Wednesday, July 23, 2014

Revenue Finds Drying Crates Essential Part of Manufacturing Process for Animal Feed

Excerpts of Revenue's Determination follow:

Taxpayer is an Indiana farm market retailer. The Indiana Department of Revenue ("Department") conducted an audit of the tax years 2010, 2011, and 2012. As a result of that audit, the Department issued proposed assessments of base tax and interest.

The Department's audit found that Taxpayer sold "decorative pumpkins" without collecting sales tax. Taxpayer claims that its sales of pumpkins are exempt because pumpkins are food and the sale of food is exempt from sales tax. Taxpayer states "[t]he pumpkins are sold in exactly the same state as they are just before they are picked from the vine in the pumpkin field."

The sale of pumpkins is a retail transaction subject to Indiana sales tax. See IC § 6-2.5-1-2; IC § 6-2.5-4-1; IC § 6-2.5-1-27; 45 IAC 2.2-4-1. The issue here is whether Taxpayer's sale of pumpkins is exempt from sales tax.

The general rule is that "[s]ales of food and food ingredients for human consumption are exempt from the state gross retail tax." IC § 6-2.5-5-20(a). Taxpayer has demonstrated that the pumpkins it sells are food for human consumption and has met its burden to show that the Department's proposed assessment is incorrect. Taxpayer's sale of pumpkins is exempt from sales tax, and Taxpayer's protest is sustained regarding the sale of pumpkins.

Taxpayer protests the imposition of use tax on the purchase of drying crates and office furniture. 

1. Drying Crates

Taxpayer purchased crates to dry ear corn used for animal feed ("drying crates"). The Department's audit determined that these were taxable purchases because Taxpayer failed to demonstrate that the drying crates were purchased in a casual sale and that their purchase qualified for an exemption. Taxpayer did not provide documentation to adequately support this assertion at the hearing.

Taxpayer argues that the drying crates "are exempt from Indiana use tax under the Code because they are an essential and integral part of [Taxpayer's] production process." The audit report disagreed stating that the "crates are merely being used as a holding container where ambient air can flow through them to dry the corn," and found that "[t]he crates are subject to tax." The issue is whether Taxpayer's purchase of the drying crates is exempt from use tax.

Taxpayer references the equipment exemption in IC § 6-2.5-5-3. To claim the exemption, a taxpayer must first demonstrate that it produces tangible personal property, as it is clear that "without production there can be no exemption." Indianapolis Fruit, 691 N.E.2d at 1384. It is undisputed that Taxpayer produces ear corn for animal consumption.

The drying crates are "open on all sides to allow air flow, supplied by drying fans, to go through the crate and dry the corn." Taxpayer provided photographs depicting the drying crates and fans used to dry the ear corn. If not dried thoroughly before it is packaged, the ear corn "will rot in the package and be completely wasted." The drying crates are essential and integral to Taxpayer's production of ear corn for animal consumption. Because the drying crates are an essential and integral part of Taxpayer's production process, they are used directly in the direct production of tangible personal property and are exempt. Taxpayer's protest is sustained.

2. Office Furniture

Taxpayer purchased office furniture. At the time of the audit, Taxpayer argued but failed to demonstrate that sales tax had been paid at the time of purchase of the office furniture. Consequently, the audit report found that because sales tax had not been paid, the purchase of the office furniture was subject to use tax.

Retail transactions ordinarily subject to use tax will be exempt if sales tax was paid at the point of purchase. IC § 6-2.5-3-4; 45 IAC 2.2-3-4. At the administrative hearing, Taxpayer provided a copy of an invoice showing the purchase of the office furniture. On this invoice, Taxpayer has demonstrated that it paid the sales tax at the time it purchased the office furniture. Therefore, Taxpayer has met its burden to show that the Department's proposed assessment is incorrect. Taxpayer's protest is sustained.

Tribune-Star Reports Two Companies Receive Abatements in Vigo County

From the Terre Haute Tribune Star:

Two companies received final approval from the Vigo County Council Monday for 10-year real and personal property tax abatements.

Verdeco Recycling Midwest Inc. will occupy a manufacturing-specific speculative building owned by Garmong Development at the Vigo County Industrial Park, 10535 James Adams St. The California-based company plans to install $5,701,329 in manufacturing equipment and $96,400 in information technology equipment.

Verdeco Recycling intends to start with 12 employees and have at least 24 workers by 2015 with an annual payroll of $986,000, plus benefits.

