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State & Local Tax Update - 6/26/12

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 Reminds Taxpayers of Electronic Filing Requirements: All businesses in Indiana must file and pay their sales and withholding taxes electronically effective Jan. 1, 2013. The Indiana Department of Revenue (IDOR) is encouraging taxpayers to electronically file and pay these taxes using INtax, which is the IDOR's online filing tool. Practitioners may also use INtax to: file and pay their clients' business taxes; manage returns, correspond with the IDOR about returns, and file returns when no tax is due; and view filing and payment history for each client. The IDOR will begin notifying all businesses that are not currently electronically paying and filing their sales and withholding taxes in July. See June Tax Dispatch for details.

Indiana Rules on Taxability of Custom Software: In a recent administrative hearing, the IDOR ruled that pre-written computer software that is modified for a customer and separately invoiced is exempt from tax. Under Indiana Code § 6-2.5-1-27, tangible personal property is defined to include prewritten computer software. Indiana Code § 6-2.5-1-24 defines "prewritten computer software" as computer software that is not designed and developed by the author or creator to the specifications of a specific purchaser. Indiana Code § 6-2.5-1-24(3) provides further that "if a person modifies or enhances computer software of which the person is not the author or creator, the person is considered to be the author or creator of the person's modifications or enhancements." In this instance, the taxpayer provided invoices reflecting separately stated charges for the modification or enhancement (customization) of the prewritten computer software. With this evidence, the IDR found that the taxpayer established that its purchase was not subject to use tax. The taxpayer was also able to show that only a portion of the software was used in Indiana and subject to use tax. See LOF 04-20110478 for details.

Michigan Releases 2012 Corporate Return: The Michigan Department of Transportation has issued the 2012 corporate income tax quarterly return (Form 4913). Form 4913 is used to report activity occurring after 2011. Form 4913 replaces the 2011 Michigan Business Tax (MBT) Quarterly Return (Form 4548). As a reminder, the corporate income tax took effect Jan. 1, 2012, replacing the Michigan Business Tax for corporate taxpayers. You can access the forms on the MI DOT website.

North Carolina Creates New Deduction for Business Income: The North Carolina Department of Revenue has issued a directive regarding the new deduction available for tax years beginning on or after Jan. 1, 2012, for personal income taxpayers who include net business income in federal adjusted gross income. The law allows a deduction of up to $50,000 of net business income included in adjusted gross income that is not considered passive under the Internal Revenue Code. The directive provides that net business income that is not considered passive is the aggregate of all business incomes and losses (excluding passive incomes and passive losses) reported on federal Schedules C, E, and F. For purposes of this deduction, passive income means the income generated from the conduct of an activity of a trade or business that satisfies the definition in Code Sec. 469. See Directive 12-2 for details.

Rhode Island Implements Minimum Fees for LLCs and Partnerships: Rhode Island Department of Taxation has adopted two new regulations affecting LLCs and partnerships. Reg. CT 12-14 and Reg. 12-16 outline new rules related to annual filing requirements and minimum fees owed by LLCs, including single member LLCs and partnerships.

Texas Revises Policy on Deduction Elections: The Texas Comptroller has reconsidered its position with regard to the election to take the cost of goods sold (COGS) or compensation deduction when filing an amended long form franchise tax report and will now allow taxpayers to amend reports to change their election, or to make an election, to use the COGS or the compensation deduction. See Comptroller's announcement for details of the new policy.

Utah Issues Guidance on Taxability of Software and Computer Services: The Utah State Tax Commission has issued guidance that becomes effective July 1 of this year for computer service providers on the taxability of common transactions, including the sales of prewritten software, custom software, remotely accessed software (including hosted software, application service provider software, software-as-a-service, and cloud computing applications), and computer services. License fees for remotely accessed prewritten software are taxable if the purchased software is used in Utah. If the remotely accessed software is used in more than one location and at the time of the transaction, the buyer provides the seller with a reasonable and consistent means for allocating the transactions between the locations, the seller must source the transactions to those locations. If the buyer does not provide the seller with a means of allocating the transaction among its locations, the seller must source the transaction to the buyer's address. See Publication 64 for details.

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