Indiana Tax Reporter

Friday, December 28, 2012

DLGF Certified Agricultural Land Rate for 2013

Certification of Agricultural Land Base Rate Value for Assessment Year 2013

The attached memorandum hereby serves to notify assessing officials of the agricultural base rate to be used for the March 1, 2013 assessment date: $1,760 per acre.

Land used for agricultural purposes shall be adjusted consistent with the guideline methodology developed for the 2012 general reassessment agricultural land value except, in determining the annual base rate, the Department of Local Government Finance (“Department”) shall adjust the methodology to use the lowest five years of a six (6) year rolling average. The Department will issue annually, before January 1, the base rate to be applied for the following March 1 assessment date. 50 IAC 27-6-1

Those portions of agricultural parcels that include land and buildings not used agriculturally, such as homes, homesites, and excess land and commercial or industrial land and buildings, shall be adjusted by the factor or factors developed for other similar property within the geographic stratification. The residence portion of agricultural properties will be adjusted by the factors applied to similar residential properties.

50 IAC 27-6-1

The 2013 assessment year agricultural land value utilizes the land’s current market value in use, which is based on the productive capacity of the land, regardless of the land’s potential or highest and best use. The most frequently used valuation method for use-value assessment is the income capitalization approach. In this approach, use-value is based on the residual or net income that will accrue to the land from agricultural production.

As illustrated in the following equation, the market value in use of agricultural land is calculated by dividing the net income of each acre by the appropriate capitalization rate.

Market value in use = Net Income ÷ Capitalization Rate

The net income of agricultural land can be based on either the net operating income or the net cash rent. Net operating income is the gross income received from the sale of crops less the variable costs (i.e. seed and fertilizer) and fixed costs (i.e. machinery, labor, property taxes) of producing crops. The net cash rent income is the gross cash rent of an acre of farmland less the property taxes on the acre. Both methods assume the net income will continue to be earned into perpetuity.

The capitalization rate converts the net income into an estimate of value. The capitalization rate reflects, in percentage terms, the annual income relative to the value of an asset; in this case agricultural land. Conceptually, this capitalization rate incorporates the required returns to various forms of capital, associated risks, and the anticipated changes over time.

Since agricultural land in Indiana is nearly evenly divided between cash rent and owner-occupied production, the Department utilized a six-year rolling average (2005 to 2010), eliminating in the calculation of the rolling average the year among the six (6) years for which the highest market value in use of agricultural land is determined. The capitalization rate applied to both types of net income was based on the annual average interest rate on agricultural real estate and operating loans in Indiana for this same period. The table below summarizes the data used in developing the average market value in use.

Table 2-18. Agricultural Land market value in use

Source: Real Property Assessment Guidelines

NET INCOMES				MARKET VALUE IN USE
Year	Cash Rent	Operating	Cap. Rate	Cash Rent	Operating	Average
2005	110	59	7.22%	1,524	817	1,170
2006	110	74	8.18%	1,345	905	1,125
2007	122	184	7.94%	1,537	2,137	1,927
2008	140	189	6.56%	2,134	2,881	2,508
2009	139	116	6.17%	2,253	1,880	2,066
~~2010~~	~~141~~	~~172~~	~~5.97%~~	~~2,362~~	~~2,881~~	~~2,621~~

				Average Market Value in Use		$1,760

The statewide agricultural land base rate value for the 2013 assessment year will be $1,760 per acre.

http://www.in.gov/dlgf/files/121228_-_Certification_Letter_-_2013_Agricultural_Land_Base_Rate.pdf

Additional reference materials can be found here:

http://www.in.gov/dlgf/files/Reference_Materials_for_2013_Ag_Land_Base_Rate.pdf

http://www.in.gov/dlgf/files/121228_Ag_Land_Example_2010-2013.pdf

http://www.in.gov/dlgf/files/121228_History_of_Agricultural_Land_Base_Rate.pdf

http://www.in.gov/dlgf/files/121228_FAQ_-_Agriculture_Land_Base_Rate_-_March_1_2013.pdf

Tax Court Schedules Four Hearings for January

Geoffrey Odle, Personal Representative of the Estate of Floyd L. Odle, Deceased v. State of Indiana ex rel Indiana Department of State Revenue; and Indiana Department of Revenue (View)

Friday, January 11, 2013 10:00 AM - 11:00 AM

49T10-1210-TA-61

The Estate challenges whether the establishment of classes of beneficiaries within the Indiana inheritance tax scheme violates the Indiana Constitution (specifically Article 1 §§ 1, 12, 23, and 35 and Article 4 § 22.)

