Indiana Legislative Year in Review: Top State and Local Tax Reforms in 2023

The Indiana tax landscape changed significantly in 2023. From the long-awaited creation of a pass-through entity tax to revived economic development funding, the state’s already competitive tax system was made even more so. Now, with 2023 coming to a close, it’s important for Hoosier taxpayers to consider the impact of these changes as 2024 draws near.

Income Tax

Perhaps the most anticipated piece of income tax legislation in 2023 was SB2, which created an optional state-level PTET with a retroactive effective date of Jan. 1, 2022. With its enactment, Indiana joined the vast majority of states in adopting this state and local tax cap workaround. The PTET law was designed to provide a federal tax benefit for individual taxpayers while being revenue-neutral for the state. In a related move, the definition of “credit for taxes paid” was expanded to include PTET paid to other states. Together, these two taxpayer-friendly updates put Indiana on a level playing field with the 36 other states which had already enacted such legislation.

As a reminder, Indiana requires 50% of the expected 2023 PTET liability to be paid by Dec. 31, 2023, to avoid late payment penalty and interest.

The legislature also generously granted individual taxpayers an additional three days to file their returns. Beginning with tax year 2023 Indiana individual income tax returns will be considered timely filed if they are postmarked within three business days of their deadline.

Sales and Use Tax

In a progressive move for not-for-profits, Indiana legislators increased the sales threshold for required reporting from $20,000 to $100,000. Additionally, starting Jan. 1, 2024, not-for-profits should use the INTIME online portal system to obtain a state-issued copy of an NP-1 printed with the vendor’s information.

In what some would describe as an attempt to capture a lost revenue stream, legislators enacted a new successor liability law. Pursuant to such, purchasers in stock deals and other types of mergers and acquisitions in 2024 will become liable for outstanding sales and use tax, county innkeeper’s tax, and food and beverage tax liabilities of the seller to the extent of the deal’s purchase price.

The state legislature wasn’t the only busy bee this year. The Indiana Department of Revenue has updated the look of many of its Sales Tax Information Bulletins and modified the written guidance in each bulletin for any needed clarification. If you haven’t visited the online copy of a favorite bulletin in a while, we recommend refreshing your copy by visiting the department’s list and checking out the “publication date” column to ensure you have the most up-to-date version.

Economic Development Credits and Incentives

In a move to introduce “READI 2.0,” Indiana legislators allocated another $500 million to the READI program. Mirroring the original program, regions should request an allocation of funds based on need with a new emphasis placed on multi-year strategic plan for use of funds. Regional proposals are due to the Indiana Economic Development Corp. (IEDC) by Feb. 23, 2024.

Administrative

What may seem like a small move is still critical to note: Effective December 2023, all Tax Policy Directives have been deleted. Any relevant guidance included has been incorporated into an Information Bulletin. Please see the DOR’s guidance for details.

Equally as important, during the 2023 Indiana legislative session, the General Assembly formed the State and Local Review Task Force to review Indiana’s tax scheme, including all income taxes, sales and use taxes, property taxes, and local option taxes. The task force will continue to meet over the next 12 months and is required to issue its report by Dec. 1, 2024 – in time for the 2025 budget session.

KSM’s State & Local Tax Group follows legislative activity across the country. If you have questions about how these or other pieces of legislation might affect your business, please contact your KSM advisor or complete this form.