Monday, September 30, 2013

Revenue Finds it Has Authority to Require Dependents' Social Security Numbers and Declines to Address Taxpayer's Constitutional Issue

Taxpayer is an Indiana resident. Taxpayer filed a 2011 individual income tax return. On that return, Taxpayer reported that his children qualified as "dependents." Taxpayer declined to include Social Security Numbers for his children.

The Department of Revenue ("Department") determined that Taxpayer's children did not qualify as "dependents" because the children were not fully identified. The Department's decision resulted in the assessment of additional Indiana income tax.
Taxpayer argues that the Department acted outside its authority by requiring him to report the Social Security Numbers of his children. According to Taxpayer, "The state of Indiana does not have statutory authority to require anyone to apply for or have a social security number."
Since the Department's decision denying that his children qualified as "dependents" resulted in the assessment of additional tax, it is the Taxpayer's responsibility to establish that the tax assessment is incorrect. As stated in IC § 6-8.1-5-1(c), "The notice of proposed assessment is prima facie evidence that the department's claim for the unpaid tax is valid. The burden of proving that the proposed assessment is wrong rests with the person against whom the proposed assessment is made." Indiana Dep't of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012); Lafayette Square Amoco, Inc. v. Indiana Dep't of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007).
Indiana law prohibits state agencies from requiring individuals to provide Social Security Numbers. IC § 4-1-8-1(a) states in part as follows:
No individual may be compelled by any state agency, board, commission, department, bureau, or other entity of state government (referred to as "state agency" in this chapter) to provide the individual's Social Security number to the state agency against the individual's will, absent federal requirements to the contrary. However, the provisions of this chapter do not apply to the following:
(1) Department of state revenue.
IC § 4-1-8-1(a)(1) provides an exception to the general rule and specifically authorizes the Department to require Social Security Numbers. Taxpayer's argument to the contrary is wrong.
Taxpayer argues that obtaining a Social Security Number is strictly voluntary, that the IRS erred in denying his children ITINs (Individual Taxpayer Identification Numbers) as an alternative to Social Security Numbers, that the Department of Revenue should "for[ce] the IRS to assign ITINs," that reporting Social Security Numbers violates his religious beliefs, and that reporting Social Security violates the Indiana and United States Constitutions. However, these are issues best resolved at the federal level and not within the context of a state administrative hearing.
The Department must respectfully decline the opportunity to address Taxpayer's constitutional questions or the opportunity to force the IRS to accept Taxpayer's interpretation of federal law.
Indiana law is plain. The Department is statutorily authorized to request Social Security Numbers on state income tax returns.

Journal and Courier Reports Tippecanoe County Budgets Up for Council Review

From the Lafayette Journal and Courier:

If anyone objects to the proposed 2014 Tippecanoe County spending plan, speak up Monday evening.

The council meets at 6:30 p.m. in the Tippecanoe Room at the County Building, 20 N. Third St. in Lafayette. During the first part of the meeting, council members will review the budgets from all the county’s taxing entities, including cities, libraries, townships and CityBus, Tippecanoe County Treasurer Bob Plantenga said.

The council is required by state law to give a recommendation on the other entities’ budgets, although it is not binding, Plantenga said.

After giving its recommendations, the council will open the meeting to members of the public to ask questions about the 2014 budget or give their input about the plan.

The proposed budget indicates that the county plans to spend $39.9 million for the general fund and the COIT. Earlier this month, the council held budget hearing and closed a $2.4 million gap between spending requests and revenue.

The council will give its final approval of the spending plan at its Oct. 8 meeting.

Three Hearings Scheduled in Tax Court for October

Marion County Assessor v. Simon DeBartolo Group, L.P., et. al. (View)
Thursday, October 03, 2013 10:00 AM - 11:00 AM

The Assessor challenges whether the Indiana Board of Tax Review abused its discretion when it reduced an assessment based soley on a sale that occurred after the relevant valuation/assessment date and that was improperly trended.

State House, Room 413
Indianapolis, IN 46204

Lowe's Home Centers, Inc. v. Indiana Department of State Revenue (View)
Thursday, October 24, 2013 10:00 AM - 11:00 AM

This is a hearing on the parties' motions for summary judgment.

For a description on the merits of the case see the Tax Summaries at

State House, Room 413
Indianapolis, IN 46204

R.R. Donnelley & Sons Co. v. Indiana Department of State Revenue (View)
Thursday, October 31, 2013 10:00 AM - 11:00 AM

This is a hearing on the parties' motions for summary judgment.

For a description on the merits of the case see the Tax Summaries at

State House, Room 413
Indianapolis, IN 46204

Tribune Reports Property Tax Impact of Mishawaka's Schools' Proposed Referendum Unclear

From the South Bend Tribune:

When it comes to the proposed $28 million School City of Mishawaka referendum, business leaders all agree. It's complicated.