Casey’s General Stores Inc. plans to construct a 285,000-square-foot distribution center on 67.5 acres of land at the industrial park. The company, which will invest $22 million, is to employ 185 workers by the end of 2015 with a payroll of about $5,675,900 annually.

Times Reports LP Film Company Gets Tax Credits for Expansion in LaPorte

From the Northwest Indiana Times:

A maker of high quality films used in advertising and products like wall decals is expanding in LaPorte.
American Renolit Corp. has been awarded tax credits on a $1.5 million expansion of its facility at 1207 E. Lincolnway.
The enterprize zone investment deduction credits are good for a 10-year period on the upcoming construction of 8,677 square feet of additional office space.
Mayor Blair Milo said the company had the option to apply for tax abatement instead, but decided to pursue the tax credits feeling it could reap more of a financial gain.
"It's a great investment in the community and I'm certainly happy to celebrate with them," Milo said.

Truth Reports Elkhart County Considering Income Tax Increase

From the Elkhart Truth:

Some county officials are hoping an increase in the local income tax could bring relief to the county’s suffering budget.

The Elkhart County Board of Commissioners are recommending that theElkhart County Council pass what’s called a property tax relief local option income tax. 

While its mechanisms are somewhat complicated, the hope is simple — to recoup some of the losses wrought upon the county budget by property tax caps.

Here are six questions answered about the proposed tax:

Who decides whether or not to pass the tax?

While the county commissioners have given their recommendation, the decision is ultimately up to the Elkhart County Council, comprised of seven elected officials.

How would it affect my paycheck?

The rate for the proposed income tax would likely be 0.25 percent, according to Mike Yoder, county commissioner. It would be joined by a 0.25 percent public safety income tax, bringing the total rate to 0.5 percent.

That would raise Elkhart County’s collective income tax rate up to 2 percent, which currently includes a 1 percent adjusted gross income tax, a 0.25 percent economic development income tax and a 0.25 percent special jail income tax.

The proposed tax would be applied to workers’ adjusted gross incomes, according to a 2011 policy brief by Ball State University’s Center for Business and Economic Research.
So, for every $20,000 a resident earns in gross adjusted income, about $100 would go to the proposed tax.

Social Security payments would not be affected.

Why is this being considered?

Elkhart County’s budget is largely funded by property taxes.

Since property tax caps went into effect in 2009, property owners have had more money in their pockets. On the flip side, the county has less money to pay for its government as well as cities, towns, townships, libraries and schools.

In 2010, cumulative losses from those caps totaled $13.15 million. By 2014, those cumulative losses had reached $42.63 million. 

(Read more about property tax cap losses with reporter Tim Vandenack’s “Losses in Elkhart County to property tax caps mount, property tax funding going down”)
If the losses aren’t counteracted in some way, the county could be forced to cut back funding for public services, a concern echoed repeatedly by county officials in recent months.

At this point, it’s unclear which services would be affected.

See the full article here:

Times Reports Porter County Assessor's Office Reps to Visit Properties to Verify Value

From the Northwest Indiana Times:

The Porter County assessor's office has issued a reminder to residents that representatives of that office have started visiting properties to verify information for accurate property tax assessment.
July 1 was the start day for the four-year process of "cyclical reassessment," which is mandated the state.
According to the assessor's office, representatives from the county and township assessor’s offices physically inspect 25 percent of the parcels in the county each year.
The purpose of these inspections is to ensure accurate information for every property record. Accurate records help provide accurate assessments to the taxpayers.
During a visit to a taxpayer’s property, a field agent will attempt to make contact with the taxpayer to identify himself and inform the taxpayer of his purpose in being on the property.
After asking several questions to verify information about the interior of the home, the field agent will inspect the outside of the home and any other structure on the property.
Measurements may be made of the home and any of its exterior features as well as any other structures on the parcel. Even though certain structures may not be new, the agent may still need to take measurements for verification purposes. The field agent will not need to enter the home.
Field agents will have a magnet on their cars identifying them as being a representative of the Porter County Assessor’s Office as well as a badge for the same purpose.

Board Finds Respondent's Comparable Sales Did Not Support Property's Assessed Value but Taxpayer's Guidelines-Based Arguments Failed to Support Any Further Reduction

Excerpts of the Board's Determination follow:

36. In this case, the Respondent had the burden of proving that the 2006 assessment was correct. At most, the Respondent tried to address the subject property’s value by offering sales evidence for three other residential properties from the same neighborhood. However, for sales data to be probative, the properties that sold must be sufficiently comparable to the property under appeal. Conclusory statements that a property is “similar” or “comparable” to another property are not sufficient. See Long at 470. Instead, one must identify the characteristics of the property under appeal and explain how those characteristics compare to those of the sold properties and how any relevant differences affect the properties’ relative values.

