Indianapolis, Ind. (May 17, 2013) – The certified public accounting firm of Katz, Sapper & Miller LLP (KSM) is pleased to announce the addition of three staff accountants.

Tad Chew, Real Estate Services Group. Chew graduated summa cum laude from Indiana State University (ISU) with a Bachelor of Science degree in elementary education. He later received a Bachelor of Science degree in accounting from ISU. Prior to joining the firm, Chew taught second-grade students at Staunton Elementary School in Brazil, Ind.

Cameron Gentry, Audit and Assurance Services Department. Gentry graduated from Indiana University-Purdue University Indianapolis (IUPUI) with Bachelor of Science in Business degrees in accounting, finance and international studies, with a minor in political science, from the Kelley School of Business Indianapolis (KSBI). While a student at IUPUI, he worked at the Career Planning Office and served as treasurer of the KSBI Accounting Association.

Timothy Murphy, Audit and Assurance Services Department. Murphy received a Bachelor of Science degree in accounting, with a minor in finance, from Purdue University, where he also earned a Certificate of Advanced Accountancy from the Krannert School of Management. While a student at Purdue, Murphy volunteered for a local not-for-profit, where he prepared tax returns for low-income individuals.

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About Katz, Sapper & Miller
As one of the top 70 CPA firms in the nation, Katz, Sapper & Miller has earned a reputation as a leader in the areas of accounting, tax and consulting services. Founded in 1942, the firm has more than 260 employees and is headquartered in Indianapolis, Ind. with additional offices in Fort Wayne, Ind. and New York. Katz, Sapper & Miller was named one of the “Best of the Best” accounting firms in the nation by INSIDE Public Accounting magazine and has been recognized by the Indiana Chamber of Commerce as one of the “Best Places to Work in Indiana” for eight consecutive years. The firm is an independent member of Nexia International, a leading global organization of independent accounting and consulting firms. For more information, visit us at ksmcpa.com.

Heritage Operating, LP v. Rhine Bros. LLC, 2012 Tex. App. LEXIS 4939 (June 21, 2012)

During the sale of their well-established propane business - including 10 locations in Texas and across the South - all but one of the owners decided to stay with the company under new management. The one retiring owner signed a noncompete agreement (as did the others), which prohibited him from engaging in a propane business for 10 years beyond the date of sale (2003) and within a 75-mile radius of the company's Texas location. The buyer agreed to pay the owner $500,000 for the noncompete agreement, paid out over five years; their contract also stipulated that $7 million of the $15.5 million purchase price was for the goodwill and other intangible assets of the firm, including its customers and pricing lists. Read more

Read the full text of the Litigation Services Bulletin.

Property Tax Alert – Indiana

Amended Form 11s issued by Marion County: In December 2012, Marion County issued its Notices of Assessment (Form 11s) to all real property taxpayers. The Form 11 establishes the value for the 2012 property taxes payable in 2013. After the original notices were issued, Marion County reevaluated its calculations, resulting in amended notices for many taxpayers. After the reevaluation, some assessed values have increased as much as $10 million from the original notice received. The amended Form 11s were mailed by the county at the beginning of April, and the deadline to appeal the resulting new assessed value is May 13, 2013.

Additionally, due to the upcoming payment due date of May 10, many counties have begun to mail their property tax bills. Upon receipt of your tax bill, it is recommended that you compare it to the Form 11 you have received to confirm that the correct assessed value was used to compute the tax liability. Additionally, KSM recommends that you confirm that all exemptions are on file (residential) or applicable deductions are taken (commercial) when calculating the tax liability. All taxpayers should also confirm that their property is receiving the appropriate property tax cap.

For any commercial property owner needing assistance with either matter, please feel free to contact KSM’s property tax practice leader Chad Miller or your KSM representative.

