Time Is Running Out: Open Enrollment Ends on March 31, 2014

Time is running out to sign up for health insurance under the Affordable Care Act (ACA). Simply put, if individuals do not sign up for a health insurance plan by Monday, Time Is Running Out: Open Enrollment Ends March 31March 31 2014, they might have to wait nine (9) months for coverage. The next Open Enrollment is Nov. 15, 2014 through Jan. 15, 2015. If an individual waits until November to sign up, the earliest they could get coverage would be Jan. 1, 2015.

Special Enrollment Periods are offered outside of Open Enrollment for individuals that experience certain qualifying life events. An individual generally has 60 days for the date of the qualify life event to enroll in coverage. Examples of qualifying events are:

  • Having or adopting a child
  • Divorce
  • Marriage

While many of the ACA deadlines have been pushed back, this deadline is not expected to be. It should be noted that several state-operated health insurance exchanges have extended the Open Enrollment period beyond March 31 for individuals that tried, but were unable to sign-up because of technical issues. It is widely anticipated that the federally run exchanges will adopt a version of this extension.

William Graff is a manager in Katz, Sapper & Miller's Tax Department and a member of the firm's Healthcare Reform Steering Committee. For more information, contact William at 317.580.2067 or wgraff@ksmcpa.com.

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Consumers in Control and Why Hospitals Need to Pay Attention

Consumers in Control and Why Hospitals Need to Pay AttentionAs of March 13, 2014, and just a few weeks left until the end of open enrollment, more than 4.2 million Americans have enrolled in private health insurance in the Health Insurance Marketplace.

Healthcare consumers are in the driver’s seat in today’s healthcare marketplace. Hospitals and physicians are suddenly being asked and required to be transparent with results: reporting on quality metrics, prices and in some cases, the ease and convenience of care delivery. Even though many Americans with and without health coverage still do not understand the complexities of the Affordable Care Act/health insurance exchange and their new benefits or provisions, the market has indeed shifted dramatically in favor of the consumer.

Consumers now have a choice and are much more informed and educated about healthcare providers today with respect to just a few years ago. Prevention options within communities, employer-based healthcare strategies and increased transparency are additional ways hospitals can become more appealing to and trusted by consumers, resulting in long lasting community-based relationships. At the end of the day, consumers are making the decisions on where to receive care and hospital strategy needs to align with what consumers are looking for.

For more information on trends in consumer-driven healthcare, see "6 Trends in an Era of Consumer-Driven Healthcare."

Mike Gizzi is a manager with Katz, Sapper & Miller's Healthcare Resources Group. For more information, contact Mike at 317.580.2010 or mgizzi@ksmcpa.com.

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Manufacturers Impacted by Stolen Software

If you are like me then you assume that software piracy only affects software development companies and the software industry. You don't associate it with manufacturing, much less think about it negatively impacting the manufacturing industry as a whole. I was therefore surprised when I saw a recent study completed by Harvard Business School (HBS) and the National Association of Manufacturers (NAM) which discussed the impact that stolen software has on U.S. manufacturing. The study argues that between 2002 and 2012 a total estimated $240 billion of manufacturing revenue was lost due to software piracy. Note that it is not estimated at $240 million, but at $240 billion! Additionally, the study noted that approximately 42,220 U.S. manufacturing jobs have been lost due to software piracy.

NAM President and CEO Jay Timmons says:

The startling losses manufacturers have suffered in the last decade due to intellectual property (IP) theft should jumpstart action by our policymakers and law enforcement officials. It’s absolutely clear that the effects of IP theft overseas are significantly felt here at home, threatening jobs, investment and growth. The study released today paints a stark picture of what we’ve already lost due to software IP theft—and how much we stand to gain if manufacturers in the U.S. can compete on a level playing field. Until proper enforcement action is taken, our nation’s innovators will remain at a disadvantage.

