Indiana Enacts Tax Law Changes and Decouples From Certain Provisions

| 5/24/2018
Indiana Enacts Tax Law Changes and Decouples From Certain Provisions

On May 14, 2018, the Indiana legislature quickly passed the IRC conformity bill (HB 1316) and a separate technical rel="noopener noreferrer" corrections bill (HB 1242) in a one-day special session. Indiana Gov. Eric Holcomb signed both bills on the same day.

As expected, HB 1316 updates the reference to the IRC as amended and in effect on Feb. 11, 2018. The update serves to include changes adopted under the federal Tax Cuts and Jobs Act of 2017 and the Bipartisan Budget Act of 2018.

The bill also decouples from the following specific federal provisions:

  • IRC Section 965 one-time repatriation transaction tax. Retroactive to Jan. 1, 2018, and applicable to tax years beginning after Dec. 25, 2016, Indiana requires a modification in an amount equal to the deduction for deferred foreign income that was claimed by a taxpayer for the tax year under IRC Section 965(c). However, Indiana also treats the entire income amount as eligible for the 100 percent dividends received deduction, so no Indiana tax is due.

  • IRC Section 951A global intangible low-tax income (GILTI) and Section 250(a)(1)(B) GILTI deduction. Any amount included in federal taxable income as GILTI is treated as a foreign dividend eligible for a 100 percent dividend received deduction.

  • IRC Section 163(j) business interest deduction limitation. Effective Jan. 1, 2018, Indiana does not conform to the 30 percent interest limitation.

  • IRC Section 199A deduction for qualified business income (the pass-through deduction). Effective Jan. 1, 2018, Indiana denies the Section 199A deduction for qualified business income that was claimed by a taxpayer for the federal taxable year.

  • IRC Section 172(b) net operating loss carryforward. Prior references to the IRC Section 172(b) net operating loss carryforward provisions were deleted and replaced with an independent carryforward provision not to exceed 20 taxable years.

HB 1316 also specifically references Indiana’s personal exemption statutes, thus removing any impact from the federal suspension on personal exemptions for purposes of federal income tax reporting.

Taxpayers who wish to carry forward all or a portion of any unused credits must make an election to do so on or before the due date (including extensions) for filing the return for the taxable year ending Dec. 31, 2017.

HB 1316 also seems to expand the use and credits associated with the college choice 529 education savings plan to qualified K-12 education expenses by adopting a definition for “qualified K-12 education expenses.” However, the legislature failed to amend the definition of “qualified withdrawal” to include the “qualified K-12 education expense.” A “qualified withdrawal” remains defined as a withdrawal or distribution made to pay for qualified higher education expenses. This apparent drafting error creates uncertainty for taxpayers who desire to use the plan to pay for qualified K-12 education expenses.

In connection with Indiana’s scheduled reduction in corporate tax rates, HB 1242 modifies the computation of tax when the rate changes during the taxpayer’s year by switching the basis of the calculation from the number of months to the number of days that each rate is in effect.

Sales Tax and Other Changes

The two bills also incorporate a few significant sales tax changes. First, purchase and use of property by a hot mix asphalt plant operator is exempt from the state gross retail sales tax. The exemption includes trucks used to transport hot mix asphalt, pavers used to spread hot mix asphalt, plant equipment used to produce hot mix asphalt, fuels used to operate the trucks, pavers or equipment, and repair parts installed.

Second, the effective date for collecting sales tax by a travel facilitator (such as Airbnb) on a lodging rental for fewer than 30 days has been extended from July 1, 2018, to July 1, 2019. Similarly, the requirement for travel facilitators to provide an itemized statement to the consumer was delayed until July 1, 2019.

Additionally, HB 1316 adds an exemption for the sale of tangible personal property by a public library or a charitable organization formed to support a public library if the items sold are a part of the library’s circulated and publicly available collection or similar items that have been donated.

Finally, an administrative change to the Department of Revenue’s ability to waive interest and penalties when a taxpayer’s liability increases because of legislation enacted after the due date of the reporting period was adopted. The waiver applies only to the increase in tax and only for 60 days after the legislative change is enacted.

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