Thomas G. Fisher, Senior Judge presiding

Location:

State House, Room 413

Indianapolis, IN 46204

Hamilton County Assessor v. Allisonville Road Development, LLC (View)

Friday, January 11, 2013 11:15 AM - 12:15 PM

49T10-1204-TA-30

The Assessor challenges whether the Indiana Board erred in determining that taxpayer's land qualified for a "developer's discount" pursuant to Indiana Code § 6-1.1-4-12.

Thomas G. Fisher, Senior Judge presiding

Location:
State House, Room 413
Indianapolis, IN 46204

Millennium Real Estate Investment, LLC v. Assessor, Benton County, Indiana (View)

Thursday, January 17, 2013 10:00 AM - 11:00 AM

49T10-1008-TA-42

Millennium Real Estate Investment, LLC v. Assessor, Benton County, Indiana

This is a hearing on Petitioner's Petition for Rehearing.

Thomas G. Fisher, Senior Judge presiding

Location:
State House, Room 413
Indianapolis, IN 46204

Thermo-Cycler Industries Inc. v. Indiana Department of State Revenue (View)

Thursday, January 24, 2013 11:00 AM - 12:00 PM

71T10-1110-TA-62

Trial.

For a description on the merits of the case see the Tax Summaries at http://www.in.gov/judiciary/opinions/taxsumm.html

Location:
St. Joseph County Council Chambers
4th Floor, 227 West Jefferson Boulevard
South Bend, IN 46601

http://www.in.gov/activecalendar/EventList.aspx?fromdate=12%2f1%2f2012&todate=12%2f31%2f2012&display=Month&view=DateTime

Thursday, December 27, 2012

DLGF Publishes Correction to IAAO Course Memorandum

MEMORANDUM

TO: All County and Township Assessors, County Auditors, PTABOA Members and Vendors

FROM: Barry Wood, Assessment Division Director

RE: IAAO Courses Correction Memo

DATE: December 27, 2012

The Indiana Department of Local Government Finance (the “Department”) disseminated a memo yesterday (December 26, 2012) regarding the proposed International Association of Assessing Officers (IAAO) course offerings and registration process for 2013. The memo is designed to be disseminated at the end of the calendar year on a recurring basis so students may plan accordingly for the following year.

Although the Department will be offering the IAAO or equivalent courses in 2013, the Department is currently in the Request for Proposal (“RFP”) process for determining the course provider. Hence, the Department will re-issue a course offering and registration process directive once the successful provider has been determined. Students should not register for 2013 IAAO courses until further notice. The Department apologizes for this inconvenience.

Revenue Finds Royalties Earned from Foreign Subsidiaries to be Taxable in Indiana

Taxpayer produces various consumer products. Taxpayer sells these products to customers both inside Indiana and outside Indiana. During the years at issue, Taxpayer operated an Indiana based facility.

…

Starting in 2007, Taxpayer began excluding on its Indiana income tax return royalty income earned from foreign subsidiaries. According to the audit report, "The basis for this exclusion is that the transactions generating [Taxpayer's] royalties have no Indiana situs and are not derived from sources within the state." The audit disagreed with Taxpayer's analysis and found that the consumer products – which formed the basis for the royalty agreements – were developed in the regular course of the Taxpayer's business and that under the "transactional and functional tests," the intangible property generating the royalty income constituted an "integral" part of the Taxpayer's business and consisted of "apportionable business income."

...

Taxpayer disagrees with the audit's decision to include the income explaining as follows:

During the 2007 through 2009 tax years, [Taxpayer] deducted the royalty income received from its foreign subsidiaries on its duly filed Indiana Adjusted Gross Income Tax returns because such income was not subject to tax in Indiana based on existing Indiana tax law.

