by Chad E. Voss
On May 4, 2023, Indiana Governor Eric Holcomb signed an omnibus tax bill that advances the state’s Internal Revenue Code conformity date from March 31, 2021, to January 1, 2023, and makes numerous other changes to the state’s tax laws. Among the changes, the bill includes provisions concerning the calculation of net operating losses (NOLs), adds a corporate income tax deduction for qualifying amounts for providing or expanding access to broadband services in Indiana, creates an income tax exemption for nonresidents, and enacts a sales tax exemption for qualifying transactions involving a component of a solar or wind energy system. (L. 2023, S419, effective retroactive to 01/01/2023, and as stated.)
Income tax.
Internal Revenue Code conformity date advanced: Effective retroactive to January 1, 2023, references to the Internal Revenue Code (IRC) are updated to mean the Internal Revenue Code of 1986 of the United States as amended and in effect on January 1, 2023. Previously, Indiana conformed to the IRC as in effect on March 31, 2021.
Net operating losses: Effective retroactive to January 1, 2023, the bill makes changes to the calculation of the Indiana NOL deduction. Most of the changes are clarifications of existing NOL treatment, certain changes in the calculation methods would change or limit a taxpayer’s annual NOL that offsets the taxpayer’s business income or nonbusiness income.
Broadband expansion grants deduction: Effective retroactive to January 1, 2023, the bill provides that a corporate income taxpayer may claim a deduction for any: (1) federal, state, or local grant received by the taxpayer; and (2) any discharged federal, state, or local indebtedness incurred by the taxpayer for purposes of providing or expanding access to broadband service in Indiana.
Specified research or experimental expenditures deduction: Effective retroactive to January 1, 2022 for taxable years beginning after December 31, 2021, a taxpayer must deduct from its adjusted gross income the amount of specified research or experimental expenditures paid or incurred by the taxpayer during the taxable year and add to its adjusted gross income an amount equal to the deduction claimed under IRC § 174 for the taxable year.
Exemption for nonresidents: Effective January 1, 2024, compensation received by an individual who is not a resident of Indiana for employment duties performed in Indiana for 30 days or less during the calendar year is exempt from the state’s adjusted gross income tax. The exemption does not apply to compensation received by the individual for employment duties performed in the individual’s capacity as a professional athlete, professional entertainer, or public figure.
Health care sharing ministry deduction: Effective January 1, 2024, an Indiana resident who is a member of a health care sharing ministry for at least one month during a taxable year may claim an adjusted gross income tax deduction for the qualified health care sharing expenses paid by the resident during the taxable year.
Patent income exemption: Effective retroactive to January 1, 2023, the bill amends several provisions regarding Indiana’s income tax exemption for certain income derived from patents, and it clarifies how the exemption applies to S corporations.
Interest add-back: Effective January 1, 2023, the bill clarifies and provides rules relating to adding back interest on tax-exempt bonds issued by another state.
Sales tax.
Solar or wind energy system exemption: Effective July 1, 2023, a transaction involving tangible personal property is exempt from sales tax if the tangible personal property is a component of a solar energy system or wind energy system and the person acquiring the property is a: (1) public utility that furnishes or sells electrical energy; (2) power subsidiary; or (3) business that furnishes or sells electrical energy to a public utility, power subsidiary, or to a renewable utility grade solar electricity or wind facility that is used to generate electricity for resale to consumers or wholesalers.
Agricultural equipment exemption: Effective July 1, 2023, the bill provides that if a purchase of agricultural machinery, tools, or equipment qualifies for the state’s sales tax exemption under current law, is included on the person’s business tangible personal property tax return, and is predominantly used for exempt purposes, the entire purchase is exempt from sales tax regardless of whether person uses or intends to use the property for a nonexempt purpose. If the agricultural machinery, tools, or equipment are not used predominately for exempt purposes, the amount of sales tax paid on the purchase is prorated based on the purchaser’s nonexempt use.
Successor liability: Effective January 1, 2024, the bill provides for successor liability for certain unpaid taxes following a business asset sale. Impacted taxes include: sales tax, use tax, and any county innkeepers tax or food and beverage tax.
Disclosure of exemption certificate: The Department of State Revenue is authorized to publish or disclose the status of a sales tax exemption certificate.
Nonprofit agricultural organization health coverage tax.
Effective retroactive to January 1, 2023, if an organization provides nonprofit agricultural organization insurance coverage, the organization is subject to a nonprofit agricultural organization health coverage tax unless the organization files a notice of election with the insurance commissioner and the Commissioner of the Department of State Revenue on or before November 30 of a taxable year. The notice must state that the organization elects to be subject to state income tax for the taxable year.
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