Indiana Tax Legislation Update

The Indiana legislature adjourned last week and sent bills to the Governor's desk for signature which would reflect significant changes in Indiana taxation. The budget bill, HEA 1001, was signed Monday, April 29, 2019, by the Governor. Below are highlights of a few notable changes included in the budget bill and in the bills awaiting signature (and a few notable proposed changes that did not pass):

Marketplace facilitators to collect sales tax – "Marketplace facilitators," which is defined to cover the sale of goods as well as hotel and lodging accommodations, as well as car sharing platforms, will be required to collect and remit sales tax, beginning July 1, 2019. HEA 1001. Indiana will join other states in adopting this collection strategy "post-Wayfair," while at the same time, addressing online travel companies, Airbnb rentals, and now car sharing.

Indiana income tax research credits reporting requirement – A taxpayer who claims the Indiana qualified research expense credit for adjusted gross income tax must now report whether the taxpayer claimed the credit under Internal Revenue Code Section 41(a)(1) or Section 41(c)(4) on its federal income tax return. If a taxpayer claims the Indiana credit but does not claim the federal credit, the taxpayer must disclose the reasons for not claiming the federal credit. HEA 1001.

Income tax sourcing for service companies – Indiana would change its method of sourcing income for Indiana adjusted gross income tax from cost of performance to a market-based sourcing, except for broadcasting and telecommunication services, effective January 1, 2019 (retroactive). SEA 563. Indiana would join the majority of states that have adopted market-based sourcing.

Indiana would adopt Wayfair nexus for income tax – As of January 1, 2019, "income derived from Indiana would be taxable to the fullest extent permitted by the Constitution of the United States and federal law, regardless of whether the taxpayer has a physical presence in Indiana." SEA 563.

Expanded small business exemption for business personal property tax – The small business exemption for business personal property taxes would be increased from $20,000 of original acquisition cost to $40,000. SEA 233, which also makes several other changes to business personal property taxes.

Updates to economic development tax credits – Several economic development incentives would be updated. A small business innovation voucher program would be established, which would provide grants to a business with less than 150 employees to purchase research and development support or technical assistance from an Indiana public or private college or university or another research organization. The venture capital investment tax credit would become transferable after June 30, 2020. The industrial recovery tax credit would expire at the end of 2019, but there would be a new redevelopment tax credit (RTC). SEA 563.

Clarification on recordkeeping requirements – A taxpayer would be required to maintain its books and records for a period during which a judicial proceeding or appeal related to a listed tax is pending, and the failure to keep the books and records in the ordinary course of business would be considered when determining the weight of the evidence during a judicial proceeding or appeal. SEA 565.

These are just a few highlights, as there were many other bills passed this session impacting Indiana taxation. The Marion County Capital Improvement Board would be able to extend and expand its taxing area in order to sign a 25-year deal to keep the Indiana Pacers in Indianapolis. SEA 7. Sports wagering for adults 21 and over would also be legal on July 1, 2019 and would be taxed at 9.5%. HEA 1015.
 
            What didn't pass:

Substantial reductions in the availability (if not the elimination) of Indiana income tax research credits – A proposal was removed from HB 1001 which would have created significant impediments to the research expense credit. Taxpayer research expense claims have been a constant source of disagreement between taxpayers and the department of revenue.

Fatal consequences for failure to keep contemporaneous records – A proposal was removed from SEA 565 which would have imposed potentially severe consequences on a taxpayer failing to "contemporaneously" keep records. The proposal would have allowed the department of revenue to reconstruct the taxpayer's liability with the taxpayer having little or no ability to effectively challenge the reconstruction. 
 
Elimination of interest on refunds – A proposal was removed from SEA 565 which would have allowed the department of revenue to avoid paying interest on refunds if the department determined that the taxpayer did not include all information and documentation with the refund claim which the department determined was required to substantiate entitlement to the refund.

If you have additional questions, please contact Mark Richards, Matt Ehinger, Joshua Schlake or another member of our Tax Group.
 
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.