IN State Tax - 14% Flashcards
Indiana income tax, corporate tax, and estate and gift tax
Adjusted Gross Income Tax- Individuals
Imposition and rate- 3.23% Tax Base- based on the taxpayer’s federal adjusted gross income w/ certain modifications
Adjusted Gross Income Tax.
Individuals
Imposition and Rate.
Resident individuals, trusts and estates. The entire adjusted gross income of resident individuals, trusts and estates is subject to adjusted gross income tax at a rate of 3.23%
Nonresident individuals, trusts and estates. The adjusted gross income of nonresident individuals, trusts and estates that is derived from sources Indiana is subject to adjusted gross income tax at a rate of 3.23%.
Adjusted Gross Income Tax.
Individuals
Residency
Residency.
(l) Only Indiana residents are taxed on their entire adjusted gross income.
(2) An Indiana individual resident is one who:
- was domiciled in Indiana during the taxable year; or
- maintains a permanent place of residence in Indiana and spends more than 183 days of the taxable year in Indiana.
(3) A person is domiciled in Indiana if he or she intends to reside in Indiana permanently or indefinitely and to return to Indiana whenever he or she leaves the state.
- A person is presumed to be domiciled in a state if, during the year, the person maintained a permanent place of residence in the state and did more than one of the following:
- Claimed a homestead credit or exemption or a military tax exemption on a home in that state;
- Voted in that state;
- Occupied a permanent place of residence in that state or other place of domicile for more days of the taxable year than in any other single state;
- Claimed a benefit on a federal income tax return based upon that state being the principal place of residence;
- Had a place of employment or business in that state.
- If a person’s domicile is not resolved above, then the Department may consider additional factors, including, but not limited to, the state where the person:
- Maintained a driver’s license or government issued identification card;
- Was registered to vote;
- Registered a vehicle;
- Claimed as dependents immediate family members who relied, in whole or in part, on the taxpayer for their support;
- Assigned or maintained a mailing address;
- Maintained bank accounts;
- Maintained active memberships in a religious, social, cultural, or professional organization;
- Received professional services; and
- Kept valuables or family heirlooms.
Adjusted Gross Income Tax.
Individuals
Tax Base for Individuals.
Indiana adjusted gross income is based on the taxpayer’s federal adjusted gross income with certain modifications.
Examples of Additions.
- Amount of certain state income taxes allowable as a federal deduction.
- Amount of net operating loss allowed as a federal deduction.
- Amount excluded from federal gross income for interest received on an obligation of a state other than Indiana, or political subdivision of such a state, that was acquired after December 31, 2011.
Examples of Subtractions.
- Income exempt from state taxation under federal law.
- $1,000 for individuals; $2,000 for a husband and T*ife filing jointly.
- Premiums paid for a qualified long-term care policy for the taxpayer and/or the taxpayer’s spouse.
- The lesser of $2,500 or the amount of property taxes paid during the taxable year by the taxpayer on the taxpayer’s primary residence.
- Qualified military income that was not excluded from the taxpayer’s gross income for federal tax purposes
Allocation and Apporitonment for Nonresidents and Corporations
nonbusiness income is allocated to certain states and business income is apportioned to all states in which nonresidents and corporations derive income and only that part which is allocated or apportioned to Indiana is subject to Indiana gross income tax.
Apportionment
the method by which income is divided among Indiana and other state from which income is derived Business income is apportioned
Business v. Nonbusiness Income For Individuals
For individuals, consider whether the income was generated from business activities of the taxpayer or whether the income was passive in nature.
Business v. Nonbusiness Income for Individuals
For individuals, consider whether the income was generated from business activities of the taxpayer OR whether the income was passive in nature.
Examples
- An Ohio resident is a sales rep and earned wages from sales actisities in Indiana, Kentucky and Ohio. This income is business income and is apportioned among the states in which the income is derived
- The Ohio resident also has a bank account in Texas and earned interest income on deposits. The Ohio resident is not in the banking business and, thus, the interest generated on the account is allocable nonbusiness income.