So how does software piracy impact U.S. manufacturers? The main impact relates to increased costs for U.S. manufacturers compared to a manufacturer with pirated software. Many (hopefully all) U.S. manufacturing companies pay full price for the software that they purchase (and/or internally develop) to run their business. This naturally increases their cost of production. On the flip side, a company that is using pirated software has full use of and all the advantages of the software, but has not incurred any additional costs. This allows the pirated software user to sell its products at a lower rate, while still maintaining a similar margin.

Has your company ever been impacted by software piracy? Please, leave a comment below!

Justin Hayes is a manager in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.

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KSM & McLeod Software Launch Trucking Operations Performance Benchmarking Project

McLeod Software and Katz, Sapper & Miller (KSM) have come together to create a joint project to provide an operations level benchmark for the trucking industry. This initiative seeks to break new ground in giving truckload carriers the opportunity to measure the real performance of their operations against their peers.
Our benchmarking initiative is designed to be complimentary to other benchmarking initiatives in the industry, and to break new ground for companies who want to understand where their operating efficiencies stand as compared to similar carriers.
In the first iteration of our benchmarking program, we are offering carriers across the United States and Canada the opportunity to submit their results and data for the calendar year 2013 for a number of operations functions. KSM will accept this information and compile a report to ensure that each participant’s data remains confidential and completely anonymous in the final report.
In exchange for each carrier’s participation in this first benchmark study, the carriers will receive a copy of the final benchmark report, which includes the high, low, median, and average values for each benchmark category, as well as the group qualification parameters to allow for comparison of their results on each benchmark to those of their actual peer group.
A look at operating metrics
KSM & McLeod Software Launch Trucking Operations Performance Benchmarking Project
Our benchmarking survey of operating metrics examines several aspects that are common performance indicators for every truckload carrier.
  • People and headcount by category or role
  • Fuel consumption, expense, purchasing, and efficiency
  • Revenue miles, rates, and surcharges
  • Equipment counts and actual utilization
  • Safety profiles
  • Operating expenses

Where do we really stand?

And to create the truly valuable peer comparisons, we will segregate the benchmark data by several criteria that give carriers the chance to compare their metrics with their true peer group.

  • Carriers of a similar size
  • Carriers with the same equipment types
  • Carriers with a similar length of haul

What can we do with this benchmark?

It is a problem for most carriers that they don’t clearly see how they stack up against similar companies in many of these operating metrics. The goal of the KSM & McLeod Benchmarking Initiative is to begin to give truckload carriers a better picture of their relative performance in these areas than has previously been available.
This sort of benchmarking information should provide a call to action for you and your company. By understanding how you rank against your peers in each of these operating categories, you understand where there is real room for operations performance improvement. If your true peer group is doing something better than you are, the opportunity for you to improve in that aspect of your operational performance is likely within your reach.
What do we need to do to participate in this program?
Companies who would like to participate in the 2013 benchmarking program must collect and submit their data to KSM via a pre-formatted spreadsheet, and ensure that their data meets the strict definitions set out in our benchmarking data collection documents. We will provide this data collection document, the definitions, and a copy of our confidentiality agreement to you upon request. The deadline for submissions to be included in the 2013 benchmark report is May 1, 2014.
Additional assistance will be available to current KSM clients and current McLeod system customers to help them prepare this report for submission to the benchmark project.
For more information about joining this benchmarking project, contact Tim Almack at 317.580.2000 or talmack@ksmcpa.com.
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Why You Should Care About TechPoint’s Workforce Report

Last Friday, TechPoint released the Technology Workforce Report: Employment Trends and the Demand for Computer-Related Talent in Central Indiana, the results of a study funded by the Lilly Endowment and Katz, Sapper & Miller. The report proved what many area businesses have long suspected: the tech job market has grown much faster than others in Central Indiana. What’s more, this strong growth has occurred over the same period that saw a decline of 0.3 percent in all jobs nationally.

