dissenting.
I respectfully dissent from the majority's opinion in this case.
I
Before analyzing the majority's reasoning, a few words are in order about the federal tax policies that gave rise to this case. An understanding of these policies is essential to appreciate what is really going on here-that the transactions that are at the heart of this case do not flow from a portfolio manager's decision to liquidate some intangible assets but are, rather, the direct result of a decision by manufacturing executives to make a significant investment in modernizing Bethlehem's steel production facilities in Indiana. Consequently, the gross income that decision generated is derived from an Indiana source.
In 1981, the United States Congress and the new President of the United States were faced with a recession. The manufacturing sector of the American economy, including the steel industry, was among the hardest hit by that recession. The manufacturing sector was so hard hit, in fact, that traditional tax incentives to modernize plant and equipment-investment tax credits and accelerated depreciation deductions-were of no value because these corporations were losing money. They had no net income and so no tax liability to be reduced by using the credits or deductions. See Senate Rept. No. 97-144 (July 6, 1981), 1981 U.S.C.C.A.N. 105, 166. Congress and the President recognized that for the country's manufacturing sector to regain its long-term health, investment in *273new plant and equipment needed to be stimulated. To that end, the Economic Recovery and Tax Act of 1981 provided corporations that were losing money effectively the same tax incentives to modernize and to invest in new equipment that were available to profitable corporations. It did this by making it possible for any corporation that both invested in new equipment and placed that equipment in service to use a so-called "safe harbor lease" 1 to sell the tax credits and deductions related to that equipment to a profitable corporation that was in a position to use the credits and deductions to reduce its federal tax burden. See LR.C. § 168()(@®) (1981) (repealed 1986); House Conference Rept. No. 97-215 (Aug. 1, 1981), 1981 U.8.0.C.A.N. 285, 309. j
Bethlehem, like most of the domestic steel industry at the time, was operating at a loss. In 1981, 1982, and 1983, the company took advantage of the new law. Bethlehem invested in and placed into service in Indiana new steel manufacturing equipment worth millions of dollars, and it then used the safe harbor lease provisions to "sell" the investment tax credits and accelerated cost recovery system (ACRS) deductions attributable to that Indiana equipment for approximately $55 million in gross income.
I need to spend another moment to emphasize the foregoing point. Bethlichem and the majority would have us believe that the sale-leaseback transactions really had little to do with Bethlehem's manufacturing business in Indiana. But that is just not so. The proceeds at issue here come from Bethlehem's sale of investment tax credits and ACRS deductions. To earn those investment tax credits, Bethlehem had to (1) purchase (2) new steel-making equipment and (8) place it into service. See LR.C. § 168M@®(D) (1981) (repealed 1986). In the leases, Bethlehem represented, warranted, and covenanted that the steel-making equipment it had purchased was new and had been placed in service; it also indemnified the lessor against any tax liability it might incur as a result of Bethlehem's breach of those representations, warranties, and covenants. See, eg., Ex. 7G: Assignment and Lease Agreement No. 1, dated Dec. 29, 1982, §§ 10.01 and 10.02, between Deluxe Check Printers, Inc., as Lessor, and Bethlehem, Steel Corporation, as Lessee.
Bethlehem's purchase of new steel-making equipment worth millions of dollars and its placement of that equipment into service (and its indemnification of its lessors against its failure to do so) had a close and integral relationship to Bethlehem's manufacturing business in Indiana.
Against this background, I think it is clear that the tax benefits Bethlchem sold are so inextricably connected with the company's Indiana-based equipment that the gross income Indiana seeks to tax absolutely depends upon both the use and the location of the equipment in Indiana. Contra, Bethlehem Steel Corp. v. Indiana Dep't of State Revenue (1992), Ind.Tax, 597 N.E.2d 1327, 1337. Bethlchem derived that income from activities, business, and sources within Indiana and that income is therefore subject to Indiana gross income tax.
II
To decide this case it is necessary to resolve three legal issues: 1) whether the cash proceeds received by Bethlehem constituted gross income under the statute; 2) if those proceeds were gross income, whether Bethlehem derived that income from activities, business, or other sources within Indiana; and 3) if Bethlehem did derive that income from within Indiana, whether the Commerce Clause of the federal constitution permits taxation of the income by the state.
