1997 D IN INDIANA T - Indiana University Robert H .

1997 DEVELOPMENTS IN INDIANA TAXATIONLAWRENCE A. JEGEN , III*STEPHEN P. MURPHY , JR .**INTRODUCTIONBoth the 110th Indiana General Assembly and the Indiana Tax Courtcontributed to the 1997 changes and clarifications to all of the major and manyof the minor Indiana tax laws. This Article highlights the more interesting 1997developments for the period of October 1, 1996 through September 30, 1997.1I. GENERAL ASSEM BLY LEGISLATIONThere were hundreds of 1997 legislative changes which impacted Indianataxation, many of which had a direct effect on both broad and narrow segmentsof Indiana residents. Many of the changes were attempts to fine-tune existinglaws, but significant policy changes surfaced in the following major areas: stateoffices and administration; income tax; sales and use tax; property tax; and deathtaxes.The general assembly enacted into law three bills which had an impact onstate offices and administration. The first of these allows a person that holds abeer wholesaler permit, liquor wholesaler permit, or wine wholesaler permit toqualify for the benefits of an enterprise zone.2 This law also allows a person whoholds an alcoholic beverage permit and who receives at least 60% of the person’sannual revenue from retail food sales to qualify for the benefits of an enterprisezone.3 Second, the general assembly enacted legislation which provides thatindividuals may establish individual development accounts and can deposit upto 300 of their own funds to the account with a match from the State of Indianaequal to another 900 per year.4 Further, interest earned on the account is exemptfrom taxation as is any money deposited by the state and withdrawn to be usedfor: costs of higher education; accredited licensed training program; purchase ofa residence; or, starting a business.5 Finally, House Bill 17846 clarifies thatletters of findings issued by ISDR are to be printed in the Indiana Register.7* Thomas F. Sheehan Professor of Tax Law and Policy, Indiana University School ofLaw—Indianapolis. B.A., Beloit College; M.B.A., J.D., University of Michigan; LL.M., New YorkUniversity.** J.D. Candidate, 1998, Indiana University School of Law—Indianapolis. B.S., 1994,Indiana State University, Terre Haute, Indiana.1. The following abbreviations are frequently used in this Article: Indiana Department ofState Revenue (IDSR) and Indiana State Board of Tax Commissioners (ISBTC). Also, the IndianaGeneral Assembly is referred to as “general assembly.”2. IND. CODE § 4-4-6.1-1.7 (Supp. 1997) (retroactive to July 1, 1995).3. Id.4. Id. § 4-4-28-9, -12 (effective July 1, 1997).5. Id. § 4-4-28-14, -16 (effective July 1, 1997).6. H.R. 1784, 110th Leg., 1st Reg. Sess. § 1 (Ind. 1997) (effective Jan. 1, 1998).7. IND. CODE §§ 4-22-7-7, 6-8.1-3-3.5 (Supp. 1997).