Why is this trend meaningful? And what’s so special about tech jobs? Read more on TechPoint.org.

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Proper Tax Treatment of Ambulatory Surgery Center Income - A Complicated Matter

How do you determine whether a physician's income from an Ambulatory Surgery Center (ASC) should be treated as passive income or active income on an individual income tax return? The best answer is to consult a tax professional who can advise you based on the specific facts and circumstances related to each individual physician and his or her relationship with the ASC, his or her hospital employer or independent medical practice. There is no one-size-fits-all answer to the question of how to treat ASC income, but below are some of the key issues to think about when considering whether ASC income should be passive or active.

  • A physician who is employed by a hospital and invests separately in an ASC is generally not able to treat ASC income as active income. This is because the physician is not likely to meet the material participation tests required to qualify as an active business activity.
  • A physician who owns his or her own practice (and owns greater than 5 percent of the entity) and separately invests in an ASC may qualify to treat his or her ASC income as active income. This is because the physician could be able to group the two business activities, which could allow the physician to meet the material participation test and qualify for active treatment of ASC income.
  • A physician who owns his or her own practice (and owns greater than 5 percent of the entity) and the ASC is owned within the physician’s practice may also qualify to treat their ASC income as active income. Similar to the example above, the physician could group the business activities, which gives the physician a better chance of meeting the material participation test and qualifying for active treatment of ASC income.

It is important to remember that the proper tax treatment of ASC income is always dependent upon the facts and circumstances of each physician’s situation. It is wise to seek the guidance of a tax professional in determining the appropriate treatment of ASC income.

Jimmy Wade is a staff accountant in Katz, Sapper & Miller's Healthcare Resources Group. For more information, contact Jimmy at jwade@ksmcpa.com

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Accountable Care Organizations in the Headlines

There has been an enormous amount of movement, published data, commentary and opinion offered over the last several months surrounding Accountable Care Organizations (ACOs). Are they here to stay? Is this another HMO of the 90's situation? Who is winning and losing? How do we get started? Did you know that ACO participation is expected to double in 2014?

Here are some of the most useful links to the most relevant articles involving the latest ACO news.

ACO Manifesto: 50 Things to Know About Accountable Care Organizations

Accountable Care Organizations: 2013 Year in Review

Top 4 ACO Reimbursement Models

Where are the New Medicare ACOs? A Regional Breakdown

Mike Gizzi is a manager with Katz, Sapper & Miller's Healthcare Resources Group. For more information, contact Mike at 317.580.2010 or mgizzi@ksmcpa.com.

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20 Year Tax Abatements – A Good Idea?

Things are transpiring fast and furiously at the Indiana State House. One possible spin-off of the current push to overhaul business personal property tax is to provide local governments the authority to award tax abatement up to 20 years. My first inclination when I hear a proposal like this is to consider whether it’s a good idea or a bad idea. I have long believed that the more incentive tools state and local governments have at their disposal to promote economic development, the better. And, in general, I believe property tax abatement, one of the few weapons in every Indiana locality’s deal-making arsenal, needs to be preserved, not placed under a microscope as some have recently suggested.

That said, the notion of 20-year abatement carries with it some unique challenges, including the ability of companies and local governments to crystal ball growth that far out, and to have those extrapolations translate into data that can meaningfully impact decisions. Even so, several states, including Indiana’s neighbor, Ohio, have more robust tax abatement options at their disposal than Indiana currently has on its books.

An expanded abatement option, used in conjunction with Indiana EDGE credits and other IEDC incentives, could be a difference-maker in deals for those communities that decide to allow and employ longer abatements. The question then becomes when and how to use it. As any public official knows, with great power comes great responsibility.

