Revenue Finds Taxpayer Failed to Show Reasonable Cause for Underpayment of Estimated Tax

The Department imposed a ten percent penalty on Taxpayer because the Department found that Taxpayer, having requested an extension to pay its taxes, failed to remit ninety percent of the full amount of corporate income tax on or before the original due date for payment.

…

Thus the question before the Department is whether or not Taxpayer paid at least ninety percent of its Indiana income tax that Taxpayer reasonably expected to be due on the original due date by that due date.

In a letter dated August 6, 2012, presented to the Department subsequent to the hearing, Taxpayer argues that the tax it paid on its original 2009 return reflected at least 90 percent of the tax "it reasonably expected to be due on the original due date of the return." (Taxpayer's emphasis). Taxpayer further asks the Department to note that:

[T]his provision does not say that 90[percent] of the tax ultimately due must be paid; the test is whether the taxpayer has paid 90[percent] of the tax that is reasonably expected to be due. As explained [...], Taxpayer used the best information available in determining what would reasonably be expected to be due for 2009, viz., the 2008 income.

In short, on or about April 15, 2010, Taxpayer reasonably expected that its total tax for 2009 would be approximately its 2008 tax liability as reported on its original 2008 return, which was $1.1 million. Taking into account the $1.4 million overpayment credit from 2008 applied to 2009, Taxpayer believed that it had paid well in excess of its reasonably expected liability for 2009 by the original due date of the return. Accordingly, there should be no penalty.

On October 4, 2010, Taxpayer filed its 2009 return showing the overpayment credit of $1,409,813 carried over from the 2008 return and applied to its 2009 estimated payments account. The 2009 return, filed in October 2010, showed a balance due of $1,327,765 which Taxpayer paid with its return (along with interest totaling $26,628).

Taxpayer also points out that later, on May 31, 2011, it amended both the 2008 and 2009 returns showing significant overpayments for both years due to the application of net operating loss carrybacks. The Department notes that the amended returns are not legally relevant to this analysis, since the statutory consideration is of taxes as originally filed for 2008 and 2009. It should be noted that the 2009 tax due, as originally filed by Taxpayer, represented more than double the amount of tax that had been due for 2008, as originally filed. This doubling of tax due from one year to the next implicates income-generating activities during 2009 that could not have escaped Taxpayer's notice as it applied its standard business practices in accounting for its earnings.

A statement provided by Taxpayer in support of its protest of the penalty explains that during 2008 and 2009, the period during which the estimated and final payments were analyzed and made, Taxpayer was involved in a major reorganization that involved acquisitions by its affiliated group. Taxpayer indicates that the uncertain nature of the future business created a challenging projection process which was compounded by departures in Taxpayer's accounting and tax departments. Taxpayer argues that the "best available" information at the time was based on its 2008 income. Taxpayer states that as soon as the final taxable income was determined, and the return was prepared and reviewed, additional payment was made with the late filing of the 2009 return.

However, even considering Taxpayer's explanation, Taxpayer has not made an "affirmative showing" that during the business activities that transpired during 2009 it could not have been on notice that its income tax obligations would increase for that year and that, therefore, "ordinary business care and prudence" would have required it to increase its estimated payments for 2009. The implication that Taxpayer was unable to fully attend to its tax filing obligations because its tax and accounting departments were in flux does not justify not exercising ordinary business care and prudence in accounting for its tax obligations.

The Department finds that Taxpayer has not made an affirmative showing of reasonable cause for underpaying its estimated 2009 taxes. IC § 6-8.1-10-2.1, IC § 6-8.1-6-1 and 45 IAC 15-11-2.

http://www.in.gov/legislative/iac/20121226-IR-045120641NRA.xml.html

Board Applies Indiana Code § 6-1.1-4-39(a) to Rental Property

A residential rental property with more than four rental units receives the benefit of specific valuation alternatives authorized by Ind. Code § 6-1.1-4-39(a), which provides that its true tax value is the lowest valuation determined from the three generally accepted approaches to value: cost, sales comparison, or income capitalization.1 The Petitioner claims to qualify for this statute and nobody disputed that the subject property is the type of property to which this provision applies. Consequently, by statute the market value-in-use for an assessment of this kind of property can be proved based on whichever of those three approaches produces the lowest value. Nothing in the Assessment Manual or Assessment Guidelines changes or limits that specific statutory authority.

Because Ind. Code § 6-1.1-4-39(a) specifies how the assessed value must be determined, this is not a case where an assessor’s valuation according to the Assessment Guidelines is presumed to be accurate. This is not a case where an assessor has discretion to choose among the cost method, the comparable sales method, the income capitalization method, or other generally accepted appraisal principles. And this is not a case where an opinion of value based on some combination of those three approaches to value would be determinative. Again, the lowest value from the cost, sales comparison, or income capitalization approaches determines the proper assessed value. Therefore, the Respondent’s request to set the 2009 and 2010 assessments at the final, reconciled values concluded in Mr. John’s appraisal is inconsistent with the applicable statute.

... 

Some time ago the Petitioner successfully appealed the 2008 assessment of the subject property and got the assessed value reduced to $3,097,300. That final determination of value was based on evidence of the Petitioner’s 2005-2006 costs trended up to January 1, 2007. In that earlier case the Petitioner’s cost evidence was not disputed by the Respondent and the Board determined it was sufficient to make a prima facie case. But each tax year stands alone. See Thousand Trails Inc. v. State Bd. of Tax Comm’rs, 747 N.E.2d 1072, 1077 (Ind. Tax Ct. 2001). Furthermore, the evidence and arguments presented for these 2009 and 2010 appeals is substantially different from what was presented for 2008. Consequently, these appeals will not be determined based on the Petitioner’s bare-bones assertion that the 2008 assessed value should be carried forward for 2009 and 2010.

