Tag Archives: tax

Victory! Software-as-a-Service Bill Set to Become Law

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This week, the Senate unanimously approved the House changes to Senate Bill 257 (Sales Tax on Software). This bill began as a top Indiana Chamber goal; it was embraced by the administration and made a priority of the Governor, the Senate got it introduced and rolling, then the House took good legislation and made it even better.

The Senate concurrence vote means the bill is on its way to Gov. Holcomb and there will be SaaS (software as a service) tax clarity in Indiana!

This is exactly what the Indiana Chamber has been working toward since last summer and it is good news for the SaaS industry. Senate Bill 257 is a straightforward piece of legislation that can reap very real economic benefits for the state. We thank legislators for listening to our members and taking this important step forward to demonstrate Indiana’s commitment to embracing the growth of the SaaS industry. The legislation puts Indiana in a very favorable position to attract more and more of this burgeoning business to our state.

Short Session Starts With a Flurry of Activity

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The Governor and General Assembly have continually heard from Hoosier employers on the need for a skilled workforce – and better aligning state programs with job demand. The good news is bills are being introduced to address those concerns. While only a handful of measures have been released to date, we are seeing legislation related to training tax credits and grants, as well as efforts to streamline current workforce programs. We anticipate a comprehensive workforce bill (1002) will be introduced in the House later next week.

The Governor’s computer science bill (SB 172) requires all public schools to offer a one-semester elective computer science course at least once each school year to high school students. We expect a hearing on this measure in the next two weeks. Both this and the workforce efforts are 2018 Indiana Chamber legislative priorities.

Senate Bill 257 has been introduced by Sen. Travis Holdman (R-Markle) to serve as the beginning of discussions on clarifying the exempt status of computer software sold as a service (SaaS) – a Chamber priority. Holdman is also authoring another major piece of tax legislation, SB 242, which contains a variety of tax matters. The House bills are coming in too, with a good number already filed addressing local tax issues.

Speaking of local matters, the Chamber is very pleased to see that the House Republican agenda includes a bill that will make township government more effective and efficient by the merging of townships (approximately 300) where less than 1,200 people reside. Such local government reform has been a longstanding Chamber goal.

In addition to SB 257, other technology-related bills include Rep. Ed Soliday’s (R-Valparaiso) autonomous vehicle (AV) proposal to position Indiana to safely test and implement AV technology with automobiles. The bill also will address truck platooning, which uses GPS and WiFi technology to allow trucks to more closely follow each other for greater efficiency, on Indiana roads.

Rural broadband, high-speed internet and small cell wireless structures technology all will be topics for the Legislature to debate. Certified technology parks also will be discussed with the idea to have an additional capture of sales and income tax revenue for those complexes that perform well.

In health care, enabling employers to ask prospective employees if they are smokers not only heads the Chamber’s wish list but also appears to be gaining traction this go-round. Eliminating the special protections (currently in state statute) for smokers is found in SB 23 and will be guided by Sen. Liz Brown (R-Fort Wayne). The bill has a pretty good chance of getting a hearing in the Senate – which would be a first. Previously, a measure was taken up in a joint hearing in the House.

Increasing the tobacco tax and raising the legal age for smokers to 21 are policies that likely will be included in a bill to be introduced by Rep. Charlie Brown (D-Gary). The Indiana Chamber is supportive of both.

Nine utility-related bills are on our radar screen at this point. They range from tweaks of last year’s big legislation (like SB 309, which addressed rising energy costs and a long-standing struggle between the investor-owned electric utilities and larger consumers of energy) to compulsory sewer connection, excavation for infrastructure, regulation of solar energy systems in homeowners’ associations and new water legislation. Separately, Sen. David Niezgodski (D-South Bend) has a proposed ban on coal tar pavement sealer, which we oppose.

There are also a number of bills proposing changes to Indiana’s alcohol laws including: Sunday sales, cold beer sales by grocery and convenience stores, and increases in fees and penalties.

The Chamber will be providing more details on all of these bills as the session progresses.

For anyone who wants a refresher about how legislation becomes law, the Chamber has a handy guide free of charge. It includes a diagram of the bill process, a glossary of often-used terms and a look at where bills commonly get tripped up.

Additionally, the Chamber will be providing updates and issuing pertinent documents throughout the session at www.indianachamber.com/legislative.

Some Puzzling State Revenue Numbers

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The Indiana State Budget Agency recently released the revenue collections report for October. The overall collections for the fiscal year now stand 2.8% ($136 million) below projections; not good, but not critical at this juncture.

