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.