Rather, the 2009 and 2010 appeals must be determined from the rule specified in Ind. Code § 6-1.1-4-39(a) and weighing the evidence from both sides. In other words, because the lowest value indicated by the cost approach, the income capitalization approach, or the sales comparison approach is required, the credibility of the cost approach offered by the Petitioner must be weighed against the credibility of the income capitalization approach offered by the Respondent. Weighing the credibility of evidence involves a great number of considerations. There are no general rules that one type of evidence is always more credible than another. The Board has established no such general rules of priority in past cases, nor will it do so here. Specifically, the language the Petitioner relied on in the Roop v. Monroe County Assessor determination does not mean actual construction costs for the subject property always outweigh other types of evidence.

Indiana Code § 6-1.1-4-39(a) does not require anybody to present evidence related to all three approaches to value. In this case the Petitioner indicated that reducing the assessments to the value indicated by its cost approach would be satisfactory and chose to rely totally on that approach. The Petitioner offered absolutely no evidence regarding income capitalization. The Respondent offered evidence (in the appraisal) regarding both cost and income capitalization. Neither party offered any evidence of a value based on comparable sales.

First we consider the evidence based on the cost approach. The Petitioner submitted documentation of the actual construction costs for each building as well as its land costs. Exhibit 5 summarizes the information and provides references to the more detailed cost information in Exhibit 9, which is a 31-page itemized list with site development costs and actual costs of constructing the garden apartments. In addition, Exhibit 5 shows how the calculation added another 10% for “entrepreneurial profit.” It also shows those costs were trended to a value as of January 1, 2007, by adding 10% to the 2005-2006 costs. This calculation results in a value of $3,097,300. Mr. Kropp concluded that no further trending was required because the Respondent did not make changes for trending for 2009 or 2010. The Petitioner prevailed in the 2008 appeal with this evidence. In that instance it was sufficient to make a prima facie case and the Respondent offered nothing substantial to rebut or impeach it.

The Respondent’s case in the 2009 and 2010 appeals is much different. Most of the Respondent’s case is focused on the certified appraisals of the subject property prepared by Phillip Johns, who is an Indiana Certified General Real Property Appraiser and a member of the Appraisal Institute. His appraisals were completed in conformance with the Uniform Standards of Professional Appraisal Practice (USPAP). He appears to be a well-qualified, credible witness who has no financial interest in the outcome of these appeals. His appraisals’ final conclusions of value for each year are problematic because they are not consistent with the statutory mandate to use the lowest value indicated by the three standard approaches. But within each appraisal he developed a value based on the cost approach (Exhibit 5 at 28-32). In contrast to the actual construction cost evidence offered by the Petitioner, Mr. Johns cost approach looked at sales of other vacant land in the Mooresville area and estimated replacement cost from Marshall Valuation Service for the improvements.

The two versions of the cost approach lead to dramatically different conclusions about the value of the subject property—they are over $1 million apart. Both the land component and the improvement component of the conflicting cost approaches differ significantly. In such circumstances, credibility is an extremely important point. Neither side, however, pointed to any specific errors the other had made or offered any meaningful analysis regarding which cost approach is more credible. It is unfortunate that the parties neglected their obligations in this regard. See Indianapolis Racquet Club, Inc. v. Washington Twp. Assessor, 802 N.E.2d 1018, 1022 (Ind. Tax Ct. 2004) (explaining one must “walk the Indiana Board . . . through every element of the analysis”).

In spite of the Respondent’s failure to walk the Board through the analysis, several factors weigh against the credibility of the cost valuation presented by the Petitioner.

 Mr. Kropp is a certified tax representative. The record does not disclose how he is being compensated. In the absence of such disclosure, it is presumed that a contingent fee arrangement exists between the taxpayer and Mr. Kropp. 52 IAC 1-2-4(c). Therefore, he has a financial stake in the outcome.

 Nothing in the record indicates that Mr. Kropp had direct, first hand knowledge about the Petitioner’s land acquisitions, the construction of the subject property or the associated costs.

 It is not clear who prepared the Petitioner’s cost figures or how they were obtained.

 Nothing in the record indicates that Mr. Kropp is a certified appraiser.

 Nothing in the record indicates the Petitioner’s cost approach methodology was prepared according to generally accepted appraisal principles or satisfies USPAP requirements.

The cost approach developed in Mr. Johns’ appraisals is more credible for several reasons.

 Mr. Johns is an Indiana Certified General Appraiser.

 Although he was paid for doing these appraisals, it was not on a contingent fee basis.

 His analyses, opinions, and conclusions were developed, and his reports were prepared, in conformity with the USPAP.

 His estimates for the improvements were based on the Marshall Valuation Service Manual.

Therefore, we conclude that when the cost approach is applied according to generally accepted appraisal principles, it indicates the value of the subject property was approximately $4.1 million, rather than the $3,097,300 calculated by Mr. Kropp.

Because of the specific mandate in Ind. Code § 6-1.1-4-39 to use the lowest value from the three generally accepted approaches, another part of Mr. Johns’ appraisals must be considered. His income capitalization approach concludes the value of the subject property is less than the value indicated by the cost approach. The income capitalization approach value was $3,892,000 as of March 1, 2009, and $3,968,000 as of March 1, 2010. Even though the Petitioner did not provide the income and expense data that Mr. Johns would like to have considered with this approach, the value that he developed using the income capitalization approach is still credible. Significantly, the Petitioner made no attempt to rebut or impeach Mr. Johns’ income capitalization approach. Based on everything offered in the present cases and the weight of the evidence, we conclude that this income capitalization approach is what the statute requires for this kind of property.