782INDIANA LAW REVIEW[Vol. 31:781In the area of income taxation, the general assembly enacted into law twobills which contain five key provisions.8 The first provision clarifies thedefinition of receipts to include a limited liability company that is not itself ataxpayer as defined in section 6-2.1-1-16(27) of the Indiana Code.9 Second, forgross income tax purposes, the general assembly included limited liabilitycompanies in the definition of taxpayer, but excluded those that have only asingle member and are disregarded as entities for federal income tax purposes.10The third provision clarifies the definition of membership fees for not-for-profitorganizations so that fees charged for use of golf, tennis, swimming, or otherathletic facilities are not subject to gross income tax.11 Fourth, the generalassembly provided that after December 31, 1997, payments of estimated grossincome tax will be made by electronic funds transfer12 if the current year’squarterly estimated liability or the preceding year’s average quarterly liabilityexceeds 10,00013 rather than 20,000 as in the past. Also, the quarterlycorporate payment dates established in 1994 were made permanent.14 Fifth, thechanged legislation provides that the quarterly remittance of gross income tax onthe sales of real estate which is remitted by the county treasurer to the IDSR shallbe made by electronic funds transfer15 if the average monthly amount due for thepreceding year exceeded 10,000.16In the area of sales and use taxation, the general assembly enacted into lawthree bills which contain eight key provisions.17 The first of these provides thatwhen an individual wants to title a vehicle, the individual must presentdocumentation sufficient to rebut the presumption that the price was the averageprice for that vehicle as determined in a used vehicle buying guide and toestablish the actual selling price of the vehicle.18 Second, the general assemblyprovided an exemption from the sales tax for prescription drug and insulin drugsamples and the packaging and literature for drug samples.19 The third changeprovides a sales tax exemption for the lease or purchase of any rail transportationequipment, as well as spare, replacement, and rebuilding parts or accessories,8. H.R. 1784, 110th Leg., 1st Reg. Sess. §§ 3, 4, 7 (Ind. 1997); S. 6, 110th Leg., 1st Spec.Sess. § 50 (Ind. 1997).9. IND. CODE § 6-2.1-1-10 (effective July 1, 1997).10. Id. § 6-2.1-1-16 (retroactive to July 1, 1993).11. Id. § 6-2.1-3-21 (effective May 13, 1997).12. Personal or overnight courier delivery of payment by cashier’s or certified check ormoney order is also acceptable.13. IND. CODE § 6-2.1-5-1.1 (Supp. 1997) (effective July 1, 1997).14. Id.15. Personal or overnight courier delivery of payment by cashier’s or certified check ormoney order is also acceptable.16. IND. CODE § 6-2.1-8-5 (Supp. 1997) (effective July 1, 1997).17. H.R. 1784, 110th Leg., 1st Reg. Sess. §§ 8-9, 11-12 (Ind. 1997); H.R. 1829, 110th Leg.,1st Reg. Sess. §§ 1-3 (Ind. 1997); S. 5, 110th Leg., 1st Spec. Sess. §§ 37-38 (Ind. 1997).18. IND. CODE § 6-2.1-3-6 (effective Jan. 1, 1998).19. Id. § 6-2.5-5-19.5 (retroactive to Jan. 1, 1997).

1998]TAXATION783components, materials, or supplies, including lubricants and fuels, for railtransportation equipment.20 It also provides that the IDSR shall cancel and shallno longer issue proposed assessments against any person for sales or use tax onrail transportation equipment.21 Fourth, the general assembly deleted archaiclanguage that phased in the sales tax exemption for pollution control equipment.22The fifth modification provides that if an education service center sells qualifiedcomputer equipment to parents or guardians of students enrolled in grades onethrough twelve, the computer equipment sold will be exempt from the sales tax.23Sixth, the general assembly provided that the value of an owned vehicle isexempt from the sales tax in a vehicle lease transaction when the vehicle isexchanged for a like kind vehicle.24 Seventh, one key provision lowers thethreshold amount requiring remittance of sales tax by electronic funds transfer25from 20,000 to 10,000.26 Eighth, the general assembly deleted archaiclanguage that describes the phase in of the collection allowance for the salestax.27In the area of adjusted gross income tax, the general assembly enacted intolaw five bills which contain ten key provisions.28 The first provision increasesthe deduction for certain dependent