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Indiana EDGE Credit in Jeopardy

When it comes to the Indiana legislature, the conventional wisdom is that lawmakers are not inclined to take on too many big issues during a short legislative session (such as this year). Someone forgot to share that message with the only people who matter: Indiana legislators. While personal property tax reform has sucked a lot of oxygen out of the chamber, with little fanfare a significant “sunset” to one of the state’s key economic development tools has taken root. SB 367 contains a provision to put an “end date” on Indiana’s EDGE tax credit, the granddaddy of all arrows in the Indiana Economic Development Corporation’s (IEDC) economic incentive quiver. As a proposed date fluctuates—2016 and 2020 have made the rounds as potential expiration dates—the mere possibility is stunning. With its training grant programs gutted and underfunded, EDGE, a refundable tax credit offered to companies based on their hiring plans, is the one reliable, useful economic development incentive that allows the IEDC to differentiate Indiana’s incentive packages with other states. If this program were to go away, be phased out, or scaled back in some way, the effects on the state’s economic development efforts would be immediate and crippling. The state’s ability to fill the gap on competitive deals would be severely curtailed, and local governments would be asked to do more. Some argue the proposed sunset is not a precursor to eventual elimination, just a means to ensure a regular review of the program as part of a periodic renewal.


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Federal Excise Tax (FET) Rules for Glider Kits

On Jan. 17, 2014, the Internal Revenue Service released a public memorandum clarifying the federal excise tax (FET) rules regarding glider kits. Previously, vehicles used as glider kits were exempt from FET if the cost of the transaction was 75% or less of the price of a comparable vehicle. However, it seems that in most circumstances, glider kits are now considered new manufactured articles under § 4051(a)(1) and would therefore be subject to the 12% tax. The memo details a series of four rebuilds, all of which are stated to be subject to FET.

Read a copy of the memorandum here.

For more information, contact Randy Hooper, a director in KSM's Transportation Services Group, at 317.580.2041 or rhooper@ksmcpa.com.


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Weather “Storms” the Bottom Line for Manufacturing

Let’s face it. Fifty-two inches into the snowiest winter in Indianapolis history, challenges extend beyond avoiding deep potholes or figuring out who can watch the kids on yet another snow day. These extreme conditions have thrown a kink into the first quarter of operations for U.S. manufacturers. In the January 2014 Manufacturing Institute for Supply Management (ISM) Report on Business, many cite adverse weather conditions as a factor impacting their businesses.

Respondents from the petroleum and coal products industries report, “Good finish to 2013, but slow start to 2014, mostly attributed to weather.” And respondents from the plastics and rubber products industries say, “We have experienced many late deliveries during the past week due to the weather shutting down truck lines."

Weather has been cited as a factor behind a series of economic reports, and it is expected to be a factor in the February 2014 ISM data that will be released in March. Economists say winter economic reports are seasonally adjusted to account for bad weather, so consideration exists for weather impact, but not to this magnitude.

Across Indiana, Old Man Winter has wreaked havoc for manufacturers, such as RV producers in Elkhart who have fallen behind in production due to the multiple snow emergencies. Ken Julian, vice president of human resources for RV manufacturer Thor Industries says, “When we lose a day of production, it can put us back two or three days." Thor is not alone. Hundreds of manufacturers across the state have been forced to find ways to try and make up for lost days and revenues.  Some manufacturers may extend the production week and have employees work Saturdays until they feel caught up (which lowers manufacturing profitability through increased costs). The weather has certainly shifted economic activity, but the spring should recoup any losses, and, hopefully, sunny vacations.

Tim Murphy is an accountant in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.

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How to Reconcile the Difference between Gross Receipts and Receipt Reported on Form 1099-K

With the start of tax-filing season, restaurant owners may have received (or should soon be receiving) IRS Form 1099-Ks from most of the Payment Processors they used during 2013. The Form 1099-K reports the gross proceeds received from Payment Processors, over the course of the year, which includes credit card companies, PayPal, Square, and similar organizations. 