A
Both the majority and the Tax Court agree, as do I, that the net proceeds constitute gross income under Indiana's gross income tax statute. Indeed, any conclusion to the contrary would be impossible without effectively overruling our opinion in Hoosier Emergy Rural Elec. Coop. v. Indiana Dep't of State Revenue (1991), Ind., 572 N.E.2d 481 *274(Hoosier Energy II)), aff'g (1988), Ind.Tax, 528 N.E.2d 867 (Hoosier Emergy I), cert. denied, - U.S. -, 112 S.Ct. 337, 116 L.Ed.2d 277 (1991).
B
I part company with the majority and the Tax Court, however, when they conclude that Bethlehem did not derive this gross income from activities, business, or other sources within Indiana. The majority and the Tax Court focus on the location of Bethlchem's corporate headquarters in Pittsburgh; but the very transactions that gave rise to these proceeds were Bethlehem's investments in new plant and equipment in Indiana and the placement of that equipment into service in Indiana-all for the purpose of modernizing Bethlechem's steel manufacturing facilities in Indiana.
I think this case requires nothing more than a simple, straightforward reading of the statute to find that the gross income Bethlehem earned when it sold investment tax credits and ACRS deductions for steel manufacturing equipment both located and placed into service in Indiana was, in fact, gross income "derived from activities or business or other sources in Indiana."
In contrast, the majority finds it necessary to search out the meaning of "derived from activities or business or other sources within Indiana," and it embarks on a wide-ranging examination of regulation and case law to try to find it. While I think such an examination totally unnecessary-from the plain language of the statute it is apparent that Bethlchem's income from the sale of its federal tax benefits is clearly taxable-I also think the majority misreads the regulations and cases as it goes.
The majority attempts to answer, in essence, but a single question in its analysis of the Department's regulation on the taxability of income from intangibles, in its discussion of the history of situs analysis, and in its recitation of Court of Appeals' decisions on the taxation of income from intangibles. That question is: whether the connection between Indiana and the activities, business, or other sources generating Bethlehem's gross income was close enough to be called "integral"?
In view of the analysis above, I think the connection between Bethlehem's activities and the income those activities generated is clearly close enough to be characterized as "integral." Bethlehem decided to expand its Indiana steel manufacturing facility. The company bought new equipment and placed it into service in Indiana. It then sold off the investment tax credits and ACRS deductions attributable to that equipment located and placed into service in Indiana. It earned gross income from the sale of those tax benefits. Said differently, Bethlehem could not have earned the income at issue without purchasing new equipment and placing it into service. The law of investment tax credits and ACRS deductions required fulfillment of both conditions. Because Bethlehem decided to locate that new equipment in Indiana and to use it to produce steel in Indiana, the tax benefits themselves and the income generated by the sale of those benefits had an integral connection to Bethlehem's Indiana steel-making business.
1. The Facts in the Gross Income Tax Cases Cited By the Majority Differ Greatly From the Facts in This Case and So Are Not Helpful.
The integral connection between Bethlehem's activities and the income generated by those activities distinguishes this case from those cited by the majority. For example, in Indiana Dep't of State Revenue v. J.C. Penney Co. (1980), Ind.App., 412 N.E.2d 1246, 1248, the Court of Appeals decided that Penney's income from mail order sales to Indiana customers was not subject to Indiana adjusted gross income tax where (1) orders were mailed directly from Indiana customers to the catalog center in Wisconsin, (2) orders were accepted in Wisconsin, and (8) shipments were made from the catalog center in Wisconsin directly to the customer. In Indiana Dep't of State Revenue v. Convenient Indus. of America (1973), 157 Ind.App. 179, 188, 299 N.E.2d 641, 646, the Court of Appeals decided that Convenient Industries' franchise service and advertising fee income from Indiana franchisees was not subject to Indiana adjusted gross income tax where substantially all of the services that generat*275ed the fees were performed in Kentucky. In both J.C. Penney and Convenient Industries, the Court of Appeals concluded that the activities generating the income sought to be taxed did not oceur in Indiana. See Convenient Indus., 157 Ind.App. at 188, 299 N.E.2d at 645.2 In contrast, it was the operation of Bethlehem's safe harbor lease equipment in Indiana that created the investment tax credits and ACRS deductions, the sale of which generated the gross income that the state seeks to tax in this case.