One small additional step in the analysis is necessary. The required valuation date for the 2009 assessment was January 1, 2008. Mr. Johns related the overall conclusion in the appraisal back to that date, but he did not do so just for the value indicated by the income capitalization approach. Nevertheless, the calculation is fairly simple. He trended a value of $4,000,000 as of March 1, 2009, to $3,950,000 as of January 1, 2008. That calculation reduced the value by $50,000 (1.25%). A similar calculation for the relevant value based on the income capitalization approach results in the value of $3,843,400 (rounded) as of January 1, 2008.

http://www.in.gov/ibtr/files/Meadow_Lake_of_Mooresville_55-005-09-1-4-00004_and_10-00008.pdf

Homeowners to be Warned About Loss of Tax Deduction

From the South Bend Tribune:

Indiana homeowners who've let homestead deductions expire without refiling for them soon will receive notices warning of the potential loss of the tax break, a state official said.

Homeowners who received the deduction previously but haven't submitted new forms will get notices of the potential loss and how to reinstate the deduction, Indiana Department of Local Government Finance spokeswoman Jenny Banks said.

The reassurance came as some homeowners panicked over the potential loss of the deduction jammed county auditor offices across the state on the last business day of 2012.

"In all my 21 years here, I've never seen anything like it," Hancock County Auditor Robin Lowder said.

Indiana is requiring homeowners to certify they're eligible for the deduction so it can create a database aimed at preventing people from receiving more than the single credit allowed for primary residences. Vacation homes and rentals aren't eligible. People who don't verify their records could lose their homestead deductions and pay higher property taxes.

Most counties have issued the pink, one-page forms each of the last three years, sending repeat mailings only to those who haven't already filled them out properly and returned them.

"People have seen news stories about it and kind of panicked," Lowder said. "Our phones are ringing off the hook, and we have a line that winds around the hallway. Probably 90 to 95 percent of them don't really need to be here."

The deduction is $45,000 on houses with assessed values over $90,000 or 60 percent of gross assessed valuations less than $90,000. A supplemental deduction gives homeowners an additional 35 percent of the remaining assessed value.

In northwestern Indiana, Lake County Auditor Peggy Katona said Monday she'll give homeowners until the end of January to file paperwork needed to retain their deductions, extending by one month the Dec. 31 deadline the state had set.

http://www.southbendtribune.com/news/sbt-homeowners-warned-about-tax-deduction-20130104,0,1680808.story

Editorial Argues Progress Rail Settlement Averts Local "Fiscal Cliff"

From the Muncie Star-Press:

Perhaps it was all just a misunderstanding.

Perhaps it was a trial balloon floated by Delaware County’s Progress Rail Services to see whether it could get a break on assessed value and reap tax savings.

No matter how it was resolved, the outcome is a positive one for all sides, a rare win-win situation.

Word came down this week that Progress Rail, a railroad locomotive manufacturer and relative newcomer to Delaware County, wanted to appeal its assessed value.

No problem with that. It’s an industry’s (or property owner’s) right to appeal assessed values.

The sticking point, however, arose when government officials reported the industry had barred tax assessors access to its manufacturing facility. While it can be argued allowing assessors into your place of business (or home) is the epitome of government intrusiveness, it’s also necessary in order to get a fair estimation of the worth of a property. It’s how the system works.

On Wednesday, the company said it was planning to drop plans to get the assessed value reduced from $6.4 million to $1.7 million for the 740,000 square-foot facility. Tax assessors likely will be granted access to the building.

The situation had the potential to pit a valuable and necessary member of the business community against government officials. Hopefully, that fiscal cliff was averted, since the situation appears to be amicably resolved.

We’ll be optimistic and come down on the side of a simple misunderstanding. The bottom line is this. The situation was resolved to the benefit of everyone and we’ll take that win any day.

http://www.thestarpress.com/apps/pbcs.dll/article?AID=2013301040018

President of Cook Seeks Repeal of Medical Device Tax

From the Northwest Indiana Times:

The president of Bloomington-based Cook Medical says despite "considerable disappointment" that the fiscal cliff deal did not include a delay in a new medical device tax, the company will continue efforts to lobby lawmakers and the public. Kem Hawkins says the tax will cost Cook $20 million this year and slow down the development of new products. The company has halted U.S. expansion because of the tax. Hawkins believes small companies will take the biggest hit.

 

http://www.nwitimes.com/business/columnists/gerry-dick/inside-indiana-business-cook-hopes-to-reverse-medical-device-tax/article_6fc096c5-5bf0-508a-b8a5-7bc9be4e6d3b.html

Indiana Wind Producers Want Longer Tax Credit

From the Indianapolis Business Journal:

Officials with Indiana's wind energy industry say they are relieved by Congress' one-year extension of a tax credit but contend it will take a longer-term approach to grow the business and create jobs in the state.

The legislation signed earlier this week by President Barack Obama averting the fiscal cliff extended a wind energy production tax credit to projects that begin construction in 2013, but entrepreneur Noel Davis likened that to playing a single quarter of football instead of a complete game.

A project like the Wildcat Wind Farm going up in north central Indiana needs years to collect and analyze wind readings, perform economic studies, design a project, and secure land rights before starting to build.

"It takes a long time to do that," Davis said. "Something like that cannot be done in one year."

