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State & Local Tax Update - 4/19/13

Posted 5:39 PM by

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

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