They haven't yet been able to figure out just what the full impact would be on businesses in the school district, if the referendum passes. There are too many unanswered questions.
There is only one thing they are sure about: property taxes will be higher.
According to H.J. Umbaugh & Associates Certified Public Accountants, the firm that compiled the data for the school corporation, taxes would increase about $294.40 for every $100,000 of a commercial property's assessed value. That increase in taxes would last for the next 20 years, until the bond is paid off.
The Tribune contacted local businesses to find out what potential impacts they expect. Many business owners were unaware of the proposed referendum and most who were aware were unsure of how it would affect them.
"I'm pretty naive about this," explained Don Dames, chief financial officer at Nyloncraft Inc., an injection molding company that sits on the northern edge of the school district. He heard about the referendum last week.
"I'm just ball-parking from what little I know," he said. "But it would be about a 9 percent increase on our property tax bill."
That would come out to about $30,000 more per year, he said, adding: "It's not a small type of change and you have to find that cost somewhere else. Those costs are tough to pass on to the customer in this type of environment."
The issue is further complicated by the passing of Indiana's circuit breaker cap in 2008, which aimed at ensuring Hoosiers would not have to pay more than a fixed percent of their property's gross assessed value in property taxes. It set the cap for commercial property at 3 percent, beginning in 2010.
However, St. Joseph County was one of two counties in the state to receive a temporary exemption from the circuit breaker. The exemption was for debt issued before July 1, 2008. The county was given until the end of 2019 to bring its debt level down so that it could operate under the cap. At that point, the county's property taxes are supposed to be on par with the rest of the state. Currently, businesses in the county pay about 3.3 percent of the assessed value of their property in taxes.
But if the referendum passes, the part of Mishawaka that lies within the school district will still be paying higher taxes in 2019 than most of the rest of the state. This includes businesses in the two tax increment financing districts that overlap the school district, though the TIF districts would not receive any increased revenue, according to the Indiana Department of Local Government Finance.
That has some business leaders wondering about the long-term implications.

See the full article here:

Riley: Tax Sales Made Slightly Less Complicated

By Larry Riley in the Muncie Star-Press:

Tuesday morning will see 1,503 properties up for auction at a tax sale in the Delaware County Fairgrounds, altogether assessed at $35 million and owing $5.9 million in back taxes and penalties.

The number is down from 1,930 on the list a month ago, but larger than I would have thought. If I’m right, fewer people are settling up, maybe because they walked away from their property permanently.

Or perhaps after several years, circa 2005-07, we had no tax sales because the county itself was in arrears in tax statements, and having caught up the past five years, we’ve found what could be considered the frictional rate for tax delinquencies.

Kind of like the “frictional unemployment” rate that happens even in good economic times because of workers transitioning to other jobs or changes employers make.

The number of delinquent properties is 2.1 percent of all property parcels in Delaware County. The number seems reasonable, I guess, though parcel numbers include every tiny lot.

For example, the tax sale includes 34 parcels valued at $400 or less. And these 34 choice pieces of real estate owe, collectively, $15,800 in back taxes. That’s 200 percent of their combined worth.
Don’t look for many people to be bidding these gems up.

The overall rate of arrearage to assessed value is 16.9 percent, but the ratio drops at the top end.
For example, the 10 most valuable properties by assessment in the tax sale, worth $3.5 million, owe a combined $255,000, or 7 percent of their gross worth.

Those are the types of properties more likely to draw interest from bidders merely looking to make quick money. They’re not interested in owning the properties.

Tuesday’s sale is a “certificate” sale: you’re not actually buying the property, but buying the right to take title to the property after a year if the owner doesn’t “redeem” the property.

Should the property be redeemed, then the buyer won’t take ownership, but will get a high rate of interest on the purchase price.

See the full article here:

Friday, September 27, 2013

Revenue Finds Taxpayer Provided Sufficient Information for One-Time Waiver of Late Payment Penalty

Excerpts of Revenue's Determination follow:

Taxpayer protests the imposition of a penalty for late payment of his income tax.

Penalty waiver is permitted if the taxpayer shows that the failure to pay the full amount of the tax was due to reasonable cause and not due to willful neglect. IC § 6-8.1-10-2.1. The Indiana Administrative Code, 45 IAC 15-11-2 further provides:

(b) "Negligence" on behalf of a taxpayer is defined as the failure to use such reasonable care, caution, or diligence as would be expected of an ordinary reasonable taxpayer. Negligence would result from a taxpayer's carelessness, thoughtlessness, disregard or inattention to duties placed upon the taxpayer by the Indiana Code or department regulations. Ignorance of the listed tax laws, rules and/or regulations is treated as negligence. Further, failure to read and follow instructions provided by the department is treated as negligence. Negligence shall be determined on a case by case basis according to the facts and circumstances of each taxpayer.

(c) The department shall waive the negligence penalty imposed under IC 6-8.1-10-1 if the taxpayer affirmatively establishes that the failure to file a return, pay the full amount of tax due, timely remit tax held in trust, or pay a deficiency was due to reasonable cause and not due to negligence. In order to establish reasonable cause, the taxpayer must demonstrate that it exercised ordinary business care and prudence in carrying out or failing to carry out a duty giving rise to the penalty imposed under this section. Factors which may be considered in determining reasonable cause include, but are not limited to:

(1) the nature of the tax involved;

(2) judicial precedents set by Indiana courts;

(3) judicial precedents established in jurisdictions outside Indiana;

(4) published department instructions, information bulletins, letters of findings, rulings, letters of advice, etc.;

(5) previous audits or letters of findings concerning the issue and taxpayer involved in the penalty assessment.

Reasonable cause is a fact sensitive question and thus will be dealt with according to the particular facts and circumstances of each case.