Indiana Tax Court Rules on Net Operating Losses (NOL) Computation
The Indiana Tax Court has ruled that a corporation's foreign source dividends are deductible in calculating its Indiana net operating losses, including those available for carryover as a deduction from taxable income in future years. The taxpayer is a Delaware corporation that manufactures construction and mining equipment worldwide, including a manufacturing plant in Lafayette, Ind., and took a foreign source dividend deduction and reported the NOLs on a separate company basis in each of its loss years for Indiana income tax purposes. Indiana law provides that an Indiana NOL equals the federal NOL for a taxable year derived from sources within Indiana and adjusted for specified and required modifications, and a corporation that includes any Foreign Source Dividends (FSD) in its Indiana adjusted gross income for a taxable year is entitled to a deduction from that adjusted gross income. Therefore, the taxpayer's FSDs are deductible in calculating its Indiana NOLs because “adjusted gross income” is a component of the Indiana NOL provisions and the taxpayer's FSD income is included in that adjusted gross income. Further, legislative intent shows that the Indiana FSD provisions are to apply whenever FSD income is included in Indiana adjusted gross income even when calculating Indiana NOLs. See Caterpillar, Inc. v Indiana Department of State Revenue for more information.

Indiana Rules on Taxability of Digital Items
A taxpayer's sales of authentication services, including the provision of a digital certificate to its customers, were not subject to the sales and use tax. The taxpayer is a provider of authentication solutions that allow for businesses and individuals to perform secure electronic commerce and communications over the internet. Among the solutions are the provision of a digital certificate and authentication and resolution services, which are provided on a subscription basis. The Indiana Department of State Revenue determined that the digital certificates were neither specified digital products subject to the sales and use tax, nor were they considered to be computer software because the digital certificates did not represent a set of coded instructions designed to cause a computer or automatic data processing equipment to perform a task. Accordingly, the sales of the authentication services were not subject to tax. See Ruling ST 12-04 for more information.

Multistate Tax Commission Discusses Proposed Compact Amendments
The Multistate Tax Commission has proposed several amendments to Article IV of the Multistate Tax Compact. Recognizing the impact that changes in the economy and state tax policy have had on the relevance of the compact and in an effort to promote increased uniformity among state tax systems, the commission has recommended changes to sections of the compact dealing with the apportionment of business income. The proposed amendments are the product of a multi-year effort on the part of the commission and are focused on five key areas: sales factor sourcing of intangibles, the definition of "sales," factor weighting, the definition of "business income," and distortion relief.

California Moves to Single Sales Factor
An “apportioning trade or business,” which includes a nonresident's business, trade or profession that carries on within and out of California, is now required to apportion business income using the single sales factor. Proposition 39, which added Cal. Rev. & Tax. Cd. § 25128.7 for taxable years beginning on or after Jan. 1, 2013, requires “all business income of an apportioning trade or business shall be apportioned to this state by multiplying the business income by the sales factor.” California Regulation Sections 17951 through 17954 requires such businesses to source such business income in accordance with the provisions of the corporate apportionment rules. This means, according to the Franchise Tax Board, “an apportioning trade or business” regardless of the form of ownership, (e.g., sole proprietorship, partnership, limited liability company, or corporation), that carries on within and out of California is required to apportion the nonresident's business income using the single sales factor. See April Tax News for more information.

Idaho Adjusts NOL Carryback Rules
Effective retroactive to Jan. 1, 2013, the Idaho two-year carryback provisions allowed for unused net operating loss amounts for NOLs for tax years starting on or after Jan. 1, 2013, are applicable only if an amended return carrying the loss back is filed within one year of the end of the tax year of the NOL that results in the carryback. Also, the provisions governing the Idaho 20-year carryforward allowed for such unused NOL amounts no longer require taxpayers to check a separate state election box on the taxpayer's Idaho tax return to take that carryforward. See HB 184 for more information.

Illinois Rules on Rolling Stock Exemption
The Illinois Department of Revenue has released a general information letter stating that diesel exhaust fluid, which is injected into the exhaust gas of diesel motors to reduce emissions, does not qualify for the rolling stock exemption because it does not become a physical component of the qualifying rolling stock and is therefore a consumable that is subject to tax. Under Ill. Admin. Code 86 § 130.340, items such as oil, grease, belts and lights qualify for the rolling stock exemption because they become a physical component part of the qualifying rolling stock, but items such as fuel, paint supplies and cleaners do not qualify because they do not become a component part of such vehicle and therefore do not participate directly in some way with the transportation process. See ST 13-0002-GIL for more information.