Business vs. Nonbusiness Income Analysis for Corporations
Is there a unitary business relationship between the parties to the transaction? (1) If yes, the income is apportion able business income. (2) If not, was the underlying asset generating the income an operational asset? (3) If not, was the underlying asset, generating the income a discrete investment asset?
Capital Gains and Losses
From capital gains attributable to the sale of real property located in this state. From capital gains attributable to the the sale of tangible personal property if (1) the property has a situs in this state, or (2) if the taxpayer’s commercial domicile is in this state and the taxpayer is not taxable I the state in which the property has a situs. From capital gains attributable to the sale of intangible personal property if the taxpayer’s commercial domicile is in this state.
Changes in the Use tax
A retail merchant that does not have a physical presence in Indiana, shall as an agent for the state, collect the gross retail tax on a retail transaction made in Indiana, remit the gross retail tax to the state, and comply with all the procedures and requirements as if the merchant has a physical presence in Indiana, if the retail merchant meets either of the following conditions for the calendar year in which the retail transaction is made or the calendar year preceding the calendar year in which the retail transaction is made
Changes in the Use tax
A retail merchant that does not have a physical presence in Indiana, shall as an agent for the state, collect the gross retail tax on a retail transaction made in Indiana, remit the gross retail tax to the state, and comply with all the procedures and requirements as if the merchant has a physical presence in Indiana, if the retail merchant meets either of the following conditions for the calendar year in which the retail transaction is made or the calendar year preceding the calendar year in which the retail transaction is made
Examples of transactions considered selling at retail and subject to sales tax
(1) Renting of tangible personal property; (2) Renting of rooms or lodging for a period of less than 30 days. (3) furnishing intrastate telecommunication services; (4) Furnishing certain cable or satellite television or radio service; (5) Selling tangible personal property at auction; (6) Selling prepaid calling service or authorization number; (7) Leasing or renting an aircraft and providing flight instruction services to the lessee or renter during the term of the lease or
Examples of transactions considered selling at retail and subject to sales tax
(1) Renting of tangible personal property; (2) Renting of rooms or lodging for a period of less than 30 days. (3) furnishing intrastate telecommunication services; (4) Furnishing certain cable or satellite television or radio service; (5) Selling tangible personal property at auction; (6) Selling prepaid calling service or authorization number; (7) Leasing or renting an aircraft and providing flight instruction services to the lessee or renter during the term of the lease or
Federal Limitations on States’ Taxing Authority
The scope of state’s authority to tax is subject to certain federal limitations found in the U.S constitution: (1) Due Process Clause; (2) Commerce Clause; (3) Federal Interstate Income Law
How is Business Income derived from sources within Indinana determined?
By multiplying all business income from whatever source derived by the Sales Factor
If a person’s domicile is not resolved by the first statute, the the Department may consider additional factors, including but not limited to
The state where the person:
(1) Maintained a driver’s license or government issued I.D card;
(2) was registered to vote;
(3) registered a vehicle;
(4) claimed as dependents immediate family members who relied in whole or in part on the taxpayer for their support;
(5) Assigned or maintained a mailing address;
(6) maintained bank accounts;
If a person’s domicile is not resolved by the first statute, the the Department may consider additional factors, including but not limited to
The state where the person:
(1) Maintained a driver’s license or government issued I.D card;
(2) was registered to vote;
(3) registered a vehicle;
(4) claimed as dependents immediate family members who relied in whole or in part on the taxpayer for their support;
(5) Assigned or maintained a mailing address;
(6) maintained bank accounts;
If not was the underlying asset generating the income a discrete investment asset?
If the asset is a discrete investment asset the income is allocable nonbusiness income.
If not was the underlying asset generating the income an operational asset?
An asset may be party.of a taxpayer’s unitary business even if there is not unitary business relationship between the payor and payee. Consider whether the asset serves an operational function; whether the asset was a unitary part of the business being conducted in the taxing State weather than a discrete asset to which the State has no claim. If the asset serves an operational function of a unitary business the income is apportion ablebusiness income.
Indiana Tax Court
If a taxpayer wishes to contest the Dpearmtnes decision on a protect or Claim for Refund the taxpayer must file suit in Indiana Tax Court.