Even though Taxpayer has not provided all the information needed to ascertain that he clearly had reasonable cause for his late payment of income tax, Taxpayer has shown sufficient cause for a one-time waiver of the late payment penalty.

Since Taxpayer has already paid the penalty, the amount of the penalty will be returned to Taxpayer.

News-Sentinel Argues Show Taxpayers Value and they Will Vote for It

From the Fort Wayne News-Sentinel:

Brown County should take a lesson from Fort Wayne Community Schools on how to deal with voter rejection: Don’t give up. Instead, give the voters something they will find more palatable.

Officials in that southern Indiana county wanted to spend $4 million on a courthouse renovation project, which would have made the building safer and compliant with accessibility guidelines, as well as adding additional office space. But opposition mounted to the project, and a petition drive against it was organized. A counter-petition drive in favor of the proposal followed.

The votes have now been counted, and the wishes of Brown County residents are not ambiguous: Only 182 petitioners were for the project, and about 1,400 were against it. Officials now must wait a full year before bringing an alternative proposal before voters.

Something more realistic, perhaps – a little more modest and defensible?

That was the solution found by FWCS officials after voters overwhelmingly rejected the Yellow Ribbon Task Force’s school renovation plan that would have cost a breathtaking $500 million, not to mention the $350 million in interest on the bonds to pay for the project.

The school board waited a few years, then came back with a scaled-down plan: a three-phase project to spend $119 million to fix the worst building problems in the first phase, then $60 million and $62 million in the second and third phases. This time the voters said yes.

That’s the approach Brown County officials should take, too.

Truth Reports Elkhart Tax Sale Scheduled for October 2

From the Elkhart Truth:

Landowners who are behind on their taxes have until noon on Tuesday, Oct. 1, to keep their properties from being sold in Elkhart County’s fall tax sale.

As of Wednesday, Sept. 25, there were 887 properties with back taxes and penalties totaling more than $3.4 million going up for auction as part of the sale scheduled for Wednesday, Oct. 2, according to county treasurer Jackie Meyers. In Indiana, the county treasurer and auditor are required to sell tax liens on delinquent properties that remain unpaid from the prior year’s spring installment.

“The purpose of this tax sale is to offer these delinquent properties in order to collect back taxes to help fund local government services,” county auditor Pauline Graff said.

Tax sales also serve as an opportunity for real estate investors to earn interest income upon redemption of the land within one year of the sale. Investors are also able to secure the title to properties through a post-tax sale process that involves petitioning the local court for a tax deed.

The county has hired SRI Inc. for the upcoming tax sale. The Indianapolis-based company conducts tax sales, commissioners’ certificate sales and commissioners’ deed sales for more than 80 counties in Indiana, Michigan and Colorado.

For more details and a list of properties for sale, visit The tax sale will be at 10:30 a.m. Wednesday, Oct. 2, in room 104 at the Elkhart County Administration Building, 117 Second St. in Goshen.

Star-Press Argues Muncie Schools' Referendum Demands Informed Vote

From the Muncie Star-Press:

Time is running out for voters in Muncie Community Schools to give input and gain knowledge about a Nov. 5 referendum to determine the fate of busing for students.

Opinions on both sides of the referendum issue are strong, which is a good thing, for that spurs a healthy and necessary debate about an important policy decision.

The MCS administration began a series of town hall meetings to receive comments on how to downsize the school buildings to save money in the face of falling enrollments. The last town hall meeting earlier this month at Wilson Middle School saw increased interest in the referendum, with more questions posed at the microphone, and fliers — for and against — handed out at the door.

The final town hall is scheduled for 6:30 p.m. Oct. 8 at Central High School. It’s a good place to go for information regarding possible school consolidations and the busing referendum.

More about the referendum: MCS administrators say that without a successful outcome, those yellow school buses will stop running for the 2014-2015 school year. If that happens, it will be up to parents to find a way to get their kids to school.

Indiana does not require school districts to provide transportation. But neither can schools charge a fee to parents whose children ride the buses.

The school system needs to raise, according to officials, $3.2 million under a maximum tax levy of $0.3939 cents for every $100 of assessed valuation. That’s the maximum levy. It could be lower than this figure.

MCS officials have stripped out of their referendum wish list about $3.3 million in security upgrades, building repairs and Internet services. Now, the sole purpose of the referendum is bus service.


Whether you agree, disagree or are undecided, you owe it to yourself to get as much information on the issue as possible before casting a vote.

Attend the final town hall.

Star Reports Lafayette Redevelopment Commission Gives Preliminary Approval of Tax Abatement to Heartland Automotive

From the Indianapolis Star:

When Indiana Gov. Mike Pence visited Japan on a recent trade mission, he dropped the tantalizing hint of hundreds of new jobs coming soon to Lafayette.

Details of those anticipated new jobs fell squarely into place Thursday when the Lafayette Redevelopment Commission gave preliminary approval of a tax abatement for Heartland Automotive LLC.

Heartland Automotive, a supplier of dashboards and other interior parts to Subaru of Indiana Automotive, plans to double the size of its Lafayette plant and add 224 jobs — more than double it’s current workforce — in the next two years.

The expansion is major ripple effect of SIA’s announcement in May that it will step up production with a $400 million plant expansion and 900 new full-time jobs.

