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Volume 12 No. 1 (2009)

No Delay on Refunds in Indiana

In stark contrast to states like California, Georgia, Kansas, Maryland and Missouri, who have delayed sending out income tax refunds or have been forced to issue IOUs to taxpayers, Indiana issued refunds on the same schedule it has year after year.  

The Indiana Department of Revenue reports it processed more than 3 million individual income tax returns by June 30. As a result, more than 2 million refunds were issued from January to June 30, which is the normal time frame by which the State of Indiana issues the majority of refunds each tax season.

“We’re fortunate as taxpayers to have solid leadership at the helm in our state,” said Revenue Commissioner John Eckart. “Because Indiana is holding steady, relative to many other states, we did not run into cash-flow problems.”

In fact, the Department made processing refunds a high priority this year. “With so many people impacted by the national economy, we worked diligently to get refunds issued as quickly as possible,” said Eckart. “After all, a legitimate refund reflects that a taxpayer has overpaid his or her fair share of taxes throughout the year.”

Refunds in Indiana totaled more than $505 million in 2009, with the average refund being $252. From January to June 30, refunds from paper returns were issued in an average of 26 days – well ahead of the revenue agency’s standard six to twelve weeks to process a refund from a paper return.

Those who filed electronically by April 15 and had their refunds directly deposited into their bank accounts saw a faster turnaround of about 2 days. Overall to date, more than 1.9 million Indiana individual income tax returns were filed electronically in 2009.

Practitioner misunderstandings clarified

However, despite regular and timely processing and issuing of refunds this year, some practitioner blogs and comments brought to light some misunderstandings. “We received calls from practitioners asking if their clients refunds had been delayed due to some of the same problems California and other states are having,” said Revenue Director of Public Relations Stephanie McFarland. “That was absolutely incorrect. Indiana is one of the more fiscally sound states in the nation right now.”

Although there was no blanket hold on refunds, the Department’s system did flag some refunds for closer review. “Our system does this every year, so it wasn’t a new practice,” explained McFarland.

One practitioner firm was under the misunderstanding that the Department was automatically asking for additional documentation of anyone requesting a refund. “That was a misassumption,” said McFarland. “But we got on the phone with this firm and explained the situation. That communication really helped to allay their concerns.”

In talking with practitioners and taxpayers, McFarland explained that the Department may hold a refund to further review the respective return. These temporary holds, however, do not automatically result in a request for additional documentation from the taxpayer.

However, the Department’s new paper imaging system – which will provide more timely answers and problem resolution for practitioners down the road – did run into a hiccup with some employer W2s. “Some of the onion-skin type W2s would catch in the equipment, and some W2s were carbon copies and the printing was so light, the equipment couldn’t pick up the information,” McFarland explained. “That did require us to go back and ask some taxpayers for more legible W2s.”

But in all, the vast majority of returns were processed without incident, and refund reviews were completed quickly and did not result in a request for additional records.

Legislative Update

[EDITOR’S NOTE: The legislative updates that were addressed in the latest edition of the Tax Dispatch contained some errors. A corrected copy is now available below. For the specific corrections, see the items in boldface print.]

With the Indiana General Assembly working through both a regular session and special session, and needing to consider a number of new federal tax considerations, Hoosier legislators proposed and passed the following changes in the Indiana tax code. Gov. Mitch Daniels signed these changes into law on June 30. For a full list of the state’s current and upcoming tax changes, visit www.in.gov/dor/reference/files/summary2009.pdf

SALES AND USE TAX

  • A new law goes into effect on July 1, 2009, stipulating that watercraft that are documented vessels and registered with the Coast Guard are subject to the use tax.

  • According to a new law, retroactive from Jan. 1, 2008, aircraft lease revenue must equal 7.5% of the value of the aircraft. In addition, the lease of aircraft predominately used in public transportation is exempt from the sales tax.