37. The Respondent offered purportedly comparable property sales with no related analysis. Other than describing a few general details about the sold properties, the record lacks evidence indicating how the properties are similar to the subject property or how they differ. Moreover, the Respondent did not show how any differences between the properties affected their relative values. She primarily relied on the fact that the sales were in the same neighborhood and averaged out to be more than the assessed value of the subject property. Thus, her sales comparison evidence lacked the type of analysis required by Long. The Board therefore finds that the Respondent’s evidence is insufficient to prove that the 2006 assessment is an accurate reflection of market value-in-use.

38.  Because the Respondent did not offer probative evidence of the property’s market value-in-use, the Respondent failed to meet the burden of proving that the assessment was correct. The assessment for 2006 must revert to the prior year’s assessment of $80,400. That, however, does not end the Board’s inquiry. The Petitioner requested the assessment be lowered to $48,577. Thus, the Petitioner has the burden of proving that it is entitled to any additional reduction. The Board therefore turns to the Petitioner’s evidence.

39. The bulk of the Petitioner’s evidence consists of photographs and testimony regarding the condition of subject property and its surrounding neighborhood. Those photographs show significant deferred maintenance to the subject property and two neighboring properties. The property record card indicates the subject property was in average condition, but the evidence presented does not support that rating. But determining a condition rating for a property is a subjective exercise, and just one of the many steps outlined in the Guidelines for determining a correct assessment. Whether one step of the Guidelines was properly applied does not directly answer the essential question of the property’s market value-in-use.

40. The Tax Court has held that one cannot make a case based on whether the Guidelines were applied properly. Eckerling v. Wayne Twp. Ass’r, 841 N.E.2d 674, 677 (Ind. Tax Ct. 2006). To successfully make his case, the Petitioner needed to show the assessment does not accurately reflect market value-in-use. Id.; see also P/A Builders & Developers, LLC v. Jennings County Ass’r, 842 N.E.2d 899, 900 (Ind. Tax Ct. 2006) (explaining the proper focus is not on methodology, but rather, on what the correct value actually is). Here, the Petitioner failed to prove a lower value that would be more accurate.

41. The Petitioner also argues that an area 300 feet from the subject property is in a brownfield. The Petitioner failed to offer any probative evidence on how this fact affects the market value-in-use of the subject property.

42. That being said, the Petitioner offered testimony of objective errors in the assessment. Specifically, a swimming pool, pool deck, and hot tub belonging to a neighboring parcel were erroneously assessed to the subject parcel. These assertions were not contested by the Respondent. Thus, the Board orders those items be removed from the subject property’s assessment and property record card.

Tuesday, July 22, 2014

Revenue Finds Water Wells and Sodium Chloride for Water Softener Not Part of Production Process

Excerpts of Revenue's Determination follow:

Taxpayer is an Indiana corporation which manufactures sanitation chemicals and equipment used by food processers and the meat industry. The Indiana Department of Revenue ("Department") conducted an audit for the tax years 2010, 2011, and 2012 and proposed assessments of base tax, penalties, and interest.

Taxpayer protests the use tax imposed on the purchase of sodium chloride and parts for its wells. All tax assessments are prima facie evidence that the Department's claim for the tax is valid, and the taxpayer bears the burden of proving that any assessment is incorrect. IC § 6-8.1-5-1(c); Indiana Dep't of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012). The issue before the Department is whether Taxpayer met its burden to prove the Department's assessment is incorrect.

Taxpayer argues that the sodium chloride and well are part of the Taxpayer's production process and therefore exempt from sales or use tax. Generally, "all purchases of tangible personal property by persons engaged in the direct production [or] manufacture . . . of tangible personal property are taxable." 45 IAC 2.2-5-8(a). However, "transactions involving manufacturing machinery, tools, and equipment are exempt" if they are purchased for "direct use in the direct production [or] manufacture . . . of other tangible personal property." IC § 6-2.5-5-3(b); 45 IAC 2.2-5-8(a).

To claim this exemption, a taxpayer must first demonstrate that it produces tangible personal property, because "without production there can be no exemption." Indianapolis Fruit Co. v. Dept. of State Revenue, 691 N.E.2d 1379, 1384 (Ind. Tax Ct. 1998).