Kentucky Imposes Use Tax Notification Requirement on Out-of-State Sellers
Effective July 1, 2013, every retailer making sales of tangible personal property or digital property from outside Kentucky for storage, use or consumption in Kentucky, who is not required to collect Kentucky use tax, must notify the purchaser that he or she is required to report and pay the Kentucky use tax directly to the Department of Revenue on purchases from that retailer unless the purchases are otherwise exempt. The required notification must be readily visible and be included on the retailer's Internet website, retail catalog and on invoices provided to the purchaser. The law specifies the exact language that must be used. Any retailer that made total gross sales of less than $100,000 to Kentucky residents or businesses located in Kentucky and that reasonably expects that its Kentucky sales in the current calendar year will be less than $100,000 is exempt from the notification requirement. See HB 440 for more information.

For more information, contact Donna Niesen at dniesen@ksmcpa.com. 

• Proposed Accounting Standards Update on Discontinued Operations
   
• Update on the FASB Lease Proposal

Proposed Accounting Standards Update on Discontinued Operations

In April 2013, the Financial Accounting Standards Board (FASB) issued a proposed accounting standards update (ASU), Presentation of Financial Statements (Topic 205): Reporting Discontinued Operations, for public comment. The amendments in the proposed update will address a common complaint that too many disposals of assets currently require discontinued operations presentation in the financial statements. Current discontinued operations reporting guidelines can result in financial statements that are not useful to users of the financial statements and can be more difficult to prepare.

Currently, a component of an entity should be classified as a discontinued operation if: 1) it has been disposed of or is held for sale, 2) the operations and cash flows of the component have been or will be eliminated from the ongoing operations of the entity because of the disposal, and 3) the entity will not have significant continuing involvement in the operations of the component after the disposal.

Under the proposed amendments, a component of an entity would only be treated as a discontinued operation if: 1) it has been disposed of or is held for sale, and 2) it is part of a single coordinated plan to dispose of a separate major line of business or separate major geographical area of operations.

Disposals of equity method investments that meet the above definition of a discontinued operation would be eligible for discontinued operations presentation. Also, the requirement that the operations and cash flows of the component have been or will be eliminated from the ongoing operations of the entity because of the disposal, and the entity will not have significant continuing involvement in the operations of the component after the disposal, would be eliminated by the amendments.

The proposed amendments would require additional disclosures about discontinued operations including the major income and expense items, major classes of cash flows, a reconciliation of the major classes of assets and liabilities held for sale that are disclosed in the financial statements to what is presented on the balance sheet, and a reconciliation of the major income and expense items that are disclosed in the notes to the financial statements to the after-tax profit or loss from the discontinued operation on the income statement. The proposed amendments will also require disclosures related to the disposal of an individually material component of an entity that does not qualify for discontinued operations presentation. Also proposed are expanded disclosures about an entity’s continuing involvement with a discontinued operation including the amount of cash inflows and outflows from and to the discontinued operation and disclosures about a discontinued operation in which an entity retains an equity method investment after the disposal.

The effective date of the proposed amendments will be determined after the FASB considers the feedback received. The proposed amendments will be applied prospectively and earlier adoption will be permitted. Comments on this proposed ASU are due by Aug. 30, 2013.

Update on the FASB Lease Proposal  

The FASB has announced that it will release for public comment in May 2013 a re-exposure on the proposed ASU on the financial reporting for leases. The lease proposal will be converged with the International Accounting Standards Board exposure draft that is expected to be released in June 2013.

The lease proposal will require that all leases be recorded on the balance sheet of lessees. On the income statement, expenses would be recognized depending on whether significant consumption of the asset occurs during the lease. Leases where the asset depreciates significantly during the lease term (equipment and vehicles, for example) would be accounted for differently than assets that do not depreciate or increase in value (land and buildings, for example). Leases for assets with significant consumption of the asset would be expensed through amortization of the asset and interest expense on the lease liability. The expense would generally decrease over the term of the lease resulting in front-loaded expenses. For leases of assets without significant consumption of the asset, the lease payments would be expensed on a straight-line basis over the lease term.

The re-exposure of the proposed ASU on leases is expected to be out for comment for a 120-day period. For a full status update on the proposal, refer to the FASB website.

Indianapolis, Ind. – The certified public accounting firm of Katz, Sapper & Miller LLP is pleased to announce that Mark Devine has joined the firm’s State and Local Tax Practice as a business development associate.

Devine has more than 13 years of business development experience in professional services, including six years with state and local tax consulting firms. In his current role, he identifies new client opportunities and relationships for the firm.