Interest and Dividends
From interest and dividends if the taxpayer’s commercial domiciles is in this state.
List of Indiana Taxes
- Income Taxes.
- Adjusted Gross Income Tax.
- Utility Receipts Tax.
- Financial Institutions Tax (franchise tax measured by income).
- Sales And Use Tax.
- Property Tax.
- Other Listed Taxes.
Nonresidents- Adjusted Gross Income Tax
Income is allocated to certain states and apportioned to all states in which they derive income and only that part which is allocated or apportioned to Indiana is subject to Indiana gross income tax.
Rents and Royalties from tangible property
(1) From real property located in this state. (2) From tangible personal property (a) if and to the extent that the property is used in this state, or (b) in their entirety if the taxpayer’s commercial domicile is in the state and the taxpayer is not organized under the laws or taxable in the state in which the property is used.
Royalties and Intangible Property
From patent or copyright royalties (1) if an to the extent the patent or copyright is utilized by the taxpayer in this state; or (2) if and to the extent the patent is used in a state in which the taxpayer is not taxable and the taxpayer’s commercial domicile is in this state.
Sale and Use Tax Exemptions Policy
To avoid “tax pyramiding”, the legislature enacted certain exemptions to eliminate the imposition of sales and use tax on the same property before it reaches the final consumer. In additino, the legislature has provided for certain exemptions to further state tax policy relating to particular types of tangible personal property.
Sale Gross Retail Tax
Imposed on retail transactions made in Indiana. The sales tax is 7%
SALES AND USE TAX
Tax Base.
Exclusions
- Tax Base.
- Gross retail income received from selling at retail is taxable only to the extent that the income represents:
- the price of the property transferred, without the rendition of any service; and
- generally, any bona fide charges that are made for preparation, fabrication, alteration, modification, finishing, completion, delivery, or other service performed in respect to the property transferred before its transfer and which are separately stated on the transferor’s records.
- Gross retail income received from selling at retail is taxable only to the extent that the income represents:
Examples of Exclusions.
Charges for serving or delivering food or food ingredients furnished, prepared, or served for consumption at a location, or on equipment, provided by the retail merchant but <img></img>only to the extent that the charges are separately stated from the price of the food and food ingredients ‘*hen the purchaser pays the charges.
<img></img>Installation charges that are separately stated on the invoice, bill of sale, or similar document given to the purchaser are excluded.
Interest, financing and carrying charges from credit extended on the sale of personal property if the amount is separately stated on the invoice, bill of sale, or similar document given to the purchaser.
SALES AND USE TAX
Taxable Transactions
Retain Transactions - Defined
- Retail transactions are subject to sales and use tax.
- Generally, a “retail transaction” is a transaction of a retail merchant that constitutes selling at retail or making a wholesale sale. A person is a retail merchant making a retail transaction when he or she engages in selling at retail. A person is a retail merchant making a retail transaction when he or she is making a wholesale sale.
- Selling at Retail. In the ordinary course of the seller’s trade or business, the seller acquires tangible personal property and transfers such property to another for consideration. IND. CODE 6-2.5-4-1.
- Selling at Wholesale. Generally, the seller sells tangible personal property to another that purchases the property for purposes of reselling the property, or incorporating or consuming the material in the production of other property or in the execution of manufacturing, assembling, constructing, refining, or processing.
- Tangible Personal Property. Tangible personal property is personal property that:
(1) Can be seen, weighed, measured, felt, or touched; or
Is in any other manner perceptible to the senses (including electricity, water, gas, steam, and prewritten computer software).
SALES AND USE TAX
Exemptions Policy
To avoid “tax pyramiding”, the legislature enacted certain exemptions to eliminate the imposition of sales and use tax on the same property before it reaches the final consumer. In addition, the legislature has provided for certain exemptions to further state tax policy relating to particular types of tangible personal property.
Sales and Use Tax Base
Gross retail received from selling at retail is taxable only to the extent that the income represents: (1) the price of the property transferred without the rendition of any service; (2) generally, any bona fide charges that are made for preparation, fabrication, alteration, modification, finishing completion, delivery, or other service performed in respect to the property transferred.
