Friday, April 18, 2014

Revenue Finds No Error in Imposing Indiana Sales Tax Where Taxpayer Given Credit for Kentucky Sales Tax Paid on Purchases

Excerpts of Revenue's Determination follow:

Taxpayer is a business with operations in several states. As the result of an audit, the Indiana Department of Revenue ("Department") determined that Taxpayer had not paid sales tax on some tangible personal property ("TPP") at the time of purchase during the tax years 2009, 2010, and 2011. The Department therefore issued proposed assessments for use tax and interest for those years.
...

Taxpayer protests the imposition of use tax on some of its purchases of TPP during the audit years of 2009, 2010, and 2011. The Department determined that, on certain purchases of TPP, Taxpayer's Kentucky-based vendor had charged Kentucky sales tax at six percent, while Indiana's sales and use taxes were seven percent. The Department gave Taxpayer credit for the six percent Kentucky sales tax already paid and imposed Indiana use tax on the one percent difference from Indiana's seven percent rate. Taxpayer protested that it had already paid sales tax.
...

Therefore, if a person properly paid sales tax to another state, under IC 6-2.5-3-5, the Department will give a credit in the amount of the other state's sales tax against the amount of Indiana use tax due. In this case, the Department did just that. Therefore, while Taxpayer is correct that it paid sales tax at the time of purchase, that sales tax was Kentucky's six percent tax. Indiana's seven percent use tax was reduced by the six percent Kentucky sales tax, resulting in a one percent Indiana use tax imposition on those purchases. The Department correctly applied IC 6-2.5-3-5. Taxpayer has not met the burden of proving the proposed assessments wrong, as required by IC 6-8.1-5-1(c).
...

Because Drums were "Returnable", Revenue Finds Taxpayer Failed to Show Sales Tax Assessment was Improper

Excerpts of Revenue's Determination follow:

Taxpayer, an Indiana company, manufactures various lead-based chemicals. Taxpayer does not produce end products, but rather produces chemicals that other manufacturers use in their respective processes to obtain certain desired qualities in the manufacturers' final products. Taxpayer's customers typically purchase Taxpayer's products exempt from sales tax because the customers purchase the items as raw materials for their own respective production processes and because Taxpayer typically ships its products out of state.

Pursuant to a sales and use tax audit for the years 2008, 2009, and 2010, the Indiana Department of Revenue ("Department") assessed Taxpayer additional sales tax, penalty, and interest on steel drums Taxpayer purchased to hold Taxpayer's products for shipping to Taxpayer's customers.
...

Taxpayer argues that steel drums it uses to fill with its lead-based chemicals to sell to customers enjoy an exemption under IC 6-2.5-5-9. Taxpayer states that it only receives a small number of the steel drums back from customers. Taxpayer also alleges that federal laws and regulations regarding the nature of Taxpayer's products prohibit customers from returning the steel drums. Therefore, Taxpayer argues, the steel drums should be considered nonreturnable containers.
...

During the audit, Taxpayer's shop manager deemed the steel drums as returnable. Taxpayer stated that Taxpayer or Taxpayer's accounting representative wanted to look into more information regarding the steel drums. However, Taxpayer did not provide further information to the Department prior to the Department's completion of the audit.

During the administrative hearing, Taxpayer echoed the shop manager's statements, deeming the drums returnable. But Taxpayer argued that the steel drums do not come back to Taxpayer. Further, Taxpayer averred that federal regulations prohibit the return of those drums that contained lead-based materials shipped outside the United States.

The Department requested that Taxpayer provide the alleged federal rules or regulations, as well as any other information that Taxpayer thought supported Taxpayer's arguments. While the Taxpayer subsequently provided a schedule showing that some of the subject steel drums were not returned, Taxpayer did not provide any other information that contradicted the Department's determination that the steel drums were customarily returnable. Taxpayer did not provide evidence sufficient to show that the Department's assessments were inaccurate.
...

The Department issued ten percent negligence penalties for the tax years in question. Taxpayer protests the imposition of the penalties.
...

Taxpayer has met its burden of proof to show that the deficiencies it incurred are due to reasonable cause and are therefore not subject to a penalty under IC 6-8.1-10-2.1(a).

Updating Referendum Information for May Primary: LOTS of Schools Seeking Additional Tax Dollars!

Construction Project Referendum

MAY 2014 ELECTIONS

  • Elkhart Community Schools, Elkhart County
    Madison Consolidated Schools, Jefferson County
    • School Tax Levy Referendum

      MAY 2014 ELECTIONS

    • Concord Community Schools, Elkhart County
    • Elkhart Community Schools, Elkhart County
    • Eminence Community School Corporation, Morgan County
    • Lanesville Community School Corporation, Harrison County
    • MSD Boone Township, Porter County
    • MSD of Decatur Township, Marion County
    • Mt. Vernon Community School Corporation, Hancock County
    • White River Valley School Corporation, Greene County
    • http://www.in.gov/dlgf/8789.htm


      DLGF Holds Distressed Unit Appeals Board Hearing for Boone Township Schools

      NOTICE OF PUBLIC HEARING TO BE CONDUCTED BY THE 
      DISTRESSED UNIT APPEALS BOARD REGARDING THE 
      PETITION FOR NON-BINDING REVIEW OF A BOND 
      REFUNDING FILED BY THE METROPOLITAN SCHOOL 
      DISTRICT OF BOONE TOWNSHIP 


      Notice is hereby given that on April 16, 2014 at 9:00 a.m. the Distressed Unit Appeals Board
      (DUAB) will conduct a public hearing regarding the Petition for Non-Binding Review of a Bond
      Refunding filed by the Metropolitan School District of Boone Township at One North Capitol,
      Indianapolis, IN, 46204 in the ninth floor conference room.