Second, a taxpayer must show that the property was acquired for the "direct use in the direct production [or] manufacture . . . of other tangible personal property." IC § 6-2.5-5-3(b). Courts have recognized that the legislature's "repetition of the requirement that the use be direct" was intended to provide for a narrow construction of the exemption. Indiana Dept. of State Revenue v. RCA Corp., 310 N.E.2d 96, 100 (Ind. Ct. App. 1974). Therefore, to be considered directly used in direct production or manufacture, the property must be "an essential and integral part of an integrated process that produces tangible personal property." Kimball, 520 N.E.2d at 457; 45 IAC 2.2-5-8(c). Whether property is essential and integral to an integrated process is determined "by identifying the points where production begins and where it ends." Indianapolis Fruit, 691 N.E.2d at 1384. The production process "begins at the point of the first operation or activity constituting part of the integrated production process and ends at the point that the production has altered the item to its completed form, including packaging, if required." 45 IAC 2.2-5-8(d).

Replacement parts and property used in the normal maintenance or repair of exempt property is also exempt from tax. 45 IAC 2.2-5-8(h). Property that is "consumed in direct production by the purchaser in the business of producing tangible personal property by manufacturing. . ." is also exempt. 45 IAC 2.2-5-11(a). However, property may not be essential and integral to an integrated production process even though it is "considered essential to the conduct of the business of manufacturing." 45 IAC 2.2-5-8(g).

The Department's audit report recognized that Taxpayer produces tangible personal property, i.e. "sanitation chemicals and equipment." Therefore, the issues in this case are whether the sodium chloride and the well are essential and integral to an integrated production process.

1. Sodium Chloride

The audit report states that the sodium chloride "is taxable because it is used to clean the softener (filter) while the softener is out of production." The report recognized that "[w]hen the taxpayer softens the water . . . the softener is like a production machine acting on and changing the water," but found that "when a production machine is shut down for cleaning, anything used to clean the machine is taxable." The audit report found that the sodium chloride "is used to clean the filter in the softener" and taxable.

Taxpayer asserts that "[t]he sodium chloride is . . . used to 'regenerate' the softener process which is a part of the production process." Taxpayer states that the "water softener is not shut down for cleaning." Taxpayer explains that "[i]n order for the other raw ingredients to be solubilized properly, the water must be treated to remove calcium and magnesium ions and replace them with sodium ions from salt (sodium chloride or potassium chloride). This is accomplished by using a sodium zeolite water softener." The "softener is regenerated with sodium or potassium chloride three times per week to keep [Taxpayer's] production water down to 0-5 parts per million hardness." The "[t]reated water is [Taxpayer's] primary utilized raw material for all of [its] manufacturing." Taxpayer states it uses a different product to clean the softener.

Taxpayer's explanation did not satisfactorily explain the difference between "regeneration" and "cleaning." The process of regeneration is not continuous throughout the production process. Although Taxpayer indicated that the water softener is not shut down for cleaning, its explanation indicates that the process of regeneration occurs only three times per week. This appears to confirm the audit report's finding that the softener is out of production when the "regeneration" or "cleaning" takes place. Taxpayer's explanation, while detailed, does not address the Department's conclusions outlined in the audit report. Therefore, Taxpayer has not met its burden to show that the Department's proposed assessment is incorrect. The sodium chloride has not been shown to be directly used in direct production or manufacture of other tangible personal property; therefore Taxpayer's purchase of the sodium chloride is not exempt. Taxpayer's protest is respectfully denied.

2. Well

The audit report indicates that the wells are not a part of the production process, finding that "parts for wells" were acquired for preproduction activity pursuant to 45 IAC 2.2-5-8(d). Taxpayer disagrees indicating that its "production process begins with the well since the well pumps filter impediments and foreign objects found in the extracted water."

For the purposes of this exemption, the production process "begins at the point of the first operation or activity constituting part of the integrated production process and ends at the point that the production has altered the item to its completed form, including packaging, if required." 45 IAC 2.2-5-8(d). The Department has consistently held that water wells are not part of the production process. The drawing up and filtering of water is a preproduction activity since it does not directly affect the manufacturing process. The water is transported, not transformed, even though the well pumps filter out "impediments and foreign objects found in the extracted water." Taxpayer's protest is respectfully denied.

In this case, Taxpayer has not demonstrated that it used ordinary business care and prudence in not reporting and paying the assessed use tax in this case. Taxpayer's protest is respectfully denied.