...

Taxpayer maintains that because IC § 6-3-2-2.2 does not specifically list "royalties," that specific form of income is not "attributable to this state" unless the intangible property is itself located in this state.

...

Taxpayer's royalty income is derived from foreign subsidiaries in which Taxpayer holds a controlling ownership interest. As stated in the audit report, Taxpayer has agreements with these subsidiaries by which Taxpayer shares "its own expertise and know-how, patents, trademarks and trade secrets...." In exchange for sharing its intellectual property with the subsidiaries, the subsidiaries pay Taxpayer royalties. Taxpayer is in the business of developing and selling consumer products. In the course of developing those products, Taxpayer developed or acquired valuable intellectual property. As such, the royalty income derived from licensing that intellectual property is derived from "intangible property" arises from "transactions and activity in the regular course of the taxpayer's trade or business...." IC § 6-3-1-20.

Nonetheless, Taxpayer argues that the "business" or "non-business" distinction is not relevant to the issue at hand. According to Taxpayer, the Indiana Tax Court has "held unequivocally that income from intangible personal property must have been classified as income derived from sources within the state of Indiana... prior to deciding whether the income was business or non-business income." The Department must disagree with Taxpayer's assertion because it flies in the face of the Tax Court's decision in Hunt.

…

Taxpayer's intellectual property was developed in the ordinary course of Taxpayer's business and the royalty income Taxpayer receives from allowing its subsidiaries to exploit that intellectual property constitutes business income under IC § 6-3-1-20 and should have been included in the calculation of Taxpayer's Indiana income tax.

...

http://www.in.gov/legislative/iac/20121128-IR-045120594NRA.xml.html

Editorial Argues IEDC Should be Held Accountable

From the Elkhart Truth:

It’s basic, really. If a state agency claims that it has helped create thousands of jobs — many in Elkhart County — it should be able to document those jobs.

But that’s not the case in Indiana. Not for the Indiana Economic Development Corp.

Not yet, anyway.

One of Gov. Mitch Daniels’ first acts was creation of the IEDC, which states that it created more than 100,000 jobs between 2005 and 2010. WTHR-TV looked into the numbers and found that up to 40 percent of those jobs never existed.

Which ones? IEDC officials won’t say. No law forces the agency to make its numbers public.

Sen. Mike Delph, R-Carmel, believes that needs to change. Delph filed SB 162, which requires companies receiving state economic aid to submit detailed annual compliance reports to the IEDC — including job and investment figures.

Those numbers would then become available to the public.

IEDC officials believe that releasing business details will drive companies away, WTHR reported. Delph doesn’t buy it.

For good reason. It’s our tax money.

A company doing business with an incompetent or corrupt state agency stands to lose everything, including its reputation. By releasing detailed compliance reports, the IEDC can document its performance, build a national reputation and become even more effective at attracting new businesses to Indiana.

Delph believes that the IEDC intentionally misled the public about the number of jobs it created. Let’s find out.

Let’s pass SB 162 and find out how effective the Indiana Economic Development Corp. has been at attracting jobs. Then let’s hold it accountable.

Sound business policy — it’s the least we should expect from a state agency using our tax dollars to recruit new businesses.

http://www.etruth.com/article/20121227/OPINION/712279984

The WTHR Report can be found here:

http://www.wthr.com/story/20420044/indiana-senator-proposes-jobs-transparency-law

Brotherhood Mutual Offered Tax Credits for Expansion in Fort Wayne

From the Fort Wayne Journal & Courier:

An insurance company that covers churches and their activities is planning a $15 million expansion of its Fort Wayne headquarters.

Brotherhood Mutual Insurance Co. announced Thursday it would build a nearly 55,000 square-foot building on its current campus to provide additional office and training space for its agents and staff.

The company says the new building should be finished by early 2014 and that it expects to add perhaps 100 workers in the next few years.

The company says it now has nearly 270 employees in Fort Wayne. It provides property, liability and other insurance coverage for more than 40,000 churches and ministries across the country.