  • A new law that goes into effect on July 1, 2009, states that cable equipment used at a headend facility operated by a person furnishing video services is exempt from state gross retail tax.

  • Per a new law that goes into effect on July 1, 2009, glucose-monitoring equipment and devices are exempt from state gross retail tax, regardless of whether the items are prescribed.

  • Effective July 1, 2009, the sales tax exemption for media production expenditures is repealed.

  • A new law that goes into effect on Jan. 1, 2010, requires retailers who register after Dec. 31, 2009, to file returns and remit through INtax.

  • Per a new law that goes into effect on Jan. 1, 2010, taxpayers who collect prepaid sales tax from motor fuel retailers are required to make their semimonthly remittance and reporting through the Department’s electronic filing system.

  • According to a new law that goes into effect on July 1, 2009, the Department will adjust the prepaid sales tax rate semiannually, and more often than semiannually if the average retail price of gasoline changes by more than 25% from the last determination. The calculation will be based on 80% of the average price instead of 90% of the average price of gasoline before all taxes.

  • A new law, effective July 1, 2009, eliminates the $1,000,000 annual cap on the E85 deduction that can be claimed. The cap is the amount determined by the budget agency.

  • A new law, effective July 1, 2009, requires a retail merchant who is a consignee to collect and remit sales tax based on the gross retail income of the consignment sale.


ADJUSTED GROSS INCOME TAX

  • Addbacks to the Indiana Code are specified in areas where the Indiana Code is decoupled from the Internal Revenue Code. Items include the following addbacks:

    • According to a new law, retroactive from Jan. 1, 2009, unemployment compensation excluded from federal gross income must be added back.

    • Per a new law, retroactive from Jan. 1, 2009, the amount of income excluded from income for the discharge of debt on a qualified principal residence must be added back.

    • According to a new law, retroactive from Jan. 1, 2009, income from the deferral of income arising from business indebtedness discharged in connection with the reacquisition after Dec. 31, 2008, must be added back.

    • Per a new law, retroactive from Jan. 1, 2009, income attributed to bonus depreciation for restaurant property and retail improvements must be added back.
    • Per a new law, retroactive from Jan. 1, 2009, income excluded for qualified disaster assistance property must be added back.
    • According to a new law, retroactive from Jan. 1, 2009, income attributable to Section 179C to expense costs for refinery property must be added back, and income attributable to expensing film or television production must be added back.
    • Per a new law, retroactive from Jan. 1, 2009, income of any taxpayer who treated a loss from the sale or exchange of Fannie Mae or Freddie Mac as an ordinary loss must be added back.

  • A new law that is retroactive from Jan. 1, 2009, stipulates that property taxes paid in 2009 that would have been payable in 2008 if the property tax bills had been issued in a timely manner are deducted.

  • A new law that is retroactive from Jan. 1, 2009, clarifies the treatment of pass-through income to a nonresident pass-through entity, as if the person, corporation, or pass-through entity that receives the income has directly engaged in the income-producing activity.

  • Per a new law, retroactive from Jan. 1, 2009, the federal provision for a corporation or person with a net operating loss that is carried back by a qualified small business shall be limited to 2 years instead of 5 years and the carryback for a qualified disaster loss is limited to 5 years.

  • According to a new law, retroactive from Jan. 1, 2009, the cost of a solar-powered roof vent or fan is deducted. The maximum deduction is $1,000 per taxpayer per taxable year.

  • A new law that is effective on Jan. 1, 2010, defines the term contribution for purposes of the 529 education savings plan tax credit to exclude bonus points credited to the owner’s account for purchases made. It also excludes money transferred from other qualified tuition programs under Section 529 of the Internal Revenue Code. 

  • Per a new law that is effective on July 1, 2009, the same withholding requirements for winnings at a Racino are in place for withholding as those on winnings at a riverboat.

  • A new law that is effective on Jan. 1, 2010, allows a taxpayer to use an alternative method of claiming the qualified research expense credit. 