The law actually improves the extension to include projects that are started in 2013 rather than those that are completed, which the previous law required.

The uncertainty over long-term tax incentives has kept Indiana's wind energy industry from fully taking off despite the promise of projects such as Wildcat and the 303-turbine, 500-megawatt-capacity Meadow Lake Wind Farm in White County that have helped produce the 13th largest installed wind power capacity among states. As of Wednesday, Indiana had 930 turbines producing 1,543 megawatts of electricity, according to the Indiana Office of Energy Development.

The 2.2 cent-per-kilowatt tax credit was established in 1992, and some in Congress, including Rep. Marlin Stutzman, R-Ind., sought its elimination as a costly subsidy to an "intermittent resource."
...

See the full article here:

http://www.ibj.com/indiana-wind-energy-industry-wants-longer-tax-credit/PARAMS/article/38842

Indianapolis Mayor Close Reaching Budget Agreement with Council

From the Indianapolis Star:

Indianapolis Mayor Greg Ballard and City-County Council leaders are close to reaching an agreement tying up loose ends from this year’s nearly $1.1 billion budget, both sides said Thursday.

Ryan Vaughn, the mayor’s chief of staff, and council President Maggie Lewis declined to reveal details of the discussions, but Vaughn said an announcement was likely by Monday, when the council is set to meet.

The talks stem from the Republican mayor’s vetoes of several line items after the Democratic-majority council approved the budget in October.

Ballard said then that he wanted to force Democrats into negotiations to avert a projected $35 million budget gap in 2014. So he used the line-item vetoes in this year’s budget to cut a $31.8 million share of local income tax money for Marion County offices and agencies as well as a $652,654 portion of the council office’s budget that would pay for contracts, rent and bills.

Ballard attributed the latter cut to his disagreement with the council’s addition of $100,000 for an anticipated legal fight over redistricting.

Without a budget deal, the withholding of income tax money from county agencies could force deep cuts in coming months.

...

http://www.indystar.com/apps/pbcs.dll/article?AID=2013130103030

More Tax and Assessment Related Legislation Filed for 2013 Session

Senate Bill 0161

DIGEST OF INTRODUCED BILL Taxation of active duty military pay. Exempts from the individual income tax any wages that are paid to an individual who is: (1) an Indiana resident; and (2) a member of an active component of the armed forces; for the individual's active duty service outside Indiana. (Current law exempts wages earned by members of the National Guard and reserve components of the United States armed forces while serving on active duty.)

Senate Bill 0162

DIGEST OF INTRODUCED BILL Economic development incentives and reports. Specifies for purposes of the public records law that information provided to receive an economic development incentive from the Indiana economic development corporation (IEDC), the ports of Indiana, the Indiana state department of agriculture, the Indiana finance authority, an economic development commission, a local economic development organization, or a governing body of a political subdivision with industrial, research, or commercial prospects (an "economic development incentive provider") must be available for inspection and copying, if the information is provided after the incentive recipient executes the financial incentive agreement. Specifies that negotiations with an economic development incentive provider terminate on the date the incentive recipient executes the financial incentive agreement. Prohibits the IEDC from granting any incentive that is measured by any activity that occurred before the date the incentive recipient executes the financial incentive agreement. Requires a person that applies for an economic development incentive with the IEDC to include a representation of the applicant's expected financial investment in Indiana. Requires an IEDC incentive recipient to annually provide job and financial investment information that corresponds to the recipient's representations as an applicant. Specifies that the information that an applicant and incentive recipient files with the IEDC compliance officer to detail the applicant's compliance with the incentive agreement must be available for inspection and copying under the public records law. Requires that the applicant's representations and the recipient's annual compliance information must be included in the

Senate Bill 0165

DIGEST OF INTRODUCED BILL Assessed value cap for veteran's deduction. Eliminates the assessed value cap of $143,160 that applies to the property tax deduction for a veteran who: (1) has a total disability; or (2) is at least 62 years of age and has at least a 10% disability.

Senate Bill 0166

DIGEST OF INTRODUCED BILL Vehicle excise tax credit for certain veterans. Allows certain disabled veterans, surviving spouses of certain disabled veterans, and World War I veterans or their surviving spouses to claim a credit against the annual motor vehicle excise tax regardless of whether the veteran or surviving spouse owns or is buying other real or personal property against which the veteran or surviving spouse may claim a property tax deduction for disabled veterans, surviving spouses of disabled veterans, or World War I veterans or their surviving spouses.

Senate Bill 0192

DIGEST OF INTRODUCED BILL Income tax rates. Phases down the state adjusted gross income tax rate on noncorporate taxpayers from 3.4% to 3.0% over four years.

Senate Bill 0201

DIGEST OF INTRODUCED BILL Homestead assessed value growth cap. Limits the annual increase in assessed value of a homestead to 5% unless: (1) ownership of the homestead changes during the year; or (2) the increase results from physical changes to the homestead.

http://www.in.gov/apps/lsa/session/billwatch/billinfo?year=2013&session=1&request=all

See the Senate Bills filed previously here:

http://indianapropertytaxreporter.blogspot.com/2013/01/proposed-senate-bills-related-to-tax.html

Revenue Finds Negligence Excuses Penalty but Interest Not Waivable

Taxpayers are individuals residing in Indiana. For 2009, one of the Taxpayers had wages withheld for New York State income taxes as opposed to Indiana income taxes. Taxpayers filed their 2009 Indiana income tax return, which reflected an underpayment. The Department imposed penalty and interest based on the underpayment. Separately, the Department imposed a penalty for failure to make sufficient estimated tax payments for the 2009 tax year.

