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KSM Blog | Katz, Sapper & Miller CPA

Proposed Indiana Bill Could Impact Real Property Contractors

Posted 5:00 AM by



The 2016 Indiana legislative session is well underway. It is a short session and not a budget year, so we do not expect many significant tax changes as a result of the session. Currently, however, there is proposed sales tax legislation that would impact real property construction contractors. This proposed legislation is a direct response to the outcome of the recent Tax Court decision in Lowe's Home Centers, LLC v. Indiana Department of State Revenue.

In Lowes, the Tax Court upended Indiana’s long-standing policy that time-and-materials (T&M) contractors were treated differently than lump-sum contractors from a sales tax perspective. Historically, Indiana has treated T&M contractors like retailers who purchased materials exempt from tax and collected sales tax on the materials portion of the invoice to the customer, while lump-sum contractors were treated as end users of materials and paid tax on their materials purchases. The Tax Court ruled that no such distinction existed in the Indiana Code, essentially saying both T&M contractors and lump-sum contractors owed tax on their purchases.

The decision in Lowes was a victory for many in the construction community, especially for those contractors utilizing multiple types of contracts. From a recordkeeping standpoint, having to apply multiple sets of rules was a significant administrative burden. It also aligned Indiana with most other states with regard to how construction contractors are treated from a sales tax perspective. 

The outcome in Lowes is now in jeopardy due to proposed changes in SB 309 to bring back the old treatment of T&M contractors as retailers who are required to collect tax on the materials portion of their contracts. In addition, the proposed changes would be retroactively effective to Jan. 1, 2010. 

KSM wanted to make you aware of the proposed changes. In the event they will adversely affect your business, you may want to get in touch with your representative or trade association for further discussion. Please contact your KSM advisor if you have any questions.

About the Author
Donna Niesen is a partner in Katz, Sapper & Miller’s State and Local Tax Group. Donna helps keep clients up-to-date on the multitude of tax rules and requirements in all 50 states. She guides them in the right direction as they address the complex issues that emerge on both the state and local levels. Connect with her on LinkedIn.
 

About the Author
Ron Lenz is the partner-in-charge of Katz, Sapper & Miller’s Construction Services Group. Ron's particular areas of expertise include accounting and auditing matters, tax planning and business structuring, mergers and acquisitions, and succession planning. Connect with him on LinkedIn.

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