Sales and Use Tax Base
Gross retail received from selling at retail is taxable only to the extent that the income represents: (1) the price of the property transferred without the rendition of any service; (2) generally, any bona fide charges that are made for preparation, fabrication, alteration, modification, finishing completion, delivery, or other service performed in respect to the property transferred.
SALES AND USE TAX
Deductions
The following are examples of deductions that are available to the retail merchant:
- Amounts that resulted from retail transactions in which the retail merchant did not collect the state gross retail or use tax from the purchaser;
- Amounts that resulted from retail transactions on which the retail merchant has previously paid the state gross retail or use tax to the department; and
- Amounts that were written off as an uncollectible debt for federal tax purposes.
SALES AND USE TAX
Deductions
The following are examples of deductions that are available to the retail merchant:
- Amounts that resulted from retail transactions in which the retail merchant did not collect the state gross retail or use tax from the purchaser;
- Amounts that resulted from retail transactions on which the retail merchant has previously paid the state gross retail or use tax to the department; and
- Amounts that were written off as an uncollectible debt for federal tax purposes.
SALES AND USE TAX
Imposition, Rate, And Collection.
Imposition, Rate, And Collection.
- The state gross retail tax, otherwise known as the sales tax, is imposed on retail transactions made in Indiana. The sales tax rate is 7%.
- Generally, use tax is imposed on the storage, use, or consumption of tangible personal property in Indiana if the property was acquired in a retail transaction, regardless of the location of the transaction or of the retail merchant making the transaction. The use tax rate is the same as the sales tax rate, 7%.
- The person acquiring or using the property is liable for the tax.
SALES AND USE TAX
Manufacturing Exemptions
Manufacturing Exemptions. Manufacturing exemptions attempt to address tax pyramiding and apply to sales of property used or consumed in the manufacturing process.
a. Double Direct Test. To qualify for the manufacturing exemptions, the property acquired must be directly used or consumed in the direct production of other property.
- Property is directly used in the direct production of other property if it has an immediate effect on the article being produced.
- Property has an immediate effect on the article being produced if it is an essential and integral part of the integrated production process.
- The production process begins at the point of the first operation or activity constituting part of the integrated production process and ends at the point when the production process arrives at a finished product, including packaging.
SALES AND USE TAX
Taxes on Services
- Service Charges.
- Generally, sales and use tax is only imposed on the sale of tangible personal property; it does not apply to the provision of services. However, if a transaction provides for the transfer of tangible personal property and the provision of services, sale or use tax may apply unless:
- The price of services is separately stated from the price of the property; and
- The service charges are for services rendered after the transfer of the tangible personal property.
- Generally, sales and use tax is only imposed on the sale of tangible personal property; it does not apply to the provision of services. However, if a transaction provides for the transfer of tangible personal property and the provision of services, sale or use tax may apply unless:
SALES AND USE TAX
A retail merchant that does not have a physical presence in Indiana
A retail merchant that does not have a physical presence in Indiana shall, as an agent for the state, collect the gross retail tax on a retail transaction made in Indiana, remit the gross retail tax to the state, and comply with all the procedures and requirements as if the retail merchant has physical presence in Indiana, if the retail merchant meets either of the following conditions for the calendar year in which the retail transaction is made or for the calendar year preceding the calendar year in which the retail transaction in made:
- The retail merchant’s gross revenue from any combination of the sale of tangible personal property that is delivered into Indiana; a product transferred electronically into Indiana; or a service delivered in Indiana, exceeds $ 100,000.
- The retail merchant sells any combination of tangible personal property that is delivered into Indiana, a product is transferred electronically into Indiana, or a service is delivered in Indiana in 200 or more separate transactions.
Selling at Retail
In the ordinary course of the seller’s trade or business the seller acquires tangible personal property and transfers such property to another for consideration.
Selling at Wholesale
Generally, the seller sells tangible personal property to another that purchases the property for purposes of reselling the property, or incorporation or consuming material in the production of another property
Tax Base
Allocation Nonresidents and Corporations.