Devine received a Bachelor of Science degree in marketing from Indiana University, and he maintains his Indiana Real Estate Salesperson License as well as his Resident Producer Individual License. He is active in the Sales Lead Management Association and has previously been involved with the Police Athletic League soccer organization, the Howard County Chamber of Commerce, and The United Way.

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About Katz, Sapper & Miller
As one of the top 70 CPA firms in the nation, Katz, Sapper & Miller has earned a reputation as a leader in the areas of accounting, tax and consulting services. Founded in 1942, the firm has more than 260 employees and is headquartered in Indianapolis, Ind. with additional offices in Fort Wayne, Ind. and New York. Katz, Sapper & Miller was named one of the “Best of the Best” accounting firms in the nation by INSIDE Public Accounting magazine and has been recognized by the Indiana Chamber of Commerce as one of the “Best Places to Work in Indiana” for eight consecutive years. The firm is an independent member of Nexia International, a leading global organization of independent accounting and consulting firms. For more information, visit us at ksmcpa.com.

Indianapolis, Ind. – The certified public accounting firm of Katz, Sapper & Miller LLP is pleased to announce that Samuel Mynsberge has joined the firm’s Business Advisory Group as a staff accountant.

Mynsberge graduated from Indiana University with a Bachelor of Science degree in business administration as well as a Master of Business Administration. Mynsberge, a certified public accountant, previously worked at a Big Four accounting firm.

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About Katz, Sapper & Miller
As one of the top 70 CPA firms in the nation, Katz, Sapper & Miller has earned a reputation as a leader in the areas of accounting, tax and consulting services. Founded in 1942, the firm has more than 260 employees and is headquartered in Indianapolis, Ind. with additional offices in Fort Wayne, Ind. and New York. Katz, Sapper & Miller was named one of the “Best of the Best” accounting firms in the nation by INSIDE Public Accounting magazine and has been recognized by the Indiana Chamber of Commerce as one of the “Best Places to Work in Indiana” for eight consecutive years. The firm is an independent member of Nexia International, a leading global organization of independent accounting and consulting firms. For more information, visit us at ksmcpa.com.

Many Indiana counties have contracted with a third-party vendor to perform business personal property tax audits on their behalf. Since these contracts went into place, Katz, Sapper & Miller (KSM) has seen a significant spike in personal property tax audits. These spikes have been especially large for our clients located in Marion, Hamilton and Allen counties.

A typical business personal property tax audit covers three years and can result in additional tax, penalty and interest. Because these audits are performed on a contingency basis, the auditing firms are paid based on the amount in new taxes assessed and collected. According to the website of one vendor, it has audited 27,685 returns and identified over $1 billion in errors.

Again, this tax alert concerns personal property used in a trade or business only, not property held and used by individuals.

If your business receives a notice of personal property tax audit from a county or third-party auditor, KSM can assist you in managing the audit process and work to minimize a potential assessment. Please feel free to contact your KSM advisor, our property tax leader, Chad Miller, or state and local tax manager, Heather Judy, if you need assistance.

• FASB and IASB Reach Tentative Decisions on Revenue Recognition Proposal
   
• FASB Issues Proposed Guidance on Financial Assets and Liabilities
   
• FASB Issues ASU 2013-05

FASB and IASB Reach Tentative Decisions on Revenue Recognition Proposal

Revenue is a key number for users of financial statements in assessing an entity’s financial performance. As part of the ongoing Financial Accounting Standards Board (FASB) and International Accounting Standards Board’s (IASB) (the Boards) joint projects, they continue to discuss revenue recognition. This has been one of their key projects, and one that has been ongoing for a number of years. The first Discussion Paper on this topic was released in December 2008. The Boards’ main objectives were to develop more consistent requirements, improve comparability, and provide more useful information to users of financial statements.

The Boards have recently reached tentative decisions on the revenue recognition disclosure issues related to the following:

1. Disaggregation of revenue
2. Reconciliation of contract balances
3. Remaining performance obligations
4. Assets recognized from the costs to obtain or fulfill a contract with a customer
5. Onerous performance obligations
6. Qualitative information about performance obligations and significant judgments

The Boards also reached tentative decisions on transition, effective date and early application. The tentative transition guidance would allow an entity to apply the new revenue standard retrospectively with optional enhanced practical expedients. An entity would also be allowed to elect an alternative transition method that would require:

1. Applying the new revenue standard only to contracts that have not been completed under old standards;
2. Recognizing the cumulative effect of initially applying the new standard to the opening balance of retained earnings; and
3. Providing additional disclosures related to the amount by which each financial statement line item is impacted and explanation of the significant changes in reported results under the new standard.