The receipt of Form 1099-K likely raises the question of how best to report this information to the IRS on the restaurant’s tax return. Because gross amounts are reported on this form, they will include all items related to a sale transaction, including sales tax and gratuity, which may not constitute income to the restaurant. As a result, restaurant owners may be understandably conflicted by not only the need to accurately report gross receipts and sales information on the tax return, but also the desire to not raise any red flags with the IRS.

An additional complication to this process involves the reporting requirements themselves: Not every Payment Processor will be required to provide a Form 1099-K. Compliance is only required when the Payment Processor has, for a specific retailer, more than $20,000 in sales and more than 200 transactions. A single transaction of more than $20,000, or more than 200 transactions totaling less than $20,000, may result in the restaurant owner not receiving a Form 1099-K from the Payment Processor in question.

On a practical level, there are certain things all restaurant owners should, and should not, do relating to these Form 1099-Ks.

Owners should:

  • Continue to report gross receipts on their tax return as they have in the past – resisting the urge to match what the Form 1099-K lists as gross receipts. The IRS has indicated that income must be reported as stated in IRS form instructions and guidance for the business’ applicable tax return. Deviating from that instruction may result in inaccurate reporting of income, which could, in turn, result in penalties. 
  • Consider reconciling any Form 1099-Ks received. Credit card gross receipts reported on the Form 1099-K, less taxes and tips and other non-income payments, should equal the credit card gross receipts reported on the tax return. This measure can be additionally useful should the restaurant owner receive an information request from the IRS about the amount of gross receipts reported on their annual filing. The reconciliation, plus any cash sales, should equal the total gross receipts reported on the return. 
  • Keep accurate records to support the gross receipts included on their annual return. The Form 1099-K is not intended to be reconciled for the IRS on the tax return itself, so it will be more important the records support the amounts on the return rather than what the Payment Processor indicates on the Form 1099-K.

Owners should not:

  • Use only the amounts from the Form 1099-K as the gross receipts on the restaurant’s tax return, unless it accurately reflects sales.
  • Hesitate to contact the issuing Payment Processor if there is a discrepancy. While the amounts and transaction dates may not tie exactly, the total should be within reasonable proximity to the total included in the restaurant owner’s books. There should be a telephone number listed on the Form 1099-K to contact the issuer.

Keep in mind the Form 1099-K was created as a tool for the IRS to find taxpayers who are earning, but not reporting, income. The issue was brought to light thanks to the increase in online sales by smaller retailers. The Form 1099-K attempts to capture enough information to indicate to the IRS who should be reporting income based on gross receipts received through Payment Processors. There would likely be few circumstances where the amounts reported on 1099-K for any business exactly matches the gross receipts reported on its tax return.

Finally, the IRS has indicated they are aware of the special circumstances for restaurant businesses, where the amounts reported on the Form 1099-K will include items that do not constitute income to the business. They understand that discrepancies between the tax return and Forms 1099-K are often explainable. However, if there are large discrepancies, the IRS may ask for more information from the taxpayer to support these differences. Therefore, having the information readily on hand to support claimed income will minimize the burden of response, should the restaurant owner receive such a request.

Learn more about the Form 1099-K as well as other restaurant- and small business-related tax information.

Jim White is a member of Katz, Sapper & Miller’s Restaurant Services Group. For more information regarding KSM’s restaurant-specific services, contact Jim at 317.452.1908 or jwhite@ksmcpa.com.

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ACA Update: Employer Mandate Delayed and/or Modified by Final Regulations

ACA Update: Employer Mandate Delayed and/or Modified by Final RegulationsIn July 2013, the government announced that the employer mandate portion of the Patient Protection and Affordable Care Act (PPACA) would be delayed until Jan. 1, 2015. On Feb. 10 of this year, the IRS issued final regulations regarding the employer shared responsibility penalty. While the full effect of these regulations has not yet been determined, there are some important pieces to highlight:

  • A new group of employers has been created – medium-sized employers, those with 50-99 full-time employees;
  • The start of the mandate for medium-sized employers has been delayed to 2016;
  • The coverage requirement for full-time employees will be phased in – 70% for 2015, 95% for 2016; and
  • Clarification on full-time employee classification is provided, especially concerning seasonal and variable-hour employees

William Graff is a manager in Katz, Sapper & Miller's Tax Department and a member of the firm's Healthcare Reform Steering Committee. For more information, contact William at 317.580.2067 or wgraff@ksmcpa.com.