2. The Regulation Relied upon by the Majority Indicates the Gross Income at Issue in this Case is Taxable.
Under the heading "Sources within Indiana," the majority refers to Indiana Administrative Code title 45, Regulation 1-1-51 as "the interpreting regulation" and suggests that the regulation provides the controlling interpretation of when gross income is derived from "sources within Indiana." In fact, Regulation 1-1-51 of title 45 only purports to determine when income from intangibles is taxable and not whether income is derived from within Indiana. As I have already indicated above, one need not go beyond the unambiguous language of the gross income tax statute to see plainly that Bethlchem's gross income from the sale of federal tax benefits was derived from an activity, business, or other source within Indiana.
But in my view, a correct reading of Regulation 1-1-51 would reveal that the proceeds from Bethlehem's sale-leaseback transactions are taxable, The regulation provides two tests for the taxability of intangibles that
are really quite straightforward. First, if a taxpayer has established its commercial domicile in Indiana, then all income from intangibles is taxable in Indiana unless "the income is directly related to an integral part of a business regularly conducted at a "business situs" outside Indiana." Ind.Admin.Code tit. 45, r. 1-1-51 para. 6 (1992). Bethlchem has not established its commercial domicile in Indiana, so this test is not applicable to this case.
Second, if a taxpayer, regardless of whether its commercial domicile is in Indiana or not, has a "business situs" in Indiana, and "the intangible forms an integral part of a business regularly conducted at [that] situs," then the income from that intangible is taxable. Ind. tit. 45, r. 1-1-51 para. 2 (1992). I believe that Bethlehem's income from its sale of federal tax benefits meets this test for the taxability of income from intangibles.
The majority incorrectly states that by the terms of this test "Indiana may not tax Beth-Ichem's income from the sales of tax benefits unless the sales form 'an integral part' of Bethlehem's in-state business activities." In fact, the regulation provides that if either the intangible itself or the sales proceeds form an integral part of the business, the proceeds are subject to tax. Ind.Admin.Code tit. 45, r. 1-1-51 para. 2.
The majority also incorrectly states that "the regulation does not explain when an intangible or the income from an intangible forms an 'integral part' of a business operation."3 In fact, the regulation clearly indi*276cates that the "integral part" test is met if "the intangible or the income derived therefrom is connected with that business, either actually or constructively." Ind. tit. 45, r. 1-1-51 para. 3.
The intangible here, of course, is the tax benefits, and they were created by the use of the equipment to which they related in Bethlehem's Indiana steel-making business. I do not think that it can be seriously maintained that the generation of investment tax credits and ACRS deductions by the use of steel-making equipment at Burns Harbor is not "connected" with Bethlehem's Burns Harbor business "either actively or constructively."
3. How Other States Have Treated the Proceeds from Safe Harbor Lease Transactions Is Also Instructive and Further Supports the Conclusion That Bethichem's Income Was Derived from an Integral Part of Bethichem's Business in Indiana.
Under the net income tax statutes of Wisconsin, Oregon, and California, taxpayers have sought to avoid the taxation of proceeds from safe harbor lease transactions. In each instance, the proceeds were treated as a return of capital that reduced the lessee's basis in the equipment it leased back. See International Paper Co. v. Wisconsin Dep't of Revenue, 1992 WL 104365 (Wis.Tax.App. Comm.1992); Portland Gen. Elec. Co. v. Department of Revenue, 11 Or.Tax 78, 1988 WL 95747 (Or.Tax 1988); Legal Rul. 419, 1981 WL 11909 (Cal.Fran.Tax Bd.1981). The analysis in each instance was that when the federal tax benefits were transferred, a portion of the owner's "bundle of rights" in the equipment passed to the buyer of those rights. "[Thhe federal tax benefits were part and parcel of the equipment until they were sold or until the equipment itself was sold, and the petitioner owned them by virtue of having acquired the equipment in the first place. The tax benefits were an integral part of the equipment in a property sense and would have been available to petitioner to reduce its own future federal tax liability, if any, had the sale at issue here not taken place." International Paper, 1992 WL 104865 at "4
