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State & Local Tax Update - 10/15/12

Posted 12:00 PM by

Reassessment for Indiana Real Property Taxes: Indiana counties are currently wrapping up their 2012 statewide reassessments. During a reassessment year, county and township assessors are required to inspect all properties and adjust all assessed values to properly reflect market value in use. Counties were last required to reassess property in 2002; therefore, some property owners should expect significant changes as a result of the 2012 reassessment.

Property owners are encouraged to review their assessment notices (Form-11) as soon as they receive them to make sure the assessed value looks appropriate. The property owner has 45 days to file an appeal after the mailing of the first notice of assessment. When a property owner receives their tax bill, it is often too late to appeal the assessed value for that year. Some counties began mailing their assessment notices this month.

Contact your KSM advisor, or KSM property tax leader Chad Miller, as soon as you receive your Form-11. We would be happy to review the reassessed value of your commercial property to help you consider whether an appeal should be filed.

 

Indiana Updates County Income Tax Rate Notice: The Indiana Department of Revenue has updated its list of Indiana counties that have adopted county income taxes with rate changes for Carroll, Hancock, Perry and Starke counties. The county income tax rates are effective for withholding purposes for periods beginning on or after Oct. 1, 2012. The rates apply to wages paid after Sept. 30, 2012, and the tax is withheld and paid at the same time and in the same manner as the state income tax. While this list is for those counties whose income tax rates are changed and effective Oct. 1, 2012, counties can elect to change their rates Nov. 1 and Dec. 1. See Departmental Notice #1 for current rates.

Indiana Rules on Intangible Expense Add Back for LLC: A limited liability company (LLC) did not meet the statutory definition of an includable corporation, nor was it considered a member of an affiliated group; therefore, the intangible expenses paid, accrued and incurred by the LLC are not included in the add-back calculations provided by the statute. Ind. Code § 6-3-2-20(b) requires a corporation subject to the adjusted gross income tax to add to its taxable income intangible expenses and any directly related intangible interest expenses paid, accrued, or incurred with one or more members of the same affiliated group. IRC Sec. 1504 defines an affiliated group as one or more chains of includible corporations connected through stock ownership with a common parent corporation, which is an includible corporation. The LLC is treated at the federal level as a partnership, not as a corporation, and is neither an "includable corporation" nor a member of the "affiliated group" as defined by IRC Sec. 1504. Since it is not a member of the affiliated group, the intangible expenses paid, accrued or incurred by the LLC are not included in the add-back calculations under Ind. Code § 6-3-2-20. See LOF 02-20110459 for details.

California issues Guidance on Throwback Rule: The Franchise Tax Board has issued a ruling indicating that a California corporation (filing a combined return) that sells tangible personal property (TPP) in all 50 states and several foreign jurisdictions does not have to throw back TPP sales to the California sales factor when it has more than $500,000 in TPP sales in a jurisdiction because it would be taxable in such jurisdiction under Cal. Rev. & Tax. Cd. § 25122. See 2012-3 for details of the ruling.

California Increases Penalty for Non-filing LLCs: L. 2012, A318 (c. 313), effective Jan. 1, 2013, extends the penalty provisions of Cal. Rev. & Tax. Cd. § 19135 to foreign limited liability corporations. Under § 19135, a penalty of $2,000 per taxable year is assessed whenever an entity is doing business in California, within the meaning of § 23101, and fails to make and file a return within 60 days after the Franchise Tax Board sends the taxpayer a notice and demand to file the required tax return, unless the failure is due to reasonable cause and not willful neglect.

California Issues Decision in Gillette Case: In its opinion on rehearing, the California Court of Appeal ruled that multistate taxpayers could elect to use the Multistate Tax Compact's equally-weighted three-factor formula to apportion and allocate income for state corporation franchise (income) tax purposes for the tax years at issue. Although the court had vacated its previous decision, its opinion on rehearing also concludes that the compact was a valid multistate compact, and California was bound by it and its apportionment election provision for the tax years at issue because California had not repealed former Cal. Rev. & Tax Cd. § 38001 et seq. and withdrawn from the compact during the period in question. Although the legal reasoning of the opinion on rehearing is substantially similar to that of the vacated decision, the opinion on rehearing includes language clarifying that legislation enacted by California after oral argument in the case repealed the Compact, effective June 27, 2012. For details of this case, see Dkt. No. A130803A.

Iowa Issues Sales Tax Sourcing Guidance: Effective Oct. 10, 2012, The Iowa Department of Revenue has adopted new rules (Reg. 701-223.1 through 701-223.4) regarding sourcing sales of services that are taxable in Iowa under the Streamlined Sales and Use Tax Act. The new chapter defines relevant terms, clarifies and provides examples of where sale of services performed on tangible personal property should be sourced, and clarifies and provides examples of where a sale of personal care services should be sourced.

Kentucky Offers Amnesty Program: From Oct. 1 to Nov. 30, 2012, the Kentucky Department of Revenue is offering an amnesty program to eligible taxpayers. In exchange for coming forward and paying outstanding liabilities, taxpayers will be relieved of any penalties and one-half of the interest due. More information regarding the application process and eligible taxes can be found at www.amnesty.ky.gov/.

North Carolina Rules on Responsible Person: The taxpayer, a manager of a limited liability company, was personally and individually liable for payment of the LLC's sales and use tax, penalty and interest for the period at issue because the taxpayer was a responsible person. Statutory law provides that a manager of an LLC is a responsible person for an LLC, and the manager is not required to be assigned any specific tasks to be held liable as a responsible person. In this case, the taxpayer was appointed as one of two managers of an LLC; the LLC's operating agreement specifies that the taxpayer shared the management of the LLC equally with another person; the LLC's annual report identifies the taxpayers as a manager of the LLC; and the minutes of board meetings demonstrate that the taxpayer served as one of two managers from March 2008 until he became sole manager in January 2010. Although the taxpayer contended that he did not have check-signing authority, specific financial duties assigned to managers are not relevant to a manager's status as a responsible person. In addition to being a responsible person as manager, the taxpayer was a responsible person based on his duty to pay sales tax imposed by a provision contained in the LLC's operating agreement, which required managers to file and pay the taxes for any federal, state or local tax returns required to be filed by the LLC. (George S. Goodyear, III v. N.C. Dept. of Rev., N.C. Dept. of Rev., Final Agency Decision No. 11 REV 13094, 09/18/2012.)

Washington B&O Nexus Created by Independent Contractors: An out-of-state provider of continuing professional education had nexus and was subject to business and occupation tax because its independent contractor speakers were representative third parties. The taxpayer, which did not have any employees in Washington, contracted with speakers to make presentations at live seminars for the taxpayer's customers in Washington. Nexus is created when a taxpayer is engaged in activities in Washington, either directly or through a representative, for the purpose of performing a business activity; the independent contractor speakers provided services on the taxpayer's behalf directly to the taxpayer's customers, the seminar attendees, and consequently were "representative third parties." The Department of Revenue rejected the taxpayer's contention that it merely purchased services from contractors; the speakers did not perform services directly for the taxpayer, but rather, delivered the services that the taxpayer was in the business of providing. See Tax Determination 11-0292 for details.

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

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