INDIANA PERSONAL PROPERTY TAX DATE CHANGE

Each year businesses are required to report the cost of their tangible personal property to the local assessor’s office based on the property they have in their possession.  Effective July 1, 2014, the state of Indiana has changed the assessment date for Business Personal Property from March 1 to January 1.  In the past the date confused many taxpayers because it was not concurrent with a calendar year-end business reporting cycle.  The assessment date of January 1 will eliminate confusion and make it easier to report each year.  January 1, 2016, will be the first reporting cycle with the new assessment date.  The Form 103, which is used to report this information, will be due May 15, 2016.  The due date for taxes assessed based on these filings will remain May 10 and Nov 10, 2017.

COMPLYING WITH THE COMPLEXITIES OF MARKET-BASED SOURCING

With the continued movement to “market-based” sourcing for sales of services, adopted now by 22 states, states must address the complexity of implementing the general rule.  Depending on how state lawmakers define “marketplace,” sales could be assigned either to where the customer is physically located, where the service is delivered or where the benefit of the service is received.

For example, if an architectural firm in Indiana designs an office complex for a company headquartered nationally in Missouri, with a physical office in Illinois that is ultimately directing the building project, and the office complex being built is to be physically located across the river in Iowa, to what state are the sales of the architectural services assigned?  Indiana, Illinois and Iowa can all claim that these sales should be assigned to their state based on their respective state legislation and definition of “marketplace.”

For a business entity, five states of the 22 states define the “marketplace” as where the customer is physically located, eight states define it as where the service is delivered, and nine states define the “marketplace” based on where the benefit of the service is received.  Often, software is not programmed to track the various pieces of information needed to correctly apportion sales of services.

In addition to these rules, seven states have different rules for business vs. individual customers.  Most often, these states source sales to individual customers based on the customer’s billing address.

Please contact your Somerset advisor if you would like further assistance sorting out the above rules as they apply to your business.

ILLINOIS SALES APPORTIONMENT UPDATE

The Illinois Department of Revenue has issued an information letter on October 21, 2015, explaining that refund of state taxes imposed on business income of an out-of-state corporation must be apportioned to Illinois in the same manner and to the same extent as the taxpayer’s other business income for the taxable year.  This is because, according to the Illinois Income Tax Act, the refund of other state taxes is categorized as business income since the state taxes are categorized as business deduction, and therefore must be apportioned the same way other business income is apportioned.  Taxpayer may file a petition to argue an alternative method of apportionment on the refund of other state taxes if the taxpayer wishes to claim that a tax refund is not taxable by Illinois.

CALIFORNIA SALES APPORTIONMENT UPDATE

Gross receipts from “occasional” sale of fixed asset or other property held or used in a taxpayer’s trade or business has been excluded from the sales factor in California, while “substantial” receipts from an occasional sale has been included in the sales factor in California.  However, the California Franchise Tax Board (FTB) issued a Chief Counsel Ruling on September 11, 2015, stating that FTB will allow gross receipts from a transaction that was both “substantial” and “occasional” within the meaning of California Code of Regulations to be excluded from the sales factor.  The California Code of Regulations defines a transaction as “substantial” when the gross receipts from the sale, if excluded from the taxpayer’s sales factor denominator, will cause a 5% or greater decrease in that denominator.  And it defines a transaction as “occasional” if the transaction is outside of the taxpayer’s normal course of business and occurs infrequently.

In the case that this Chief Counsel Ruling is based on, the taxpayer had two lines of business and sold an entire line of business to focus on the other business line.  There was no indication that such transaction was regular or systematic and this was the only time that the taxpayer has disposed of an entire line of business.  Therefore the sale was “occasional” within the meaning of the regulation although it was not just a sale of fixed asset of other property but the entire line of business.

