A Step Closer to Sales Tax Collection for Online Purchases

The Indiana Chamber supports SB 545 (Sales Tax Collection by Remote Sellers).

This bill takes an important step toward the Legislature requiring online retailers who have no physical presence in Indiana to collect Indiana sales tax from their Indiana customers when they make online purchases. Ultimately, one of two things must happen for the requirement to go into full effect. Either the U.S. Supreme Court has to determine that states are allowed to impose this requirement based on their economic activity in the state (and the nominal burden associated with it), or Congress must pass legislation to authorize states to require the online sellers to collect a state’s sales tax.

The issue is pending before both bodies and several states are passing legislation to put pressure on one of the two entities to act and resolve the issue. Senate Bill 545 is modeled after a South Dakota law that is under review by the high court. It is designed to put Indiana in the position of making the requirement effective as soon as an Indiana court declares the collection valid under federal law. So this remains legally complicated, but SB 545 is a thoughtful and sound approach.

Senator Luke Kenley has pursued this issue diligently for many years – doing everything possible to address the problem of the sales and use tax on these transactions going uncollected. He is to be commended for his pursuit in the past and for formulating this legislation. In-state brick and mortar retailers are put in an unfair position when their online competitors are not required to collect and remit Indiana’s sales tax (as they are), effectively giving the “remote sellers” a 7% price advantage. Additionally, Indiana’s sales tax base is diminished each year as the online sales market continues to grow at rapid rates. What’s more, this is not a new tax since purchasers are already legally obligated to report their online purchases and pay the “use” tax when they file their income tax returns. But the reality is very few people comply with this law.

The Chamber supported the bill in committee this week and, in fact, has been working along with Sen. Kenley for years to achieve, by some means, state authorization for collecting these unpaid taxes. The objective is set forth in our Indiana Vision 2025 economic plan and we just might, after years of complications, be getting closer to obtaining this goal.

Happy Veterans Day! Did You Know Tax Credits are Available for Hiring Veterans?

37738634Veterans, National Guard Members and Reservists remain key assets in helping meet workforce needs.

A free publication for employers, prepared for the Center for America, provides clear and concise understanding along with step-by-step guidance on four new federal tax credit programs: Returning Heroes; Wounded Warrior; Activated Military Reservist Credit for Small Businesses; and the Federal Empowerment Zone Employment Credit.

The guide includes links to the required Internal Revenue Service and Department of Labor forms employers need to submit. It features key eligibility and filing details, with guidance on eligibility and the specific steps to take to claim the credits.

American Jobs for America’s Heroes is a nonprofit campaign sponsored by Phillips 66 and foundations to encourage employers to post full-time jobs for veterans, National Guard members and Reservists. Access the guide and additional information.

Chamber to Study Committee: ‘Why Jeopardize Our Tax-Friendly Image?’

The much anticipated study of combined reporting, performed over the summer by the Legislative Services Agency (LSA) Office of Fiscal Management Analysis, was recently outlined to the legislative Interim Committee on Fiscal Policy.

As a refresher: Combined reporting would impact companies here with operations outside of the state. It tasks these businesses with adding together all profits for one report. Indiana’s current system of separate accounting allows for each subsidiary to report independently based on its location.

The study was required by SEA 323, which passed last session. That legislation also directed a study of the related issue of transfer pricing. Both LSA studies were presented to the interim committee and have now been made available to the public.

The combined reporting study, however, was by far the more comprehensive and was the primary subject of discussion at the interim committee meeting. The report includes examples that demonstrate how a switch to mandatory unitary combined reporting would have varying impacts on taxpayers.

Depending on their particular circumstances, some taxpayers would see their tax liability increase while others would see it decrease. The end result being that the overall effect on the tax revenue stream is unpredictable.

Using data from numerous states and applying econometric techniques, the LSA economists estimated that Indiana could see an initial spike in corporate tax revenue but that it would “only be short term and will decline to zero in the long run.” The study also recognized that while the change could be beneficial in addressing some current issues, such as transfer pricing disputes, it would raise a multitude of new administrative burdens and complexities; most notably those associated with the core difficulty, “determination of the unitary group” – exactly which affiliated entities are ultimately to be deemed part of those that must be combined. In other words, going to combined reporting only trades one set of problems for a different challenge of substantial magnitude.

