Tax Update for June 2014
- Idaho’s new tax laws — What you need to know
- Change for sales tax rule on coatings applied to personal property
- Change for requesting motor fuels tax refunds for a single bulk storage tank
- Special payment plan available for those who owe taxes
- New pages featured on our website
- Withholding tables updated
Here's the June 2014 issue of Tax Update — our newsletter for the business community. This edition features articles about new tax laws, motor fuels tax refund changes, sales tax on coatings applied to personal property, and a new payment plan option.
The 2014 Idaho Legislature passed tax laws affecting medical savings accounts, composite returns, a business tax credit, computer software, personal property tax, and more. Here are some of the highlights:
Idaho law conforms to Internal Revenue Code (IRC) (H.B. 375 - Effective Jan. 1, 2014)
Idaho law conforms to the IRC as of Jan. 1, 2014.
Changes affect those filing “married filing separately,” nonprofits (H.B. 374 - Effective Jan. 1, 2014)
The following technical changes were made to the income tax law:
- The loss carryback of an individual using the filing status of “married filing separately” is limited to $50,000.
- A nonprofit that loses its federal tax exempt status for failure to file federal form 990 will also lose its Idaho tax exempt status.
Individual defined for composite return (H.B. 377 - Effective Jan. 1, 2014)
The definition of an individual for a composite return has been expanded to include a grantor trust, a qualified subchapter S trust, and a single-member limited liability company that’s treated as a disregarded entity for federal income tax purposes. A pass-through entity will pay the permanent building fund tax on each individual that’s included on its composite return.
Estates and trusts redefined (H.B. 369 - Effective July 1, 2014)
An estate is defined as a resident estate if the decedent was a resident of Idaho on the date of death. A trust is defined as a resident trust if three or more of the following conditions exist for the entire tax year:
- The domicile or residency of the grantor is in Idaho
- The trust is governed by Idaho law
- The trust has real or tangible personal property located in Idaho
- The domicile or residency of the trustee is in Idaho
- The administration of the trust takes place in Idaho
New Idaho Reimbursement Incentive tax credit available for businesses (H.B. 546 - Effective July 1, 2014)
A new performance-based economic development incentive provides a tax credit of up to 30% for up to 15 years on new state revenues generated by a qualified project. To qualify, a new project must meet certain requirements for creating high-paying jobs in Idaho. The credit is refundable and is available to both existing and new companies. The tax credit percentage, project term, and other metrics are determined by negotiations and agreement between the Department of Commerce and the applicant. All incentive agreements are approved by the Idaho Economic Advisory Council.
Changes to medical savings accounts (H.B. 595 - Effective Jan. 1, 2014)
The Idaho medical savings account (MSA) annual contribution has increased to $10,000 per year. The $2,000 cap on employer contributions has been removed. Funds in an Idaho MSA must be exhausted before the account holder or the account holder’s dependents can receive any state assistance for medical care.
Bonus depreciation not available for Idaho returns (H.B. 600 - Effective Jan. 1, 2013)
Idaho Code is permanently decoupled from the Internal Revenue Code on bonus depreciation (Internal Revenue Code 168(k)). Taxpayers who claim bonus depreciation on their federal return for assets placed in service after Dec. 31, 2009, must report an adjustment on the Idaho return.
Tax relief for innocent spouses (S.B. 1301 - Effective Jan. 1, 2014)
An individual who’s filed a joint return and has been granted relief from joint and several liability of federal taxes by the Internal Revenue Service, will also be granted relief by the Tax Commission for Idaho income taxes.
Food donations to nonprofits exempt from use tax (H.B. 530 - Effective March 18, 2014)
Donations of food and beverages to nonprofit organizations and individuals are exempt from use tax.
Tangible personal property redefined for digital goods and computer software (H.B. 598 - Effective July 1, 2014)
The definition of tangible personal property includes the following digital goods, regardless of how they’re transferred to the user: digital music, digital books, digital videos, and digital games. The sale or use of tangible personal property is taxable.