INDIANA DEPARTMENT OF REVENUE ANNUAL REPORT

The Indiana Department of Revenue issues an annual report containing data relative to the department’s performance, financial position and key performance indicators. Some of those highlights include:

• The department collected $18.1 billion of revenue and expended $75 million in operating and capital dollars.
• Revenue collected $270 million in delinquent tax payments,
• The department handled 823,000 calls, a 9.3% increase over the prior year. This represented a call success rate of 85.9%
• Indiana continued to offer no-cost, online tax filing services to those who qualify through the Indiana Freefile .
• During fiscal year 2015 the department achieved a longtime goal of creating a path for companies and corporations to file annual corporate tax returns electronically. Beginning in February of 2015 electronic filing of Form IT-20S for Sub-Chapter S Corporations was available from at least two major software vendors, and eventually via five vendors.
• During the 2014 individual tax filing season, the department implemented an Identity Protection Program to reduce taxpayer identity theft and disbursement of fraudulent tax efunds. The program uses third party vendor LexisNexis to allow the department to check identities against national databases. During fiscal year 2014, the pilot Identity Protection Program stopped $88 million in identity theft refunds and 78,000 fraudulent returns. The Identity Protection Program continued during the 2015 individual tax filing season with increased security features. All software vendors certified in Indiana were required to sign agreements with the state. Those vendors with excessive fraud in 2014 were not recertified unless increased fraud screening was evidenced. In addition, all individual tax returns were reviewed through an extensive screening filter prior to being
  processed. Multiple filter parameters detect fraudulent returns and unusual activity. The processing rules and parameters were based on what the department learned in 2014 and adjusted throughout the tax season as new information became available. Final results are not yet complete, but during 2015 the program has continued to yield exceptional results. To date during the 2015 tax season, more than $13.6 million in attempted identity theft and tax refund fraud has been identified and stopped, thus saving money for the state and Hoosier taxpayers.

 ERRONEOUS OHIO INDIVIDUAL INCOME TAX RETURN LETTERS

The Ohio Department of Taxation recently acknowledged that they sent out approximately 5,000 letters in error requesting additional support for social security numbers used on taxpayers’ 2014 Ohio Individual Income Tax Returns.

Per conversations with the Ohio Department of Taxation, please disregard this letter.  Ohio is sending out replacement letters requesting instead a copy of page 1 and 2 of the taxpayer’s federal return and support for all withholdings shown on the 2014 Ohio Return.  The replacement letters have not been sent out yet.  Please note this will delay any refunds until the replacement letter is received and any additional information requested by Ohio has been submitted.  Please send Somerset any letters you may receive or any questions you may have.

A REMINDER OF TAX CREDITS AVAILABLE FOR 2015 IN INDIANA

As the year comes to a close, Somerset would like to remind you of several tax credits available for Indiana tax payers to take advantage of:

Indiana College Choice 529 Savings Plan Credit

This tax credit is available only to taxpayers who make a contribution to an account in the Indiana CollegeChoice 529 Savings Plans. The taxpayer is entitled to a credit against the state adjusted gross income tax liability for a taxable year. The amount of the credit is the lesser of the following:

• 20% of the amount of all contributions the taxpayer makes to an account(s) of the Indiana CollegeChoice 529 Education Savings Plan during the taxable year;
• The amount of the taxpayer’s adjusted gross income tax liability for the taxable year reduced by the amount of credits allowed under IC 6-3-1 through 6-3-7; pr $1,000.

It is important to note that the credit must be received by the program manager by December 31st.  Mailing of a contribution by December 31st if not a timely contribution unless it is received by the program manager, regardless of postmark date.

College Credit

The tax credit is available to individuals donating money or property to an Indiana College or University.  For an individual filing a single return, the credit is the lesser of one-half of the amount contributed, or $100.  For individuals filing a joint return, the credit is the lesser of one-half of the amount contributed, or $200.

Please note, tuition paid to a college or university is not considered a contribution and does not qualify for this credit

School Scholarship Tax Credit

The Tax credit is available to individuals or corporations who donate to a scholarship-granting organization (SGOs).  Those who have donated to an SGO approved by the Department of Education will then be eligible to take advantage of a 50% credit against their individual or corporation state-tax liability.

While there are no limits to how much a donor can contribute to a qualified SGO, the entire tax credit program cannot award more than $8.5 million in credits this fiscal year (July 1, 2015 – June 30, 2016)

If you have questions regarding the above articles, please contact your Somerset advisor, or a member of Somerset’s SALT team.