4. The Hoosier Emergy Cases Dictate That the Gross Income at Issue in This Case is Taxable.
Finally, while the majority and the Tax Court retreat from the holdings in Hoosier Emergy I and Hoosier Energy II, it seems to me that the Tax Court was exactly right in Foosier Energy I when it said that "the business situs of the intangible is in Indiana, since the tax benefits relate to personal property owned and operated by Hoosier in Indiana," 528 N.E.2d at 872, and went on to find that such aspects of the transaction as the "negotiations, closing, and transfer of funds" were of so little consequence that no apportionment of the proceeds to the state in which these "phantom obligations" took place was required. Id. at 873-74.
The majority concludes its opinion with the admonition that if Indiana wants to tax domiciliary Hoosier Energy, it must be willing not to tax non-domiciliary Bethlehem. But nothing in Hoosier Energy I or Hoosier Energy II depended upon Hoosier Energy being an Indiana-domiciled corporation. And even if it did, the broad sweep of the gross income tax statute makes such analysis unnecessary. In both cases, the income Indiana sought to tax absolutely depended upon both the location and the use of the equipment in Indiana. While the Tax Court decried this as a bright *277line test, I think taxpayers deserve-and in this case could easily have had-a bright line test.
In my view, we need look no further than the language of the statute to conclude that the proceeds from Bethlehem's safe harbor lease transactions constitute taxable gross income inasmuch as they are derived from Bethlehem's activities, business, or other sources within Indiana. But that aside, the majority's approach, correctly executed, would produce the same result. The tax benefits-the investment tax credits and accelerated depreciation deductions-were derived and; as a matter of federal tax law, could only have been derived from the operation of the equipment to which they related. That equipment was operated in Indiana. Since, as our sister States have held, the "tax benefits were an integral part of the equipment in a property sense," the source of the proceeds from the sale of those tax benefits must be the location of the equipment-Burns Harbor, Indiana.
III
In Hoosier Energy II this Court discussed the constitutional limits on imposing gross income tax heres5 The Commerce Clause permits a state tax that (1) is applied to an activity with a substantial nexus with the taxing state; (i) is fairly apportioned, (Hi) does not discriminate against interstate commerce, and (iv) is fairly related to the services provided by the state. Goldberg v. Sweet, 488 U.S. 252, 257, 109 S.Ct. 582, 586-87, 102 L.Ed.2d 607 (1989); Complete Auto Transit v. Brady, 430 U.S. 274, 287, 97 S.Ct. 1076, 1083, 51 L.Ed.2d 326 (1977); Hoosier Energy II, 572 N.E.2d at 484-485.
I have already discussed at length the nexus between Bethlchem's sale-leaseback transactions and this state. As regards fair apportionment, the U.S. Supreme Court employs two tests to ensure that each state taxes only its fair share of an interstate transaction. These tests determine whether the tax is both internally and externally consistent. To be internally consistent, a tax must be structured so that if every state were to impose an identical tax, no multiple taxation would result. Goldberg, 488 U.S. at 261, 109 S.Ct. at 588-89. In Bethlehem's case, the internal consistency test is met because Indiana seeks to tax only the proceeds of the sale of tax benefits attributable to equipment in Indiana. See Hoosier Energy II, 572 N.E.2d at 485.
The external consistency test asks whether the state has taxed only that portion of the revenue from the interstate activity which reasonably reflects the in-state component of the activity being taxed. Goldberg, 488 U.S. at 262, 109 S.Ct. at 589. Because the tax applies only to the proceeds from Bethlehem's sale of tax benefits attributable to equipment in Indiana, the state is not seeking to tax any out-of-state component of the activity at all.