After listening to a brief presentation from Heartland Automotive senior vice president Ronan Mtoi, the redevelopment commission unanimously recommended approval of two property tax abatements on new plant and equipment.

“We are going to invest $19 million in our property and building, and also $19 million in equipment,” Mtoi said.

The company produces instrument panels and other auto body parts used in the interior of vehicles made at SIA, which include Subarus and Toyotas.

Heartland Automotive will add 224 jobs to the 91 full-time positions it currently has, Mtoi said.

The redevelopment commission approved a 10-year real estate abatement on the $19 million plant expansion, and a seven-year tax abatement on the $19 million in equipment that will be installed.

The recommendations now go the Lafayette City Council, which has the authority to grant tax abatements.

In February, the city granted Heartland Automotive an abatement on $7.2 million in new injection molding machinery the company installed in the plant the company built in Park 350 last year.

Star Reports Public Works Committee Holds Back $8 Million in RebuildIndy Funds

From the Indianapolis Star:

The City-County Council’s Public Works Committee tonight held back $8 million in RebuildIndy money from next year’s budget to reserve as potential funding for more police recruits.

The panel amended and approved the Department of Public Works budget 5-2, with Republicans dissenting. Public Works Director Lori Miser said holding back that sum next year would reduce roadwork and other project spending from $50 million to $42 million.

Democrats left their intentions vague during the meeting. Afterward, Chairman Vernon Brown, a Democrat, told The Indianapolis Star that he soon may file a proposal to authorize spending from the RebuildIndy fund on police officers.

That fits with Democratic council leaders’ unveiling this week of budget changes that include potentially spending RebuildIndy money, which came from the city’s utilities sale, to expand plans to hire 50 recruits next year.

But Indianapolis Mayor Greg Ballard, a Republican, twice has vetoed proposals similar to the one Brown may propose.

Recently, the mayor opened the door to signing off on tapping utilities sale proceeds for officer hiring — but only if the council’s majority Democrats agreed to eliminate the homestead property tax credit. They refused to do so, most recently on Monday.

The council is set to take a final vote Oct. 14 on next year’s $1 billion city-county budget.

Times Reports Porter County Moves TIF Plan to Airport

From the Northwest Indiana Times:

The Porter County Redevelopment Commission has tabled plans for a tax increment financing district in the area of the new hospital and is now looking south in and around the county airport instead.

The group received a preliminary report Thursday identifying $48.7 million in potential projects to be funded by capturing revenue from new commercial development in the proposed economic development area.

Just more than 61 percent of the money is designated for infrastructure and safety improvements within the airport in Washington Township, including runway and facility upgrades as well as hangars.

When Commission Chairman E. Ric Frataccia questioned the benefit to the public by the investment at the airport, Dan Botich, executive of Cender & Co., said the gains would be more on private and corporate levels.

A corporation may voice need for a certain type of airplane hangar while considering locating its headquarters in Porter County, he said.

The TIF plan, which was created by Cender & Co., lists as its goals addressing underutilized land and other barriers to economic development.

Times Reports Crown Point Adopts Budget with 3% Raise for Employees

From the Northwest Indiana Times:

The City Council voted 5-1 Thursday to adopt a $22.2 million 2014 city budget that includes a 3 percent raise for workers.

The pay increase for all full-time city employees comes after several years in which stipends, or lump-sum payments, were given in lieu of a raise.

Discussion Thursday centered on budgeting for the use of the city's expected share of a first-time Lake County income tax set to kick in Oct. 1.

City officials plan to use an expected $355,567 of local option income tax funding to pay salaries and benefits of top ranking police and fire officials, removing those costs from the general fund, which is paid from property taxes.

Local option income tax funding can be used only to fund public safety.

An additional $229,567 of the funding was set aside in the budget for as-yet unspecified capital outlays related to public safety. 

Officials also budgeted $325,000 in county economic development income tax funding to go into a Rebuild Crown Point fund and an economic development revolving fund.

An additional expected $300,000 of the county economic development income tax funding was set aside for unspecified capital outlays.

Budgeting of the income tax revenue led to an exchange of words between Councilman Bill Feder, D-at large, who voted against adoption of the budget, and Mayor David Uran.

Feder said the county income tax funds could have been better budgeted and said he failed to see where it will be spent on improving streets, sidewalks and other infrastructure.

"I support the money going to visible, tangible improvements," Feder said.

Uran said the city can't use funding stipulated for public safety to build tangible improvements.

Funding of infrastructure improvements is expected to be a big part of how the Rebuild Crown Point funding is spent, Uran said after the meeting.

Council members agreed next year they will have more public discussion of the 2015 budget before it comes time to adopt it.

Board Finds Petitioner's Property to be "Non-Residential Real Property" Subject to 3% Tax Rate


Indiana Code § 6-1.1-20.6 provides taxpayers with a credit for excessive property taxes. That credit is often called a “tax cap,” and it varies in amount depending on how a property is classified:

A person is entitled to a credit against the person’s property tax liability for property taxes first due and payable after 2009. The amount of the credit is the amount by which the person’s property tax liability attributable to the person’s:
(1) homestead exceeds one percent (1%);
(2) residential property exceeds two percent (2%);
(3) long term care property exceeds two percent (2%);
(4) agricultural land exceeds two percent (2%);
(5) nonresidential real property exceeds three percent (3%); or
(6) personal property exceeds three percent (3%);
of the gross assessed value of the property that is the basis for the determination of property taxes for that calendar year.

