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On May 13, 2011, Governor Daniels signed several pieces of legislation containing changes to the tax law which could potentially have an impact on manufacturers. The newly enacted legislation has decreased the corporate income tax rate, created an income tax add-back for interest received on an obligation of another state, and eliminated the carryback of net operating losses.
In addition, the bill has revised the attribution rules applicable to business income and sales receipts from certain intangibles, extended the time for filing an amended Indiana return to reflect changes made on a federal return, make various changes to the venture capital investment credit, and eliminated certain tax other credits. Listed below are the highlights of the new legislation which could impact manufacturers.
Corporate Tax Rates
Corporate income tax rates will decrease from 8.5% to 6.5% over four years beginning July 1, 2012, as follows:
· Before July 1, 2012: 8.5%.
· After June 30, 2012, and before July 1, 2013: 8.0%.
· After June 30, 2013, and before July 1, 2014: 7.5%.
· After June 30, 2014, and before July 1, 2015: 7.0%.
· After June 30, 2015: 6.5%.
Elimination of Municipal Bond Interest Exclusion
Legislation has created an add-back for the amount excluded from federal gross income under IRC §103 for interest received on an obligation of a state other than Indiana, or a political subdivision of such a state, that is acquired by the taxpayer after December 31, 2011. This change is effective January 1, 2012.
NOL Carrybacks
NOL carrybacks have been eliminated for individual and corporate taxpayers beginning with the 2012 tax year. Currently, taxpayers are allowed to carry back losses for two years. The change is effective January 1, 2012.
Elimination of Credits
The following credits will no longer be available after 2011: the credit for employers offering health benefit plans and the small employer qualified wellness program credit.
Amended Returns
A bill has been passed to extend the time in which a taxpayer must file an amended Indiana adjusted gross income tax return to reflect modifications made in a federal income tax return from 120 days to 180 days after the modification is made for modifications made after 2010.
Sales Tax: Time Limit Imposed on Refund Claims for Certain Exemptions
A refund claim based on the sales tax exemption for electrical energy, natural or artificial gas, water, steam and steam purchased for and used in the direct production of other qualifying tangible personal property cannot cover transactions that occur more than 18 months before the date of the refund claim, effective July 1, 2011.
Scholarship Credit
Effective July 1, 2011, the fiscal year aggregate cap on the School Scholarship Credits is increased from $2.5 million to $5 million and a scholarship-granting organization is prohibited from limiting the availability of scholarships to students of only one participating school.
IRC Conformity
Indiana's conformity to the Internal Revenue Code has been updated to January 1, 2011. However, the following IRC provisions that were amended by the federal Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act of 2010) will be treated as though they were not amended by that legislation for Indiana tax purposes:
· IRC §1367(a)(2) pertaining to an adjustment of basis of the stock of shareholders;
· IRC §451(i)(3) pertaining to a special rule for sales or dispositions to implement Federal Energy Regulatory Commission or state electric restructuring policy for qualified electric utilities; and
· IRC §954(c)(6) pertaining to the look-through treatment of payments between related controlled foreign corporation under foreign personal holding company rules.
In addition, new add-backs have been created for:
· deductions under IRC §198 for the expensing of environmental remediation costs;
· exclusions under IRC §127 as annual employer provided education expenses;
· deductions under IRC §179E for any qualified advanced mine safety equipment property;
· monthly exclusions under IRC §132(f)(1)(A) and §132(f)(1)(B) that exceed $100 a month for a qualified transportation fringe;
· the amount necessary to make the adjusted gross income of any taxpayer that placed any qualified leasehold improvement property in service during the taxable year and that was classified as 15-year property under IRC §168(e)(3)(E)(iv) equal to the amount of adjusted gross income that would have been computed had the classification not applied to the property in the year that it was placed into service;
· deductions under IRC §195 for start-up expenditures that exceed the amount the taxpayer could deduct under that section before it was amended by the federal Small Business Jobs Act of 2010; and
· the amount necessary to make the adjusted gross income of any taxpayer for which tax was not imposed on the net recognized built-in gain of an S corporation under IRC §1374(d)(7) as amended by the federal Small Business Jobs Act of 2010 equal to the amount of adjusted gross income that would have been computed prior to the amendment of that provision.
These changes are effective retroactively to January 1, 2011, and apply to taxable years beginning after 2009. However, the applicability date provision will expire on January 1, 2012.
For more information or questions please contact John Rittichier at 502.584.4142 or jrittichier@hsccpa.com | 
