Job ‘Casualties’ Mount Due to Device Tax

16446238In our most recent Indiana Chamber Policy Call with Congressman Todd Rokita, the subject of the medical device tax came up. No surprise. It’s been a topic in countless conversations ever since the terrible idea was first broached in 2010.

Rokita expressed confidence that repeal will make its way to the President’s desk in 2015. What happens then, of course, can’t be predicted.

A recent Site Selection article notes that concerns have only multiplied. It contains quotes and analysis from Cook Group chairman and long-time Indiana Chamber board member Steve Ferguson, who says five plants (each would have employed up to 300 people) have been “put on hold” because of the tax.

Check out the full article.

Momentum for Significant Changes to Indiana Taxation

Since 2002, there have been numerous changes to the Indiana tax laws to improve Indiana’s competitiveness, while at the same time implementing cost controls and preserving Indiana’s ability to balance its budget. Notable changes include the elimination of the gross income tax and the supplemental net income tax; the elimination of the inheritance tax; reductions in income tax rates for individuals, corporations and financial institutions; numerous deductions and credits designed to stimulate economic development; and the addition of property tax caps. As a result, various national studies have recognized Indiana’s ability to improve its tax climate while maintaining fiscal discipline. The Tax Foundation in Washington, D.C. recently ranked Indiana’s tax climate the eighth best in the country on its State Business Tax Climate Index.

Indiana, however, isn’t resting on its laurels. On June 24, the Governor hosted the Indiana Tax Competitiveness and Simplification Conference, comprised of a mix of national and local economists and tax practitioners. As its name suggests, this one-day conference was intended to identify and discuss ways in which Indiana could make improvements to its tax laws to enhance Indiana’s competitive positioning and to simplify its tax laws and tax procedures. In September, the state issued its 70-page Tax Competitiveness and Simplification Report.

The Legislature had a similar initiative, but one with a different approach. The Legislature created a “blue ribbon” committee to study Indiana’s business tax structure. Members of the committee were designated governmental leaders and representatives of select interest groups and key organizations (including the Chamber). The committee met three times to hear testimony from national and local groups and individuals, and then concluded with a meeting on November 12 to discuss and approve its findings and recommendations.

The scope of the topics discussed has been extensive. The discussions have included some “big ideas,” such as elimination of the personal property tax, the broadening of the sales tax base to include more services, the elimination of the corporate income tax or the reduction of the sales tax rate if the sales tax base is broadened and the idea of turning Indiana into a forced combination, or unitary, state. Big ideas to eliminate taxes in their entirety, or reduce tax rates, and even many of the less ambitious ideas, raise issues of finding replacement revenues to balance the budget and maintain Indiana’s fiscal discipline. Other ideas, such as broadly taxing services or making Indiana a unitary state, may raise revenue to “fund” other changes, but they raise significant policy questions and potentially undermine Indiana’s goal of being more competitive and simplifying its tax laws.

This should not, however, be written off as an academic exercise. There have been numerous ideas in which there appears to be a consensus of opinion for change. Some are areas in which there is very little or no discernible fiscal cost. Those areas include ways in which tax procedures can be improved and streamlined. There are other areas in which there is a conceptual consensus for change, but the improvements would have revenue implications of varying degrees. An example is simplifying Indiana income tax by reducing the number of “decoupling” adjustments from federal taxable income. For the most part, there is a revenue cost to each decoupling adjustment.

The state’s report indicates that it envisions a “package” which will be revenue neutral. It includes a discussion of over 50 ideas, which does not include all of the ideas discussed at the conference or in the white papers prepared by conference speakers in advance of the conference. Some of the topics discussed in the report are very specific and include recommendations. Those seem the most likely to be presented to the Legislature during the 2015 session. Others topics were discussed in less specific terms and appear to reflect the state’s view that additional analysis and discussion is needed. These topics appear more likely to be presented in future sessions if at all. The Legislative blue ribbon committee made 19 recommendations, with more focus on property tax changes.

This chart identifies some of the topics which have been discussed, as well as possible prospects for change. With the high level of effort this year to identify areas for improvement, there is a genuine opportunity to enhance Indiana’s tax climate and legitimate reason for optimism. On the other hand, a package which contains elements that raise revenue in order for the package to be revenue neutral or the temptation of the state to add or exclude elements in a package which give the state an unfair advantage in dispute resolution, could result in a package which includes provisions reflecting highly questionable tax policy and that hurt Indiana’s competitiveness and create further  omplexity to Indiana’s tax system, the exact opposite of the stated goals from the Governor’s tax conference.