      The hearing is being conducted pursuant to IC 6-1.1-20.3, IC 5-1-2-2, IC 5-1-5-2.5, and the
      Open Door Law IC 5-14-1.5 upon the Petition of the Metropolitan School District of Boone
      Township.

      http://www.in.gov/dlgf/files/DUAB_Public_Notice_04_16_14.pdf

      Herald-Times Reports Bloomington Owes Monroe County Over TIF

      From the Bloomington Herald-Times:

      There’s a final number for the amount of money the city of Bloomington owes Monroe County’s Westside or Richland Tax Increment Financing District: $440,191.70. Now the question is, when that money will be collected?

      The Monroe County Redevelopment Commission received a final report from Financial Solutions Group, Inc., which provides the annual reports for all three of the county’s TIF districts. The report states that between 2009 and 2013, money was incorrectly divided for six parcels in the Westside TIF District.

      Pharos-Tribune Reports Logansport Redevelopment Commission Proposes New TIF Expansion

      From the Logansport Pharos-Tribune:

      The Logansport Redevelopment Commission is now considering including land surrounding Water Street in a proposed consolidation of the city's tax increment financing districts.

      A tax increment financing, or TIF, district, captures the increments of an area's total assessed value as it increases over time to use as incentives for development projects.

      The city's three TIF economic development districts are located in the Cass County-Logansport Industrial Park, on the city’s east side and spanning an area between U.S. 35, Burlington Avenue and Main Street.

      Logansport City Council voted in favor of the redevelopment commission's recommendation to combine these three districts into one large district last fall.

      However, the consolidation is not yet possible because the land required to connect the industrial park district to to the one spanning U.S. 35, Burlington Avenue and Main Street is proposed annexation territory currently being contested in court by landowners.

      Those in favor of the consolidation say it will allow for more flexibility in using TIF funds to attract development across the city than reserving collected funds for corresponding districts.

      Because the city's downtown TIF district is a redevelopment district rather than an economic development district like the other three, it cannot be included in the consolidation and will retain its own funds.

      In order to successfully complete the consolidation while awaiting an outcome on the annexation remonstrance, the redevelopment commission is considering designating about 257 acres around Water Street as a TIF district.

      Courier-Journal Reports Indiana Tax Refunds Help Pending Identity Quiz

      From the Louisville Courier-Journal:

      The Indiana Department of Revenue has sent out letters notifying some taxpayers that their individual income tax refunds will be withheld until they fill out anew identity confirmation quiz on the state website.

      The state requires those who receive the letters to type in their Social Security Number, refund amount and correctly answer three of four questions aimed at preventing identity theft, according to the letter, provided to The Courier-Journal by an elderly woman who declined to be identified for this story.

      Those who don't have Internet access or who need help otherwise can call the revenue department, (317) 233-1642.

      The woman initially refused to fill it out, fearing it was a phishing scam.

      Some of those who serve elderly Hoosiers agreed.

      "That sounds like a scam up and down," Angela Marino, aging and disability resource center manager for LifeSpan Resources in New Albany.

      Marino got an email Tuesday confirming it was not a scam from Nancy Stone, Senior Medicare Patrol program director with the Indiana Association of Area Agencies on Aging, after Stone first heard of it from a reporter.

      But a January press release from the state Department of Revenue confirms the letter is part of a program the state started this year in conjunction with research firm LexisNexus.

      "The identity protection program is a way the Department of Revenue is proactively protecting the identities and refunds of our Hoosier taxpayers," Department of Revenue Commissioner Mike Alley said in the January 15 statement.

      The state cited federal Justice Department statistics that shows identity theft resulted in more than $24.7 billion in financial losses nationwide in 2012. And more Americans' identities were stolen in tax-refund crimes during the first six months of last year than in all of 2012, according to the release.

      The department release goes on to state that Indiana "will be using the automated identity verification services of LexisNexis to help confirm the identities of all Hoosier taxpayers due a refund in 2014. Information will be submitted to the LexisNexis identity verification database. It is expected that more than 90 percent of all returns will be verified as a result o this process."

      The identity-confirmation letters are "an additional level of protection" sent to some selected taxpayers, who themselves are not considered suspects of identity theft, department officials said.

      To learn more about identity-theft protection, go to Indiana Attorney General Greg Zoeller's website, www.in.gov/attorneygeneral/2853.htm.

      http://www.courier-journal.com/story/news/local/indiana/2014/04/15/indiana-tax-refunds-held-pending-identity-quiz/7745667/

      Times Reports Beauty School Wins Tax Exemption in Porter County

      From the Northwest Indiana Times:

      The Don Roberts Beauty School succeeded Thursday in renewing its tax exempt status with the county.
      The Porter County Property Tax Assessment Board of Appeals voted 2-1 to grant the tax exemption after determining the business qualified as a trade school.
      The lone vote of dissent was cast by PTABOA member Nick Sommer, who voiced concern about the business making profit by having students directed to it from area high schools.
      Company President Barbara Roberts told the board that at least 60 percent of her students attend area high schools.
      The high schools pay about half of the standard $17,000 tuition for the year-and-a-half-long program, she said.
      PTABOA member Joe Wszolek said the schools would likely have to provide the education themselves if the Don Roberts program was not available.
      Roberts said the school has been in existence since 1970, but only learned of and secured the tax exemption around 2008.
      The PTABOA had to decide not only if the school qualified for an exemption, but also whether it would be as a trade school or under the education section of the statute.