Studying combined reporting is itself a complicated and difficult task. The LSA did a nice job of putting the issues in historical and practical context, identifying the issues and analyzing the potential impacts. What it could not do, because it isn’t really its role, is fully evaluate how a change could disrupt the progress that has been made over the past 15 years in improving our state’s business climate. Governor Robert Orr concluded in 1984 that combined reporting would be “extremely detrimental to Indiana’s economic growth.” In his open letter to all corporate taxpayers, he offered his assurance that Indiana “does not, and will not, require combined reporting.” That position proved significant in attracting the large manufacturing facilities built by multi-national companies that presently employ thousands of Hoosiers across the state.

Why would you want to reverse this course, abandon the certainty that comes with 50 years of tax law and jeopardize our image as the most business-friendly state in the Midwest and among the top in the nation? This was the core of the Indiana Chamber’s testimony to the interim committee. As for those who view a possible change to combined reporting as a means for dealing with what they label a “compliance issue”, the Chamber committed to work with them. We will need to find less drastic ways to address their concerns and identify ways to respond to the situations they believe represent noncompliance.

It should be noted that concerns with transfer pricing issues seem to have served as the impetus for much of the larger discussion of combined reporting. Consequently, focusing on those issues would provide the potential for reaching resolutions, without a major structural conversion to mandatory unitary combined reporting. In fact, Appendix A to the Transfer Pricing study points to several possibilities that deserve further exploration.

View the combined reporting study and transfer pricing study.

Rochester’s Appraisal Management Research Co. Maximizes Its Chamber Investment Through Helplines

Cook_DavidDavid Cook has called Rochester home since 1989. One year later, he incorporated property tax consulting firm Appraisal Management Research Company (AMRC) — an Indiana Chamber member since 1993.

Its core team of six employees works with a variety of companies. “We’re small, but we accomplish a lot,” remarks Cook, who serves as president.

Remaining informed on state and local laws is critical. He describes how AMRC has benefited from the expertise of Bill Waltz, Indiana Chamber vice president of taxation policy.

“I’ve known Bill for a long time,” Cook shares. “He (on many occasions) would help us keep up-to-date on various changes in the property tax laws.”

In addition, Cook seeks free, confidential guidance on human resources matters by calling the HR Helpline.

“I like to get an opinion,” he asserts. “We do, as necessary, work with an attorney also, but Michelle (Kavanaugh, human resources director at the Chamber) was very helpful in reviewing our personnel policy guidelines and helping us update those. That saves quite a bit of money rather than an attorney doing that. It’s very helpful.”

Tax Issues Aired by Interim Committee

The Interim Committee on Fiscal Policy, chaired by Sen. Brandt Hershman (R-Buck Creek), met three times in October and took testimony on several important issues.

At the first meeting, the group discussed the pros and cons of granting counties the general authority to adopt a food and beverage tax. Representatives for restaurateurs spoke against; county officials argued in favor of the measure. Following that debate was over four hours of testimony regarding property tax assessment procedures and appeals under Indiana’s market value in use standard – a continuation of the “big-box” issue that was addressed last session. The issue is being revisited as county officials think more needs to be done. Commissioner Jonathan Elrod of the Indiana Board of Tax Review presented a lengthy legal analysis; his memo and a flow chart of the process created under last session’s legislation (SB 436) are part of the collection of documents (Oct. 7 meeting) incorporated into the committee’s proposed final report (Oct. 21 meeting).

But in keeping with traditional practice, this committee is not making any recommendations for future legislation. The draft report simply references the volume of data, memos and other evidence brought before the committee during the course of its meetings. The committee has typically served as a forum to air the issues and collect information. Rarely is there any level of consensus on how difficult tax matters should be resolved; yet the information and discussions do often provide the impetus for various proposals in the next session. This will no doubt be the case as to the assessment issues and other matters considered by the committee.

