The United States government..................................................... (d) Purchasers in a state where the taxpayer is not subject to income tax (under P.L. 86-272).................................................... . (e) Interest & other receipts from extending credit attributed to Indiana (f) Other gross business receipts not previously apportioned. .......... . Total Receipts: Add column A receipts lines 3(a) through 3(f) and 3A enter in line 3A. Enter all receipts in line 3B of column B....................... 4. Summary - Apportionment of income for Indiana for tax years beginning in 2008 (a) Receipts Percentage for factor 3 above: Divide 3A by 3B, enter result here: 4(a)1 3B . % Multiply result by 4.67............... 4a (b) Total Percents: Add percentages entered in boxes 1C, 2C, and 4a of column C. Enter Sum................................................................................... 4b (c) Indiana Apportionment Percentage: Divide line 4b by 6.67 if all three factors are present. Enter here and carry to apportionment line on the tax return... 4c . . . % % % Note: If either property or payroll factor for column B is absent, divide line 4b by 5.67. If the receipts factor (3B) is absent, you must divide line 4b by 2. See instructions. Part II - Business/Other Income Questionnaire 1. List all business locations where the taxpayer has operations or partnership interests and indicate type of activities. This section must be completed - attach additional sheets if necessary. (d) Registered (e) Files Returns Property in State (a) Location (c) Accepts (b) Nature of Business Activity in State? Orders? (g) Owned? to Do Business? (f) Leased? City and State at Location Yes No Yes No Yes No Yes No Yes No 2. Briefly describe the nature of Indiana business activities, including the exact title and principal business activity of any partnership in which the taxpayer has an interest: 3. Indicate any partnership in which you have a unitary or general partnership relationship: 4. Briefly describe the nature of activities of sales personnel operating and soliciting business in Indiana: 5. Do Indiana receipts for line 3A include all sales shipped from Indiana to (1) the U.S. government; or (2) locations where this taxpayer's only activity in the state 2 N of the purchaser consists of the mere solicitation of orders? 1 Y If no, please explain: (a) 6. List source of any directly allocated income from partnerships, estates, and trusts not in taxpayer's apportioned tax base: *104081101* 104081101 13 American LegalNet, Inc. www.FormsWorkflow.com 14 American LegalNet, Inc. www.FormsWorkflow.com Instructions for Indiana Apportionment of Adjusted Gross Income paid, which cannot be checked against the balance sheet or the profit and loss statement, must be supported. Property owned by the taxpayer is valued at its original cost. Property rented by the taxpayer is valued at eight times the net annual rental rate. Use of Apportionment Schedule E: If an organization has unrelated business (adjusted gross) income from both within and outside Indiana, the organization must apportion its income by means of the three-factor apportionment formula under IC 6-3-2-2. Total Property Values for 2008 Complete the appropriate lines for both within Indiana and everywhere. Add lines (a) through (e) in columns A and B. Divide the sum on line 1A by the sum on line 1B. Multiply by 100 and enter the percent on line 1C. Round the percentage to the nearest second decimal place (e.g., 16.02%). The apportionment factor to be applied to a corporation’s business income to determine the amount taxable by Indiana is based on a three-factor formula of property, payroll, and sales. For taxable years beginning after Dec. 31, 2006 and before Jan. 1, 2008, the numerator of the fraction is the sum of the property factor, plus the payroll factor, plus the product of the sales factor multiplied by 3, and the denominator of the fraction is 5. 2. Payroll Factor: The payroll factor is a fraction. The numerator is the total wages, salaries, and other compensation paid to employees in Indiana, and the denominator is the total of such compensation for services rendered for the business everywhere. Normally, the Indiana payroll matches the unemployment compensation reports filed with Indiana as determined under the Model Unemployment Compensation Act. Compensation is paid in Indiana if: (a) The individual performed the service entirely within Indiana; (b) The individual performed the service both within and outside Indiana, but the service performed outside Indiana is inciden- tal to the individual’s service within Indiana; or (c) Some of the service is performed in Indiana and (1) the base of operations, or if there is no base of operations, the place where the service is directed or controlled, is in Indiana; or (2) the base of operations or the place where the service is directed or controlled is not in any state in which some part of the service is performed, but the individual’s resi- dence is in Indiana. For taxable years beginning after Dec. 31, 2007, and before Jan. 1, 2009, the numerator of the fraction is the sum of the property factor, the payroll factor, and the product of the sales factor multiplied by 4.67, and the denominator of the fraction is 6.67. For taxable years beginning after Dec. 31, 2008, and before Jan. 1, 2010, the numerator of the fraction is the sum of the property factor, the payroll factor, and the product of the sales factor multiplied by 8, and the denominator of the fraction is 10. For taxable years beginning after Dec. 31, 2009, and before Jan. 1, 2011, the numerator of the fraction is the property factor, the payroll factor, and the product of the sales factor multiplied by 18, and the denominator of the fraction is 20. For all taxable years beginning after Dec. 31, 2010, Indiana’s apportioned income will be determined by using only the sales factor. The Department will not accept returns filed for adjusted gross income tax purposes using the separate ac