Tribune Star Reports Terre Haute's Eastside TIF Would Require New Entity

From the Terre Haute Tribune Star:

New road construction is planned for the city’s eastside tax increment finance (TIF) district, but it will likely be paid for using a newly created entity to help avoid breaching the city’s constitutional debt limit.

All Indiana cities have constitutional debt limits. One way to issue more debt than the limit allows is to create a special legal entity to issue the debt on behalf of the city, said an attorney for the Terre Haute Department of Redevelopment speaking to the City Council on Thursday night.

The special entity, with council approval, could issue debt that would be repaid by the Terre Haute Redevelopment Commission, which oversees the eastside TIF district. The money would be used for the next stage of road and other construction in the area, said Cliff Lambert, executive director of the Department of Redevelopment.

The plan would require the approval of the nine-member City Council. Lisa Lee, an attorney for the Redevelopment Commission, said she hopes to bring the matter to the council for approval in October.

There are several ways around debt limits allowed by the Indiana Supreme Court, and one is by creating a legal entity, such as a not-for-profit, that can issue debt on behalf of the city and then lease its services back to the city, Lee stated in a 2004 paper for the Indiana Association of Cities and Towns.

“If the Indiana Supreme Court strictly interpreted the constitutional debt limit, most municipalities could not fund their capital needs,” she wrote.

The constitutional debt limit in Indiana is an entity’s net assessed value divided by three and then multiplied by 0.02, Lee said.

Creating a leasing entity for the TIF district project is not necessary to avoid exceeding the debt limit, but it will keep the city safely below that limit, Lee said after the Thursday night meeting in City Hall.

Herald-Bulletin Argues State Surplus Comes at Expense of Hoosier Well-Being

From the Anderson Herald-Bulletin:

State auditor Suzanne Crouch proudly reported Monday that Indiana’s cash reserves have grown to slightly more than $2 billion. The state added $106.8 million to its coffers in the fiscal year that ended June 30 despite a $59.8 million drop in tax revenues.
The sizable surplus is earning Indiana accolades from Republicans and national budget watchers. Crouse herself trumpeted the state’s success, celebrating that the state hasn’t had to raise taxes, is living within its means while keeping “prudent” reserves and continues to be “the fiscal envy of the nation.”
Undoubtedly, fiscal solvency is important for a state government. Debt is crippling many states, especially neighboring Illinois and California. Cash reserves can mitigate disaster should an economic crisis like recession hit the state.
But let’s be realistic. If Indiana is taking in $59.8 million less – blamed on declines in revenues from the riverboat gambling tax, inheritance tax and individual income tax – and still is able to save $106.8 million, that extra cash isn’t being plucked from a secret forest of money trees.
It’s being built on the back of spending cuts and reduced funding to the services Hoosiers need most.

IBJ Reports Lowe's Offered Incentives for Investment in Indianapolis

From the Indianapolis Business Journal:

Home-improvement retail giant Lowe’s has a big project of its own planned for the northwest side, intending to invest a total of $20.5 million to purchase, renovate and equip an office building for a massive customer service center.

North Carolina-based Lowe’s said Tuesday morning that it expected to hire as many as 1,000 workers for the center by 2016. The announcement at Intech Park with city and state officials confirmed a report from IBJ on Monday.

The 140,000-square-foot office building at 6620 Network Way will support Internet sales, delivery services and repair services for Lowe’s customers across the nation, the firm said. Lowe’s expects to begin hiring immediately for the center, set to begin operations in early 2015.

“Indianapolis adds a strategic Midwest location to our [existing] network of customer support centers located in North Carolina and New Mexico,” said Don Easterling, Lowe’s vice president of contact centers. “We appreciate the support of both state and local officials that helped make this a win-win project.”

The Indiana Economic Development Corp. has offered Lowe’s up to $5.5 million in conditional tax credits and up to $100,000 in training grants based on the company’s job-creation plans. The tax credits are performance-based, meaning they cannot be claimed until the firm hires workers.

The city of Indianapolis also will consider tax incentives and funding for infrastructure required for the project, according to IEDC.

Daily Journal Reports Greenwood Offers Heftier Tax Break

From the Johnson County Daily Journal:

Greenwood used a tax break it had never used before when it enticed a cosmetics supplier to build a distribution center in the city.

The abatement provided bigger property tax breaks on equipment than on real estate and buildings and offered percentage discounts allowing the company to save more money over the course of the 10-year abatement than the city had ever offered in the past.