…

Taxpayers protest the assessment of a penalty for failure to remit Indiana individual income tax in a timely manner.

…

In this particular case, Taxpayers have provided evidence that its failure to timely pay taxes was the result of a unique, one-time occurrence beyond Taxpayers' control. Taxpayers' filing and payment history shows a consistent pattern of timely filing and payment of taxes except for the year at issue. Based on the circumstances present in this case, Taxpayers have provided sufficient information to demonstrate that their failure to timely remit taxes was due to reasonable cause.

Taxpayers protest the imposition of the ten percent penalty on Taxpayers' failure to make sufficient estimated tax payments as required pursuant to IC § 6-3-4-4.1, which provides for a ten-percent penalty for failure to make sufficient estimated payments during the tax year.

Under IC § 6-3-4-4.1(a) and (b), a taxpayer is required to make estimated payments equal to a percentage of the current year's Indiana income tax liability or the prior year's Indiana income tax liability if the taxpayer determines that the taxpayer's tax liability not otherwise paid by withholding was greater than $1,000. The percentage requirements for the minimum estimated tax payments are set forth in I.R.C. § 6654(d)(1)(B). The estimated tax payments must be made in four installments, on the dates specified by I.R.C. § 6654(c). Failure to make sufficient estimated tax payments is subject to a ten (10) percent penalty in the amount of the underpayment.

With regard to the tax year in question, Taxpayers have provided sufficient information to conclude that the penalty for failure to remit timely estimated tax payments should not be imposed.

…

Taxpayers protest the imposition of interest with respect to its late payment of tax. For taxes unpaid by the due date for payment, IC § 6-8.1-10-1(b) provides for the imposition of interest. Notwithstanding Taxpayers' circumstances, IC § 6-8.1-10-1(e), provides that the Department cannot waive interest even if reasonable cause otherwise exists for penalty waiver.

http://www.in.gov/legislative/iac/20121226-IR-045120640NRA.xml.html

Revenue Publishes Informational Bulletin Regarding Warranties and Maintenance Contracts

DEPARTMENT OF STATE REVENUE

Information Bulletin #2 Sales Tax January 2013 (Replaces Bulletin #2 dated November 2011) Effective Date January 1, 2013

SUBJECT: Original Manufacturer Warranties, Optional Maintenance Contracts, and Optional Warranty Contracts

REFERENCE: IC 6-2.5-1-11.5; IC 6-2.5-1-14.5; IC 6-2.5-2-1; IC 6-2.5-3-2; IC 6-2.5-4-1; IC 6-2.5-4-15; IC 6-2.5-4-17; 45 IAC 2.2-4-2

DISCLAIMER: Information bulletins are intended to provide nontechnical assistance to the general public. Every attempt is made to provide information that is consistent with the appropriate statutes, rules, and court decisions. Any information that is not consistent with the law, regulations, or court decisions is not binding on either the department or the taxpayer. Therefore, the information provided herein should serve only as a foundation for further investigation and study of the current law and procedures related to the subject matter covered herein.

SUMMARY OF CHANGES

This bulletin has been changed from the previous version to reflect that the sales of optional maintenance contracts which meet the definition of bundled transactions are subject to sales tax at the time of sale. Conversely, the sales of optional warranty contracts where delivery of tangible personal property is uncertain are not subject to sales tax. However, any parts or products transferred under an optional warranty contract are subject to use tax at the time of delivery. The sales of computer software maintenance contracts shall be treated separately and distinctly from the contracts addressed in this bulletin and are subject to sales tax pursuant to IC 6-2.5-4-17.

I. ORIGINAL MANUFACTURER WARRANTIES OR DEALER WARRANTIES

Original manufacturer warranties or dealer warranties guaranteeing the condition of a product and providing that maintenance or replacement parts will be provided at either no charge or a flat charge are subject to sales tax. The amount subject to tax includes any subsequent payments made by the purchaser, such as deductibles or other fees. Original manufacturer warranties and dealer warranties not offered as an option when the product is sold are considered part of the selling price of the product. Any parts transferred to a buyer under the terms of an original manufacturer warranty or dealer warranty are not subject to sales tax because the parts and or property are considered to have been sold with the product as a part of the retail transaction on which sales tax was collected.

Examples: An automobile dealer sells an automobile for $20,000. Included in the selling price is a warranty that will cover any repairs for two years or 20,000 miles. This warranty is an original manufacturer or dealer warranty. Tax is collected on the full $20,000.

If the automobile needs a new engine after 5,000 miles and six months of driving, the same warranty as in the example above shall apply. The dealer must provide and install the engine under the terms of the warranty. No sales tax is due on the price of the engine because tax was collected on the warranty when the automobile was purchased. NOTE: if the dealer charges the vehicle owner a deductible or other fee under the terms of the warranty, that amount is subject to sales tax.

Providing the warranty explicitly states that a replacement vehicle will be provided while warranty work is being performed, the rental transaction is considered to be part of the original warranty and is exempt from the sales or use tax. However, if the warranty does NOT explicitly provide for a replacement vehicle, then the furnishing of the vehicle is not considered to be part of the repair or the replacement parts and the charge for the provided vehicle is subject to the sales or use tax. The exemption must be supported by written documentation of payment from the warranty provider.

NOTE: The fee charged for a rental vehicle provided for warranty work is NOT exempt from the auto rental excise tax under IC 6-6-9, but it is exempt from the Marion County supplemental auto rental excise tax under IC 6-6-9.7-8.