I.C. § 6-1.1-20.6-7.5(a).

b) For purposes of applying the tax cap statute, “residential property” and “nonresidential real property” do not necessarily carry their common meanings. Instead, they are specifically defined as follows:

“Residential property”

As used in this chapter, “residential property” refers to real property that consists of any of the following:
(1) A single family dwelling that is not part of a homestead and the land, not exceeding one (1) acre, on which the dwelling is located.
(2) Real property that consists of:
(A) a building that includes two (2) or more dwelling units;
(B) any common areas shared by dwelling units; and
(C) the land, not exceeding the area of the building footprint, on which the building is located.
(3) Land rented or leased for the placement of a manufactured home or mobile home, including any common areas shared by the manufactured homes or mobile homes.

I.C § 6-1.1-20.6-4

“Nonresidential real property”

(a) As used in this chapter, “nonresidential real property” refers to either of the following:
(1) Real property that:
(A) is not:
(i) a homestead; or
(ii) residential property; and
(B) consists of:
(i) a building or other land improvement; and
(ii) the land, not exceeding the area of the building footprint, on which the building or improvement is located.
(2) Undeveloped land in the amount of the remainder of:
(A) the area of a parcel; minus
(B) the area of the parcel that is part of:
(i) a homestead; or
(ii) residential property.
(b) The term does not include agricultural land.

I.C. § 6-1.1-20.6-2.5

c) The subject parcel does not qualify as residential property under the tax cap statute— it has no dwelling units and is not leased for placement of a manufactured or mobile home. But it does qualify as nonresidential real property because it is undeveloped land that is not agricultural land, part of a homestead, or residential property as defined by Ind. Code § 6-1.1-20.6-4. The Elkhart County Auditor therefore correctly applied a 3% cap.


7. Because the subject parcel is “nonresidential real property” under Ind. Code § 6-1.1-20.6-2.5(a)(2), the Elkhart County Auditor correctly applied a credit in the amount by which the parcel’s taxes exceeded 3% of its gross assessed value.

Thursday, September 26, 2013

Supreme Court Holds Notice in Tax Sale Permissible Under Due Process Clause

Excerpts of the Indiana Supreme Court’s decision follow:

Before a parcel of real property can be sold at a tax sale, the Indiana Code requires the county auditor to mail notice of the pending sale to any mortgagee holding a mortgage on the property—provided, however, that the mortgagee has first affirmatively requested such notice by submitting a form to the auditor. Is such a procedure permissible under the Due Process Clause of the Fourteenth Amendment? The answer, we said over two decades ago, is “Yes.”

But in this case a bank failed to submit the required form to the Bartholomew County auditor and therefore was not notified that one of its mortgaged properties was tax-delinquent until after the property had been sold and the buyer requested a tax deed. The bank objected, challenging the constitutionality of this statutory scheme in light of a more recent case from the U.S. Supreme Court. The trial court below agreed with the bank and refused to issue the tax deed, but we remain firm that the answer to the constitutional question is still “Yes,” and therefore reverse.

See the full opinion here:

Revenue Finds Taxpayer Provided Sufficient Evidence that Audit Over-stated Markup on Wholesale Sales

Excerpts of Revenue’s Determination follow:

Taxpayer is an individual. Taxpayer operated a sole proprietorship with multiple Indiana locations. The Indiana Department of Revenue ("Department") audited Taxpayer and determined that Taxpayer underreported his sales from the business. The Department assessed additional Indiana sales tax and Indiana individual income tax based on the underreported receipts.

Taxpayer protests the imposition of individual income tax and sales tax for 2009 and 2010. In particular, Taxpayer asserts that the Department overstated his receipts from the sale of tangible personal property for the years in question. The issue is whether the Department's audit overstated Taxpayer's receipts.

IC § 6-8.1-5-1 states in relevant part "The notice of proposed assessment is prima facie evidence that the department's claim for the unpaid tax is valid. The burden of proving that the proposed assessment is wrong rests with the person against whom the proposed assessment is made."

The Department's audit adjusted Taxpayer's receipts from the sale of tangible personal property. First, the Department determined Taxpayer's cost of goods sold–the price at which Taxpayer purchased the property. Second, the Department multiplied the cost of goods sold by two to determine the amount of total sales. Third, the Department subtracted the receipts from wholesale sales from the total sales to determine the taxable sales for sales tax purposes.

Taxpayer asserts that the audit overstated the amount of sales by imputing the same markup to property ultimately sold as wholesale sales as to the property sold at retail. Taxpayer argues that the more accurate method is to break out wholesale sales and the cost of property sold as part of the wholesale sales, then determine the amount of retail sales separately.

Taxpayer provided invoices with regard to its purchase orders and with regard to the wholesale sales made by Taxpayer to third parties. Taxpayer has provided sufficient information to conclude that its wholesale sales were sold at a lower profit margin than the Department's audit stated. Accordingly, Taxpayer's protest is sustained with regard to its contention regarding wholesale sales of all-terrain vehicles (ATV) and fireworks. However, it is important to note that Taxpayer provided the actual invoices and traced the cost of goods sold from the purchase of the item to the wholesale sale of the same item. Upon supplemental audit, the multiplier used in the Department's audit for all sales shall be applied to the portion of cost of goods sold at retail (i.e., total cost of goods sold minus wholesale cost of goods sold) to determine the revised retail sales for ATV and firework sales.

