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A recent Indiana Tax Court decision could ultimately impact all Indiana companies and contractors entering into real property improvement agreements. The Indiana Tax Court has ruled against the distinction between the sales tax treatment of time and material and lump-sum contracts in Lowe’s Home Centers, LLC v. Indiana Department of State Revenue (IN Tax Ct. Dec. 19, 2014).

The issue was whether Lowe’s properly self-assessed and remitted use tax on construction materials used in its real property improvement contracting work. Lowe’s served as general contractor on home improvement work, such as new roof and kitchen cabinet installation, where it routinely furnished customers with both construction materials (typically pulled from inventory) and labor. Relying on tax regulations promulgated in the 1980s, the Department assessed Lowe’s sales tax on the retail cost of the materials it claimed should have been collected from Lowe’s customers.

The court dismissed the Department’s position that under the construction contracts, customers of Lowe’s were purchasing materials separately from the labor, causing the contractor to act as a retail merchant of the materials. The court agreed with Lowe’s that its customers were purchasing a completed improvement. Title to the construction materials was deemed to have passed once they were installed, at which point, they lost their identity as tangible personal property, having been converted to real property. Thus, Lowe’s did not transfer tangible personal property to its customers.

The court invalidated those portions of Indiana Tax Regulations that provide that when a contractor enters into a time and material contract with its customer, it owes no use tax on the materials because its customer owes sales tax on the materials supplied. These regulations also provide that when a contractor uses a lump-sum contract, it is required to self-assess and remit use tax on the construction materials supplied.

Although the court found the Lowe’s contracts to be lump sum in nature and not time and material as asserted by the Department, the court did not base its decision on this distinction. The court went as far as to state that in this instance, the Department had created an artificial distinction between time and material and lump-sum contracts to convert a contractor’s use tax liability into a sales tax liability on the materials’ higher price. The court said that because Indiana Code section 6-2.5-3-2(c) does not impose use tax liability contingent upon the type of contract a contractor uses, that distinction as contained in 45 I.A.C. 2.2-3-9 and 45 I.A.C. 2.2-4-22 is invalid.

The Department can appeal the Tax Court’s decision to the Indiana Supreme Court, so it remains to be seen whether time and material contracts for real property improvements are truly a thing of the past. Until the legal challenges have run their course, there will be a degree of uncertainty with regard to these contracts in Indiana.

Please contact Aaron Wilzbacher, CPA or John Rittichier, CPA at 800.880.7800 with questions.

The following memorandum contains important information regarding upcoming reporting requirements related to the Affordable Care Act (ACA) or ObamaCare. The only employers that should be concerned with this memo and the detailed information within it are the following types of employers:

• Employers with less than 50 full-time-equivalent employees, but only if they sponsor a self-insured group health plan. If an employer has less than 50 full-time equivalent employees and either (1) does not offer group health insurance or (2) offers fully-insured group health insurance, they are not subject to the reporting requirements that are discussed below.
• Employers with 50 full-time-equivalent employees or more regardless of whether they offer fully-insured, self-insured or no health insurance are subject to the reporting requirements that are discussed below.

The Affordable Care Act created new reporting requirements under Internal Revenue Code (Code) sections 6055 and 6056. Under these new reporting rules, certain employers discussed above must provide information to the Internal Revenue Service about the health plan coverage they offer (or do not offer) to their employees.

The additional reporting is intended to promote transparency with respect to health plan coverage and costs. It will also provide the government with information to administer other ACA mandates, such as the large employer shared responsibility penalty and the individual mandate. While this reporting is not due until January 2016 for the 2015 year, it is essential that employers make plans to start tracking information in January 2015 to capture all relevant information needed to fulfill the reporting requirements.

On March 5, 2014, the Internal Revenue Service (IRS) released two final rules on these reporting requirements:

The Section 6055 final ruling (Forms 1094-B and 1095-B) requires applicable small employers (an employer with less than 50 full-time-equivalent employees) who provide self-insured plans to employees to report information on that coverage to the IRS and covered individuals. Employers will have to file form 1094-B and 1095-B to report information on each full-time employee.

The Section 6056 final ruling (Forms 1094-C and 1095-C) requires applicable large employers (an employer with at least 50 full-time-equivalent employees) to report to the IRS and covered individuals information on the health coverage offered to full-time employees. Employers will have to file form 1094-C and 1095-C to report information on each full-time employee.