      Times Reports Porter County Hospital Again Challenges its Assessment

      From the Northwest Indiana Times:

      Porter Regional Hospital is again challenging the assessed value of its new its new building and nearby medical office building.
      The hospital has filed a petition with the Indiana Board of Tax Review claiming the buildings at Ind. 49 and U.S. 6 should be valued at $39.3 million for March 1, 2013, as compared to $244.5 million placed on it by the Porter County Property Tax Assessment Board of Appeals.
      The hospital, through its representative Uzelac & Associates, claims the county's assessment was not based the "true tax value" as defined by the assessment manual and assessment guidelines.
      "Assessments developed by methods not prescribed by the Indiana Assessment Manual and Guidelines do not carry the presumptions of correctness," according to the petition.
      The hospital also claims the assessment is not uniform with similar properties.
      An attempt Thursday to secure comment from the hospital was unsuccessful.
      This is the second petition for review filed by the hospital. The business is also challenging the assessment from the year prior, claiming the buildings should be valued at $34.2 million for March 1, 2012, as compared to the $117 million placed on it by the PTABOA.
      This latter value represent the period just before the new hospital opened in August 2012. The PTBOA determined the the new hospital was 90 percent complete.
      The hospital lost the first round of appeals for both years before the PTABOA. The 2012 appeal resulted in the county increasing the assessed value.

      Thursday, April 17, 2014

      Tax Court Finds that Assessor Waived Objection to Late Submission of Record

      Excerpts of the Tax Court Order follow:

      ...
      When the Joneses filed their complaint with the Court on August 28, 2013, they did not include a request that the Indiana Board prepare a certified copy of the administrative record. (Pet’r Pet.; Resp’t Mot. Dismiss ¶ 2.) Consequently, under Indiana Tax Court Rule 3, they had until September 27, 2013, to file a separate request for the administrative record to be prepared. See Ind. Tax Court Rule 3(B), (E). The Assessor now argues in her motion to dismiss that because the Joneses failed to meet that September deadline, they “have not properly initiated their action before this Court” 5 and, as a result, their complaint should be dismissed.1 (See Resp’t Mot. Dismiss; Resp’t Br. at 5.)

      Through a series of cases, the Indiana Supreme Court has held that a failure to timely file the administrative record pursuant to Indiana Tax Court Rule 3 is the type of legal error or procedural defect which, if not objected to at the appropriate time, is waived. See, e.g., Packard v. Shoopman, 852 N.E.2d 927 (Ind. 2006); K.S. v. State, 849 N.E.2d 538 (Ind. 2006); Druids, 847 N.E.2d 924. This holding is equally applicable to the situation that occurs when, like here, a petitioner fails to timely request that a certified copy of the Indiana Board’s administrative record be prepared under Indiana Tax Court Rule 3. Accordingly, if the opposing party does not object to the procedural defect at the appropriate time, the objection is waived.



      In this case, it would have been revealed by the end of September that the Joneses had not filed a separate request for the administrative record in compliance with Indiana Tax Court Rule 3. Nonetheless, the Assessor waited until mid-December to raise an objection. Additionally, the Assessor and her attorney had already had numerous communications with the Court by that point, as they had filed her answer on October 2, participated in the telephonic case management conference on October 23, and had filed the October 29 response opposing the Joneses’ motion for default judgment. Given these particular facts, the Court finds that the Assessor has waived her objection to the timeliness of the Joneses’ administrative record request.
      ...

      DLGF Publishes 2013 Delinquency Reports and Calculation of Levy Excess

      MEMORANDUM

      TO:                 County Auditors

      FROM:           Courtney Schaafsma, Budget Division Director

      RE:                  2013 Delinquency Reports and Calculation of Levy Excess

      DATE:            April 16, 2014

      Delinquency reports must be submitted for the Department of Local Government Finance (“Department”) to calculate Levy Excess for the 2014 pay 2015 tax year.

      Attached is a form requesting the amount of delinquency paid to each taxing district. The form has been pre-populated with the taxing districts for each county for the pay 2013 tax year. You may use the drop-down arrow by County or County Name to filter the data so only your county is displayed. 

      The Department is requesting delinquency amounts collected and PAID to each district in 2013. Please do not include penalties. Please call your vendor if assistance is needed to extract this data.

      Please disregard this message if delinquency amounts collected and paid to each district in 2013 have been submitted to the Department.

      Forward the completed form via e-mail to Neil Broshears, Budget Data Specialist, atnebroshears@dlgf.in.gov.

      If you have any questions, please contact Neil Broshears at (317) 234-8610 ornebroshears@dlgf.in.gov.

      Republic Reports Bartholomew County Tax Bills in the Mail

      From the Columbus Republic:

      Property tax bills were mailed Tuesday, and the spring installment of 2014 property tax bills is due May 12.