The troubling numbers for the revenue watchers are the corporate tax collections. They were down again this month and are now at 52% below the April revenue forecast projections. Nobody really knows how to fully explain the drop. While the corporate collections historically fluctuate widely from month to month and are the hardest to predict for many reasons (that are not directly related to predictable economic activity), the gap between projections and collection is extraordinary. Fortunately, corporate collections have never represented a big piece of the pie (only around 6%) when compared to sales (48%) and individual income (36%) tax collections. Still, the unforeseen drop accounts for $126 million of the $136-million-dollar shortfall.

The State Budget Agency has drilled down on the matter and is attributing it to a high volume of refunds. But what is triggering the refunds is not clear either. Sometimes refunds can cover a number of years. They could be tied to a recent settlement of numerous cases or result from changes in the law – lots of possible factors. Whatever they are attributable to, they probably don’t mean that corporate collections will stay down; they are likely to rebound over the balance of the fiscal year and smooth out the impact, but they are not likely to recover to the total of the original projections. Let’s hope this is just a temporary mysterious dip that is evened out over time.

For those interested, you can review all the numbers and commentary from the State Budget Agency.

A Step Closer to Sales Tax Collection for Online Purchases

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The Indiana Chamber supports SB 545 (Sales Tax Collection by Remote Sellers).

This bill takes an important step toward the Legislature requiring online retailers who have no physical presence in Indiana to collect Indiana sales tax from their Indiana customers when they make online purchases. Ultimately, one of two things must happen for the requirement to go into full effect. Either the U.S. Supreme Court has to determine that states are allowed to impose this requirement based on their economic activity in the state (and the nominal burden associated with it), or Congress must pass legislation to authorize states to require the online sellers to collect a state’s sales tax.

The issue is pending before both bodies and several states are passing legislation to put pressure on one of the two entities to act and resolve the issue. Senate Bill 545 is modeled after a South Dakota law that is under review by the high court. It is designed to put Indiana in the position of making the requirement effective as soon as an Indiana court declares the collection valid under federal law. So this remains legally complicated, but SB 545 is a thoughtful and sound approach.

Senator Luke Kenley has pursued this issue diligently for many years – doing everything possible to address the problem of the sales and use tax on these transactions going uncollected. He is to be commended for his pursuit in the past and for formulating this legislation. In-state brick and mortar retailers are put in an unfair position when their online competitors are not required to collect and remit Indiana’s sales tax (as they are), effectively giving the “remote sellers” a 7% price advantage. Additionally, Indiana’s sales tax base is diminished each year as the online sales market continues to grow at rapid rates. What’s more, this is not a new tax since purchasers are already legally obligated to report their online purchases and pay the “use” tax when they file their income tax returns. But the reality is very few people comply with this law.

The Chamber supported the bill in committee this week and, in fact, has been working along with Sen. Kenley for years to achieve, by some means, state authorization for collecting these unpaid taxes. The objective is set forth in our Indiana Vision 2025 economic plan and we just might, after years of complications, be getting closer to obtaining this goal.

Happy Veterans Day! Did You Know Tax Credits are Available for Hiring Veterans?

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37738634Veterans, National Guard Members and Reservists remain key assets in helping meet workforce needs.

A free publication for employers, prepared for the Center for America, provides clear and concise understanding along with step-by-step guidance on four new federal tax credit programs: Returning Heroes; Wounded Warrior; Activated Military Reservist Credit for Small Businesses; and the Federal Empowerment Zone Employment Credit.

The guide includes links to the required Internal Revenue Service and Department of Labor forms employers need to submit. It features key eligibility and filing details, with guidance on eligibility and the specific steps to take to claim the credits.

American Jobs for America’s Heroes is a nonprofit campaign sponsored by Phillips 66 and foundations to encourage employers to post full-time jobs for veterans, National Guard members and Reservists. Access the guide and additional information.

Chamber to Study Committee: ‘Why Jeopardize Our Tax-Friendly Image?’

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The much anticipated study of combined reporting, performed over the summer by the Legislative Services Agency (LSA) Office of Fiscal Management Analysis, was recently outlined to the legislative Interim Committee on Fiscal Policy.

As a refresher: Combined reporting would impact companies here with operations outside of the state. It tasks these businesses with adding together all profits for one report. Indiana’s current system of separate accounting allows for each subsidiary to report independently based on its location.

The study was required by SEA 323, which passed last session. That legislation also directed a study of the related issue of transfer pricing. Both LSA studies were presented to the interim committee and have now been made available to the public.