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Report Details Effects of Personal Property Tax Law Changes

As Governor Pence and members of the Indiana State legislature continue to tackle the issue of personal property taxes, the Indiana Fiscal Policy Institute recently released a report detailing both major and insignificant impacts of the tax. Specifically, the report claims that taxes on equipment have little effect on decisions for businesses to relocate to other states. On the other hand, phasing out property taxes “could have a larger effect on relocation decisions from county to county within the state,” if local governments are allowed to make their own changes to the law. 

Mayors and local government leaders across Indiana are particularly concerned with whether replacement revenue will be received if the tax is phased out. With potential cuts to vital government-funded services such as police and fire departments, legislative leaders are seeking to avoid what Governor Pence referred to as unduly burdens on local governments. Suggested revenue replacement strategies include reducing the popular Research and Development tax credit, among others.

Both the Indiana House and Senate have passed personal property tax cut proposals, neither of which provides replacement revenues to coincide with the tax cuts. The blueprint issued from the House seeks to give counties the option to eliminate machinery and equipment from the tax entirely, while the Senate’s proposal removes the tax for smaller business, and includes an added focus on cutting State corporate income tax rates. Efforts to settle differences between the two proposals are expected to carry on to the end of the General Assembly session, which runs through mid-March.

Trent Gerbers is a staff accountant in Katz, Sapper & Miller’s Business Advisory Group. For more information, contact Trent at tgerbers@ksmcpa.com.

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Onshoring or Nearshoring?

Over the past few years, bringing manufacturing back to the United States - or onshoring - has been a hot topic in the manufacturing industry. With increasing wages, currency costs and transportation costs, many companies that previously offshored their manufacturing processes to China (and other low-cost countries) have had to reevaluate that decision. Some estimates suggest that the cost of manufacturing in China will be as high as the cost of manufacturing in the U.S. by as early as 2015. 

Although onshoring has been discussed for quite some time, and many speculated that it would happen, manufacturers are also beginning to "nearshore.” Nearshoring moves the manufacturing process out of low-cost countries and into lower-cost options close to the U.S., namely Mexico.

Mexico continues to have a low-cost labor market. Additionally, the transportation costs involved in getting products back to the United States are much lower. In an interview with Entrada Group, Jason King, vice president of AlixPartners, points to several key benefits of producing in Mexico compared to China. These benefits include:

  • Lower transportation and warehousing costs
  • Improved ability to respond to customer demands
  • Better control of intellectual property
  • Ease of proximate time zones between management and production
  • Cultural similarities between the U.S. and Mexican markets

What does this mean for manufacturing in the United States? Paula Romas, marketing director at MFI International, says, “I strongly believe North American companies should take advantage of nearshoring labor-intensive operations by establishing production sharing between the U.S., Canada and Mexico, and boosting economic activity within the region.” She continues, “Forty percent of Mexico’s exports to the United States consist of components made in the United States, primarily for the automotive industry. In China, that number drops to less than eight percent. By that logic, increasing Mexico’s manufacturing industry directly stimulates manufacturing jobs in the U.S. In turn, creating jobs in Mexico stimulates the Mexican economy, which increases Mexican imports from the United States.”

Justin Hayes is a manager in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.