      The Bartholomew County Treasurer’s Office provided information about how to pay property tax bills:
      • By mail: Send remittance to Bartholomew County Treasurer’s Office, Box 1986, Columbus, IN 47202. Must be postmarked by due date.

      Revenue Finds Taxpayer Failed to Timely Pay Retail Sales Tax; But Waived Penalty

      Excerpts of Revenue's Determination follow:

      Taxpayer, an out-of-state company, operates gasoline stations in Indiana. Taxpayer discovered that it had made an error in computing the amount of tax due to the Department. On or around December 10, 2012, Taxpayer amended the January through September 2012 Retail Sales Tax returns and paid the amount due. The Department recorded the amended returns and deposited the remittance. Thereafter the Department disallowed Taxpayer's collection allowance and assessed Taxpayer a ten percent penalty and interest.
      ...

      Taxpayer protests the disallowance of the Retail Merchant's Collection Allowance. The relevant statute is IC 6-2.5-6-10(a), which states:

      (a) In order to compensate retail merchants for collecting and timely remitting the state gross retail tax and the state use tax, every retail merchant, except a retail merchant referred to in subsection (c), is entitled to deduct and retain from the amount of those taxes otherwise required to be remitted under IC 6-2.5-7-5 or under this chapter, if timely remitted, a retail merchant's collection allowance.

      Taxpayer amended the January through September 2012 Retail Sales Tax returns and paid the amount due on or around December 10, 2012. Taxpayer did not timely remit the state gross retail tax, as the amounts were due prior to December 2012.
      ...

      Taxpayer protests the imposition of the ten percent negligence penalty on Taxpayer's failure to timely remit sales tax to the Department. The Department also notes that underIC 6-8.1-10-1(e) interest cannot be waived.
      ...

      Taxpayer contends that the error in submitting the correct remittance was due to a software glitch. Specifically, Taxpayer stated,

      "The retail accounting system was classifying the discounts as taxable when the discounts could either be taxable or non-taxable; therefore, the 'calculated' net taxable sales were lower than the 'collected' net sales for the sales tax calculation."

      When Taxpayer discovered the error, it corrected the error by amending its returns and remitting the additional sales tax. Additionally, Taxpayer provided documentation that demonstrated that Taxpayer determined the cause for the miscalculations and fixed the error to ensure that the proper amount of sales tax is remitted on a going forward basis. Taxpayer has documented and verified that the error was due to a reasonable cause and it has taken proper action to prevent the same mistake from happening again. Taxpayer has made a strong case that the negligence penalty should be abated.
      ...

      News Reports Shelby County Residents Facing Increased Tax Bills

      From the Shelbyville News:
















      Revenue Finds that Taxpayer's Sales to California, Illinois and Utah Were Properly "Thrown Back" to Indiana; but Revenue Sustained Taxpayer's Protest with Regard to its Wisconsin Sales because Taxpayer Had Substantial Nexus with Wisconsin

      Excerpts of Revenue's Determination follow:

      Taxpayer is a corporation that is a manufacturer domiciled in Indiana with business operations in Indiana and other states. Taxpayer is a wholly owned subsidiary corporation. Taxpayer's parent corporation does not file a tax return in Indiana. However, Taxpayer's parent corporation has two other subsidiary corporations that also do business in Indiana that have elected to file a consolidated Indiana adjusted gross income tax return with Taxpayer. The Indiana Department of Revenue ("Department") conducted an audit review of Taxpayer's business records and tax returns for the 2007 to 2010 tax years.

      After reviewing Taxpayer's federal and state income tax returns and supporting information, the Department made adjustments to the calculation of the Indiana consolidated group's adjusted gross income tax. Specifically, the Department increased Taxpayer's sales factor apportionment numerator to include the throwback to Indiana of sales destined to several foreign states, because the Department found that Taxpayer's activities in those states did not exceed the protection of P.L. 86-272. As a result of the audit adjustments, the Department recalculated the consolidated group's Indiana apportioned business income and net operation loss deductions for the 2008 to 2010 tax years and issued an assessment of additional adjusted gross income tax for the 2007 tax year. Taxpayer protested. An administrative hearing was conducted, and this Letter of Findings results. Additional facts will be provided as necessary.
      ...

      The Department determined that, for purposes of calculating Taxpayer's Indiana tax liability, the receipts from certain sales to out-of-state customers should be thrown back to Indiana because the sales were made within jurisdictions where Taxpayer did not have nexus with that state. The audit based its decision on 45 IAC 3.1-1-50 and instructions included on the state return that attribute those sales to Indiana if the taxpayer is not taxable in the state of the purchaser and the property is shipped from Indiana. Such sales are designated as "throw-back" sales. Id.
      ...
      Taxpayer asserts that the Department's audit has incorrectly computed its Indiana apportionment sales tax numerator by including throw-back sales from California, Illinois, Michigan, Minnesota, North Carolina, Ohio, Pennsylvania, Utah, Washington, and Wisconsin. Taxpayer maintains that the sales to these states should not be thrown back because at least one of the entities in its consolidated groups has nexus in these states. Moreover, Taxpayer maintains that the sales to certain of the states should not be thrown back because it paid taxes, including "franchise taxes for the privileged of doing business," to those states. Finally, Taxpayer states that, for the 2009 and 2010 tax years, the sales to Wisconsin should not be thrown back because it had a physical presence in Wisconsin as of 2009.