  • A new law that is effective upon passage authorizes the Indiana Finance Authority to purchase tax credits awarded to a taxpayer that has sold synthetic natural gas to the IFA. The IFA will pay the taxpayer for the credits over a 20-year period.

  • According to a new law that is effective upon passage, vehicles that operate on ultra low sulfur diesel or biodiesel fuel are allowed for purposes of the Hoosier alternative fuel vehicle manufacturer income tax credit.

  • A new law that is effective upon passage limits the credit for the manufacture of alternative fuel vehicles to passenger cars and light trucks with a gross vehicle weight of 8,500 pounds or less.

  • A new law that is effective on July 1, 2009, provides an income tax credit for contributions to a scholarship-granting organization for a school scholarship program. The total amount of credits that can be awarded in a fiscal year may not exceed $2,500,000.

  • Per a new law that is effective on July 1, 2009, the maximum amount of media production tax credits that can be allowed in a state fiscal year may not exceed $2,500,000.

  • Per a new law that is effective on July 1, 2009, a school scholarship program that awards scholarships to students is provided, and a tax credit is provided when contributions are made to a scholarship-granting organization.

  • A new law that goes into effect on Jan. 1, 2010, requires withholding agents who register to withhold employees’ wages after Dec. 31, 2009, to remit and report withholding payments through INtax.


LOCAL OPTION INCOME TAXES

  • According to a new law that is effective on July 1, 2009, in 2009, a county can adopt an additional LOIT rate at any time before Nov. 1, 2009.


INHERITANCE TAX

  • A new law that is effective on July 1, 2009, increases the lien that attaches at the time of the decedent’s death from 5 years to 10 years. The lien is released when the inheritance tax is paid or it is determined that no inheritance tax return is required to be filed.

  • Per a new law that is effective on July 1, 2009, a credit is provided over the next 10 years for income tax paid by nonresident shareholders during tax years 2005 through 2008. The credit will be applied against future liabilities of the taxpayer and will be prorated over the next 10 years.


TAX ADMINISTRATION

  • According to a new law that is effective on July 1, 2009, if a payment made to the Department cannot be collected in full by the Department, and the taxpayer is assessed a 100% bad check penalty, all future payments may be required to be remitted with guaranteed funds.

OTHER LOCAL TAXES

  • A new law that is effective on July 1, 2009, authorizes Marion County to increase the innkeepers’ tax by 1% and deposit the revenue in the sports and convention facilities operating fund.

  • A new law that is effective on July 1, 2009, authorizes Marion County, between Jan. 1, 2013 and March 1, 2013, to increase the admissions tax by 4% and deposit the revenue in the sports and convention facilities operating fund.

  • A new law that is effective on July 1, 2009, authorizes a regional transportation district income tax in LaPorte, Porter, Lake and St. Joseph Counties that may not exceed .25%.

NON-CODE PROVISION

  • According to a new law that is effective on July 1, 2009, a city or town that made estimated gross income tax payments at the same time that it paid the utility receipts tax is eligible for a refund of the estimated gross income tax payment that was made.

For a complete list of legislation that affects the Department, visit www.in.gov/dor/3656.htm

New Forms Coming Soon!

The 2009 Indiana individual income tax forms are going through a major overhaul. To ensure the forms have the most efficient read rate through the Department’s new paper imaging system – which will provide more timely answers and problem resolution to practitioners down the road – revisions in layout were necessary.

Additionally, a number of federal tax deductions will be required to be added back to the state returns in 2010 (for 2009 filings), resulting in new schedules that will help practitioners and the Department’s equipment to better manage this add-back data.  

Most of these 2009 forms have been created on a 6X10 grid. The National Association of Computerized Tax Processors (NACTP) has advocated for all states to conform to this grid standard.

Click on the below links to see drafts of the 2009 IT-40 and the upcoming schedules.