Consequently, cautious optimism might be the best characterization.

While we do not yet know exactly what will be presented to the Legislature in 2015, many changes will likely be proposed and discussed. It could be an exceptionally interesting session.

Mark J. Richards is chairman of the Indiana Chamber Tax Policy Committee and a partner at Ice Miller LLP. 

Many Tax Issues Under Consideration in Indiana

The Indiana Department of Revenue has posted the final report (with recommendations arising) from the Governor’s Tax Conference in June. The 70-page document is very comprehensive and interesting, containing a wide range of suggestions being endorsed by the Pence administration. Much is good, but there are also items that will raise some concern.

If you are a tax professional working for or representing an Indiana company, you need to review this report. It covers so many different subject areas that it is nearly certain that you will have a direct interest in something contained in the report. Whether it be the throw-back rule, personal property tax filings or any number of administrative issues, you will find something in this report to note and track, because some will surely serve as the impetus for legislation in the coming session.

Additionally, the Commission on Personal Property and Business Taxation has now met three times and taken a great volume of studies, presentations and testimony under consideration. The committee has taken on so many issues that the chair, Sen. Brandt Hershman (R-Buck Creek), announced that he has scheduled a meeting for November 12 to give commission members ample opportunity to discuss their final report (which was to be submitted prior to November 1).

It is difficult to guess whether the committee will make many detailed recommendations, but its final report will, in any case, include a great volume of information, data and recommendations from those who participated in the fact-finding exercise. It would be worthwhile to scan these documents presented to the commission to determine the matters that could impact your company. Here again, these matters will likewise almost certainly, in some part, serve as the basis of proposed legislation.

Retirement Plan Sponsors: Feeling Out of the Loop?

ProCoursePrince is with ProCourse Fiduciary Advisors, LLC, a registered investment advisor.

Seventy-three percent of human resources professionals said they have needed to become experts on health care and retirement to do their job effectively. When was the last time you were comfortable stating that you understood all of the rules and regulations your job title or position requires you to comply with?

With regard to regulatory matters, one thing is constant: change. As regulators are starting to more closely examine retirement plans, it is important for those individuals who are responsible for overseeing their company’s retirement plan to pursue continuous training and stay up-to-date with industry-related best practices. Fortunately, you do not have to go far to seek this training as the Indiana Chamber of Commerce is hosting, “Best Practices for Retirement Plan Fiduciaries,” which will help you:

  • Learn from the mistakes of others by reviewing recent court cases (with an emphasis on what they should have been doing)
  • Review current trends from the Internal Revenue Service and the Department of Labor and know what to be on the lookout for
  • Identify how you can perform a self-audit of your retirement plan and potentially uncover easy fixes that could otherwise lead to costly errors
  • Hear about what politicians and regulators are considering changing with respect to your role in administering your retirement plan

Our goal is to help retirement plan sponsors obtain a better grasp on their roles and responsibilities and determine areas where they can improve their efforts so to better protect themselves as a fiduciary and, in the end, provide a better retirement plan for their employees.

INVESTIndiana Returns Sept. 23

Leading Indiana companies will participate in the fourth INVESTIndiana Equity Conference on September 23 at the Conrad Indianapolis.

Fund managers, analysts and institutional investors are primary attendees, with the event open to others in the business community. An Executive Roundtable opens the day. The keynote speaker is William Testa of the Federal Reserve Bank of Chicago. Twelve companies, including six financial institutions, are scheduled to make presentations.

They cover the state, including 1st Source Corporation (South Bend), Escalade (Evansville), Hillenbrand (Batesville) and nine others. Full information and registration is available online.

Financial Fitness for Freshmen

The following Money Management column is provided jointly by the American Institute of Certified Public Accountants and the Indiana CPA Society as part of the CPA profession’s nationwide 360 Degrees of Financial Literacy program.

As you get ready to go away to college for the first time, this is a good time to expand your knowledge of day-to-day money management, including smart budgeting and debt management steps. The Indiana CPA Society offers these tips to students who want to get through college with the right financial footing.