II. OPTIONAL MAINTENANCE CONTRACTS

Maintenance contracts generally meet the definition of bundled transactions under IC 6-2.5-1-11.5 and are subject to sales tax on that basis. The determination as to whether a contract is a maintenance contract is not based on the particular title of or language used in the contract. Instead, the determination is based on the substantive provisions contained in the contract. Whether there is an explicit guarantee that tangible personal property will be provided under the contract is irrelevant. What is important is that both the customer and the service provider are aware at the time the contract is executed that consumable items will be provided under the contract. However, the amount of tangible personal property supplied under the contract must be more than a de minimis amount. As a rule, the seller's purchase price or the sales price of the taxable items provided under the contracts must exceed 10% of the total purchase price or the total sales price of the bundled products.

For purposes of this bulletin, these contracts include the retail sales of two or more distinct and identifiable products for one non-itemized price and include repair labor as well as replacement parts, consumable items, and general services such as cleaning and inspecting that are provided on a periodic basis. These contracts include scenarios in which the specific repair and replacement parts and consumable items needed to maintain the equipment are provided at no additional cost or with a small deductible. For purposes of this bulletin, the term "consumable items" includes items that are depletable, are disposable, are consumable, or need to be replaced after they have been used for a period of time. An example of consumable items can be found where a service provider sells a maintenance contract for a copy machine. Under the contract, parts and consumable items that require regular replacement for the copier to perform its function (such as drums, toner, fuser, developer, etc.) are replaced at no additional cost along with incidental repair parts that may need to be replaced due to unforeseen circumstances.

Example: An office supply company sells a photocopy machine to a customer. The customer also purchases an optional maintenance contract from the company. The maintenance contract entitles the customer to service and parts at no charge in the event of a breakdown of the photocopy machine. The contract also provides for quarterly inspections; replacement of the drum after 100,000 copies have been made; and toner to be provided on an as-needed basis. The office supply company calculates that the price charged for the tangible personal property is 15% compared with the service charge. The sale of the maintenance contract is a bundled transaction subject to the collection of sales tax on the unitary price of the maintenance contract.

III. OPTIONAL WARRANTY CONTRACTS

For purposes of this bulletin, a "warranty contract" means a contract that acts like insurance against future potential repair costs. As with maintenance contracts discussed previously, the determination as to whether a contract is a warranty contract is not based on the particular title of the contract or language used therein. Instead, the determination is based on the substantive provisions contained in the contract. Under a warranty contract, neither the seller nor the purchaser is certain at the time the contract is signed whether any tangible personal property will be provided under the terms of the contract. Unlike a maintenance contract, the replacement of consumable items is not included under a warranty contract.

Optional warranty contracts are not implicated by the bundled transaction provisions in IC 6-2.5-1-11.5 because the warranty contracts do not meet the definition of a bundled transaction. The sale does not include the sale of two or more products because, under the warranty contract, there may never be any parts or services provided to the customer. Accordingly, the sales of optional warranty contracts are exempt from sales tax. However, the provider of the service must pay sales or use tax on the cost of all taxable items used under the contract. If the service provider charges a separate amount for parts or other taxable items, the provider should purchase the items exempt for resale and charge sales tax to the customer. If the service provider charges one non-itemized amount for the service and any tangible personal property transferred under the contract, the provider must self-assess and remit use tax on its purchase price of the property.

Example: A home warranty service company sells a warranty to a customer. The warranty contract entitles the customer to service and parts at no charge or in conjunction with a deductible in the event of a breakdown of covered items. The sale of the warranty contract is not subject to sales tax. However, the provider of the service must pay sales or use tax on the cost of all taxable items used under the contract.

IV. APPLICATION TO SALES OF OPTIONAL MAINTENANCE CONTRACTS MADE PRIOR TO JANUARY 1, 2013

For transactions where sales tax was collected and remitted on the sale of optional maintenance contracts prior to the publishing of this bulletin, a retail merchant will not be required to self-assess use tax on any parts used to fulfill the terms of the contracts. Correspondingly, a claim for refund based on this bulletin for a transaction subjected to tax prior to Jan. 1, 2013, will be denied.

 

http://www.in.gov/legislative/iac/20130102-IR-045120673NRA.xml.html

DLGF Publishes Guidance on Reporting Requirements for Redevelopment Commissions

MEMORANDUM

TO:         Redevelopment Commissions
                COUNTY AUDITORS: Please forward a copy of the Memo to your Redevelopment Commission members.

FROM:  Brian E. Bailey, Commissioner

RE:          Reporting Requirement for Redevelopment Commissions

DATE:    January 2, 2013

On March 19, 2012, Governor Mitch Daniels signed into law Senate Enrolled Act 19 (“SEA 19”), which specifies additional reporting requirements for redevelopment commissions and requires redevelopment commissions to submit copies of required reports to the Department of Local Government Finance (“Department”).

Section 54 of SEA 19 amends the existing reporting requirement under IC 36-7-14-13 as follows:

(a) Within thirty (30) days after the close of each calendar year, the redevelopment commissioners shall file with the unit's executive a report setting out their activities during the preceding       calendar year.

(b) The report of the commissioners of a municipal redevelopment commission must show the names of the then qualified and acting commissioners, the names of the officers of that body, the number of regular employees and their fixed salaries or compensation, the amount of the expenditures made during the preceding year and their general purpose, an accounting of the tax increment revenues expended by any entity receiving the tax increment revenues as a grant or loan from the commission, the amount of funds on hand at the close of the calendar year, and other information necessary to disclose the activities of the commissioners and the results obtained.

(c) The report of the commissioners of a county redevelopment commission must show all the information required by subsection (b), plus the names of any commissioners appointed to or removed from office during the preceding calendar year.