The combined reporting study, however, was by far the more comprehensive and was the primary subject of discussion at the interim committee meeting. The report includes examples that demonstrate how a switch to mandatory unitary combined reporting would have varying impacts on taxpayers.

Depending on their particular circumstances, some taxpayers would see their tax liability increase while others would see it decrease. The end result being that the overall effect on the tax revenue stream is unpredictable.

Using data from numerous states and applying econometric techniques, the LSA economists estimated that Indiana could see an initial spike in corporate tax revenue but that it would “only be short term and will decline to zero in the long run.” The study also recognized that while the change could be beneficial in addressing some current issues, such as transfer pricing disputes, it would raise a multitude of new administrative burdens and complexities; most notably those associated with the core difficulty, “determination of the unitary group” – exactly which affiliated entities are ultimately to be deemed part of those that must be combined. In other words, going to combined reporting only trades one set of problems for a different challenge of substantial magnitude.

Studying combined reporting is itself a complicated and difficult task. The LSA did a nice job of putting the issues in historical and practical context, identifying the issues and analyzing the potential impacts. What it could not do, because it isn’t really its role, is fully evaluate how a change could disrupt the progress that has been made over the past 15 years in improving our state’s business climate. Governor Robert Orr concluded in 1984 that combined reporting would be “extremely detrimental to Indiana’s economic growth.” In his open letter to all corporate taxpayers, he offered his assurance that Indiana “does not, and will not, require combined reporting.” That position proved significant in attracting the large manufacturing facilities built by multi-national companies that presently employ thousands of Hoosiers across the state.

Why would you want to reverse this course, abandon the certainty that comes with 50 years of tax law and jeopardize our image as the most business-friendly state in the Midwest and among the top in the nation? This was the core of the Indiana Chamber’s testimony to the interim committee. As for those who view a possible change to combined reporting as a means for dealing with what they label a “compliance issue”, the Chamber committed to work with them. We will need to find less drastic ways to address their concerns and identify ways to respond to the situations they believe represent noncompliance.

It should be noted that concerns with transfer pricing issues seem to have served as the impetus for much of the larger discussion of combined reporting. Consequently, focusing on those issues would provide the potential for reaching resolutions, without a major structural conversion to mandatory unitary combined reporting. In fact, Appendix A to the Transfer Pricing study points to several possibilities that deserve further exploration.

View the combined reporting study and transfer pricing study.

Rochester’s Appraisal Management Research Co. Maximizes Its Chamber Investment Through Helplines

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Cook_DavidDavid Cook has called Rochester home since 1989. One year later, he incorporated property tax consulting firm Appraisal Management Research Company (AMRC) — an Indiana Chamber member since 1993.

Its core team of six employees works with a variety of companies. “We’re small, but we accomplish a lot,” remarks Cook, who serves as president.

Remaining informed on state and local laws is critical. He describes how AMRC has benefited from the expertise of Bill Waltz, Indiana Chamber vice president of taxation policy.

“I’ve known Bill for a long time,” Cook shares. “He (on many occasions) would help us keep up-to-date on various changes in the property tax laws.”

In addition, Cook seeks free, confidential guidance on human resources matters by calling the HR Helpline.

“I like to get an opinion,” he asserts. “We do, as necessary, work with an attorney also, but Michelle (Kavanaugh, human resources director at the Chamber) was very helpful in reviewing our personnel policy guidelines and helping us update those. That saves quite a bit of money rather than an attorney doing that. It’s very helpful.”

Tax Issues Aired by Interim Committee

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The Interim Committee on Fiscal Policy, chaired by Sen. Brandt Hershman (R-Buck Creek), met three times in October and took testimony on several important issues.

At the first meeting, the group discussed the pros and cons of granting counties the general authority to adopt a food and beverage tax. Representatives for restaurateurs spoke against; county officials argued in favor of the measure. Following that debate was over four hours of testimony regarding property tax assessment procedures and appeals under Indiana’s market value in use standard – a continuation of the “big-box” issue that was addressed last session. The issue is being revisited as county officials think more needs to be done. Commissioner Jonathan Elrod of the Indiana Board of Tax Review presented a lengthy legal analysis; his memo and a flow chart of the process created under last session’s legislation (SB 436) are part of the collection of documents (Oct. 7 meeting) incorporated into the committee’s proposed final report (Oct. 21 meeting).