Below is a chart summarizing the filing requirements based on the size of the employer. For purposes of these filings, a small employer is one with less than 50 full-time employees (including equivalents) and a large employer is one with at least 50 full-time employees (including equivalents) during the preceding calendar year.

Reporting of Health Coverage for Issuers and Self-insured Plans (Code § 6055)

The ACA requires every health insurance issuer, sponsor of a self-insured health plan, government agency that administers government-sponsored health insurance programs and any other entity that provides minimum essential coverage (MEC) to file an annual return with the IRS reporting information for each individual who is provided with this coverage. Related statements must also be provided to individuals.

The IRS will use the information from the returns to implement the ACA’s individual mandate (that is, the requirement that individuals obtain acceptable health insurance coverage for themselves and their family members or pay a penalty).

The information that will need to be captured regarding each covered employee along with family members who have coverage under the self-insured plan relating to Code Section 6055 (Form 1095-B) consists of:

• Full name
• Address
• Social Security number (or date of birth)

Applicable Large Employer Health Coverage Reporting (Code § 6056)

Applicable large employers are required to file information returns with the IRS under IRS Section 6056. Applicable large employers are those with 50 or more full-time employees during the previous year. Employers file forms 1094-C and 1095-C to report information on each full-time employee whether the employee is participating in an employer-sponsored group health plan or not. Employees must also be provided with a statement of this data by January 31^st each year for the prior year.

The information that will need to be captured regarding each covered employee along with family members who have coverage under the self-insured plan relating to Code Section 6056 (Form 1095-C) consists of:

• The employee’s name, address and Social Security number
• The employer’s name, address and employer identification number
• Whether the employee and family members were offered health coverage each month that met the minimum value standard
• The employer’s share of the monthly premium for the lowest-cost minimum value health coverage offered
• Whether the employee was a full-time employee each month
• The affordability safe harbor applicable for the employee
• Whether the employee was enrolled in the health plan
• If the health plan is self-insured, the name and Social Security number (or birth date if Social Security number is unavailable) of each employee and family member covered by the plan by month

Please contact your payroll processor, Human Resources department, or your insurance provider for more information on how to start accumulating this data beginning in January 2015.

Many popular but temporary tax incentives have been extended again by the Tax Increase Prevention Act of 2014. Among them is Code Sec. 179 small business expensing, bonus depreciation, the research tax credit, qualified leasehold/ retail improvements/ restaurant property and the Work Opportunity Tax Credit. President Obama is expected to sign the bill into law.

 Read more here!

The ACA includes various new reporting requirements and fees to be implemented over a period of time.  A few upcoming items which may affect your organization include the transitional reinsurance fee, health plan identifier and data reporting to the IRS.

Transitional Reinsurance Fees

Generally, self-insured plans providing major medical coverage will be subject to a fee of $63 per covered life.  In order to determine an organization’s total balance due, the appropriate form must be filed by November 15, 2014.   The payment will then be made via ACH which requires registration on pay.gov.  For this particular fee, the first installment will be due by January 15, 2015 with a  second installment due by November 15, 2015.

Certain plans are exempt from these fees, including but not limited to: stand-alone plans (e.g. vision, dental, prescription drug), Health Savings Accounts (HSAs), Health Reimbursement Arrangements (HRAs), Flexible Spending Accounts (FSAs), and Stop-Loss Coverage. Read more here.

Health Plan Identifier (HPID)

All health plans are required to obtain an HPID to be used as the standard transactional identifier for health plans when interacting with the government. Health plans other than small health plans must obtain their HPID by November 5, 2014. Small health plans must obtain their HPID by November 5, 2015. “Small health plan” is defined as a plan with $5 million or less in the previous year in claims receipts for a self-funded group, or $5 million in total premium for a fully-insured group. Read more here.

Data to Report to IRS – IRS 6056

Applicable large employers are required to file information returns with the IRS under IRS Section 6056. Applicable large employers are those with 50 or more full-time employees during the previous year (see IRS guidance on how to calculate FTE’s.) Employers file form 1094-C and 1095-C to report information on each full-time employee. Employees must also be provided with a statement of this data.