Start on a Budget

You may be surprised at the high everyday costs of college, including books and supplies, daily living expenses and travel to and from school. That’s why it’s a good idea to get a sense of what you will spend – outside of tuition costs – before you begin each semester. Include savings you plan to use, any money you may receive from your family and the income you can expect from any jobs.

According to a Nationwide survey, the average student income is about $1,400 a month from part-time jobs and parents. Semesters usually last about four months, so divide your projected total to determine how much you can spend each month, after deducting the amount you can expect to pay for books at the beginning of the semester. It’s also a good idea to track your actual spending throughout the semester, so that you can more accurately project and adjust your budget for the years to come.

Get What You Need

Once you know your income, determine a list of expected expenditures each month. Be sure to remember the difference between wants and needs. Textbooks and supplies are clearly mandatory, but weekend trips, nights out and new clothes are not. Even a car can quickly drain your resources if you’re cash strapped.

Feed the Pig, the AICPA’s financial literacy site aimed at young people, recommends recording every time you make a purchase so that you get a good sense of where your money goes. Then categorize all the items, to see if you’re spending as much on morning coffee as you are on weekend entertainment. These steps allow you to understand where you might need to cut back or reconsider your spending choices. If you’re honest about your real necessities, it will be easier to create a workable budget, and find ways to save.

Avoid Credit Card Debt

College seniors with credit cards graduate with an average of $4,100 in credit card debt, according to the Nationwide survey. The importance of budgeting is clear when you see the consequences of spending beyond your means. Many students use credit cards to stretch their spending money, but given the high interest rates involved that can be a costly choice.

For example, if you have a $4,100 credit card balance, at an 18% interest rate and you make a $200 payment each month, it will take you 25 months to pay off that balance and it will cost you a whopping $836.27 in interest, money you could have spent on other purchases or put aside in savings. That debt is a big burden to carry, especially since so many graduates also have significant outstanding student loan debts.

Debt can make it more difficult to find or afford your own place or to qualify for an auto or other loan. The best advice: If you’re going to reach for the plastic, make sure it’s a debit card. That way you will spend only what you have in your bank account now and avoid overextending yourself.

Your Local CPA Can Help

College is an exciting time that offers many new experiences, including managing your own money. If you or your family has questions about financial topics, be sure to consult your local CPA. He or she can help you address all your important financial concerns.

Gov. Pence Convenes Tax Conference

The Pence administration is looking for big and little ideas regarding taxes. The Governor – through the Department of Revenue and Office of Management and Budget – recently conducted an all-day discussion on ways to simplify Indiana’s tax code and tax administration as a means for making Indiana even more competitive in its quest to attract more business activity to the state.

The day began with comments from Indiana’s own Al Hubbard, former director of the National Economic Council and a longtime Indiana Chamber board member. His insights were followed by a panel of nationally recognized tax experts who discussed – at a high level – tax structure and the impact of taxes and tax reforms. Well-known economist Art Laffer (of the Laffer Curve fame) spoke at lunch.The afternoon consisted of breakout panels of various Indiana tax professionals who addressed different aspects of our tax system. Each session and all the talks were captured on video and most of the panelists also submitted papers or written comments on the topics they discussed (see the Indiana Chamber’s remarks, under the Tax Simplification section at www.in.gov/dor/5122.htm). The video link and other conference materials are available for review at www.in.gov/dor/index.htm. You can also submit your own ideas (up to two weeks post conference) at www.in.gov/dor/5120.htm.

The event was generally intended to generate, collect and consider ideas on how to make Indiana’s system simpler and better. Everything from big picture sweeping changes to down-in-the-weeds process tweaks were put on the table. There were many references to “broadening the base and lowering the rates.” The taxation of business personal property came up in a number of times. And a wide range of suggestions and recommendations on tax policy and procedure in the contexts of sales, income and property tax were brought forth. Indiana Chamber staff and numerous members of the Chamber Tax Policy Committee took part in the panel discussions and otherwise participated.

The question now is how this host of ideas will be digested by the Pence administration and the Legislature. Many members of the tax policy committees in the Legislature participated and were in attendance. And many of the attendees will also be participating in some way with the Legislature’s Blue Ribbon Tax Commission that will get under way later this summer. The Governor indicated that he hopes the commission and ultimately the General Assembly will give consideration to some of the things discussed at the conference. It seems likely that the conference will create momentum for some proposals. Many appear very doable and could be realized in the near term, others may take a much longer course or never pan out. Of course, only time will tell which ones fall into which category.

