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State & Local Tax Update - 7/16/12

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 Supreme Court Reverses Tax Court Decision: The Indiana Supreme Court has held that a package delivery company's foreign reinsurance company affiliates were not entitled to an exemption from payment of Indiana adjusted gross income tax for premiums collected because the affiliates were not doing business in Indiana and so were not subject to the Indiana gross premium privilege tax. Doing business in the state is a necessary condition that insurance companies not organized under the laws of Indiana must meet in order to be subject to the premiums tax and entitled to an exemption from the adjusted gross income tax. None of the evidence provided in the case showed that the foreign reinsurance company affiliates were doing business in Indiana, thus the taxpayer failed to establish it was entitled to summary judgment as a matter of law. The Tax Court Decision was reversed and remanded. See Indiana Department of Revenue v United Parcel Service, Inc. for details of the decision. 

Indiana Sales Tax Decision on Advertising Fees: Fees paid by a personalized gift company for the sending of emails to clients and prospects were not subject to Indiana sales tax because the Department of Revenue found that there was no transfer of tangible personal property nor specified digital product subject to Indiana sales tax. The company purchased a licensed software package used for emailing clients and prospects, as well as, mass email services which included the sending out general company announcements, promotions, schedules, new product releases and other communication. Invoices included both a software license fee and a per email charge; the per email charge was not considered to be part of the cost paid for licensing software, instead it was considered a service, which is not subject to sales tax. However, fees paid for the licensed software portion of the invoices were subject to sales tax. See LOF 04-20110492 for details.

Indiana Rules on Industrial Processing Exemption: Stone crushing equipment used by a company that processes and sells limestone products qualified for the industrial production exemption. Ind. Code § 6-2.5-5-3 provides for an exemption from sales tax for tangible personal property acquired for direct use in the direct production or processing of other tangible personal property. The equipment was used to crush limestone slabs in order to produce agricultural lime, crushed stone, gravel, rip rap and top soil; the Department determined that this process qualified for the industrial production exemption. However, the company's purchases of loaders, conveyor belts and other related equipment used in post-production activities were subject to sales and use tax. See LOF 04-20110122 for details.

Indiana Updates Agricultural Publication: The Indiana Department of Revenue has revised its information bulletin regarding agricultural production exemptions to clarify the taxability of agricultural machinery, tools, equipment, and buildings used directly in direct production. The revised bulletin also provides a website link for taxpayers to download a Streamlined Sales and Use Tax Agreement exemption certificate which can be used to purchase exempt agricultural-use property. See Information Bulletin 9 for the updated information. 

Michigan Changes Due Date for Nonresident Withholding: Recently passed legislation provides that every flow-through entity that must withhold income taxes for nonresident members must remit the taxes by April 15, July 15 and Oct. 15 of the flow-through entity's tax year and by Jan. 15 of the following year (previously, the dates were April 15, June 15, Sept. 15 and Jan. 15). See the Michigan Web page for details on the new withholding rules. 

Ohio Supreme Court Denies Government Exemption to Agent: The Supreme Court of Ohio upheld the decision of the Board of Tax Appeals and found that purchases made by the taxpayer, a company acting in its capacity as an independent contractor under a management agreement with the city of Cincinnati, did not qualify as an agent of the city with respect to the sales at issue. Cincinnati owns seven golf courses and contracted with the taxpayer to provide management services and the taxpayer did not pay sales tax with respect to otherwise taxable purchases while claiming to act as the city's agent. Sales to political subdivisions are generally exempt from sales and use tax by Ohio law, and the exemption may apply to a transaction in which an entity acts as a purchase agent for the municipality. A sale is a sale to a political subdivision only if the political subdivision is in actuality the purchaser that is consummating the sale by means of its agent; the city must assume and bear primary and essential liability to the vendor rather than its agent. However, the court agreed with the BTA in finding that political subdivision exemption does not apply to the instant case because the city was not a party to the purchase transactions and an agency relationship was not created. The taxpayer had the burden to show that the taxpayer was empowered to bind the city as a purchaser. Here, the taxpayer did not possess actual authority to bind the city to the purchases and the taxpayer's contract with the city specifically disclaims an agency relationship with respect to activities that the taxpayer conducts pursuant to the contract's terms. The contract's express provisions do not impose an agency relationship or support the notion that the taxpayer could bind the city when it made the purchases. Thus, the taxpayer is the consumer in the transactions at issue and the sales are sales to the taxpayer, not the city. See Cincinnati Golf Mgt., Inc. v. Testa for details of the decision.   

Tennessee Rules Deemed Dividend Subject to Income Tax: The distribution of a deemed dividend by an S corporation making an election under the federal Treasury Regulations to eliminate its accumulated earnings and profits constituted a taxable dividend for purposes of the Tennessee individual income tax. Tennessee imposes an individual income tax at the rate of six percent on "incomes derived by way of dividends from stocks or by way of interest on bonds of each person, partnership, association, trust and corporation in the state of Tennessee who received, or to whom accrued, or to whom was credited during any year" the dividend or interest income. The deemed dividend was properly characterized under Tennessee law as a dividend from stock and was received by, or accrued or credited to, the taxpayer's Tennessee shareholders during the tax year at issue. The Tennessee Code does not require that cash, stock, or other property actually be transferred to shareholders for taxable income to arise. On the contrary, the law expressly imposes the individual income tax on persons "who received, or to whom accrued, or to whom was credited" taxable dividend or interest income during the tax year. Moreover, there is no general requirement that money or other property be transferred directly to a shareholder for a dividend or other type of distribution to occur. It is sufficient that a direct or indirect transfer of money or other property be made for the benefit of the shareholders. See Letter Ruling 12-04 for details.

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