The Indiana Economic Development Corp. says it offered Brotherhood Mutual up to $925,000 in tax credits and training grants based on its hiring plans.

http://www.journalgazette.net/article/20121227/BIZ/121229718/0/SEARCH

Wednesday, December 26, 2012

Editorial Argues Revenue Needs to Focus on Accuracy

From the Lafayette Journal & Courier:

If it wasn’t already embarrassed, the Indiana Statehouse should be now, considering the results of an audit of the state’s bookkeeping system.

Hoosiers had 526 million reasons to doubt how clean state government’s books were. Two major errors made for $526 million in found money for the state within a year’s time. The first was in $320 million in misplaced corporate tax collections; the second was $206 million the state had mistakenly tucked away but actually owed counties.

Gov. Mitch Daniels’ administration has been back pedaling and soft selling ever since.

Last week, independent auditors called in by Daniels a year ago didn’t find significant, additional errors – if problems with 55,000 taxpayer accounts and 2,880 tax refund requests that were never processed aren’t considered significant errors. (Those were called minuscule compared to a half-billion dollars in two cases.)

But the international firm Deloitte did find a system it deemed geared for haste instead of accuracy.

“As indicated in the risk assessment, the (revenue department) seemed much more focused on efficiency of tax processing than they were on ensuring a strong system of control and accountability over taxpayer funds,” according to the report.

State officials chalked up the changes that were in the works as “cultural shifts” and that accuracy would be the focus from now on.

Good to know.

The past administration concentrated on working at the speed of business. Sounds as if that culture spread down to those in charge of overseeing the books. Gov.-elect Mike Pence will need to keep an eye on that.

http://www.jconline.com/apps/pbcs.dll/article?AID=2012312260004

State Revenue Forecast Projects Loss of $41.4 Million in Wagering Taxes

From the Northwest Indiana Times:

The latest state revenue forecast projects Indiana tax receipts from riverboat casino bets will decline over the next two years by $41.4 million, a 9 percent drop, due to competition from new casinos in Ohio.

Indiana is expected to take in $464.3 million in wagering taxes from its 11 riverboat casinos during the current 2013 budget year, which ends June 30. Wagering tax revenue is slated to fall to $432.3 million in 2014 and $422.9 million in 2015.

The state had revenue of $496.5 million from riverboat casino bets during the 2012 budget year. As recently as 2008, when Illinois was the only adjacent state with casinos, Indiana gaming revenue totaled $582.9 million.

...

The 2014-15 state revenue forecast does not account for the possible Illinois casinos which, if approved, would almost certainly drop annual Indiana wagering tax revenue well below $400 million.

State Sen. Luke Kenley, R-Noblesville, chairman of the Senate Appropriations Committee, said he believes Indiana gaming revenue will never return to the heights of the good old days when there was little competition from other states.

But Kenley said state lawmakers should support measures that ensure Indiana casinos remain as competitive as possible.

"You've created an industry you've said, 'We're willing to have,' and you have to be viable. So now I think it's a question of whether we're going to make changes that allow them to continue to be viable or whether we're going to let the industry just die," Kenley said.

Attracting new players appears to be the main challenge for Indiana casinos. After growing steadily from 1996 to 2003, casino attendance has remained between 25 million and 27 million patrons every year since 2004.

http://www.nwitimes.com/news/local/govt-and-politics/competition-cause-of-predicted-drop-in-indiana-casino-tax-revenue/article_99ec1248-3ace-5d8f-bfc7-453d8dde6263.html

DLGF Posts Schedule of 2013 IAAO Courses

MEMORANDUM

TO: All County & Township Assessors, County Auditors, PTABOA Members and Vendors

COUNTY ASSESSORS: Please forward a copy of the Memo to your PTABOA Members.

FROM: Barry Wood, Assessment Division Director

DATE: December 26, 2012

SUBJECT: 2013 Indiana Chapter IAAO Courses

The Department of Local Government Finance (Department) in conjunction with the Indiana Chapter of the International Association of Assessing Officers (IAAO) will sponsor IAAO courses as a continuing education opportunity.

...

IAAO COURSE AND WORKSHOP DESCRIPTIONS

Course 101 - Fundamentals of Real Property Appraisal