(d) A copy of each report filed under this section must be submitted to the department of local government finance in an electronic format under IC 5-14-6.

The Department requires that redevelopment commissions submit this report through the Indiana Gateway for Government Units (“Gateway”). One commissioner from each redevelopment commission will need to visit https://gateway.ifionline.org/ReDevRegistration, create an account, and upload/submit a PDF version of this report before January 31, 2013. Only redevelopment commissioners are permitted to submit this report through Gateway.

The Department has prepared a user guide that provides redevelopment commissioners with step-by-step instructions on submitting this report through Gateway. This document is available at http://www.in.gov/dlgf/files/Redevelopment_Commissioners_User_Guide.pdf.

Any questions concerning the submission of this report may be directed to Colby Shank at (317)234-4480 or gateway@dlgf.in.gov.

http://www.in.gov/dlgf/files/130102_-_Bailey_Memo_-_Reporting_Requirements_for_Redevelopment_Commissions.pdf

DLGF Publishes Guidance on Sold Waste Management District Reporting Requirements

MEMORANDUM

TO:         Solid Waste Management Districts

FROM:  Brian E. Bailey, Commissioner

RE:          Reporting Requirement for Solid Waste Management Districts

DATE:    January 2, 2013

On March 14, 2012, Governor Mitch Daniels signed into law Senate Enrolled Act 131 (“SEA 131”), which specifies additional information that solid waste management districts (“SWMD”) must include in the annual report prepared by the district and provided to the Department of Local Government Finance (“Department”).

Pursuant to IC 13-21-2-13.5 as amended by SEA 131, the Department has developed a new application called SB 131 Reporting for SWMD in the Indiana Gateway for Government Units (“Gateway”) that allows solid waste management districts to fulfill this reporting requirement. Solid waste management districts have until February 1, 2013 to input the requested financial and programmatic information into the application, upload any necessary supporting documentation, and submit the report through Gateway (https://gateway.ifionline.org/login.aspx) to the Department.

District officials will access this Gateway application using the same username and password used to access the Department’s Budgets and Debt Management applications as well as the State Board of Account’s Annual Financial Report and 100R applications. By default, permissions from the Annual Financial Report application were transferred to the Department’s SB 131 Reporting for SWMD application in Gateway. Only one individual – either the director or the controller of the district – may have submission rights. Multiple individuals may have editing rights, but new editors must complete a “Limited Delegation of Authority Form” that is signed by either the director or the controller of the district. This form is available at http://www.in.gov/dlgf/files/SB_131_Limited_Delegation.pdf.

The Department has prepared a user guide that provides solid waste management districts with step-by-step instructions on completing this reporting requirement through Gateway. This document is available at http://www.in.gov/dlgf/files/SB_131_Reporting_User_Guide.pdf.

SEA 131 also requires a solid waste management district to publish this report on an Internet website maintained either by the district or on the Internet websites maintained by the counties that are members of the district. Districts may use the SB 131 Reporting for SWMD application in Gateway to generate a PDF of the district’s completed report and post this document to the appropriate website(s).

Any questions concerning the completion or submission of this report through Gateway may be directed to Ryan Burke at (317) 234-7987 or gateway@dlgf.in.gov.

http://www.in.gov/dlgf/files/130102_-_Bailey_Memo_-_Reporting_Requirement_for_Solid_Waste_Management_Districts.pdf

Terre Haute Council to Consider Abatement Request for JWS Machine and Request to Transfer EDIT Funds to City's General Fund

From the Terre Haute Tribune-Star:

• The council is also expected to hear a request from the Terre Haute International Airport and JWS Machine Inc. for a 10-year property tax abatement for more than $2 million in investments at the airport. According to the abatement petition, JWS Machine, located in Brazil, plans to make the investments in a building currently owned by the airport. The abatement would save the company about $55,000 over 10 years, according to the petition, which is available on the city’s website. JWS is moving its operations, which includes 35 existing jobs, from Clay County to Vigo County, according to the abatement petition.

Among other things, JWS Machine provides machining, laser cutting, fabrication, model and reverse engineering services, according to the company’s website.

• The City Council tonight also is expected to take up a request from Mayor Duke Bennett to move $2 million from the city’s Economic Development Income Tax fund into the city’s general fund, which pays for day-to-day city government operations. Last month, the council moved several million dollars from other funds into the general fund at the mayor’s request. However, they were not ready to use the EDIT fund to boost the general fund.

Bennett sought the move to keep the general fund out of the red at the end of 2012, something the state formally requires of cities.

http://tribstar.com/local/x1633441542/Officials-look-at-limiting-towing-fees

Howard County Representative Proposes Tax Legislation

From the Kokomo Tribune:

Next Friday is the deadline for bill filing in the Indiana House of Representatives, and state Rep. Mike Karickhoff, R-Kokomo, has five bills in the draft stages.

Proposals to redirect local income tax to the county where people work, to streamline funding to local emergency dispatch centers and to change which local governmental body gets to decide on a county wheel tax are all on Karickhoff’s agenda.

But the bill likely to generate the most interest is a renewal of his attempt to regulate how public schools decide on transfers.
...

Karickhoff said he also plans to take on the thorny issue of how local income taxes are distributed, by proposing a measure to redirect 20 percent of local income taxes.

Currently, individuals (except in Lake County, which has no local income tax) pay local income taxes where they live. Their home counties collect and keep those taxes.

Karickhoff contends that arrangement is unfair to counties with a large commuting work force, like Howard County. More than 10,000 workers come into Howard County to work. His argument is that Howard County — and other commuter work force counties — should receive a share of the local income taxes those workers pay.

