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Township Reform Trashed, Tax Code Update Crashed … Yet Alas, SaaS Passed!

2018-03-30T11:13:29+00:00 March 30th, 2018|

By Bill Waltz, vice president of taxation and public finance

The 2018 session looked quite promising in January. The Indiana Township Association supported a bill that included the merger of over 300 small townships, and the House Republicans endorsed it as a priority bill. The Governor made legislation to clarify the exempt status of software as a service (SaaS) part of his administration’s agenda, even referencing it in his State of the State address.

These were both major initiatives of the Indiana Chamber – township reform one that we have steadfastly championed for many years. SaaS clarification was a position more recently developed by our Technology Policy Committee, in conjunction with our Tax Policy Committee, over the last year. Unfortunately, the course for these two items would not prove to be so smooth as it first appeared.

The township reform measure, HB 1005, made its way through the House Government and Regulatory Reform Committee and the House Ways and Means Committee with only modest opposition. Then the Indiana Farm Bureau decided it needed to go all out to protect the antiquated township system. The organization utilized local networks of its members, who are closely aligned with the township political structure, to raise fears and doubts about how the terms of the bill would be implemented.

Rural legislators succumbed to pressure, the support for the bill quickly unraveled and the House Republican leadership lost backing for the measure. As a result – and much to the chagrin of the author, Rep. Cindy Ziemke (R-Batesville), Rep. Kevin Mahan (R-Hartford City), chair of the Government and Regulatory Reform Committee, and many others who worked on and supported the measure – the bill was never taken up for a vote by the full House. But despite the disappointing demise, there are positive aspects to the effort. A renewed awareness of the need for reforms and a flushing out of the issues involved, both politically and administratively, will serve as a good backdrop for further discussions and future legislation.

Meanwhile the SaaS legislation was gaining momentum, but its final impact was not at all certain. Yes, SB 257, the administration’s proposal carried by Sen. Travis Holdman (R-Markle), passed the Senate 49-0. However, a quite different approach, in the form of HB 1316, was spurring a separate set of discussions in the House. But discussion is good, and both bills on the subject were moving, so the prospects remained good that something would pass. The problem was that both bills had some troubling language in them – as differing viewpoints led to philosophical debates, and there were lingering fiscal concerns. These issues brought into question what would emerge and whether it would ultimately forward the primary objectives of clarity on the subject.

The Chamber focused its efforts on the House Ways and Means Committee’s consideration of SB 257 and making its language as straightforward as possible. A lengthy committee hearing featuring testimony from Chamber Technology Policy Committee members John McDonald of ClearObject and Chris Day of DemandJump apparently swayed the thinking. The committee chose to forego the undesirable language it previously passed in HB 1316 and instead refine and streamline SB 257. The end result was a clear-cut exemption for most all SaaS transactions and as such was viewed favorably by SaaS advocates. The new and improved SB 257 in turn gained approval of the full House and was concurred on by the Senate. Passage of this leading-edge legislation is yet another progression for our tax climate (only the fourth state with a statutory tax exemption) and will no doubt foster the growth of the SaaS industry in Indiana.

There are numerous people to thank for the success of SB 257, as it was a collective effort by many dedicated to the cause: The Chamber and our SaaS community allies, including TechPoint, together with the vision and support of numerous open-minded policymakers, combined to make it happen. We should start by applauding the Governor, the Office of Management, and Budget and the Department of Revenue. Of course, the authors of the two bills, Sen. Holdman and Rep. Tim Brown (R-Crawfordsville), and their respective caucus leaders were key. Special thanks go to a couple of our Chamber Tax Committee members, Donna Niesen from Katz Sapper Miller and Mark Richards from Ice Miller; they volunteered a good deal of time consulting with us and policymakers on implications of the several iterations of the proposed bills.

Another important Chamber-led effort involved Indiana’s conformance with the federal tax reforms. After Congress passed sweeping changes to the federal tax code at the end of 2017, it became evident that the degree to which Indiana would conform to those changes would be of great significance to taxpayers. Our adjusted gross income (AGI) is tied to the federal AGI and without any adjustments, taxpayers would experience state tax increases – substantial in some cases. Evaluation of the impacts of the federal reform package on Indiana taxes was not completed by the fiscal leaders until late in the session.

Consequently, the Chamber was forced to react to details that were not formulated until a few weeks before the end. After outlining our serious concerns with the form of the updating, the fiscal leaders agreed to make two much-needed adjustments. All was good until the conference committee report that contained the changes; it fell victim to the last day time crunch and failed to pass before the midnight deadline. This failure became a primary impetus for a May special session, where we expect lawmakers to belatedly align Indiana with the federal tax code and save Indiana businesses from significant tax increases.

Resource: Bill Waltz at (317) 264-6887 or e-mail: bwaltz@indianachamber.com