Indiana does not tax out-of-state investors if the investment is structured properly.

Vodafone had a 45% interest as a general partner in a Delaware general partnership with Verizon Wireless through which the two companies provided cell phone services.

States tax income that is earned in the state. Vodafone treated its share of income from the partnership as earned in Indiana, but then thought better of it and asked for a refund of the taxes it paid during the period 2005 through 2008. The company argued that the income was from an intangible asset — its partnership interest — and companies only have to pay taxes on income from intangibles if they are domiciled in the state.

It lost in court. The Indiana Tax Court said in June 2013 that the income was income from an operating business. “[T]he mere fact that Vodafone was a partner in a general partnership gives its income from that partnership the character of operational income.” The fact that Vodafone had only a minority interest was not enough to change the character of the income; as general partner, it was not merely a passive investor.

Vodafone appealed, but the parties told the court this summer that they reached a settlement under which the Indiana Tax Court decision will stand. The appeal was withdrawn. The case is Vodafone Americas Inc. v. Department of State Revenue. The court order dismissing the appeal did not surface until October.

Indiana does not tax income that the owner of a minority interest in a limited liability company receives as a passive investor.

— contributed by Keith Martin in Washington