But in keeping with traditional practice, this committee is not making any recommendations for future legislation. The draft report simply references the volume of data, memos and other evidence brought before the committee during the course of its meetings. The committee has typically served as a forum to air the issues and collect information. Rarely is there any level of consensus on how difficult tax matters should be resolved; yet the information and discussions do often provide the impetus for various proposals in the next session. This will no doubt be the case as to the assessment issues and other matters considered by the committee.

In the following two meetings, the committee studied many substantial tax issues. It pondered the idea of permanently authorizing schools to pay for several operating expenses such as insurance, utilities and maintenance service with property tax revenues. Generally speaking, property taxes may only fund capital projects and debt service (since the state pays for general operating expenses via the school funding formula). But leeway to pay for these other items with property taxes has been granted on a temporary basis in the last several state budgets.

Purdue professor Larry DeBoer presented a cost-benefit analysis evidencing the ratio of tax pay to benefit received by different categories of taxpayers. No surprise to businesses, the ratio is not good. The committee also looked at farmland assessments (another almost perennial issue). Finally, the group received annual reports from the Legislative Services Agency’s fiscal analysts and economists evaluating existing tax incentives. These reports are always full of hard data on the utilization of numerous credits and deductions. These discussions included consideration of Tax Increment Financing (TIF) districts, the Earned Income Credit (EIC) and the Economic Development for a Growing Economy (EDGE) credits.

The committee’s draft report, and everything that was presented in each of the three meetings, is available for downloading, and archived video of the meetings is available at the at the General Assembly web site.

Many Tax Issues Under Consideration in Indiana

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The Indiana Department of Revenue has posted the final report (with recommendations arising) from the Governor’s Tax Conference in June. The 70-page document is very comprehensive and interesting, containing a wide range of suggestions being endorsed by the Pence administration. Much is good, but there are also items that will raise some concern.

If you are a tax professional working for or representing an Indiana company, you need to review this report. It covers so many different subject areas that it is nearly certain that you will have a direct interest in something contained in the report. Whether it be the throw-back rule, personal property tax filings or any number of administrative issues, you will find something in this report to note and track, because some will surely serve as the impetus for legislation in the coming session.

Additionally, the Commission on Personal Property and Business Taxation has now met three times and taken a great volume of studies, presentations and testimony under consideration. The committee has taken on so many issues that the chair, Sen. Brandt Hershman (R-Buck Creek), announced that he has scheduled a meeting for November 12 to give commission members ample opportunity to discuss their final report (which was to be submitted prior to November 1).

It is difficult to guess whether the committee will make many detailed recommendations, but its final report will, in any case, include a great volume of information, data and recommendations from those who participated in the fact-finding exercise. It would be worthwhile to scan these documents presented to the commission to determine the matters that could impact your company. Here again, these matters will likewise almost certainly, in some part, serve as the basis of proposed legislation.

State Revenues Under Projections, but Nothing to Worry About Yet

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It’s true: The tax collections for the first two months of the new fiscal year and new state budget have fallen slightly below the forecasted target. Specifically, general fund revenues for July and August combined are $65 million short of the projections. That is 3.2% under the combined forecasts for those two months. But to worry about $65 million at this point is not warranted. First, $65 million is only a blip when you consider that we are talking about a $30 billion budget. Secondly, as in surveys and polls, a variance of less than 5% in revenue forecasting is statistically insignificant.

And lastly, there are 22 more months in the biennium. There will inevitably be fluctuations in the revenue numbers throughout the balance of this fiscal year and next fiscal year. The variance could double or it could disappear in the next couple months. The point is – until we experience a full quarter of shortfalls that total more than 5% – concern is premature.

This is not to say that the numbers are meaningless or that they should be ignored. Keeping a close watch on the revenues and reacting accordingly has been a key to Indiana maintaining its strong fiscal status over the last several years. Discrepancies between the forecast and the actual collections can result from many things, as can be noted in the budget agency commentary that often accompanies release of the hard numbers each month. Changes in the law, special transfers and timing issues can all explain monthly anomalies.

However, closer looks at the individual sources, plus year-over-year and month-to-month comparisons can evidence significant trends. Sales tax revenues are by far the largest single source, making even small differences between the actual year-over-year growth and the projected annual growth something to pay close attention to. While corporate income tax collections are not as critical to the bottom line, they are a major source of revenue and have been very strong (46.7% above the target through the first two months). Another positive aspect of the short-term numbers is the modest uptick of gaming revenues (7.2% above target).

So keep in mind that the numbers will fluctuate and most probably balance out over time – if not, adjustments can and will be made to assure that Indiana maintains its prudent fiscal posture.