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Manufacturing Leads the Way for Indiana

The Indiana Manufacturers Association's (IMA) Legislative Briefing, held January 15, 2014, highlighted the success of the manufacturing industry in Indiana. Currently, manufacturing is leading the state in several  categories including:

  • Direct employment
  • Gross state product
  • Wages
  • Benefits

Indiana manufacturing employment has continued to rise from an all-time low in mid-2009 to current payroll levels reported to be only 1.1% below the pre-recession peak. The future continues to look bright as forecasters expect the Indiana manufacturing sector to continue to rise above the other mid-western states, thanks largely in part to growth in automotive supply chains and the chemical industry. 

Indiana has continued to rank first in the Midwest and is in the top 5 nationally in several “business-friendly environment” surveys recently conducted. Indiana has attracted both national and global manufacturers with its numerous competitive advantages. 

According to the Indiana Economic Development Corporation (IEDC), “The state’s central location, the nation’s second-lowest workers compensation rates, one of the lowest electricity rates in the United States, and excellent transportation network – combined with a skilled and dedicated workforce – solidifies Indiana’s position as a worldwide manufacturing lead.” 

Furthermore, the Indiana Legislature continues to propose new bills that will play a major role in the future growth of manufacturing in the state of Indiana. Recent proposals include:

  • Personal property taxes: Indiana collected 29% of property tax revenue from residential property and 71% from non-residential property (mostly commercial and industrial). According to Katz, Sapper & Miller's 2013 Indiana Manufacturing Survey, property taxes are a top concern for manufacturers. The House Bill 1001 would allow the county income tax council to adopt an ordinance to exempt from property taxation any new business personal property (other than utility personal property) located in the county. The Senate Bill 1 is proposing a plan that would result in taxpayers with assessed value < $25,000 to not be required to file a return, thus exempt from taxation.
    Indiana Manufacturing Survey - Property Tax
  • Repeal of the 30% Floor Introduction: Regulation 50 I.A.C. 4.2-4-9(a) “Minimum Valuation” states “the total valuation of a taxpayer’s assessable depreciable personal property in a single taxing district cannot be less than thirty percent of the adjusted cost of all property of the taxpayer.”  Indiana is only 1 of 15 states with the adjusted cost approach and the only state with two floors.
  • C-Corporation Taxes: The corporate income tax rate has already been reduced from 8.5% and is set to decrease to 6.5% in 2015. The Senate Bill 1 would drop this rate even further to 4.9% by 2019, making Indiana corporate taxes one of the lowest in the nation.
  • Domestic Production Deduction: Indiana currently requires taxpayers add back to the state taxable income the amount claimed as a 9% federal deduction for qualified production activity income (QPAI) (House Bill 1038). Repeal of this “addback” would reduce state taxable income for both C corps and pass-through entities.
  • Hoosier Business Investment Tax Credits: Currently these credits are non-refundable, but the bill currently proposed (House Bill 1055) would make these credits refundable at IEDC discretion.

Key takeaways from the IMA briefing:

  1. Manufacturing is the leading industry in Indiana.
  2. Growth is expected in the near future for the manufacturing industry — both statewide and nationally.
  3. Several bills are being proposed that are taxpayer friendly, thus  helping to continue the momentum of manufacturing in Indiana.

These are just a few of the highlights Indiana has to be proud of and can build upon as it continues its efforts to entice manufacturing growth to the state. So far, so good — Indiana seems to be moving in the right direction.

Sarah Hammond is a manager in Katz, Sapper & Miller's Business Advisory Group. For more information, contact Sarah at 317.452.1070 or shammond@kscmcpa.com.


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Hubs: A Guide to the Future of U.S. Manufacturing

Washington’s newly touted “Hub” initiative seeks to rejuvenate American manufacturing and restore lost jobs to an industry which has experienced significant losses in recent years. President Obama first called on Congress in his 2013 State of the Union to create a network of manufacturing hubs across the nation. And he once again called for them in yesterday's address.

Manufacturing hubs will bring industry leaders, universitie, and federal research together under one roof to help develop the next generation of American manufacturing. The idea is that the regional level is the best place to work on technology-based development. Each region then needs to be anchored by hubs to solve our toughest problems.