Reporting is voluntary for calendar year 2014. It will be required beginning with calendar year 2015, and forms are due by February 29, 2016. For each individual return that is incorrect or not timely filed, or not furnished to employees, a penalty ranging from $30 to $100 may be assessed. The maximum penalty for failure to file timely is $1.5 million.

Some (but not most) may qualify for simplified reporting. For more information on IRS 6056, see the Q&A on the IRS website.

Louisville, Ky
One Southern Indiana (1SI) and the Metro Manufacturing Alliance (MMA) kicked-off their inaugural Manufacturing Day in America activities last night at Harding, Shymanski & Company’s Louisville office. At the celebration, Wendy Dant Chesser, President and CEO of One Southern Indiana, announced that eight manufacturers in the region would host programming throughout the day on October 3rd to promote manufacturing career and educational opportunities.

Read more about regional activities for Manufacturing Day in America here.

Effective July 15, 2014, Kentucky has enacted a new Small Business Tax Credit Program to provide non-refundable state income tax credits for eligible companies with 50 or fewer employees. To qualify for the credit, small businesses must create and fill one or more eligible full-time positions and invest at least $5,000 in qualifying equipment or technology. Each qualified new position can generate up to $3,500 in credits, subject to an overall cap of $25,000 per company.

Eligible positions include positions that raise the base employment level of the business, pay an average hourly wage of at least $10.88 (150% of minimum wage), and require an employee to work an average of thirty-five or more hours a week for a 12-month period. The employees that fill these positions must be subject to Kentucky income tax in order to qualify for the credit.

Qualifying equipment or technology includes any tangible property with a minimum per-unit cost of $300. Examples include computers, equipment, furniture, fixtures, furnishings and vehicles.

Applications will be accepted on a first-come, first-served basis until the $3 million per fiscal year tax cap has been reached. If approved, the applicants are responsible for claiming the credit on their tax return. Unused credits may be carried forward up to five years. The application requires disclosure of the name, hire date, and average hourly wage of each eligible employee along with a description, invoice date, quantity and unit costs for qualifying equipment or technology purchases.

For additional information about qualification or the application process, please contact either John Rittichier, CPA at 800.880.7800 ext. 8484, jrittichier@hsccpa.com; or Jim Clark, CPA at 800.880.7800 ext. 8468, jclark@hsccpa.com.

This is the 9th consecutive year McGladrey has polled executives in the manufacturing and distribution industries.  Of the 1,147 total survey respondents, 775 were categorized as manufacturers and 372 distributors.  The Monitor report takes a close look at how and why thriving companies are able to succeed.  This year’s report covers strategies for growth; profit and sales growth plans; continuous improvement; supply-chain management; and managing external challenges.

Download a copy of the Monitor report here.  If you would like to discuss the report further or have questions, please contact Brant Kennedy, CPA at 800.880.7800 ext. 1425 or bkennedy@hsccpa.com.

Harding, Shymanski & Company, P.S.C. will sponsor seminars in Evansville, IN and Louisville, KY on September 4th and 5th (respectively) this year.  Karen Kurek, national manufacturing and distribution practice leader for McGladrey, and Indiana Secretary of Commerce Victor Smith will speak at both events.

Additional information will be released as it becomes available.

Written by Bill O’Malley and Jill Harris, Source: McGladrey LLP. Used with permission as a member of the McGladrey Alliance.

Most manufacturing companies will face additional Affordable Care Act (ACA) information reporting requirements in 2015. Currently, companies that issue 250 or more federal W-2 forms are required to include the cost of employer-provided group health plan coverage as an information item on the W-2 form. Newly issued regulations now require a company to report additional information if the company either: (1) sponsors a self-insured  health plan, or (2) is an applicable large employer (one with 50 or more full-time employees or full-time equivalent employees).

New information returns
A new information return (Form 1095-B or 1095-C) must be prepared for each applicable employee for calendar year 2015 and filed with the IRS by Feb. 28, 2016 (March 31, if filed electronically). A copy of the Form 1095 or a substitute statement must be given to the employee by Jan. 31, 2016. Employers will be subject to penalties for failing to timely file the returns or provide statements to employees.

Health plan reporting requirements
Employer-sponsored health plans of all sizes will need to inform the IRS of employees and family members enrolled in the plans during 2015. Employees who are offered coverage, but decline the coverage, are not reported. Insurers will be responsible for reporting this information for insured plans, but employers will be responsible for reporting this information for self-insured plans. The IRS will use this information to determine whether the employees are exempt from the individual mandate penalty due to having health coverage for themselves and their family members.