      A. Consolidate Group Nexus: "Finnigan" Concept.

      The Department determined the amount of Taxpayer's sales factor numerator by including the throw back to Indiana of Taxpayer's sales that were destined to several foreign states, because the Department found that Taxpayer's activities in those states did not exceed the protection of P.L. 86-272. The Department required that Taxpayer throw back those sales made by a member of the affiliated group into states for which that member did not have nexus.

      Taxpayer argues that the proper filing method requires Taxpayer and its subsidiary corporations to throwback sales only if none of the entities in the consolidated group have taxable nexus with that state. This is commonly referred to as the "Finnigan" concept.
      ...

      Taxpayer supports its argument by stating that since credits for the entities in the consolidated return are taken regardless of which entity in the return earned the credit and how much income that entity earned, the apportionment rules for the consolidated return should also follow this same logic.

      However, Taxpayer is mistaken. IC § 6-3-4-14 provides that each entity in the consolidated return shall determine its adjusted gross income pursuant to Section 1502 of the Internal Revenue Code. These regulations state that, in order to determine the taxpayer's "consolidated taxable income" under the regulations, each member of the consolidated group must first calculate its "separate taxable income." Treas. Reg. § 1.1502–11(a). This figure for each member "is computed in accordance with the provisions of the Code covering the determinations of taxable income of separate corporations," subject to sixteen adjustments. Treas. Reg. § 1.1502–12. Thus, each corporation in the group first determines its individual taxable income under chapter 1 (and I.R.C. § 63) and then specially modifies that figure for the purposes of chapter 6. Then, the group's "consolidated taxable income" is determined by aggregating the members' separate taxable incomes, subject to seven additional adjustments. Treas. Reg. § 1.1502–11. Since the regulations prescribed under Section 1502 provide that each member of the consolidated group must first calculate its "separate taxable income" in order to determine the taxpayer's "consolidated taxable income," then for the Indiana consolidated return purposes each taxpayer in the consolidate group is also considered on a separate basis. Therefore, without IC § 6-3-4-14(d) specifically providing the exception–to this separate calculation rule–that the credits will be allowed against the group's consolidated tax liability regardless of the entity's income tax liability that had earned the credit, the statutory return calculation would limit the application of the credits to that specific entity's tax liability.

      Accordingly, for taxpayers filing in a consolidated return, the attribution of sales is done prior to the aggregation of those sales into the consolidated factor and only those tax attributes of the member are relevant. In fact, for each of the tax years, the instructions for Schedule E, "Apportionment of Adjusted Gross Income for Corporations," of the Form IT-20, "Indiana Corporate Adjusted Gross Income Tax Return," followed this separate basis rule and provided that "[e]ach filing entity having income from sources both within and outside Indiana must complete a three-factor apportionment."

      In the instant case, Taxpayer has not petitioned to file a combined return, and the Department is not attempting to require such a return. Since Taxpayer files its returns on a consolidated basis and not on a combined unitary basis, the "Finnigan" concept and analysis in making such determination in the context of a combined filing are inapplicable to Taxpayer's return calculation. Taxpayer wishes to take a "best of both worlds" approach and receive one of the equitable benefits that the Department grants to those entities filling on a combined unitary basis without reporting its income to Indiana on the combined unitary basis. Therefore, Taxpayer has failed to provide evidence sufficient to contradict the Department's determination that taxpayer is required to throw back those sales made by a member of the affiliated group into states for which that member did not have nexus, even though another member of its group did have nexus in that state.

      B. "Taxable in Another State."

      Taxpayer maintains that the audit assessment overlooks the nexus and taxation of Taxpayer in states where Taxpayer was "taxable in another state" including states where Taxpayer was "subject to a franchise tax for the privilege of doing business."
      ...

      During the hearing, Taxpayer was asked to provide any documentation that establishes that it had business activities in the particular state and that it was subject to tax in that state based upon its business activities in that specific state. In response, during the course of the protest, Taxpayer presented tax returns, for the respective tax years, that were filed with Michigan (2007-2010 tax years), North Carolina (2007-2010 tax years), Ohio (2008-2009 tax years), Pennsylvania (2007-2010 tax years), Washington (2007-2010), Illinois (2007 tax year), California (2007 tax year), Wisconsin (2009 tax year), and Utah (2007 tax year) to demonstrate that Taxpayer was "subject to tax or taxable" in those states. A number of the returns were tax returns filed to report a tax that was either a net income tax or a franchise tax that was based upon net income. However, a number of the tax returns were filed to report a tax that was not based upon net income but upon the privilege of doing business in those states. The respective states will be discussed based upon the type of return that was filed.

      1. "Net Income Taxes" or "Franchise Taxes Based upon Net Income."

      The California Corporate Income and Franchise Tax Return, the Illinois Corporate Income or Replacement Tax Return, the Utah Corporation Franchise or Income Tax Return, and the Wisconsin Franchise Income Tax Return presented were tax returns filed to report a tax that was either a "net income tax" or a "franchise tax that was based upon net income."