Here, his opposition is likely to come from fellow Republicans in Hamilton County, which sends thousands of workers into other counties each day.

“Anytime there is a shift in taxes, there are winners and losers,” Karickhoff said. “The thing to remember about this bill is that it won’t affect individual taxpayers. They will pay no more and no less.”

After chairing a summer legislative committee that looked into how local emergency dispatch centers are funded, Karickhoff also is ready to propose a standard local income tax to help fund dispatch.

Fees charged to users of cellphones and land-line phones only cover a portion of the costs of running most centers, so locals have turned to a patchwork of different fees and taxes to cover the shortfalls.

In line with his focus on tax and funding issues, Karickhoff also is planning to propose transferring authority to establish a county wheel tax from county councils to each county’s tax council.

The tax council, made up of members drawn from both county and municipal councils, is often controlled by the local municipality.

In Howard County, Kokomo accounts for more than 65 percent of the population, so city elected officials make up the majority on the tax council.

Howard County, which has had a wheel tax for years, wouldn’t be affected by the measure.
...

http://kokomotribune.com/local/x2056572619/Karickhoff-reveals-13-bill-agenda

Portage Ends Year with Positive Balance

From the Northwest Indiana Times:
...

Portage's general fund ended up with a positive balance of slightly more than $627,000 in 2012.

"There were a lot of cuts made this year," Stidham said, adding it was particularly difficult since the city entered 2012 with some $500,000 in outstanding bills. "This is especially noteworthy as we are not carrying forward any 2012 bills into 2013 from the general fund."

The city cut costs by providing early retirement buyouts to more than a dozen employees and are reducing other employees through attrition.

The general fund balance is also significant because the city suffered a $612,200 shortfall in property tax revenue.

Stidham said the only carryover bill into 2013 is about $25,000 for landfill fees to be paid from the EDIT fund.

The employee medical benefit fund also ended the year with a $311,723 cushion. That was due, in part,  because the city received an influx of more than $2.1 million from EDIT, riverboat, cable TV and redevelopment commission funds to finance employee health claims.

The local road, street and park funds each had positive balances of about $150,000.

Stidham said ending the year in the black is a good start. However, he added there is a need to build the funds to have cash cushion. He said the difficult choices made in 2012 to reduce costs will continue into 2013.

"Unfortunately, cost increases continue to outpace our revenue increases. As we maximize cost savings through greater efficiency, we will need to begin to look at more dramatic cost savings measures to maintain a balanced budget in the coming year," Stidham said.

The only fund ending the year in the red was the motor vehicle highway fund which has an approximate $185,000 deficit. Stidham said the fund continues to be "distressed" because of reduced property tax revenue due to tax caps and reduced gas tax revenue due to increased fuel efficiency.

http://www.nwitimes.com/news/local/porter/portage/portage-ends-year-more-financially-sound-than-expected/article_eed18d16-45b4-552f-9e7d-2284c9a675eb.html

Progress Rail to Drop Property Tax Appeal in Delaware County

From the Muncie Star-Press:

Locomotive maker Progress Rail Services is planning to drop its appeal of the assessed value of its Muncie manufacturing facility, Delaware County officials said Wednesday.

The Alabama-based railroad company, a division of Caterpillar, contacted the office of Delaware County Assessor James Carmichael on Wednesday, the day a Star Press article reported the company was trying to get the assessed value of its Cowan Road facility — a 740,000-square-foot complex that was formerly home to Westinghouse and ABB — lowered from $6.4 million to $1.7 million.

“It sounds like they’re going to withdraw that appeal,” Carmichael said Wednesday, adding that a Progress Rail representative contacted his office earlier in the day.

The Star Press reported the concerns of officials who spoke up at a Tuesday morning meeting of Delaware County Council. Democratic council member Mike Jones had noted that not only did Progress Rail appeal its assessed value but had denied entry into its buildings by county assessors.

Jones argued that it was not unreasonable for Progress Rail to contest its assessed value, but he added he didn’t believe it was appropriate for the company to bar assessors from the complex.

Carmichael said the Progress Rail representative he spoke with on Wednesday was “apologetic we couldn’t get into the building.”

The assessor said the company still has to send a “formal letter” dropping the appeal.

“We’ll contact them, get some basic info from them, and go out and take a visit and see what they’re got.”

Word of the company’s plans to withdraw the appeal spread quickly.
...

“It wasn’t about the assessment or the appeal,” Jones said. “My concern was simply to have Progress Rail communicate with the assessor. Once that happened, the issue was resolved within hours.”

Officials said Tuesday and Wednesday that the appeal was filed by a property assessment consultant representing Progress Rail.
...

http://www.thestarpress.com/article/20130103/NEWS01/301030034/Progress-Rail-Muncie

Innkeeper's Tax Collections Increase in Jackson County

From the Seymour Tribune:

If innkeeper’s tax collections are any indication, at least a part of the economic recovery in Jackson County began in the middle of 2010.

“We had a two-year period where revenues were down,” said Tina Stark, executive director of the Jackson County Visitors Center.

That downturn began in November 2007 when monthly collections from the 5 percent tax peaked at $34,938.30.

The tax was first imposed a couple of years before the visitors center in Seymour, which employs one part-time and three full-time people, opened in 1999. The purpose of the center is to attract visitors from other parts of the state as well as other states to the county through marketing.

Total collections in 2007 were $322,933.95.

“It was our best year ever at that time,” Stark said.

http://www.tribtown.com/view/local_story/Innkeeper-s-tax-shows-revenue-_1357087072