The definition of tangible personal property excludes computer software that’s delivered electronically, accessed remotely, or delivered by the “load and leave” method where the seller loads the software at the user’s location but doesn’t transfer any tangible personal property containing the software to the user. The sale or use of these types of software isn’t subject to sales or use tax.
Changes to personal property tax exemption (H.B. 441 - Effective: Jan. 1, 2014)
The following changes were made to the personal property tax exemption law:
- Improvements, including those that are on certain exempt lands and are assessed and taxed as personal property, aren’t eligible for the personal property exemption.
- Businesses no longer need to apply for the exemption every five years.
- A fixture is now defined solely as an item that meets all three factors of the three factor test. Fixtures are considered real property and aren’t eligible for the personal property exemption.
Central registry created for local government entities (H.B. 560 - Effective Jan. 1, 2015)
Local governmental entities, except schools, must report certain administrative, financial, bond, and debt information to a central registry by March 1, 2015. Entities that don’t comply will lose their authorized property tax budget increases, and a portion of sales tax revenue will be withheld.
Effective July 1, 2014, Sales Tax Administrative Rule 046 has been updated to clarify when tax should be charged on materials and labor involved in applying coatings to personal property. Coatings include, but aren’t limited to, paint, powder coat, chrome plating, spray-on bedliners, and anodized coatings.
Currently, there’s inconsistency in how businesses in this industry tax their sales of coatings. The changes to the rule are intended to provide the needed consistency. The list below gives an overview of the responsibilities for a business that applies coatings:
- Purchase all materials that become part of the coating exempt for resale.
- When billing your customer, always charge sales tax on any materials charges.
- When applying a coating to used property, you don’t need to charge tax on separately stated labor charges. If a labor charge isn’t separately stated from a taxable materials charge, you must charge tax on the entire amount. Used property is property that has previously been put to the use for which it was intended (see examples below).
- When applying a coating to new tangible personal property, the labor charge is taxable.
- If the customer provides a valid exemption certificate (e.g. form ST-101), you don’t need to charge tax on any part of the sale.
Example 1: A customer buys a new truck from a dealership. The customer drives it for a few days and then brings it in to your shop to get a new spray-on bedliner. The truck is used property. You must charge sales tax on the materials charge, but if separately stated, you don’t need to charge tax on the labor.
Example 2: A contractor brings in a metal duct system to have a powder coat applied. The ducts are new property because they’ve never been installed and used. You must charge sales tax on the materials and the labor.
Due to a motor fuels rule change, the standard percentage method will no longer be available to determine a fuels tax refund for the nontaxable use of diesel or gasoline withdrawn from a single storage tank (see Rule 270.06.a). As of July 1, 2014, taxpayers can use the following methods to determine a fuels tax refund:
- Authorized Percentage: Get authorization from the Idaho State Tax Commission for a predetermined refund percentage of the tax-paid gallons purchased to calculate the nontaxable gallons of fuel. The percentage is based on past fuel consumption rates for each type of equipment that used the tax-paid fuels in a nontaxable manner. To apply for an authorized percentage, taxpayers must complete a Request for Authorized Exempt Fuel Percentage form.
- Withdrawal Records: Use withdrawal records that show the taxable and nontaxable use of the fuel to calculate the refund. The records must list:
- The date of each withdrawal.
- The number of gallons withdrawn from the single bulk storage tank and placed into a main supply tank.
- The equipment or vehicle the withdrawn fuel was placed into.
If you owe Idaho taxes, you may be eligible for a special payment plan that allows individuals to pay off their debt in six monthly payments without having a lien filed against their property. To get more information, see the “Making Payment Arrangements” page under our website’s new Payment Options section. The section also features information about tax bills, avoiding a tax debt, and forced collection actions.
You’ll find new resources to help you on our website, tax.idaho.gov:
- For businesses that are new or have changed their operations, our new “Idaho Business Registration” page lists the Idaho permits they may need and explains how to register for them.
- Read the top five myths about income tax return extensions on our “Valid Extension of Time” page.
We’ve updated the withholding tables in A Guide to Idaho Income Tax Withholding. Although the figures are effective for 2014, employers don’t need to adjust withholding for the months before receiving the tables.