Times Reports Valparaiso and Valpo Schools' Budgets Introduced

From the Northwest Indiana Times:

Public hearings on budgets for governmental units don't usually inspire comments from the public. On Oct. 14, Valparaiso residents will have twice as much not inspire them.

Budgets for the city and the school corporation were introduced at Monday's City Council meeting. State law requires council review and approval of the school budget before it is submitted to the state. A final vote on both is expected at the council's Oct. 28 meeting.

The schools' advertised budget of $61.2 million is about $102,000 more than the 2013 advertised budget, but only $58.8 was approved by the state. Chief Financial Officer Sharon Qualkenbush said the district also plans to seek a bond issue for about $12 million for maintenance projects on every school.

The bond issue will not increase taxes because past bond issues will be paid down enough that the same revenue stream can be used for the new bonds. Valparaiso schools receive just under $5,000 per pupil from the state for its operating funds. The amount ranks 336th of the 363 districts in the state and is about $700 below the state average.

The low return plus the complexity of the overall school funding process, which has state money paid out on a fiscal year that runs from July through June while the school budget is based on a calendar year, makes it difficult to know how much money Valparaiso will receive at the time it is planning its budget, officials said.

One of the state grants is called the complexity grant, which Councilman Mike Baird said must have been named by some legislator with a real sense of humor. Baird said he couldn't imagine a business trying to operate under the conditions the schools are asked to do so.

Times Reports Michigan City Schools have Referendum in November

From the Northwest Indiana Times:

The 2013 Michigan City Area Schools referendum election set for Nov. 5 will include Porter County voters who live in Pine Township.

Voting hours are 6 a.m. to 6 p.m. at the following designated polling locations:

Pine 1 - Pine Town Hall, 1550 Columbia.

Pine 2 - Beverly Shores Administration Building, 500 Broadway.

Referendum to be voted on: "For the seven calendar years immediately following the holding of the referendum, shall the Michigan City Area Schools impose a property tax rate that does not exceed 17.0 cents ($0.17) on each one hundred dollars ($100) of assessed valuation and that is addition to all other property tax levies imposed by the Michigan City Area Schools?"

People who are 17 can register and vote if they will be 18 on or before Nov. 5.

Early voting, absentee in person starts Oct. 8 at:

Porter County Government Center, 155 Indiana Ave., Ste. 105, Valparaiso, 8:30 a.m. to 4:30 p.m. Monday through Friday, 8:30 a.m. to 3:30 p.m. Oct. 26 and Nov. 2.

Absentee voting in person ends at noon Nov. 4.

Anyone wanting to vote absentee by mail may do so by calling (219) 465-3484 to request the required application.

Last day to accept absentee ballot applications for voting by mail is Oct. 28.

Voting by fax or email is offered to military and overseas voters only.

Oct. 7 is the last day to register to vote or make changes to voter registration for this election.

Wednesday, September 25, 2013

Revenue Denies Manufacturing Exemption Where Taxpayer Manages, Integrates and Hosts Customer Information but Does not "Burn" Code onto Disks

Taxpayer is an Indiana business which conducts business in Indiana and outside Indiana. Taxpayer supplies its customers with telephone, computer software, and information services. Taxpayer is registered for sales and withholding tax.

The Indiana Department of Revenue ("Department") conducted an audit review of Taxpayer's business records. The audit resulted in the assessment of additional sales/use tax. ...
Taxpayer purchased business furniture from an Indiana vendor. Taxpayer argues it should have been provided a "credit" for taxes paid on the purchase of the furniture because the property was destined to be shipped to and used at out-of-state locations.
Taxpayer indicates the purchase of furniture from Business Furniture was not subject to sales tax because – although the furniture was purchased from an Indiana vendor – Taxpayer never took possession of the furniture in Indiana and that the documentation provided establishes that the furniture was delivered to Taxpayer's out-of-state locations.
Taxpayer is correct; the Business Furniture invoice does establish that some of the furniture was delivered to Missouri and some of the furniture was delivered to South Carolina. IC § 6-2.5-13-1 provides that the underlying retail sale should be "sourced" to those states.
Taxpayer was assessed tax on the sale of software to a Financial Institution. Taxpayer maintains that the software was eventually resold to third-party Leasing Company which presented the Financial Institution an exemption certificate. The exemption certificate asserts that the transaction between the Financial Institution and the third-party is exempt because the third-party will subsequently resell the software back to the Financial Institution. Taxpayer believes that the initial transaction between itself and the Financial Institution should, therefore, be exempt.
As Taxpayer explains:
Taxpayer would like to clarify this transaction. The software was sold to [third-party Leasing Company] for which an exemption certificate has been provided; however, the invoice incorrectly listed [Financial Institution]. [Financial Institution] did not purchase the software to lease to [third -party]. [Third-party] purchased the software to lease to [Financial Institution]. Payment of the software was made by [Financial Institution] which is the parent of [third-party]. Taxpayer can supply information related to the payment to support that the original transaction was to [third-party] who paid through its parent for the software.
Although the documentation does not specifically support Taxpayer's contention, Taxpayer states that – in reality – it did not sell the software to Financial Institution even though Financial Institution paid for the software. Taxpayer states that Financial Institution paid for the software prematurely and that the actual transaction was between Taxpayer and third-party Leasing Company. Taxpayer explains that it sold the software to Leasing Company which then either sold or leased the software back to Financial Institution. Since Leasing Company subsequently provided Taxpayer an exemption certificate, Taxpayer believes it was not required to pay tax on the original transaction.