      California

      The tax return that Taxpayer presented failed to demonstrate that it operated a business enterprise or conducted business activity in California. Thus, the documentation Taxpayer presented did not show that Taxpayer maintained an office or other place of business in California; maintained an inventory of merchandise or material for sale distribution, or manufacture, or consigned goods in California; conducted the sale or distribution of merchandise to customers in California directly from company-owned or operated vehicles where title to the goods passes at the time of sale or distribution; rendered services to customers in California; owned, rented or operated a business or of property (real or personal) in California; accepted orders in California; and/or had any other act in those states which exceeds the mere solicitation of orders so as to give the state nexus under P.L. 86-272 to tax its net income. Thus, pursuant to 45 IAC 3.1-1-38, Taxpayer did not meet the first statutory requirement–doing business in California.

      Specifically, Taxpayer's documentation demonstrated that Taxpayer was included in combined California Corporate Income and Franchise Tax Return filing–apparently "claiming P.L. 86-272 protection" for the 2007 tax year. All three entities, including Taxpayer, that were listed on the combined return had checked the box where the taxpayer makes the declaration that the "entity is not doing business in the state" for the 2007 tax year. Therefore, absent Taxpayer providing additional documentation demonstrating that Taxpayer had business activities in California that "exceed the mere solicitation of orders so as to give the state nexus under P.L. 86-272," the Department cannot agree with Taxpayer's contention that Taxpayer's "California sales" should no longer be thrown back to Indiana.

      Illinois

      The tax return that Taxpayer presented failed to demonstrate that it operated a business enterprise or conducted business activity in Illinois. Thus, the documentation that Taxpayer presented did not show that Taxpayer maintained an office or other place of business in Illinois; maintained an inventory of merchandise or material for sale distribution, or manufacture, or consigned goods in Illinois; conducted the sale or distribution of merchandise to customers in Illinois directly from company-owned or operated vehicles where title to the goods passes at the time of sale or distribution; rendered services to customers in Illinois; owned, rented or operated a business or of property (real or personal) in Illinois; accepted orders in Illinois; and/or had any other act in those states which exceeds the mere solicitation of orders so as to give the state nexus under P.L. 86-272 to tax its net income. Thus, pursuant to 45 IAC 3.1-1-38, Taxpayer did not meet the first statutory requirement–doing business in Illinois.

      Specifically, the Illinois return presented was not Taxpayer's return but was a return filed by Taxpayer's parent corporation for the 2007 tax year. Taxpayer's documentation presented for Illinois demonstrated that Taxpayer's parent corporation filed an Illinois "net income and replacement tax return" imposing an income tax measured or based upon "net income." Since the Illinois return is imposing an income tax that is measured or based upon "net income," P.L. 86-272 applies to the return filed in Illinois. Since Taxpayer is not the entity filing the combined income tax return and merely has its income reported in its parent corporation's combined income to determine the tax due for its parent corporation, the documentation presented only shows that Taxpayer's parent corporation is taxable in Illinois for the 2007 tax year and does not demonstrate that Taxpayer's connections with Illinois exceeded the protections of P.L. 86-272. Thus, without Taxpayer providing additional documentation demonstrating that Taxpayer connection's with Illinois exceed the protections of P.L. 86-272, Taxpayer's documentation presented does not demonstrate that Taxpayer is "subject to tax" in Illinois. Therefore, the Department cannot agree with Taxpayer's contention that Taxpayer's "Illinois sales" should no longer be thrown back to Indiana.

      Utah

      The tax return that Taxpayer presented failed to demonstrate that it operated a business enterprise or conducted business activity in Utah. Thus, the documentation that Taxpayer presented did not show that Taxpayer maintained an office or other place of business in Utah; maintained an inventory of merchandise or material for sale distribution, or manufacture, or consigned goods in Utah; conducted the sale or distribution of merchandise to customers in Utah directly from company-owned or operated vehicles where title to the goods passes at the time of sale or distribution; rendered services to customers in Utah; owned, rented or operated a business or of property (real or personal) in Utah; accepted orders in Utah; and/or had any other act in those states which exceeds the mere solicitation of orders so as to give the state nexus under P.L. 86-272 to tax its net income. Thus, pursuant to 45 IAC 3.1-1-38, Taxpayer did not meet the first statutory requirement–doing business in Utah.

      Specifically, the Utah return that Taxpayer provided was not Taxpayer's return but was a Utah return filed by an affiliated corporation for the 2007 tax year. Since Taxpayer is not the entity filing the income tax return, the documentation presented only shows that Taxpayer's affiliated corporation may be taxable in Utah and does not demonstrate that Taxpayer's connections with Utah exceeded the protections of P.L. 86-272. Thus, without Taxpayer providing additional documentation demonstrating that Taxpayer had business activities in Utah, the Department cannot agree with Taxpayer's contention that Taxpayer's "Utah sales" should no longer be thrown back to Indiana.

      Wisconsin

      The documentation Taxpayer presented for Wisconsin demonstrates that Taxpayer owned business property in Wisconsin and, therefore, had substantial nexus with Wisconsin for the 2009 tax year. Thus, Taxpayer was "taxable" in the state of Wisconsin for this year. Therefore, Taxpayer's protest to the imposition of tax resulting from the Department's inclusion of Taxpayer sales to Wisconsin as sales thrown back to Indiana for the 2009 tax year is sustained.

      Accordingly, Taxpayer's protest to the imposition of tax resulting from the Department's including Taxpayer's sales to California, Illinois, and Utah as sales thrown back to Indiana is denied. However, Taxpayer's protest to the imposition of tax resulting from Taxpayer sales to Wisconsin being thrown back to Indiana for the 2009 tax year is sustained.

      2. "Franchise Tax:" "for the Privilege of Doing Business."