The revenue recognition guidance would be effective for annual periods beginning on or after Jan. 1, 2017. Early application would not be permitted.

The Boards noted that the period of time from the expected issuance of the standard until its effective date is longer than usual due to the unique attributes of the revenue recognition project, including the scope of entities that will be affected and the potentially significant effect that a change in revenue recognition has on other financial statement line items.

The Boards have completed their substantive redeliberations of the 2011 exposure draft. The FASB staff has begun drafting the final revenue recognition standard, with final release expected in the second quarter of 2013. See the FASB website for a complete update on the revenue recognition project.

FASB Issues Proposed Guidance on Financial Assets and Liabilities  

The FASB has issued a proposed Accounting Standards Update (ASU), Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The proposed ASU is part of the joint projects with the IASB to converge the accounting for financial instruments, and to provide a comprehensive measurement framework for classifying and measuring financial instruments.

As described below, the proposed accounting standard would measure financial assets based on how a reporting entity would realize value from them as part of distinct business activities, while the measurement of financial liabilities would be consistent with how the entity expects to settle those liabilities.

Financial assets would be classified into one of three categories:

1. Amortized cost;
2. Fair value through other comprehensive income (OCI); or
3. Fair value through net income.

Equity investments (except those accounted for under the equity method of accounting) would be measured at fair value with changes in fair value recognized in net income. A “practicability exception” to measurement at fair value would be provided for equity investments without fair values that can be readily determined.

Financial liabilities would generally be required to be carried at cost unless: 1) the reporting organization’s business strategy is to transact at fair value, or 2) the obligation results from a short sale.

Public companies would be required to disclose fair values parenthetically on the face of the balance sheet for financial assets and financial liabilities measured at amortized cost, with exceptions for demand deposit liabilities and receivables and payables due in less than a year. Nonpublic entities would not be required to disclose this fair value information parenthetically or in the notes. Comments on the proposal are due by May 15, 2013.

FASB Issues ASU 2013-05 

The FASB has issued Accounting Standards Update (ASU) No. 2013-05, Foreign Currency Matters (Topic 830) Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.

When a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or business within a foreign entity, the parent is required to apply the guidance in Subtopic 830-30 to release any related cumulative translation adjustment into net income. The cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided.

For an equity method investment that is a foreign entity, the partial sale guidance in Section 830-30-40 still applies. As such, a pro rata portion of the cumulative translation adjustment should be released into net income upon a partial sale of such an equity method investment. This treatment does not apply to an equity method investment that is not a foreign entity. In those instances, the cumulative translation adjustment is released into net income only if the partial sale represents a complete or substantially complete liquidation of the foreign entity that contains the equity method investment.

The ASU also provides clarification as to what events comprise a sale of an investment in a foreign entity.

For public entities, the amendments in this ASU are effective prospectively for fiscal years beginning after Dec. 15, 2013. For nonpublic entities the amendments in this ASU are effective prospectively for the first annual period beginning after Dec. 15, 2014, and interim and annual periods thereafter. The amendments should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted. Early adoption is permitted.

Personal Property Tax Audits
Many Indiana counties have contracted with a third-party vendor to perform personal property tax audits on their behalf. Since these contracts went into place, Katz, Sapper & Miller has seen a significant spike in personal property tax audits. These spikes have been especially large for our clients located in Marion, Hamilton and Allen counties.

A typical personal property tax audit covers three years and can result in additional tax, penalty and interest. Because these audits are performed on a contingency basis, the auditing firms are paid based on the amount in new taxes assessed and collected. According to the website of one vendor, it has audited 27,685 returns and identified over $1 billion in errors.

If you receive a notice of personal property tax audit from a county or its third-party auditor and would like assistance with the audit, contact Katz, Sapper & Miller's property tax leader, Chad Miller, or state and local tax manager, Heather Judy. We would be happy to assist you through this process.

