Indiana Enacts Economic Sales Tax Nexus Provisions

In an effort to curb a seriously eroding tax base and address the state’s inability to effectively collect sales tax from remote sellers, Indiana Gov. Eric Holcomb signed House Bill 1129, requiring remote sellers with no physical presence in Indiana to collect, remit and comply with all applicable provisions of the Indiana gross retail tax (sales tax) code when remote sales are made to Indiana customers. The new economic sales tax provisions are effective July 1, 2017.

Accordingly, if a remote seller that does not have a physical presence with Indiana meets either of the following criteria in the current or previous calendar year, the remote seller must collect and remit the gross retail tax and follow all applicable procedures as if the remote seller had a physical presence in Indiana:

• The retailer merchant’s gross revenue from the sale of tangible personal property, products transferred electronically, or services into Indiana exceeds $100,000.
• The retail merchant sells tangible personal property, products transferred electronically, or services into Indiana in 200 or more separate transactions.

Wyoming also has enacted a similar economic sales tax nexus provision effective July 1, 2017.

Certain Out-of-State Sellers May Need to Start Collecting Ohio Use Tax

The Ohio House of Representatives has passed legislation that would require certain out-of-state sellers to collect use tax.

Currently, if an out-of-state seller has sufficient contact with the state of Ohio, or nexus, the seller is required to abide by Ohio’s tax laws. Sellers who have nexus with Ohio are legally required to register, collect and remit use tax in the same way that the Ohio-based vendor collects and remits sales tax.

Examples of activities that create nexus are:

• regularly having employees or other individuals operating in the state;
• making regular deliveries of tangible personal property into this state; or
• any other physical presence in Ohio.

This new legislation would require out-of-state sellers to register with the Tax Commissioner to collect use tax if:

• it has gross receipts in excess of $100,000 in the current or preceding calendar year from sales of tangible personal property for use in Ohio; or
• it engages in two hundred or more transactions in the current or preceding calendar year selling tangible personal property for use in Ohio.

In the meantime, The Ohio Department of Taxation is encouraging out-of-state sellers to register and begin collecting Ohio use tax. Even if they do not have nexus with Ohio, many sellers choose to register voluntarily because of the convenience in collecting Ohio tax for their customers. The customer then avoids having to pay the tax directly to the state.

Although the bill has passed the Ohio House of Representatives, it still needs to be accepted and signed by the Governor to become a law.

Other states considering similar legislation include Hawaii, Illinois, Maryland, Minnesota, Mississippi, Nebraska, New Mexico, Rhode Island and Washington.

Indiana Income Tax Credit Available to Those Whom Contribute to a School Scholarship Granting Organization

The Indiana tax structure allows for a taxpayer to be entitled to a credit against their state tax liability in the taxable year in which the taxpayer makes a contribution to a scholarship granting organization. A Scholarship-granting organization means an organization that is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code and conducts a school scholarship program without limiting the availability of scholarships to students of only one participating school.

The amount of the credit is equal to 50% of the contribution made to the scholarship-granting organization for a school scholarship program. For taxpayers entitled to a tax credit for a taxable year beginning on or after January 1, 2013, the credit can be carried forward for nine years after the year in which it is first available. For instance, a credit first available to be claimed in 2017 may be carried forward for the period 2018 to 2026.

For more information concerning the school scholarship program, multiple resources are available. Information related to the application of the credit and remaining credits available to be awarded during a state fiscal year can be found on the Indiana Department of Revenue’s website. Additional information from the Indiana Department of Education is available here. For a complete list of scholarship-granting organizations, click the Approved SGOs link at the bottom of the Department of Education website.

To claim the tax credit, complete and attach Schedule IN-SSC to your income tax return, or phone your Somerset tax advisor and we can assist you with obtaining and applying the credit.

Montana Adopts Market-Based Sourcing for Sales Other Than the Sale of Tangible Personal Property

Montana revised its version of the Multistate Tax Compact, as recommended by the Multistate Tax Commission (MTC), to adopt market-based sourcing for apportionment purposes for sales other than sales of tangible property for tax years beginning on or after January 1, 2018.  Under this approach, sales are apportioned to Montana if and to the extent the taxpayer’s market for sales is in Montana. This provision is replacing the current costs of performance method for sourcing such sales. In addition, the legislation adopted the throw-out rule. This means receipts are excluded from the denominator of the receipts factor if the taxpayer is not taxable in the state to which the receipts are assigned.

While Montana has adopted market based sourcing for sales other than the sale of tangible personal property, Montana has not adopted a single sales factor for apportionment. Therefore, companies must continue to apportion their income using an equally weighted three factor apportionment formula that consists of sales, payroll and property.

With the move from costs of performance to market based sourcing, companies may soon transition from having minimal Montana apportionment factor to having significant Montana apportionment factor, causing their Montana tax liabilities to dramatically increase.

Texas Rules that “Cost of Goods Sold” Does Not Include Installation

Effective September 1, 2017, the definition of “production” for purposes of the cost of goods sold deduction no longer includes “installation.” In determining whether installation/labor costs were for “producing the goods,” (and therefore deductible) the Appellate Court decided that installing parts did not involve making or completing the goods as the parts were “already-completed” unless the installation was part of construction, improvement, remodeling, repair or industrial maintenance of real property.

For additional information on any of these topics, contact a member of Somerset’s State and Local tax team at .