Perspectives

Indiana court rules no deduction of foreign source for NOL calculation

Multistate tax alert | October 3, 2014

​In 'Indiana Department of Revenue v. Caterpillar, Inc.,' the Indiana Supreme Court recently reversed the Indiana Tax Court’s 2013 ruling involving the deductibility of foreign source dividend (“FSD”) income in the calculation of Indiana net operating loss (“NOL”) available for carryover for corporate income tax purposes.

Calculating Indiana net operating loss

In Indiana Department of Revenue v. Caterpillar, Inc., the Indiana Supreme Court recently reversed the Indiana Tax Court’s 2013 ruling involving the deductibility of foreign source dividend (“FSD”) income in the calculation of Indiana net operating loss (“NOL”) available for carryover for corporate income tax purposes.

The Indiana Tax Court had ruled that Caterpillar, Inc. (the “taxpayer”) could deduct its FSD income in calculating Indiana NOLs. Reversing the Tax Court’s decision, the Indiana Supreme Court determined that although the FSD deduction applies in calculating Indiana adjusted gross income (“AGI”), use of the deduction to calculate Indiana NOLs is inconsistent with the plain meaning of the NOL statute and is therefore not permissible.1

In this tax alert we explain the statutory and factual/procedural background of the case, summarize the Indiana Supreme Court’s decision, and highlight some taxpayer considerations.

1 Indiana Department of State Revenue v. Caterpillar, Inc., Indiana Supreme Court (Docket No. 49S10-1402-TA-79, Aug. 25, 2014), slip op. at 9, 11; available at: http://www.in.gov/judiciary/opinions/pdf/08251401LHR.pdf.

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