The state legislature approved the abatement formula, which allows cities to customize tax breaks for the companies they’re trying to attract, about two years ago.

Times Reports Data Hub Tracks State and Local Governments

From the Northwest Indiana Times:

Already a mainstay of businesses and baseball teams, "big data" has arrived in Indiana, which hopes to improve the effectiveness of state agencies and local governments — and Hoosiers can play along.
The new Indiana Management and Performance Hub website pulls together revenue, spending, goals, standards, reports and other data from every level of government in the state and displays the results using graphs and charts that show how well government works.
Want to know how much it costs to collect your taxes? It's on there.
For every dollar Indiana spent on tax collection between April and June it took in $245 in revenue. MPH also shows the Department of Revenue was much more efficient in October through December 2012, collecting $292 per dollar of expense.
Are you satisfied with the Bureau of Motor Vehicles?
The BMV earned a 96.1 percent customer satisfaction rating in April, probably because the average visit time — also on MPH — was just 13.45 minutes.
Think there's too much government in Lake County? There's a lot: 75 local units, including school corporations, employ 27,788 workers and collected $714 million in local taxes, according to MPH. In Porter County, 7,270 people working at 44 units took in $187 million in revenue.
MPH was developed by the Indiana Office of Management and Budget and the Office of Technology following an executive order issued in March and receipt of a $500,000 grant from the Lilly Endowment supporting the effort.
Gov. Mike Pence said he wanted the various state and local government management databases and transparency websites combined into a single, easy-to-use performance-monitoring center that could reveal overlooked efficiencies and track the progress of his "road map" goals.
The Republican said the MPH website at continues Indiana's tradition of open and accountable government that "moves at the speed of business."

Monday, July 21, 2014

Commissioner Leaving DLGF for OMB

From the DLGF Weekly Update:

·         Commissioner Update

It is with mixed feelings that I announce to you that I will be moving to a new role within the Office of Management and Budget. I will be serving as General Counsel and Policy Director at OMB beginning on August 4. I am so proud of the many great accomplishments that have been made in recent years in the property tax system. Thank you for your great work. 

Revenue Finds Car Not Consumed, Stored or Used in Indiana Not Subject to Indiana Sales Tax

Excerpts of Revenue's Determination follow:

Taxpayer is an Indiana resident who became interested in purchasing a particular car. Taxpayer dealt with a Kentucky dealer to purchase that vehicle. The Kentucky dealer acquired this particular vehicle from a California dealer for resale to Taxpayer. Taxpayer paid the Kentucky dealer the purchase price for the car and arranged for a third-party carrier to transport the vehicle from California and deliver it to an Ohio location.

Taxpayer titled the car with a Montana LLC. As an individual, Taxpayer is the single member of the Montana LLC.

The Department of Revenue issued a "Proposed Assessment" for use tax based on the purchase price of the vehicle.

Taxpayer argues that he does not owe use tax because the car was never "used" in Indiana.

Taxpayer has provided documentary information establishing that Taxpayer purchased the vehicle from a Kentucky dealer and that Taxpayer – or his single member LLC – paid the Kentucky dealer the price of the vehicle. Taxpayer has provided documentary information establishing that the car was transported from California by a third-party carrier and delivered to Ohio. Taxpayer has provided information establishing that, during the brief period that Taxpayer retained the vehicle, it was driven exclusively in Ohio. Taxpayer has provided documentary evidence establishing that Taxpayer retained ownership of the vehicle for approximately 45 days before being traded to an Ohio dealership for yet another vehicle.

Taxpayer has met his burden of proof under IC § 6-8.1-5-1(c) of establishing that the Department's use tax assessment was erroneous because the vehicle was not "consumed," stored, nor used in Indiana.

Times Reports Hobart Approves Tax Abatements for Two Buildings

From the Northwest Indiana Times:

Real estate tax abatement requests for two buildings proposed for the NorthWind Crossings development received final approval from the City Council Wednesday.
One of the buildings will be an 18,000-square-foot facility for a Sunbelt Rentals location, said Paul Thurston, of Becknell Industrial, the developer of NorthWind Crossings.
About 45 construction jobs would be needed for the building. There would be 14 new full-time jobs established for operations of the business after the structure is built.
The other building planned for NorthWind Crossings would be a new 163,000-square-foot facility that could house two to three tenants.
Thurston said no tenants have been identified yet for that building, which would cost about $7.5 million.
NorthWind Crossings is located east of Mississippi Street and near Interstate 65.