Generally
Allocation and Apportionment for Nonresidents and Corporations.
- Nonbusiness income is allocated to certain states and business income is apportioned to all states in which nonresidents and corporations derive income, and only that part which is allocated or apportioned to Indiana is subject to Indiana adjusted gross income tax.
Allocation.
- Allocation is the method by which certain income is assigned to a specific state.
- Nonbusiness income is allocated.
- Nonbusiness income is defined as all income other than business income.
Tax Base
Allocation for Nonresidents and Corporations
Allocable nonbusiness income includes:
- Rents and Royalties from Tangible Property.
- From real property located in this state.
- From tangible personal property (1) if and to the extent that the property is used in this state, or (2) in their entirety if the taxpayer’s commercial domicile is in the state and the taxpayer is not organized under the laws or taxable in the state in which the property is used.
- Capital Gains and Losses.
- From capital gains (or losses) attributable to the real property located in this state.
- From capital gains (or losses) attributable to the _sale of tangible personal property_if (1) the property has a situs in this state, or (2) if the taxpayer’s commercial domicile is in this state and the taxpayer is not taxable in the state in which the property has a situs.
- From capital gains (or losses) attributable to the sale of intangible taxpayer’s commercial domicile is in this state.
- Interest and Dividends. From interest and dividends if the taxpayer’s commercial domicile is in this state.
- Royalties from Intangible Property.
- From patent or copyright royalties
- (1) if and to the extent the patent or copyright is utilized by the taxpayer in this state, or
- (2) if and to the extent the patent is used in a state in which the taxpayer is not taxable and the taxpayer’s commercial domicile is in this state.
- From patent or copyright royalties
Tax Base
Apportionment for Nonresidents and Corporations
Apportionment.
- Apportionment is the method by which income is divided among Indiana and other states from which income is derived.
- Business income is apportioned.
- Business income is defined as “all income that is apportionable to the state under the Constitution of the United States.”
- (a) Includes:
- Income received from payor with which the payee has a unitary business relationship: unitary business relationship requires functional integration, centralized management, and economies of scale
- Even if no unitary relationship, income from operational assets (e.g., income from inventory, working capital)
Tax Base
Apportionment for Nonresidents and Corporations
Business v. Nonbusiness Income Analysis for Corporations
Is there a unitary business relationship between the parties to the transaction?
- If yes, the income is apportionable business income.
- If NO, was the underlying asset generating the income a discrete investment asset?
- An asset may be part of taxpayer’s unitary business even if there is not unitary business relationship between payor and payee. Consider whether the asset serves an operational function - whether the asset was a unitary part of the business being conducted in the taxing State rather than a discrete asset to which the State has no claim. If the asset serves an operational function of a unitary business, the income is apportionable business income.
- If NO, was the underlying asset generating the income a discrete investment asset?
- If the asset is a discrete investment asset, the income is allocable nonbusiness income. (e.g., dividends from small venture capital investments in unrelated or tangentially related start-ups not part of the core business)
Tax Base
Pass Through Entities
Pass-Through Entities.
Income from pass-through entities retains its characterization for federal tax purposes and “shall be considered Indiana source income as if the person, corporation or pass through entity that received the income had directly engaged in the income producing activity.”
Tax Returns For Corporations
(1) Single Returns;
(2) Consolidated Returns- power or total value of the stock of a corporation is owned by an affiliated corporation. A group of corporations are affiliated if 80% or more of the voting - group, each corporation must have AGI derived from sources within Indiana:
(3) Combined Returns- a group of corporations that comprise a unitary group may request permission to file unitary returns and must request
The following are examples of exemptions, deductions and credits available to taxpayers:
- Examples of Exemptions.
- Lottery winnings paid after June 30, 2002, on a prize received from winning a lottery held before July 1, 2002.
- Distributions from an individual account used to pay qualified higher education expenses.
- The sum of the value of an Olympic medal won during the taxable year and the amount of income received during the taxable year from the United States Olympic Committee as prize money for winning the Olympic medal.
- Examples of Deductions.
- A deduction for Indiana net operating losses.