Chamber’s Bill Waltz: State Budget Holding Steady for Now

There are plenty of ways to parse the revenue collections over the first 10 months of the current (2014) fiscal year. Officially, the general fund numbers are 0.5% below the most recent (December 2013) forecast. But they are 1.7% below the 2013-2015 budget based targets. Neither percentage warrants great concern, representing in dollars $61 million (0.5%) and $194 million (1.7%), respectively. But the last two months of fiscal year 2014 will be worth noting for the purpose of identifying trend lines. The March and April numbers came in very close to the December forecast, but the problem is the December forecast adjusted the predictions downward from the April 2013 forecast on which the budget is based.

Last month’s actual collections were 6.4% below the original forecast. So there is a need for the May and June collections to be close to the revised forecast amounts, or else the budgeting going into the second fiscal year of this biennium will get trickier. If those collections drop off, the forecasters and budget-makers will be looking at less than desired numbers going into the new budget making session next year. Sales tax revenues are the real key since they make up 49% of the collections. The sales tax numbers are not bad, but are very modest, showing 1.5% growth over last year. Corporate revenues remain stalwart, 14.5% above target for the year. On the other end, gaming remains down, 7.1% below target. All in all, the budget is in an alright place, but there is a lot to be determined in the coming months as far as expectations going into the next biennium.

Stay Tuned for Real Interim Action on Tax Issues
Nothing is happening just yet, but things are in the works: This will not be an ordinary interim for tax matters. The Pence administration is currently busy organizing a major event for next month. The initiative, dubbed the Indiana Tax Competitiveness and Simplification Conference, is set for June 24. It will be opened by Gov. Pence and feature a few nationally recognized speakers. There will also be panel sessions on a variety of tax subject areas. Panelists will have a work group type format. This is a “by invitation” conference. More details will be reported next month.

Dovetailing the Governor’s conference to some degree will be the Blue Ribbon Commission established by SEA 1-2014. It is expected that his body will begin to take shape in the coming weeks.

The Legislative Council has recognized the commission (referenced as the Commission on Business Personal Property and Business Taxation) in conjunction with the other interim committees sanctioned for interim activity (via Council Resolution 14-01). Senate Pro Tem David Long will name one of his Senate colleagues as the chair and Speaker Brian Bosma will name one of his House colleagues as the vice chair. Four other legislators will likewise be appointed, while the Governor will have a designee. And the remaining seven members will be laypersons representing various interested parties, including the Indiana Chamber, the Indiana Manufacturers Association, the Realtors Association, agriculture and local governments.

Indiana Climbing in the Rankings

Yesterday’s post highlighted some very promising jobs numbers in Indiana. It’s no coincidence that others are recognizing the state’s continually improving business climate.

The Small Business & Entrepreneurship Council released its Small Business Tax Index 2014, rating states on 21 measures. Indiana placed 11th. And with personal income tax rates (positively impacting capital gains and dividends) and corporate income taxes decreasing further, the ranking just might improve.

Even more promising, the American Legislative Exchange Council unveiled its annual Rich States, Poor States report. Fifteen state policy variables are used to forecast economic outlook. The theory: states that spend less and tax less (particularly on productive activities such as working or investing) experience higher growth rates than states that spend and tax more. Indiana ranks third (14th in 2013 and 24th a year earlier), behind Utah and South Dakota.

We’ll take the good news, but won’t rest on any laurels or allow others to do the same. There are still too many challenges and too many goals to be reached in our Indiana Vision 2025 plan. But it’s nice to be moving in the right direction.

Don’t Squander That Tax Refund!

Taxes aren’t all bad – especially this time of year when refunds are doled out to the tune of (on average) approximately $3,000. But don’t be fooled. Before you embark on an extravagant shopping spree, there’s something I have to say: Halt! Stop! Wait!

Kiplinger offers 10 tips for spending (and saving) your refund. Paying off credit card debt, rebuilding your emergency fund and boosting retirement savings are great ways to protect – and pad – your pocketbook.

I know what you’re thinking: That’s no fun! Point taken. But heeding some of these suggestions might help you avoid a serious case of buyer’s remorse. Who wants to deal with that?