Board Finds Taxpayer's Appraisal Establishes Value of Mobile Home Park Which Assessor Failed to Sufficiently Rebut

Excerpts of the Board's Determination follow:

37. In this case, the Petitioner submitted an appraisal. An appraisal completed in conformance with USPAP is often the most effective method to rebut the presumption that an assessment is correct. O’Donnell v. Dep’t of Local Gov’t Fin., 854 N.E.2d 90, 94 (Ind. Tax Ct. 2006); Kooshtard Property VI, LLC v. White River Township Assessor, 836 N.E.2d 501, 506 n. 6 (Ind. Tax Ct. 2005). The appraisal was prepared by a licensed appraiser, who concluded that as of March 1, 2011, and March 1, 2012, the market value of the subject property was $650,000. Ms. Coers’ appraisal of the subject property is substantial, probative evidence that supports the Petitioner’s claim for an assessment of $650,000 for both assessment years.

38. Ms. Coers presented and explained the appraisal she performed for the Petitioner. She concluded that the income approach to value is the best method to determine the market value for the subject property. The participants in the subject’s market would focus on income stream and return on investment.

39. Ms. Coers indentified two issues with the property being appraised. One was the lower than market rents and the other being the higher than market vacancy rate. Her analysis of the local market, local demographics and trends, and the supply and demand factors faced by the subject property sufficiently explain the property’s inability to obtain higher rents or achieve a better occupancy rate.

40. Ms. Coers prepared an income analysis using the property’s actual income, expenses and vacancy rate, which she compared to other properties to determine whether they were reasonable in terms of market value. Ms. Coers developed her capitalization rate based on sales of other mobile home parks and also on capitalization rates for mobile home parks published in a national market publication.

41. The Respondent attempted to impeach the Petitioner’s appraisal. The Respondent argued that the appraisal based the subject property’s value on a fee simple interest and not on a leased fee interest. Ms. Coers explained in the case of the subject property the opinion of value would be the same regardless of which property rights were considered because the interest transferred is not relevant. The leases are short-term leases.

42. The Respondent took issue with the fact the appraisal states the total acreage of the subject property is 24.65928 at one place and 23.8628 at another place. Respondent Ex. 3, the property record card, also shows both measurements for the subject property. The Respondent failed to demonstrate how, or if, this issue would affect the final opinion of value.

43. The Respondent attempted to impeach the appraisal for several other reasons: because the comparables used to check for the reasonableness of the expenses were confidential; because the Petitioner’s appraiser failed to develop typical vacancy rates for properties in the subject’s market; and because capitalization rates from national surveys are not relevant. But the Respondent failed to develop these points in a meaningful way. And consequently, they have little or no impact on the Board’s final determination—these purported weaknesses did not entirely destroy the credibility of the appraisal.

44. The Respondent presented a sales disclosure showing the Petitioner purchased the subject property for $1,750,000 in 2006. Respondent asserts that the sales disclosure demonstrates the property was sold under normal market circumstances. Respondent made no attempt to relate this 2006 sale to the valuation dates currently under appeal. The sale does not indicate the subject property’s market value as of March 1, 2011, or March 1, 2012, and is not probative evidence for this case.

45. The Respondent attempted to support the assessments under appeal by using a portion of the sales data presented in the Petitioner’s appraisal. The Respondent’s analysis used the median sale price of the five comparable properties found in Ms. Coers’ appraisal at page 52. According to Mr. Davis, he used the median because it minimizes the effects of outliers. Respondent asserts that the cost of $15,416 per pad results in a value of $2,019,496 for the 131 pads of the subject property. This value times the 60% occupancy rate equals $1,211,698. Respondent contends this calculation supports the assessments for both 2011 and 2012, but the Respondent failed to prove that this methodology conforms to generally accepted appraisal principles.

47. In this case, substantially more weight is given to the Petitioner’s appraisal than to the Respondent’s approach of selecting one sale from the appraisal and selecting the median sale price to support the assessment of the subject property. Petitioner made a case for a reduction in value for 2011 to $650,000.

48. The Respondent had the burden of proof for 2012 because the assessment increased from $650,000 in 2011 to $1,209,900 in 2012. The increase is more than five percent (5%). IC § 6-1.1-15-17.2.

49. The Respondent failed to provide the Board with a detailed explanation or analysis as to how her purportedly comparable properties specifically compare to the subject property pursuant to accepted appraisal practices. The Respondent failed to make a prima facie case proving the 2012 assessment is correct. Thus, the assessment of the subject property for 2012 must be reduced to the previous year’s amount.