Taxpayer argues that the Leasing Company's exemption certificate, should be applied to what is – on its face – a transaction between itself and Financial Institution. As explained in the original Letter of Findings and is restated here:

Specifically, Taxpayer explains that its "sale was to [third-party Leasing Company] and not [Financial Institution] and [third-party] resold or leases the software to [Financial Institution].

... In this case, although the transaction is well documented, the documents do not reflect what is purportedly the parties' actual business intentions.

Taxpayer states that it has established an essentially combined, integrated relationship between the different parties who claim either a primary or secondary interest in the software transaction and that Taxpayer is entitled to claim the exemption permitted under IC § 6-2.5-5-8(b) because the software was eventually the object of a leasing transaction entered into between third-party Leasing Company and Financial Institution.

Again, the Department must disagree. As noted above in Part I, IC § 6-2.5-2-1, imposes the tax on retail transactions made in Indiana unless an exemption is applicable. In other words, the tax is imposed on the retail transaction and not on the tangible personal property – in this case software – which is the subject of the transactions. In this case, the transaction consists of an agreement or exchange between Taxpayer and the Financial Institution and not between and any of the interested parties.

Taxpayer seeks an interpretation of both the statute imposing the tax and on the exemption statue which allows for an exception from imposition of the tax by means of an exemption certificate issued by third-party Leasing Company. Taxpayer asks too much. Indiana law has long held that, "The statutes of this state relating to the assessment and collection of taxes are liberally construed in favor of the taxing powers. Fell v. West, 73 N.E. 719, 722 (Ind. App. 1905)" and that – as noted above – "tax exemptions are strictly construed in favor of taxation and against the exemption." Kimball Int'l Inc., 520 N.E.2d at 456. Taxpayer's argument meets neither test and Taxpayer has not met the statutory burden of establishing that the assessment is "wrong." IC § 6-8.1-5-1(c).

The audit assessed sales tax on the price Taxpayer paid to a company here referred to as "Vendor I."

Taxpayer disagreed with the assessment on various grounds. Taxpayer argued a different entity would ultimately pay use tax on these same transactions. Taxpayer explained that it has "provided unequivocal proof" that any Indiana sales tax due on invoices issued by "Vendor I" from 2008 through 2010 will be paid to the Department through an audit of "Vendor I".

Taxpayer made a third argument related to the nature of the transaction between itself and "Vendor I" by which Taxpayer acquired pre-written software. Taxpayer argued that the price it paid allows it to access the pre-written software by means of "cloud computing" and that the pre-written software is therefore not subject to tax.

The original Letter of Findings rejected both of the arguments. The argument open for consideration is whether or not Taxpayer was purchasing an exempt service or was it purchasing software and hardware.

As before, Taxpayer asks for a review of its "Master Service Agreement" with "Vendor I" and the invoices it received from "Vendor I." Taxpayer is correct in that its business relationship with "Vendor I" does require "Vendor I" to provide services to Taxpayer. The "Master Service Agreement" states that, "[Vendor I] agrees to provide the services provided for in and subject of the Agreement . . . ." However, the invoices establish that "Vendor I" is also selling Taxpayer tangible personal property such as cabinets, computer servers, and computer software.
In the original Letter of Findings, The Department agreed with Taxpayer to the extent that "Vendor I" was selling Taxpayer exempt services. However, the Department was unable to agree with Taxpayer's assertion that "We do not receive any tangible personal property from [Vendor I]." A cursory review of the documents provided indicates that Taxpayer bought and paid for such items as a "processing node," "Microsoft server," "cabinet," "MS Basic DR," "External WAN switch port," "2x4 Core Processor," Colocation Cabinet," and "Microsoft Virtual Machine." These items represent taxable tangible personal property subject to the sales tax. As provided in IC § 6-2.5-1-27:
"Tangible personal property" means personal property that: (1) can be seen, weighed, measured, felt, or touched; or (2) is in any other manner perceptible to the senses. The term includes electricity, water, gas, steam, and prewritten computer software.

The "Vendor I" invoices contain separately stated specific costs for items which are clearly "services" such as "storage," "24x7 support," and "Managed Services." The audit division was asked to review the "Vendor I" invoices and remove from the assessment those amounts clearly attributable to Taxpayer's acquisition of exempt services. That review has been accomplished and the service charges removed.

The Department is unable to agree that Taxpayer should not be required to pay sales tax or self-assess use tax on the purchase of the various items of tangible personal property acquired from Vendor I and reiterates the decision set out in the original Letter of Findings.

Taxpayer provides software and/or services to a call center. The software is purportedly available to Taxpayer's call center customers. The software is located on computer servers. The computer servers are not sold but remain in Taxpayer's possession.