children of a taxpayer from 1000 to 1500for the years 1997 through 2000.29 Second, the general assembly changed allreferences to the Internal Revenue Code to refer to it as it was in effect onJanuary 1, 1997.30Third, the general assembly provided that the Indiana source income ofprofessional sports team members who are nonresidents be determined inaccordance with section 6-3-2-2.7 of the Indiana Code.31 Fourth, the generalassembly allocated the income of nonresident professional athletes based on theirduty days in the taxable year.32 The provision excludes signing bonuses meetingcertain conditions from the allocation factor.33 It uses total salaries and20. Id. § 6-2.5-5-27.5 (effective May 8, 1997).21. H.R. 1829, 110th Leg., 1st Reg. Sess. § 3 (Ind. 1997) (effective May 8, 1997).22. IND. CODE § 6-2.5-5-30 (Supp. 1997) (effective Jan. 1, 1998).23. Id. § 6-2.5-5-38.1 (effective July 1, 1997).24. Id. § 6-2.5-5-38.2 (effective July 1, 1997).25. Personal or overnight courier delivery of payment by cashier’s or certified check ormoney order is also acceptable.26. IND. CODE § 6-2.5-6-1(f) (Supp. 1997) (effective Jan. 1, 1998).27. Id. § 6-2.5-6-10(b) (effective Jan. 1, 1998).28. H.R. 1777, 110th Leg., 1st Reg. Sess. §§ 2-3 (Ind. 1997); H.R. 1781, 110th Leg., 1stReg. Sess. §§ 2-3 (Ind. 1997); H.R. 1784, 110th Leg., 1st Reg. Sess. §§ 15-16 (Ind. 1997); S. 6,110th Leg., 110th Leg., 1st Spec. Sess. § 51 (Ind. 1997); S. 170, 110th Leg., 1st Reg. Sess. §§ 1-3(Ind. 1997).29. IND. CODE § 6-3-1-3.5(a) (retroactive to Jan. 1, 1997).30. Id. § 6-3-1-11 (retroactive to Jan. 1, 1997).31. Id. § 6-3-2-2 (effective Jan. 1, 1998).32. Id. § 6-3-2-2.7 (effective Jan. 1, 1998).33. Id. § 6-3-2-2.7(a)(1)(B), (a)(6).

784INDIANA LAW REVIEW[Vol. 31:781performance bonuses times a duty day allocation fraction in which the numeratoris the number of Indiana duty days34 and the denominator is the number of totalduty days in a taxable year.35 The law also provides for the establishment of amethod so a team may file a composite return on behalf of all players and staffrequired to file.36 In the fifth change, the general assembly provided that a teammember that is covered by a composite return filed in accordance with section 63-2-2.7 of the Indiana Code is not required to file an individual return.37Sixth, the general assembly provided that if a taxpayer takes a federaldeduction from adjusted gross income for a medical care savings account, thenthe taxpayer is prohibited from taking an additional Indiana exemption for amedical care savings account.38 The seventh change provides an earned incometax deduction for taxpayers with dependent children.39 The deduction is allowedif 80% of the taxpayer’s total income is earned income and the taxpayer has atleast one dependent child and total Indiana income of less than 12,000.40 Theallowed deduction is 12,000 minus the taxpayer’s total Indiana income.41 Theprovisions also require that a husband and wife file a joint or separate returnconsistent with the federal income tax return(s) they file.42 The deduction ispermitted for taxable years 1997 through 2000 only.43Eighth, the general assembly provided that after December 31, 1997, thethreshold amount for requiring that quarterly adjusted gross income tax paymentsby corporations be remitted by electronic funds transfer44 was lowered from 20,000 to 10,000.45 The change also provides that the quarterly payment datesestablished in 1994 are permanent.46 Ninth, the general assembly also loweredthe threshold amount which requires monthly employer withholding of employeetaxes to be remitted by electronic funds transfer47 from 20,000 to 10,000.48Tenth, the general assembly enacted legislation which requires river boatoperators to withhold from winnings Indiana adjusted gross income tax whenever34. Id. § 6-3-2-2.7(a)(2).35. Id. § 6-3-2-2.7(b).36. Id. § 6-3-2-2.7(d)(2).37. Id. § 6-3-4-1 (effective Jan. 1, 1998).38. Id. § 6-3-2-18(g) (effective Jan. 1, 1998).39. Id. § 6-3-2.5-1 (retroactive to Jan. 1, 1997).40. Id. § 6-3-2.5-6.41. Id. § 6-3-2.5-7.42. Id. § 6-3-2.5-8.43. Id. § 6-3-2.5-1.44. Personal or overnight courier delivery of payment by cashier’s or certified check ormoney order is also acceptable.45. IND. CODE § 6-3-4-4.1 (Supp. 1997) (effective July 1, 1997).46. Id.47. Personal or overnight courier delivery of payment by cashier’s or certified check ormoney order is also acceptable.48. IND. CODE § 6-3-4-8.1(d) (Supp. 1997) (effective Jan. 1, 1998).