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State & Local Tax Update - 11/30/12

Posted 12:00 AM 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 resident and nonresident rate changes for Hancock County. The county income tax rates are effective for withholding purposes for periods beginning on or after Nov. 1, 2012. The rates apply to wages paid after Oct. 31, 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 intended for those counties whose income tax rates are changed and effective Nov. 1, 2012, counties can elect to change their rates on Dec. 1. See Departmental Notice #1 for details of the county rates.

Indiana Issues Guidance on Ice Removal Services: A company's sales of its lawn-care and snow-removal services, which included labor charges and salt applications to remove ice on the ground, were unitary transactions and therefore subject to sales tax. The company has two categories of customers: The first category of customers supply salt/sand and the company only provides labor, while the second category of customers do not supply salt/sand; rather, the latter pays the company to plow snow and also remove ice using the company's materials when needed. The customers who supply salt to the company paid for labor charges only, and therefore the services provided were not subject to sales tax. However, the customers in the second category were charged one price per visit for ice removal that included both labor and materials (salt). When a combined, single charge for material and labor is invoiced as one amount it is considered a unitary transaction that is subject to sales tax. See LOF 04-20120031 for details.

Indiana Issues Sales Tax Guidance on Trade-ins: A company selling recreational vehicles, travel trailers, and parts was not subject to gross retail tax on the trade-in allowance deductions provided to customers who traded in a travel trailer to purchase an RV, or when a customer traded in an RV to purchase a travel trailer. Ind. Code § 6-2.5-1-5(b) provides that gross retail income does not include that part of the gross receipts attributable to the value of any tangible personal property received in a like-kind exchange in the retail transaction. A like-kind exchange means a motor vehicle traded for another motor vehicle or a trailer traded for another trailer. An exception exists for transactions where a motorized recreational vehicle is traded in for a non-motorized recreational vehicle, as in the above instance. The Indiana Department of Revenue considers the motorized and non-motorized recreational vehicles to be like-kind and therefore exempt from gross retail tax. However, transactions where the company accepted a boat as a trade-in for a motor home or a travel trailer did not qualify for the like-kind exchange treatment and were subject to gross retail tax. See LOF 04-20120348 for details.

Illinois Rules on Taxability of Guaranteed Payments: The Illinois Department of Revenue ruled that a taxpayer owes Illinois income tax as a partner receiving guaranteed payments from a partnership doing business in Illinois during the 2010 tax year. The department noted that guaranteed payments received from the partnership are ordinary income, which was characterized by the partnership as business income. Therefore, the amount of the guaranteed payment that was apportioned to Illinois by the partnership is taxable to the taxpayer by Illinois and subject to withholding. The department further noted their decision to follow other courts in determining that a partner in a partnership doing business in Illinois has sufficient nexus with Illinois to be subject to Illinois income taxation. See GIL IT 12-0028 for details.

Pennsylvania Rules on Taxability of Pallets: The Pennsylvania Supreme Court has affirmed a Commonwealth Court opinion, holding that the rental of wooden pallets used to transport manufactured paper products from the factory to the warehouse is not subject to sales and use tax. The Commonwealth Court held that a "container," while not defined by statute or regulation, is generally a receptacle that holds things within it, where as a pallet is merely the floor of container that is created by adding cardboard sheets, posts and stretch wrap. The Board argued that the Pennsylvania Supreme Court determined that pallets were containers in Commw. v. Yorktowne Paper Mills, Inc. , 426 Pa 18, 231 A2d 287 (1967). However, the question in that case was whether the lumber, nails and metal bands used to contain the materials on pallets were taxable, and the state high court determined that the entire unit (pallet with metal bands securing the product) constituted a taxable container. In this case, the only question was whether the pallets by themselves are taxable as returnable containers, and the Commonwealth Court determined that they are not. See Procter & Gamble Paper Products Co. v. Commw., Pa. Commw. Ct., (Oct. 16, 2012) for more information.

Wisconsin Rules on Personal Liability for Sales/Use Tax: The circuit court upheld a decision of the Wisconsin Tax Appeals Commission, finding that an owner of a used car dealership was personally liable for the company's unpaid sales and use taxes. There was substantial evidence to find the owner was liable under Wis. Stat. § 77.60(9) because all three elements required for personal liability were met. The petitioner was an owner of the dealership, and he opened the company's checking account and was the sole signatory for that account. The owner's control over the business and the checking account was sufficient to show that he had the authority to pay the sales taxes. The petitioner also had keys to the business and held himself out as a manager of the dealership, and he was aware that sales taxes were due on cars sold by the dealership. His position as owner and manager, and his knowledge that taxes were due along with his ability to pay those taxes establishes that the petitioner had the duty to pay the sales taxes. See Marxer v. Wis. Dept. Rev., (Sept, 26, 2012) for details.

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

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