United States

Indiana: Taxpayer Allowed Use Tax Credit for Local Taxes Paid

Nov 06, 2017
From KPMG TaxWatch

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Recently, the Indiana Tax Court addressed whether an Indiana-based insurance company was entitled to a use tax refund on purchases of software used in its Indiana operations. The software at issue was delivered to the taxpayer in Texas and loaded on servers in that state. The taxpayer remitted use tax to the Texas Comptroller on the purchase price of the software at the rate of 8.25 percent. Two percent of that rate represented local use taxes. Because it used the software in Indiana, the taxpayer also paid a seven percent Indiana use tax on the purchase price of the software. It later requested a full refund from the Indiana Department of Revenue on the basis that it had already paid Texas use tax on the same purchase. Eventually, the Department agreed to issue a credit equal to the state level component of the Texas use tax. However, the Department refused to allow a credit for the local tax paid.

Under Indiana’s use tax credit statute, a person is entitled to a credit against the use tax imposed on the use, storage, or consumption of a particular item of tangible personal property equal to the amount, if any, of sales tax, purchase tax, or use tax paid to another state, territory, or possession of the United States for the acquisition of that property. The Department argued that because the local use tax was paid to a municipality, not a state, the taxpayer was not entitled to the credit under the plain language of the credit statute, which did not list a local municipality as a payee for purposes of the credit. The court rejected this position, noting that all that mattered was that the payee was a “state.” The fact that the local use tax was subsequently distributed to a Texas municipality was irrelevant. In the court’s view, the plain language of the credit statute did not require looking beyond the payee to the ultimate recipient of the tax. Had the Legislature intended a different meaning, it easily could have said so, but it did not, and the court declined to rewrite the statute to alter its plain meaning. Please contact Dave Perry at (513) 763-2402 with questions on American United Life Insurance Co. v. Indiana State Department of Revenue. 

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.