      The Washington Business and Occupation Actions Returns, the North Carolina Corporation Tax Returns, the Michigan Single Business Tax Returns, the Pennsylvania Corporate Tax Reports, and the Ohio Corporate Franchise Tax Reports presented were tax returns filed to report a tax that was not based upon net income but upon the "privilege of doing business" in those states.
      ...

      Taxpayer's documentation demonstrated that Taxpayer operated a business enterprise and/or conducted business activity in such state and that the state tax "franchise tax returns" were filed and the taxes imposed were in connection to Taxpayer's business activities or enterprises in those states. Accordingly, Taxpayer's protest to the imposition of tax resulting from Taxpayer sales to Washington for the 2007 through 2010 tax years, to Michigan for the 2007 through 2010 tax years, to North Carolina for the 2007 through 2010 tax years, to Pennsylvania for the 2007 through 2010 tax years, and to Ohio for the 2008 and 2009 tax years being thrown back to Indiana is sustained.

      Board Finds Tax Rep's Guidelines-Based Arguments Failed to Support Reduction in Property's Value

      Excerpts of the Board's Determination follow:

      The parties agree that two parcels were purchased together in 1993, and the third parcel, the subject property of Petition No. 90, was originally common area and later quitclaimed to the Props in 1995. The aerial map shows that the subject property is located directly behind the residence, has no street access, and is of insufficient size to build a residence. Respondent Exhibit C. Mr. McAbee testified that he considered the three parcels as one property with the subject property as an extension of the “backyard.” McAbee testimony. Mr. Smith failed to offer rebuttal evidence of how the Props actually use the property, other than that they mow it. Mr. Smith opined that the subject property could be sold separate from the two parcels containing the residence, perhaps to a contiguous property owner. Smith testimony. The weight of the evidence supports the conclusion that the three parcels constitute a single economic use as a residence.
       

      29. To decide whether Ind. Code § 6-1.1-15-17.2 shifts the burden of proof to the Assessor, the Board compares the total assessment of the three parcels to the amount that the Assessor determined for the previous year. The Assessor property record cards indicate that in 2008 the three parcels were assessed at $19,500 (Parcel 004), $1,780,000 (Parcel 005), and $15,900 (Parcel 008), for a total of $1,815,400. For 2009, the three parcels were assessed at $82,400 (Parcel 004), $1,718,300 (Parcel 005), and $67,200 (Parcel 008), for a total assessed value of $1,867,900. The increase is approximately 2.89%. Because the total assessment of the subject property represents an increase of less 5% from the preceding year, the Props have the burden of proof.


      d. Mr. Smith cites to the original construction cost of $811,000. But the subject property was constructed sixteen years before the relevant valuation date. He does not introduce sufficient evidence to relate the construction cost to the January 1, 2008, valuation date, and therefore, the construction cost carries no probative value.

      e. Mr. Smith argues that, based on the construction cost of the house, the grade factor of AA-1 is overstated. The Indiana Tax Court has consistently rejected arguments that simply contest the methodology used to compute the assessment. Eckerling v. Wayne Township Assessor, 841 N.E.2d 674, 677 (Ind. Tax 2006). Instead, a party must show the assessment does not accurately reflect the subject property’s market value-in-use. Id.; see also P/A Builders & Developers, LLC, 842 N.E.2d at 899, 900 (“the focus is not on the methodology used by the assessor, but instead on determining whether the assessed value is actually correct”). Mr. Smith’s testimony regarding grade presents no probative evidence about the market value-in-use of the property. 

      f. Mr. Smith contends that from 2007 through 2013 property values in the subject property’s neighborhood have been declining. Specifically, the trending factors in the neighborhood dropped from 129% in 2009 to 119% in 2010 and dropped again in 2013 to 89%, which resulted in a lower assessed value for 2010 and 2013 on the subject property. But each assessment and each tax year stands alone. Fleet Supply, Inc. v. State Board of Tax Commissioners, 747 N.E.2d 645, 650 (Ind. Tax Ct. 2001) (citing Glass Wholesalers, Inc. v. State Board of Tax Commissioners, 568 N.E.2d 1116, 1124 (Ind. Tax Ct. 1991)). Thus, evidence as to a property value in one tax year generally is not probative of its true tax value in a different year. Mr. Smith provides no data or evidence to show that property values in the subject property’s neighborhood were declining. Statements that are unsupported by probative evidence are conclusory and of little value to the Board in making its determination. Whitley Products, Inc. v. State Board of Tax Commissioners, 704 N.E.2d 1113, 1119 (Ind. Tax Ct. 1998); and Herb v. State Board of Tax Commissioners, 656 N.E.2d 890, 893 (Ind. Tax Ct. 1995).