Large employer reporting requirements
If a company is a large employer, it must report whether it offered its full-time employees affordable, minimum value health coverage for 2015. Full-time employees are those who work, on average, at least 30 hours per week. Health coverage is considered affordable if the amount that the employer charges an employee for self-only coverage does not exceed 9.5 percent of the employee’s W-2 form wages, rate of pay or the federal poverty level for the year. A health plan provides minimum value if the plan is designed to pay at least 60 percent of the total cost of medical services for a standard population. Employees who are offered this coverage, but decline it, are included in the report. The IRS will use this information to determine whether the employer is subject to the employer mandate penalties. Employers with fewer than 50 full-time or full-time equivalent employees in 2014 are exempt from this large employer reporting requirement for 2015.

Controlled group issues
Since employers that are members of a controlled group are deemed to be one employer for ACA purposes, employees of all entities in the group are counted for the 50-employee threshold. A controlled group can exist if one company owns at least 80 percent of another company, or if the same five or fewer individuals, estates or trusts have both a controlling interest (80 percent common ownership) and effective control (50 percent identical ownership) of at least two companies. For example, if a manufacturing company with 80 full-time employees is the sole owner of a distribution company with 20 full-time employees, both companies are deemed to be large employers, since together they have at least 50 full-time employees. Consequently, both companies must comply with the large employer reporting requirements. Each company must file the IRS forms using its own employer identification number to report its employees.

Filing the return
In general, a large employer must report the following information to the IRS each year, even if the employer does not sponsor a group health plan:

• A certification by month as to whether the employer offered its full-time employees (and their dependents) the opportunity to enroll in minimum essential health coverage
• The months that coverage was available
• Each full-time employee’s share of the lowest-cost monthly premium for self-only minimum value coverage
• The number of full-time employees for each month of the calendar year
• The name, address and tax identification number of each full-time employee during the calendar year and the months, if any, during which the employee had health coverage

Any other information required by the IRS
Regarding collectively bargained employees participating in multiemployer plans, the employer is still responsible for providing the required information to the IRS and the employees, even if the multi-employer plan administrator prepares the IRS forms or provides other assistance to the employer. Consequently, the IRS will look to the employer to pay any penalties for noncompliance.

Action required
In light of the complexity of the new information reporting requirements, employers should take action now to learn about the rules and ensure that their internal systems will be able to collect the data needed to complete the returns.

The information contained herein is general in nature and based on authorities that are subject to change. McGladrey LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. McGladrey LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

Taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during 2013 must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). This form replaces FBAR form TD F 90-22.1. It is due to the Treasury Department by June 30, 2014, must be filed electronically and is available online through the BSA E-Filing System website.

For questions on this topic, contact Michael Vogel, CPA or John Rittichier, CPA at 800.880.7800.

UPDATED December 20, 21019:

As the tax-filing season approaches, it is always a good idea to be aware of current scams and phishing tactics used by hackers to steal personal identification information. Remember that the IRS doesn’t initiate contact with taxpayers by email, text messages or social media channels to request personal or financial information.

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The Internal Revenue Service today warned consumers to be on the lookout for a new email phishing scam. The emails appear to be from the IRS Taxpayer Advocate Service and include a bogus case number.

The fake emails may include the following message: “Your reported 2013 income is flagged for review due to a document processing error. Your case has been forwarded to the Taxpayer Advocate Service for resolution assistance. To avoid delays processing your 2013 filing contact the Taxpayer Advocate Service for resolution assistance.”

Recipients are directed to click on links that supposedly provide information about the “advocate” assigned to their case or that let them “review reported income.” The links lead to web pages that solicit personal information.

Taxpayers who get these messages should not respond to the email or click on the links. Instead, they should forward the scam emails to the IRS at phishing@irs.gov. For more information, visit the IRS’s Report Phishing web page.

The Taxpayer Advocate Service is a legitimate IRS organization that helps taxpayers resolve federal tax issues that have not been resolved through the normal IRS channels. The IRS, including TAS, does not initiate contact with taxpayers by email, texting or any social media.

For more on scams to guard against, see the “Dirty Dozen” list on IRS.gov.