Taxpayer argues that the software and servers are not subject to sales tax because the software and servers are directly used in the production of the "tangible personal property." As explained by Taxpayer:

Taxpayer would contend servers and company purchased software such as firewall software are used directly in the production of cloud access software. Without the servers and underlying software, the service could not be provided. It is the interaction of source code and other software products that are managed through the servers which produce a viable cloud product. If [T]axpayer used the servers to burn code on a disc there would be no question that the machine would qualify as production equipment. The servers in the case of hosted software do not act any differently.

Elsewhere, Taxpayer further explains that:

[Taxpayer] believes that any tangible personal property (i.e. computer hardware, computer software, software maintenance agreements, etc.) which is necessary to proving prewritten computer software via "cloud computing" should be excluded from Indiana sales tax . . . .

The original Letter of Findings rejected the argument. While agreeing that computer software constitutes "tangible personal property" under IC § 6-2.5-1-27, the Letter of Findings explained as follows:

[T]he Department is unable to agree that either Taxpayer's software or servers have an active and direct effect on the software Taxpayer presumably provides its customers. (A "server" is simply a device "that manages centralized data storage or net communications resources." The American Heritage Science Dictionary, (last visited December 09, 2012)). Taxpayer provides its customers various services, and the exemption to which Taxpayer resorts requires the production of tangible personal property.

Taxpayer suggests that its computer equipment and ancillary supplies would be exempt if the computers were "burning" computer code unto disk, after, disk, after disk; perhaps so, but Taxpayer here is acting as a service provider whereby it manages, integrates, and "hosts" customer information.

Taxpayer asks that the Department extend the "manufacturing exemption" found at IC § 6-2.5-5-3(b). Indiana law provides the standard by which the exemption is provided. "[W]here such an exemption is claimed, the party claiming the same must show a case, by sufficient evidence, which is clearly within the exact letter of the law." RCA Corp., 310 N.E.2d at 101. The Department is unable to agree that Taxpayer's interpretation and application of IC § 6-2.5-5-3(b) clearly falls "within the exact letter of the law."

News-Sentinel Reports FWCS Budget Essentially Flat

From the Fort Wayne News-Sentinel:

The Fort Wayne Community Schools senior staff on Monday presented its budget for 2014-2015 to the district's board of trustees during its regularly scheduled meeting.
The budget, described as "essentially flat" from last year's by FWCS Chief Financial Officer Kathy Friend, is requested to be approved at just shy of $290 million, but due to circuit breakers on property taxes, it is far more likely the district will have just north of $275 million at its disposal, with about $209 million of that allocated for General Fund expenditures. The General Fund is where salaries and benefits are derived for district employees.
The district provided information that an owner of a $100,000 home would see a tax bill of $329 next year, up from $320 this year. Part of the increase is linked to the building referendum that was passed by voters in 2012, with construction on some buildings in the district already started.
Some interesting tidbits were offered by Friend during her presentation of the budget, including the fact that about 70 percent of the district's students are now on free or reduced lunches, which is one metric to measure poverty and is a factor in how the district's complexity index is determined. However, Friend warned that as of July 2014, the state will shift that measurement to how many students receive free textbooks -- with no real feel as of yet how that may or may not impact district funding.
The district has already advertised the budget, which is required by law. A public hearing is set for Oct. 14 for community input on the budget, the bus replacement fund and capital projects fund, while the budget is scheduled for a vote by the FWCS board on Oct. 28.

Board Finds Respondent Failed to Support Assessed Value of Property


In these cases, the Respondent had the burden to prove the 2006 assessments were correct.

b. The Respondent presented no evidence to establish the market-value-in-use. Further, the Respondent did not explain how the current assessments were determined and was unable to explain what trending factor was used.

c. The Respondent merely claimed the properties were assessed using the same trending factor as the other properties in the Petitioner’s neighborhood, although she could not identify this factor. This kind of testimony/argument is not helpful in determining the actual market value-in-use of the subject property.

d. According to the Respondent, the ratio study demonstrates some adjustment was needed to reflect the market value-in-use of properties in the neighborhood. Even if true, this fact does not prove the true tax value of the two parcels under appeal.

e. The Respondent did not support the accuracy of the existing assessments with any meaningful market value-in-use evidence. Accordingly, she failed to meet her burden of proof. Therefore, these 2006 assessments must be reduced to their 2005 assessed values.

DLGF Posts Materials from Indiana Township Association Presentation

·  Indiana Township Association - September 24, 2013

Trib-Star Reports Department Heads Detail 2014 Budget to Terre Haute City Council

From the Terre Haute Tribune Star:

From hybrid buses to golf course fairways to sewage billing woes, the Terre Haute City Council got loads of information Tuesday from more than a half dozen city department heads.

The more than two-hour meeting in City Hall involved reports from nine department heads, including Brad Miller, transportation director, Brad Speidel, information technology director and Chuck Ennis, city engineer.

These and other department heads answered questions from council members concerning each department’s projected 2014 budget.

Tuesday night’s meeting was the second night in a row of such discussions, adding up to more than four hours in total.

“It’s OK,” said Mayor Duke Bennett when asked after the hearing how he felt it had gone. This was the first time since he was elected in 2007 that such hearings have taken place before the council. “I mean, really, I can answer every question,” he said. “I know the budget inside out. They just wanted to see the department head and see if they had anything to add. I think it worked just fine.”