      Wednesday, April 16, 2014

      Tribune Reports Property Taxes to Increase in Howard County

      From the Kokomo Tribune:

      Many of the residents in Howard County can expect an increase in their property taxes when bills are mailed out later this week.
      Tax rate increases, a smaller homestead tax credit collection from the state and a decrease in the county’s overall net assessed valuation will cause an increase that may hit owners of property close the city’s median home price the hardest.
      In the city of Kokomo, Howard County Assessor Martha Lake said a home with an assessed value of $75,000 with homestead credit, supplemental homestead credit and a mortgage will pay $778 in property taxes this year, compared to $613 in 2013.
      In Russiaville, a home with the same assessed value with homestead credits, supplemental homestead credit and a mortgage will pay $680 in 2014, compared with $564 in 2013. In Greentown, the same home would receive a bill of $742, compared with $598 in 2013.
      “Homesteaders have normally not hit the caps yet,” she said. “They’re going to feel the pain the most from the increase in any tax rate. Businesses and rental properties are probably capped out now, so they can count on what their taxes are going to be based on their assessed value.”
      A bookkeeping error from the state is to blame for the decrease in the amount of homestead credits property owners received through the Local Option Income Tax this year.
      The county received $7 million in property tax relief for local residential property owners in 2013, decreasing from $8.4 million in 2012. The one-time increase in the homestead credit came as a result of $1.33 million sent by the state as a result of the error, providing approximately 23,000 property owners a one-time savings of $58 early in 2013.
      “Last year they had a little bigger break due to that increase,” Lake said. “This year we have $7 million, so they won’t see as large a credit, so that will result in an increase on their tax bill.”

      Chase: Fiscal Restraint in Lake County, No Fooling!

      By Marc Chase in the Northwest Indiana Times:

      Who knew Lake County government could exercise a measure of fiscal restraint?
      Last May seems like a long time ago in some collective memories. In fact, my very first column in The Times appeared May 14 and took the Lake County Council to task for borrowing $15 million — some of which was for operational expenses — before the county had any firm plan for repaying the money.
      Unsurprisingly, most of that money is now spent. But surprisingly — shockingly, even — $1.8 million remained in county coffers up until last week.
      And refreshingly, Republican County Councilman Eldon Strong, who detested the idea of borrowing the money to begin with, made a motion last week to pay that money back to the bank rather than flushing it down the endless drain of waste that is county government.
      Strong's motion received — also shockingly — unanimous support from the council. So nearly $2 million of that pesky $15 million in needlessly borrowed money will now be retired debt.
      I realize Strong's motion marked a small fiscal victory. So does he.
      "I wish we could pay back the whole $15 million," he told me late last week. "But $1.8 million was left, and it was common-sense government to pay it back."
      Common-sense government would have been avoiding borrowing the $15 million — as a precursor to also saddling taxpayers with a new 1.5 percent local option income tax — but Strong and the rest of the council deserve praise for what they did.
      Common sense hasn't exactly characterized the patronage-bloated, junket-rich, tax-happy Lake County Council in recent years. So some applause is in order.
      Though I do wonder if the rest of the council — other than Strong and fellow GOP Councilman Dan Dernulc, who also has been critical of borrowing and taxing — really understood what they were doing in voting to repay the money. Were they awake, alert and oriented?
      Never mind that borrowing the $15 million — to bridge funding deficiencies for roads, health insurance, drainage projects and other line items — was in and of itself irresponsible.
      Never mind the council borrowed this money without a clue as to how it was to be repaid.
      We have to celebrate baby-step-sized fiscal victories in the land of Lake, and this fits the bill.
      ...

      Journal-Gazette Reports State Continues its Struggles with Tax Burden Balance

      From the Fort Wayne Journal-Gazette:

      If you’re mailing a check to the Indiana Department of Revenue today, you might already have pondered the disconnect between how much you’re paying in state and local taxes and the tax-cut boasting you hear from state officials. It’s not your imagination: Hoosiers’ tax bill as a share of income grew from 8.4 percent to 9.5 percent over the past decade.

      All of the tax cuts pushed by the Indiana General Assembly can’t keep up with residents’ stagnant incomes. A new study by the Tax Foundation places Indiana 22nd for the highest state and local tax burden based on 2011 Census data. The state was ranked 43rd in 2001.

      The last 10 years have seen monumental changes in state tax policy, particularly in business and property taxes. The business-friendly Tax Foundation, in another recent report, calls Indiana’s tax reforms “impressive.”

      “This year, policymakers have continued the Hoosier trend toward better tax laws, as the governor signed a major tax package on March 25 that will improve the state’s business tax climate further,” writes economist Scott Drenkard.

      Gov. Mike Pence’s office acknowledged the disconnect between the two reports.

      “The Tax Foundation findings show that, while we have a competitive tax system, our overall tax burden is still too high,” Kara Brooks, the governor’s spokeswoman, told the Indianapolis Star. “That’s why Gov. Pence has been pleased to sign over $600 million in annual tax relief into law in the past two sessions of the General Assembly.”

      That relief wouldn’t be reflected in the tax burden report, but an automatic taxpayer refund – triggered by a budget surplus – amounted to a $111 tax credit for individual filers in 2013. Legislators tightened requirements for the automatic refund, so it’s not available this year.

      Automatic refunds won’t solve the dilemma posed by Hoosiers’ declining income, even if they return. The state ranked 41st in per-capita income in 2011, at $35,592. That’s fallen from a peak of $38,252 in 2007.

      At some point, state policymakers must consider whether the rush to cut taxes isn’t having a perverse effect on quality of life in Indiana. As the General Assembly has cut taxes at the state level or restricted ability to collect them at the local level, city and county officials have been forced to eliminate services or raise taxes locally. Those decisions inevitably affect the ability to attract new and better-paying jobs to a community. Employers looking to attract talented, well-paid employees know that they must offer an environment with more than low taxes.

      Until lawmakers get the right mix, Indiana’s tax burden might well continue to grow.