In the following two meetings, the committee studied many substantial tax issues. It pondered the idea of permanently authorizing schools to pay for several operating expenses such as insurance, utilities and maintenance service with property tax revenues. Generally speaking, property taxes may only fund capital projects and debt service (since the state pays for general operating expenses via the school funding formula). But leeway to pay for these other items with property taxes has been granted on a temporary basis in the last several state budgets.

Purdue professor Larry DeBoer presented a cost-benefit analysis evidencing the ratio of tax pay to benefit received by different categories of taxpayers. No surprise to businesses, the ratio is not good. The committee also looked at farmland assessments (another almost perennial issue). Finally, the group received annual reports from the Legislative Services Agency’s fiscal analysts and economists evaluating existing tax incentives. These reports are always full of hard data on the utilization of numerous credits and deductions. These discussions included consideration of Tax Increment Financing (TIF) districts, the Earned Income Credit (EIC) and the Economic Development for a Growing Economy (EDGE) credits.

The committee’s draft report, and everything that was presented in each of the three meetings, is available for downloading, and archived video of the meetings is available at the at the General Assembly web site.

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.

State Revenues Under Projections, but Nothing to Worry About Yet

It’s true: The tax collections for the first two months of the new fiscal year and new state budget have fallen slightly below the forecasted target. Specifically, general fund revenues for July and August combined are $65 million short of the projections. That is 3.2% under the combined forecasts for those two months. But to worry about $65 million at this point is not warranted. First, $65 million is only a blip when you consider that we are talking about a $30 billion budget. Secondly, as in surveys and polls, a variance of less than 5% in revenue forecasting is statistically insignificant.

And lastly, there are 22 more months in the biennium. There will inevitably be fluctuations in the revenue numbers throughout the balance of this fiscal year and next fiscal year. The variance could double or it could disappear in the next couple months. The point is – until we experience a full quarter of shortfalls that total more than 5% – concern is premature.

This is not to say that the numbers are meaningless or that they should be ignored. Keeping a close watch on the revenues and reacting accordingly has been a key to Indiana maintaining its strong fiscal status over the last several years. Discrepancies between the forecast and the actual collections can result from many things, as can be noted in the budget agency commentary that often accompanies release of the hard numbers each month. Changes in the law, special transfers and timing issues can all explain monthly anomalies.

However, closer looks at the individual sources, plus year-over-year and month-to-month comparisons can evidence significant trends. Sales tax revenues are by far the largest single source, making even small differences between the actual year-over-year growth and the projected annual growth something to pay close attention to. While corporate income tax collections are not as critical to the bottom line, they are a major source of revenue and have been very strong (46.7% above the target through the first two months). Another positive aspect of the short-term numbers is the modest uptick of gaming revenues (7.2% above target).

So keep in mind that the numbers will fluctuate and most probably balance out over time – if not, adjustments can and will be made to assure that Indiana maintains its prudent fiscal posture.

Throwback Thursday: This Business is Taxing

Today's edition is for all you tax enthusiasts out there. "Ahhhhhhhhh yaaaaaaaaaaaaaaa, it's party time."

Every year, we reach out to the various government agencies that handle tax filings and compile the Indiana Tax Calendar (here is the 2013 version), which lists the most critical tax deadlines facing Hoosier businesses.

Digging in the archives yielded the 1953 Indiana Tax Calendar (pictured). One striking difference is apparent, in that the document now is just a PDF; we don't even print it anymore.

Some interesting notes:

  • We've since removed the word "State" from "Indiana State Chamber of Commerce," lest people think we're part of the government. We are not.
  • A June 15, 1953 entry: "Dog tax penalty becomes operative. Dog subject to killing if without state tag issued by local official upon payment of tax." Yikes! That's a little harsh, 1953 society. "Sparky, where are ze papers?!?!?"
  • A June 30, 1953 entry: "Special federal tax on narcotics and marihuana due. Form 678." Modern day hippie: "Whoa, I went back in time and they taxed my weed and misspelled it, maaaaaaaaaan."

 

New Tax Guide a Valuable Asset for Indiana Businesses

We take great pride in helping to educate our members and customers through our many publications. The latest example is the newest edition of the Indiana Taxation Handbook, a valuable resource for those who deal with Indiana tax issues.