Proposed Federal Legislation on Sales Tax and Remote Seller Collection Responsibilities
The Marketplace Fairness Act of 2013, which was introduced in the U.S. House of Representatives and the U.S. Senate on Feb. 14, 2013, would allow states the option to require the collection of sales and use taxes owed under state law by remote sellers, rather than rely on consumers to remit use taxes to the state, if the remote seller has gross annual receipts in total remote sales in the United States for the preceding calendar year of more than $1 million. The state would be required to implement minimum simplification requirements. Currently the bill has been referred to the House Committee on the Judiciary (see H.R. 684 and S. 336).

Indiana Rules on Sales Tax Nexus
An out-of-state retail merchant's deliveries of merchandise to its customers in Indiana established nexus with the state; therefore, the retailer was subject to sales tax on the merchandise delivered within the state. A vendor must have substantial nexus with a state in order for it to be subject to state-imposed duties to collect sales and use taxes. A vendor whose only contacts with the taxing state are by mail or common carrier lacks substantial nexus. In this instance, the retailer did not use a common carrier; rather, it delivered merchandise to its customers in Indiana in its own conveyance. Therefore, it created sales tax nexus. For more information, see LOF 04-20120449.

Ohio Issues Guidance on CAT Compliance
The Ohio Department of Taxation reminds calendar quarter taxpayers of recent changes to the application of the annual $1 million exclusion. Previously, a calendar quarter taxpayer would exclude $250,000 on each of the four quarterly returns in the calendar year, and any unused exclusion amount could be carried forward for three calendar quarters. However, for tax periods beginning on Jan. 1, 2013 and thereafter, a taxpayer who pays on a quarterly basis excludes the first $1 million of taxable gross receipts on the first quarter return and carries forward any unused portion of the exclusion amount to subsequent quarters within the same calendar year. Unused amounts from calendar year 2012 may not be carried forward into calendar year 2013. For more information, see Ohio Tax Information Release CAT 2013-01.

New Mexico Rules on Taxability of Subscription Sales of Web-Based Tools
An out-of-state data provider that sells a license to its customers so that they can access data and software online in New Mexico is subject to gross receipts tax. For gross receipts tax purposes, the location of the license is the place where it will be normally used. Each customer can be expected to use the license at the location where the customer's Internet access exists. In the absence of any evidence to the contrary, the location of a license is presumed to be the customer's business location. If the business location is in New Mexico then the location of the license is also in New Mexico. Because the taxpayer is selling a license to use in New Mexico, which is a form of intangible property, the taxpayer is engaging in business in New Mexico and may not deduct the sale of intangible property (license) to government entities or to an educational institution. The taxpayer's receipts from sales of a license to government entities or Code Sec. 501(c)(3) educational organizations in New Mexico are subject to gross receipts tax. However, the taxpayer's receipt from performing consulting and analyst services outside of New Mexico are exempt and it is irrelevant whether the taxpayer's customers are government entities or educational institutions. For more information, see Ruling 401-13-1.

Virginia Rules on Vendor Responsibilities When Accepting Exemption Certificates
The Virginia Department of Revenue determined that a purchase of tangible personal property by an organization paid for directly from the organization's funds is an exempt purchase and acceptance of an exemption certificate in good faith requires the dealer to examine the certificate for compliance. The taxpayer sells tangible personal property to exempt organizations and requests clarification on payment methods of purchasers and when an exemption certificate can be accepted in good faith. The Department noted that a seller must use reasonable care and judgment when selling tangible personal property even when an exemption certificate is on file and that acceptance in good faith requires the dealer to examine the certificate for compliance before a tax-free sale occurs. The Department further noted that once a seller certifies that the purchase qualifies for an exemption from Virginia retail sales and use tax, purchases by an exempt organization that are billed and paid for by the organization's check or credit card are exempt. Va. Code Ann. § 58.1-609.11 provides that a nonprofit organization retains its exemption until the current exemption expires. Additionally, exemptions provided for tangible personal property used or consumed by the government must be accompanied by an official government purchase order or a valid government exemption certificate. Once such a certificate is provided the taxpayer is not required to receive an official purchase order each time an exempt sale is made to a government agency. The Department clarified that if an employee of an exempt organization uses their own funds expecting to be reimbursed by the exempt organization for payment of purchases, then such purchases are subject to tax. For more information, see Virginia Public Document Ruling 13-9.