IT-40
Schedule 1
Schedule 2
Schedule 3 and 4
Schedule 5
Schedule 6
Schedule 7
CT-40

Please note that the instructions will be available Dec. 1, 2009.

New Tax Bulletins, Directives and Notices Available Online

New Commissioner’s Directive:

Information Bulletin:

Departmental Notices:

Please check the Department’s Web site at for additional updates to tax bulletins, directives, and notices at www.in.gov/dor/3330.htm

Save the Date

The Indiana Department of Revenue, Indiana University School of Continuing Studies, Purdue University and the Internal Revenue Service collaborate to present "Tax Schools" at several Indiana locations. The Tax Schools meet continuing education requirements for attorneys, certified public accountants, certified financial planners and enrolled agents.

Topics include the Indiana Department of Revenue update, small business issues, net-operating losses, entity issues and ethics among many others.

The dates for the Indiana University Tax Practitioner Updates are as follows:

Oct. 21-22 New Albany IU Southeast Campus
Oct 28-29 Anderson Anderson University Flagship Center
Nov. 4-5 Greenwood Jonathan Byrd's Cafeteria
Nov. 12-13 Terre Haute Holiday Inn Terre Haute
Nov 17-18 Evansville Casino Aztar Hotel, Aztar Executive Conference Center
Nov 23-24 Merrillville Indiana Wesleyan University
Dec. 1-2 South Bend Hilton Garden Inn South Bend
Dec. 9-10 Fort Wayne IPFW Campus
Dec. 17-18 Fishers Fishers Conference Center

For more information, visit scs.indiana.edu/nc/taxpracinst.html

The dates for the Purdue Income Tax School Programs are as follows:

Nov. 4-5 Fort Wayne Walb Union Building (IPFW)
Nov. 9 Evansville (Ag Tax) TBD
Nov. 10 Indianapolis (Ag Tax) TBD
Nov. 11 Warsaw (Ag Tax) TBD
Nov. 12-13 Muncie Horizon Center
Nov. 16-17 Valparaiso Great Room at Valparaiso University
Nov. 16-17 Kokomo Johanning Civic Center
Nov. 19-20 South Bend Hilton Garden Inn
Nov. 23-24 Indianapolis-East Marriott I-70 East
Nov. 23-24 West Lafayette Stewart Center Purdue University
Nov. 30-Dec. 1 Seymour United Methodist Church
Nov. 30-Dec. 1 Indianapolis-West Adam's Mark
Dec. 3-4 Evansville Vandeburg County 4-H Center
Dec. 3-4 Terre Haute Indiana State University

For more information, visit https://www.cec.purdue.edu/eC2K/Heading.asp?heading_id=91

Indiana Tax Practitioner’s Association Annual Tax Conference Set for December

The Indiana Tax Practitioner’s Association tax conference will be held Dec. 8 – 9 at the Marriott on the east side of Indianapolis, located near the intersection of 21st Street and Shadeland Avenue. For more information about this tax conference, call 1-800-298-ITPA, or visit their Web site at http://www.itpa.us/


To better serve Indiana taxpayers, the Indiana Department of Revenue may occasionally inform taxpayers of new services, results of a survey or invite a randomly selected group of taxpayers to participate in a short electronic survey or focus group. Electronic communication and surveys enable the Department to inform you about our services and helps the Department learn how to better serve Hoosier taxpayers.

Electronic surveys and e-mail messages from the Indiana Department of Revenue will never ask for any financial or personal information and survey responses are always confidential.

If you are asked for personal or financial information (Social Security number, bank account information, etc), do not reply or click on any links in the e-mail message. Legitimate organizations should never ask for personal information by e-mail.

If you would like to further verify an e-mail you have received by the Indiana Department of Revenue, please call (317) 233-5221.

Remember, the Indiana Department of Revenue will never request personal information by e-mail.

For previous editions of the Tax Dispatch, click here.

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