As a result of changes in tax law and policy over the last two legislative sessions, new and revised sections of the Indiana Tax Handbook: 2013-14 Edition include:

  • Elimination of the Indiana Inheritance Tax
  • Reduction in the Indiana Corporate Income Tax
  • New consolidated filing options for Indiana businesses
  • Overview of the new rolling reassessments for real property in Indiana
  • Adjustments to the property tax appeals process, and new obstacles that must be overcome in appealing property tax assessments
  • Impact of the automatic taxpayer refunds, and where Indiana taxpayers will receive savings

This informative publication is authored by attorneys at Ice Miller, LLP and is available for $111.75 for Indiana Chamber members and $149 for non-members. Order your copy today by calling (800) 824-6885 or through our web site.

Inheritance Tax Bills Aim to Lessen Burden on Small Businesses

Both the House and the Senate have now passed legislation addressing the inheritance tax. However, the bills take very different approaches in how they choose to deal with the egregious tax. The House bill (HB 1199) is simple and straightforward, slowly phasing the tax out over 10 years. The Senate bill (SB 293) is a little more complicated but makes a combination of meaningful improvements that offers more immediate relief for many.

These bills and their approaches are different but they are by no means incompatible. They could easily be combined to produce a ‘best of both’ bill – immediate relief, in the form of raised exemption thresholds and expanding the beneficiaries that are most favorably treated (as in the Senate bill) coupled with the permanence of a phase-out (as in the House bill). The easiest way to make this blend happen would be to replace the 50% rate reduction in SB 293 with a 50% credit, then proceed to phase the tax out over the following five years by increasing the credit an additional 10% each year thereafter. The hope is that would be a final product everyone can live with.

Bill # and Title: SB 293 – Inheritance Tax
Author: Sen. Jim Smith (R–Charlestown)
Summary: Reclassifies a spouse, widow or widower of a child of the transferor as a Class A transferee instead of a Class B transferee. Reclassifies a spouse, widow or widower of a stepchild of the transferor as a Class A transferee instead of a Class C transferee. Annually increases the inheritance tax exemption amounts through 2015. Reduces the inheritance tax rates by 50% beginning June 30, 2016.
Chamber Position: Support
Status: Passed the full Senate on Tuesday 50-0.

Update/Chamber Action: This bill addresses several negative aspects of Indiana’s inheritance tax. It updates who is included in the more favorably-treated category of inheritors (Class A beneficiaries) by redefining the group to encompass not just the children, but also the spouses of a child or stepchild. It also phases in significant increases in the ridiculously low threshold for the amounts that are excluded/exempted from the tax. And finally, starting in 2016, it cuts the rates in half. So the bill takes very meaningful steps to improve the tax, but it doesn’t go all the way and put Indiana on a course to completely rid our citizens of the onerous tax.

The Indiana Chamber, in its testimony at the hearing, acknowledged the very substantial steps that this bill provides in terms of lessening the detrimental impact of this tax and that it smartly addresses the standout problems. However, we took the opportunity to point out that while this bill provides more immediate relief than the House approach (see below), it falls short by not eliminating the tax altogether like the House version does via a scheduled (albeit slow) 10-year phase-out. We suggested that blending this bill’s more immediate improvements with the House bill’s ultimate elimination would represent the best amalgamation of policy choices. Our efforts during the second half of the session will be to promote the wisdom of combining the best provisions of the House and Senate bills as each is considered by the opposite chamber.

Bill # and Title:  HB 1199 – Inheritance Tax
Author: Rep. Eric Turner (R-Cicero)
Summary: Provides for a gradual, 10-year phase out of the inheritance tax, beginning July 1, 2013.
Chamber Position: Support
Status: Passed the full House 78-17.

Update/Chamber Action: The merits of doing away with this offensive tax are becoming more widely accepted as legislators consider its impact on small family businesses in their communities. This was evidenced by the bipartisan support it received as it easily passed out of the Ways and Means Committee. The Indiana Chamber is working hard to make sure everyone truly appreciates just how counter-productive the tax is, who is impacted, how they are impacted and why the state would be better off without it.