Washington Issues Guidance on Digital Products
The Washington Department of Revenue has amended and issued new rules to explain the impact of 2009 and 2010 legislation that imposed sales and use tax on digital products. WAC 458-20-15501 has been amended and provides rules regarding the taxation of the wholesale sale, retail sale, and manufacturing of computer systems and computer hardware, as well as the taxation of other activities associated with computer hardware, including installation, repair, and maintenance. The Department has adopted new rule, WAC 458-20-15502, which addresses the taxation of computer software, exemptions, site licenses of prewritten software, keys to activate software, royalties for licensing of software, and other activities associated with software, including customizing prewritten computer software; installation and uninstallation; repair, alteration, and modification of software; and software maintenance agreements. The Department has also adopted new rule, WAC 458-20-15503, which provides a structured approach for determining tax liability for digital products and digital codes. Finally, WAC 458-20-155 is repealed. The new and amended rules become effective on March 28, 2013.

For more information, contact Donna Niesen at dniesen@ksmcpa.com. 

This editorial piece by Tim Cook ran in the March 2, 2013, issue of the Indianapolis Business Journal.

In a time when state and local officials make economic development announcements every day, an increasingly common question is, “How does this benefit me?”

For the company receiving incentives, that answer is easy enough; whether it be tax credits or a training grant, they receive some form of financial support. But, what about state and local government, and the public at large—what’s in it for them?

As this question comes up more and more, state and local governments have sought to better quantify the benefits of these deals and portray this benefit to the public. This evolution is a good thing for everyone affected by the process.

Some benefits are easy to quantify. Each job created can be counted. Everyone agrees that the creation of jobs benefits the economy. And for each job created, a certain amount in state and local income tax will be generated.

When a company buys equipment, it will pay state sales tax. There will also be property tax expense on the company’s real estate, regardless of whether it leases or owns the building.

These taxes add up to a total amount that can be tangibly identified.

Beyond the simple adding and subtracting of tax benefits, state and local governments are able to estimate payoff on economic development projects in a more macro fashion. They do this in a lot of ways.

Many communities subscribe to software programs that estimate total economic impact of these projects, or they may pay a third-party economist to do the analysis.

These resources project spending, jobs, tax dollars and other positive economic impacts that a new project will support and create.

Some localities have begun to ask more specific questions about where current and future employees reside, as this affects local income taxes allocated to communities.

Some units of government take it a step further, actually seeking to tie incentives to the local income tax the company withholds from employees, similar to what the state has done with its job creation tax credit for many years to ensure the incentives are performance-based and self-policing.

Other benefits may include a project’s serving as an impetus to a dormant redevelopment area, or expanding a community’s or state’s penetration within a particular industry. Some projects also may have a multiplier effect, serving as anchors or attracting suppliers and related businesses within a given proximity.

Then there is the question of civic involvement by the company. Companies often will be asked how they intend to interact with and give back to the community at large. More and more, localities are seeking specific commitments, whether participating in the United Way, joining the local chamber of commerce or sponsoring a summer internship program through a local community college.

These softer forms of public-private partnerships can be dismissed as too touchy-feely, but the fact is that such involvement can be vitally important for the long-term good of a community and its efforts to promote a better quality of life.

A prime example of this was the fundraising initiative by area businesses to land the 2012 Super Bowl. The corporate philanthropic spirit that intervened to support this effort was rooted in a public-private partnership model that includes groundwork laid by a strong economic development infrastructure.

By fostering this sense of civic readiness in companies, whether it be in recognition of economic development support for a project or just general interaction with like-minded businesses, central Indiana strengthens its foundation for similar future successes.

In recent years, some economic development deals have become more complex, employing less-often-used incentives like tax increment finance and similar bond devices. As a deal increases in complexity, the level of scrutiny increases with it, and that, too, is a good thing.

These tools will continue to play a positive role in the economy only if they consistently produce winning projects and provide reliable security to state and local government for the incentives they employ.

Economic development deals need to pay for themselves as well as provide the opportunity for greater benefits to come. The better job that company officials and officeholders do in educating the public about the return on investment potential of these deals, the more equipped the public will be to appreciate the need to promote support for economic development projects in their communities.

Tim Cook is the partner in charge of Katz Sapper & Miller’s State and Local Tax Practice. Views expressed here are the author’s.