SBA Posts Fiscal Year Close Out Statement


DLGF Posts Materials from Assessor District Trainings

Assessor District Trainings - July 2014

Tax Court Judge Up for Retention Vote in November

From the Northwest Indiana Times:

In addition to electing Indiana's secretary of state, state auditor and state treasurer, Hoosier voters on Nov. 4 will decide whether to keep two Supreme Court justices and two state appellate judges on the bench for the next decade.
The jurists up for retention are Supreme Court Justices Mark Massa and Loretta Rush; Tax Court Judge Martha Blood Wentworth; and Court of Appeals Judge Rudolph Pyle III.
Massa, Rush and Pyle were appointed to their posts in 2012 by former Gov. Mitch Daniels, a Republican. Wentworth is a 2011 Daniels appointee.
Under the state's judicial selection process, two years after the governor appoints a judge Indiana citizens get to decide whether to retain the judge for a 10-year term.
The idea is to both give voters a veto over gubernatorial judicial appointments and make it easier to promptly remove an incompetent judge.

See retention information here:

Friday, July 18, 2014

Revenue Finds Purge Materials are Integral Part of Taxpayer's Production Process

Excerpts of Revenue's Determination follow:

Taxpayer is a manufacturer with operations in Indiana and other states. As the result of an audit, the Indiana Department of Revenue ("Department") determined that Taxpayer had not properly reported its sales and use taxes for the tax years 2010, 2011, and 2012. Therefore, the Department issued proposed assessments for use tax and interest for those years.

Taxpayer protests the imposition of use tax on its purchases of "purge materials" during the tax years 2010-12. Initially, Taxpayer had also protested its purchases of two other categories of items, but subsequently withdrew its protests on those two categories. The Department considered the purge materials to be consumed in maintenance activities and therefore subject to sales and use tax. Taxpayer protests that the purge material is not like normal maintenance materials because it is required to assure that the next parts made on the particular machines are not defective.

The Indiana Tax Court has addressed this situation in Guardian Automotive Trim, Inc. v. Ind. Dep't of State Revenue, 811 N.E.2d 979, 984-85 (Ind. Tax Ct. 2004), when it stated:

The evidence in this case shows that Guardian's production process begins with the melting of the plastic pellets, and ends when the completed automotive trim parts have been packaged for shipment to Guardian's customers. See IND. ADMIN. CODE tit. 45, r. 2.2–5–8(d) (1992 & 1996) (stating that production "begins at the point of the first operation or activity constituting part of the integrated production process and ends at the point that the production has altered the item to its completed form, including packaging, if required" (emphasis added)). It is indisputable that the painting of the molded plastic parts is an integral part of Guardian's manufacture of the automotive trim parts: it is part of a continuous process by which the plastic is placed in its finished form as automotive trim components, ready for delivery to Guardian's customers. Accordingly, the masks–which are used to paint the plastic parts–are exempt. (See Trial Tr. at 83 (where the Department concedes that the masks are exempt).) In a similar vein, the process of cleaning the masks is an integral part of Guardian's manufacture of the automotive trim parts: the cleaning of the masks is done specifically for the purpose of properly applying electroplate to the parts. If Guardian did not "clean" its masks, Guardian would only be able to produce 15 to 50 marketable automotive trim components; the rest would be rejected by Guardian's customers and therefore rendered worthless. Simply put, the masks cannot be used continuously without cleaning. Thus, the mask processing equipment, essential and integral to the overall production of Guardian's automotive trim components, is exempt under Indiana Code § 6–2.5–5–3.
(Emphasis added).

Finally, the court provided:

Guardian acquired equipment and chemicals for direct use in its manufacture of automotive trim parts. As a result, it is entitled to claim an exemption from sales and use taxes under both the equipment exemption and the consumption exemption. See IND.CODE ANN. §§ 6–2.5–5–3 and 6–2.5–5–5.1.
Id. at 985.

In the course of the protest process, Taxpayer was able to provide sufficient documentation and analysis to establish that its purge materials serve the same function as the cleaning materials used in Guardian. Therefore, as provided by the tax court in Guardian, the purge materials are an integral part of Taxpayer's continuous production process and so are exempt under IC § 6-2.5-5-3 and IC § 6-2.5-5-5.1. With regards to the purge materials, Taxpayer has met the burden imposed under IC § 6-8.1-5-1(c).