- The lesser of $3,000 or the amount of rent paid for the taxpayer’s principal place of residence. This deduction does not apply to an individual who rents property exempt from property tax. Married couples are limited to the $3,000 cap.
- A deduction for permanently and totally disabled individuals
- Deduction for a portion of unemployment compensation received
(3) Examples of Credits.
- Taxes deducted and withheld throughout the taxable year.
- Income taxes paid to another state.
- A portion of contributions made to Indiana higher education institutions.
The following conditions for the new use tax long arm state thing to apply
(1) Retail merchant’s gross revenue from any combination of the sale of tangible personal property that is delivered into Indiana; a product transferred electronically into Indiana; or a service delivered in Indiana exceeds $100,000 (2) The retail merchant sells any combination of tangible personal property that is delivered into Indiana, a product is transferred electronically into Indiana or a service is delivered in Indiana in 200 or more separate transactions.
Use Tax
imposed on the storage, use, or consumption of tangible personal property in Indiana if the property was acquired in a retail transaction, regardless of the location of the transaction of the retail merchant making the transactions.
The use tax rate is the same as the sales tax rate.
What are taxable transactions under the sale and use tax?
Retail transactions are subject to the sale and use tax
What are the three primary Indiana taxes measured by income?
(1) Adjusted Gross income tax; (2) Utility receipts tax; (3) Financial Institutions tax
What does allocable nonbusiness income include?
(1) Rents and Royalties from Tangible Property; (2) Capital Gains and Losses; (3) Interest and Dividends; (4) Royalties from Intangible Property
What entities are exempt from adjusted gross income tax in Indiana?
(1) Nonprofit organizations; (2) S corporations; (3) Banks and trust companies, national banking associations, savings banks, building, and loan associations; (4) Certain insurance companies; (5) International banking facilities
What is a retail transaction?
A transaction of a retail merchant that constitutes selling at retail or making a wholesale sale.
What is Allocation?
The method by which certain income is assigned to a specific state. Nonbusiness income is allocated.
What is business income?
Includes: (1) Income received from payor with which the payee has a unitary business relationship; unitary business relationship requires functional integration, centralized management and economies of sale. Even if no unitary relationship, income from operational assets
What is Nonbusiness income?
It is defined as all income other than business income.
What is tangible personal property?
It is personal property that: (1) Can be seen, weighed, measured, felt, or touched; OR (2) Is in any other manner perceptible to the senses (including electricity, water, gas, steam, and prewritten computer software.
What is the Sales Factor?
It measures the extent to which the taxpayer’s sales are in Indiana. Total sales of the taxpayer in Indiana during the taxable year/ Total sales of the taxpayer everywhere during the taxable year.
when is a person domiciled in Indiana
If he or she intends to reside in Indiana permanently or indefinitely and to return to Indiana whenever he or she leaves the state.
When is a person presumed to be domiciled in a state?
If during the year, the person maintained a permanent place of residence in the state and did more than one of the following: (1) Claimed a homestead credit or exemption of a military tax exemption on a home in the state; (2) Voted in that state; (3) Occupied a permanent place of residence in that state or other place of domicile for more days of the taxable year than in any other single state; (4) Claimed a benefit on a federal income tax return based upon that state being the principal place of residence. (5) Had a place of employment or business in that state.
When is a person presumed to be domiciled in a state?
If during the year, the person maintained a permanent place of residence in the state and did more than one of the following: (1) Claimed a homestead credit or exemption of a military tax exemption on a home in the state; (2) Voted in that state; (3) Occupied a permanent place of residence in that state or other place of domicile for more days of the taxable year than in any other single state; (4) Claimed a benefit on a federal income tax return based upon that state being the principal place of residence. (5) Had a place of employment or business in that state.
Who is an Indiana individual resident?
(1) was domiciled in Indiana during the taxable year; OR (2) maintains a permanent place of residence in Indiana and spends more than 183 days of taxable year in Indiana.
Who is liable for the use tax?
The person acquiring or using the property.
Who is taxed on their entire gross income in Indiana?
Only Indiana residents are taxed on their entire gross income
