June 2013 Tax Update
Here's the June 2013 issue of Tax Update — our newsletter for the business community. This edition features articles on new tax laws, sales tax issues, and our updated withholding guide.
The 2013 Idaho Legislature passed tax laws affecting business personal property, split-monthly withholding filers, retailers of prepaid wire services, and more. Here are some of the highlights:
Check-off box eliminated for net operating loss (NOL) deduction
Taxpayers no longer need to check a box on the Idaho tax return to forego the two-year NOL carryback. For tax years starting on or after Jan. 1, 2013, an NOL may be carried back two years only if an amended return carrying the loss back is filed within one year of the end of the tax year of the NOL that results in the carryback. (Effective Jan. 1, 2013)
Idaho law conforms to Internal Revenue Code (IRC)
Idaho law conforms to the IRC as of Jan. 1, 2013, and provides that certain refund claims arising from Section 1106 of the FAA Modernization and Reform Act (P.L. 12-95) may be filed on or before the later of the date permitted in Section 63-3072 Idaho Code or April 15, 2013. (Effective Jan. 1, 2013)
Sourcing formula for guaranteed payments
Partnership income of nonresidents and part-year residents, including guaranteed payments according to IRC section 707, will be sourced to Idaho based on the Idaho apportionment factor, except for guaranteed payments to a retired partner that are sourced to the recipient’s home state. Also excluded are guaranteed payments to an individual partner of up to $250,000; these payments will be sourced as compensation for services. Any amount over $250,000 will be sourced to Idaho based on the Idaho apportionment factor. The $250,000 is adjusted annually for inflation. (Effective Jan. 1, 2013)
New deduction for loss recoveries
If a taxpayer recovers part of a loss that was previously deducted from federal taxable income but not allowed as a deduction from Idaho taxable income, a deduction from Idaho taxable income is allowed for the loss recovery as long as the recovery amount is included in federal taxable income in the same year. (Effective Jan. 1, 2013)
Help for identity theft victims
The Tax Commission can disclose tax information to identity theft victims that will allow the victims to identify the individual who is using their stolen Social Security number or other tax identification number. A disclosure can be made only after the Tax Commission receives a valid written request from the identity theft victim. (Effective July 1, 2013)
Primary and primarily defined for property use
The definition of primary and primarily for the use of tangible personal property means the predominant or greatest use of the property. To determine primary use, all taxable uses will be aggregated into one total and compared to the total of all nontaxable uses. The greater of the two will be considered the primary use of the property. Use will be measured in gallons, hours, miles or other measures commonly used to measure or determine use of the property. (Effective July 1, 2013)
Some application software isn't tangible personal property
The definition of tangible personal property now excludes application software remotely accessed over the Internet or through wireless media. This means the sale or use of the software isn’t subject to sales or use tax. The exclusion includes the use of computer software accessed over the Internet or wireless media from a location owned or controlled by the seller instead of being loaded and left at the user’s location. Remotely-accessed software is still considered tangible personal property, and the sale or use of it is taxable, if:
- It's used for entertainment, or
- The software vendor sells a downloadable or boxed version of that same software or of comparable software that performs the same functions.
(Effective April 3, 2013)
Split-monthly filing modified for withholding
Employers with annual income tax withholding of $240,000, or an average of $20,000 per month will pay the withholding on the basis of two withholding periods per month. The first period begins on the first day of the month and ends on the 15th day of the month, with payment due by the 20th day of the month. The second period begins on the 16th day of the month and ends on the last day of the month, with payment due by the fifth day of the following month. (Effective Jan. 1, 2014)
Changes to wage garnishments
The Tax Commission can continually garnish the earnings of a person who owes taxes until the garnishment is released by the Tax Commission, or the tax debt is discharged or paid in full. The garnishment is limited to 25% of total gross taxable earnings. If the federal government is also garnishing the taxpayer’s earnings, the Tax Commission’s garnishment is limited to 10%. The time period to collect the debt is extended from six to 12 years. (Effective July 1, 2013)
Emergency 911 fee for prepaid wireless services
A new 2.5% fee will be imposed on sales of prepaid wireless services. The fee will be collected at the retail point of sale and paid to the Tax Commission. Merchants can keep 3% of the collected fee to offset administration costs. Net funds will go to the Idaho Emergency Communications Fund. (Effective Jan. 1, 2014)
New property tax exemptions for businesses, wells
The following are new exemptions from the property tax:
- Single personal property items that cost a taxpayer $3,000 or less and are bought on or after Jan. 1, 2013 (applies to locally and centrally assessed property)
- Up to $100,000 of a taxpayer’s personal property in each county (applies to locally and centrally assessed property)
- Wells drilled to produce oil, gas, or hydrocarbon condensate
(Effective Jan. 1, 2013)
Assessment notices can be sent electronically
At the request of the taxpayer, the county assessor will electronically transmit the taxpayer’s property tax assessment notice. (Effective July 1, 2013)
The Tax Commission would like to remind retailers that all sales of tangible personal property are subject to sales tax (unless the buyer qualifies for a valid exemption). Tax should be collected on sales at fireworks stands, fruit stands, farmers’ markets, and other seasonal concessionaires.
We understand that businesses that deal with frequent, small cash transactions prefer to include tax in their retail prices to lessen the need to make change. However, when you sell goods, the posted price can't include sales tax. Idaho law states that sales tax must be separately stated from the sales price of goods. When you provide your customer with a receipt, the sales price and sales tax must be separately stated.
This time of year Idaho sees many fund-raising activities, such as concession and fireworks stands, set up by nonprofit organizations. In general, Idaho doesn’t exempt sales by nonprofits, and sales tax should be collected on all the sales of tangible personal property they make.
We’ve revised A Guide to Idaho Income Tax Withholding to include updated withholding tables and some technical corrections. You can find the guide on our website at tax.idaho.gov.