It could not be clearer that the tax involved here does not discriminate against interstate commerce. Indeed, our Court and the Tax Court have both held that this taxing scheme applies to precisely this transaction when engaged in by an Indiana taxpayer. Hoosier Energy II, 572 N.E.2d at 485; Hoosier Energy I, 528 N.E.2d at 872.
Lastly, I think it is beyond question that this tax is fairly related to the services provided Bethlschem by the state. Bethlchem's investment in hundreds of millions of dollars worth of additional steel-producing capacity in Indiana means that the taxpayers of this state have necessarily been called upon to provide infrastructure improvements, public safety and educational benefits, and other public services for Bethlehem, its employees, and their families.
Conclusion
Congress provided an incentive for Bethlehem to modernize its steel production equipment. Bethlchem took advantage of that *278incentive when it purchased new equipment and placed it into service in Indiana. As a result of selling the investment tax credits and depreciation deductions on that Indiana equipment, Bethlehem earned gross income. The Indiana gross income tax applies to that gross income because the income was derived from activities, business, or other sources within Indiana. Additionally, under the federal decisions that are currently controlling of the issue, which decisions this Court must follow, the Commerce Clause poses no obstacle to the taxation of Bethlehem's gross income from the sale of federal tax benefits attributable to equipment located in Indiana. For these reasons, I dissent.
DeBRULER, J., concurs.
. "Safe harbor leases" were documented as either transactions. "financing leases" or "sale-leaseback" Bethlehem utilized the sale-leaseback approach. See Brief in Support of Petitioner's Motion for Summary Judgment at 15-16 for a description of these- alternatives.
. Convenient Industries and J.C. Penney might well be decided differently today. Although Convenient Industries was clearly decided on state statutory grounds and not on federal constitutional grounds, the Court of Appeals had constitutional concerns in mind when it said that the gross income tax statute had federal Commerce Clause "constitutional restrictions embraced within it." Convenient Indus. 157 Ind.App. at 185, 299 N.E.2d at 645. Four years later, the United States Supreme Court re-wrote prevailing Commerce Clause analysis of state tax regimes in Complete Auto Transit v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977). Although J.C. Penney was decided after Complete Auto Transit, the Court of Appeals relied on the Comve-nient Industries analysis without recognizing the changes wrought by Complete Auto Transit. See J.C. Penney, 412 N.E.2d at 1248. Whether this analysis would be used today in light of Complete Auto Transit and later cases is highly doubtful.
. After asserting that the regulation does not explain what is meant by "integral part" of a business, the majority then engages in a long discussion of the case law relating to "business situs." I do not understand the relevance of 'business situs'"-the place in which a business is, for tax purposes, considered to conduct its activities-to defining "integral part of a business"-the connection of a particular intangible to the business conducted at that place. If the majority needs to know what "business situs" means for purposes of the gross income tax statute, it need only look to Regulation 1-1-49 of *276title 45. In any event, I think it is beyond peradventure that Bethlehem has a business situs in Indiana.
. Our Tax Court found below that in Bethliehem's case, the tax benefits were an intangible asset and that the proceeds from their sale was not a return of capital. See Bethlehem Steel Corp. v. Indiana Dep't of State Revenue (1992), Ind.Tax, 597 N.E.2d 1327, 1333. It observed that under our corporate gross income tax statute "the distinction [between an intangible asset and a return of capital] is without a difference because 'gross income' includes both the receipts from a sale of an intangible under IC 6-2.1~1-2(a)(3) and the return of capital invested under IC 6-2.1-1-2(b)." Id. But characterizing the payments for the tax benefits as intangible assets rather than as a return of capital, particularly when there is no difference for tax purposes, does not change the character of the payments as a integral part of Bethlehem's ownership rights in the equipment.
. There is something counter-intuitive about the analysis of both the majority and the Tax Court. One would expect that a legislature would attempt to extend its taxing authority over nonresident corporations as far as possible, limited only by the constitutional protections afforded interstate commerce. But here, where the constitutionality of the taxing scheme does not seem to be a problem, the majority holds that, in effect, the legislature did not intend to tax nonresident corporations to the full extent of its constitutional authority.