The Indiana General Assembly on April 29, 2015, passed Senate Bill 441, which contains a number of changes to Indiana tax law. Gov. Mike Pence has signed the bill. Following is a summary of important changes to the adjusted gross income tax and tax credits that are effective for tax years beginning after Dec. 31, 2015.
Repeal of the throwback rule. The bill changes the apportionment method of business income for taxpayers who both: 1) ship property from Indiana to a purchaser located outside Indiana, and 2) are not subject to tax in the jurisdiction where the purchaser is located. Under current law, sales not subject to tax in the jurisdiction where the purchaser is located are assigned to Indiana under what is called the throwback rule. Because Indiana uses sales as the basis of business income apportionment, the repeal of the throwback rule likely will decrease the taxable business income for some taxpayers.
Intercompany interest expense addback. The bill expands the current law related to an addback of interest expense deduction taken on a corporation's federal income tax return for certain related-party interest expenses. (Related parties include members of the same affiliated group of corporations, including foreign corporations, with at least 50 percent common ownership.) Under current law, the addback applies only if the interest is related to a payment for the use of intangibles. The revised statute expands the rule to include interest related to any intercompany expense. The interest addback provision does not apply if the recipient files an Indiana financial institutions tax return and properly apportions the interest income.
Business income. The bill changes Indiana's definition of business income to include all income that is apportionable to the state under the U.S. Constitution. This affects what income taxpayers must apportion when computing Indiana source income. This likely will affect gains on liquidating sales and certain unitary transactions.
Internal Revenue Code conformity. The bill removes certain adjustments to federal taxable income used to calculate Indiana adjusted gross income. Adjustments no longer are required (or allowed) for depreciation on qualified disaster assistance property under IRC Section 168(n), the deduction for costs for qualified refinery property under IRC Section 179C, or IRC Section 181 expenses for a qualified film or television production. The bill does not address the treatment for adjustments made in prior years.
Computer software. The bill provides that computer software sales are treated as sales of tangible personal property for purposes of the sales factor.
Broadcasters. The bill changes the method of calculating in-state sales in broadcasters’ income. It requires that receipts from advertising and licensing be considered in Indiana if the commercial domicile of a broadcaster's customer is in Indiana.
Venture capital investment (VCI) credit. The bill extends the VCI credit's sunset provision so that it may be awarded for qualifying investments made before 2021.
Hoosier business investment (HBI) credit. The bill expands the definition of a qualifying logistics investment to include upgrading or building passing lines or automated switches on a rail line and allows the HBI credit to be awarded for qualifying investments until 2021.
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