The first hub was launched in Ohio last year to develop and train workers in 3-D printing technology. Just last week, a new hub in Raleigh, North Carolina, is slated to develop what are known as wide bandgap semiconductors. Simply put, semiconductors are at the heart of every piece of electronics we use daily and wide bandgap semiconductors use up to 90 percent less power and can operate at higher temperatures than normal semiconductors. The result is manufacturers being able to make products smaller, faster, and cheaper. 

The program is currently being funded with $200 million in existing federal money, and two new hubs are expected to be announced in the coming weeks. It is unknown if these hubs will actually spur job creation or drive the American manufacturing renaissance forward. Proponents to the program believe that there are other economic alternatives the government could be doing, such as lowering the corporate tax rate or speeding up the permitting for shale and oil production, which would bring down the cost of energy and attract energy-intensive manufacturing. 

No matter what the solution is, harnessing American innovation through a program of collective experts is the right step forward.

Tim Murphy is an accountant in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.

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Maximize the Value of Your Business Through an Exit Strategy

Maximize the Value of Your Business Through an Exit StrategyEvery business owner will eventually transfer their business interest. In some cases the interest will be transferred as part of a planned exit strategy. In other cases the transfer will be “forced” due to a significant change in the life of the owner such as death, disability or divorce. The important point to note is that it is not a matter of IF your business interest will be sold, it is a matter of when and what will trigger the sale. The key difference between a planned exit and an unplanned exit is the steps taken to maximize the cash received by the departing business owner (or their estate).  

When planning an exit strategy, there are three key questions every restaurant owner needs to ask:

1. Who could be a potential buyer for the business?

Potential buyers may include:

  • A family member
  • A current partner
  • Key management personnel
  • A competitor
  • Outside party

Planning ahead allows the seller/owner to position the business with a buyer who appreciates the business value, therefore providing the opportunity to maximize the selling price.

2. How much is the business really worth?

Unfortunately, many business owners have an inflated opinion on the value of their business. The business is worth what a qualified buyer will pay for it.  A thorough exit strategy will include a professional appraisal of the business’ value. An appraisal will also provide the business owner with information regarding the factors affecting the value, therefore creating the opportunity to improve these factors and ultimately value. Note:  If the IRS disputes the sales price or if there is disagreement between family members in an estate, a professional appraisal will provide a valuable point of reference as well.     

3. What are the tax implications of transferring the business?

From a tax standpoint there are basically three ways for your business to be transferred. A stock sale is considered a capital transaction and will be subject to the capital gains rules. An asset sale may include capital gains as well as various other ordinary income items. A gift will be subject to the gift and estate tax rules. Seeking a professional review of the tax implications of transferring the business interest will provide the opportunity to plan for and hopefully minimize the tax burden to the seller.

Keep in mind that an exit strategy is a fluid plan. Periodic reviews will be needed to account for changes in the market place, tax laws and the objectives of the owner.  

Jim White is a member of Katz, Sapper & Miller’s Restaurant Services Group. For more information regarding KSM’s restaurant-specific services, contact Jim at 317.452.1908 or jwhite@ksmcpa.com.

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Potential Personal Property Tax Cut to Affect Manufacturers

During his 2014 State of the State address, Governor Mike Pence emphasized his intentions of reforming the corporate tax structure throughout Indiana, specifically within the realms of corporate tax and business personal property tax. In conjunction with Pence’s focus on resolving these issues, the Senate Tax and Fiscal Policy Committee recently passed Senate Bill 1 by a vote of 7-2. The bill lowers the corporate income tax rate from 6.5% to 4.9% and eliminates the personal property tax for smaller businesses. Pence’s support for the bill comes in the hopes that the General Assembly will pass the bill, or something similar, into law.

Senate Bill 1 states that businesses with less than $25,000 in personal property would no longer be required to pay the corresponding tax. While this would save small employers a collective $25 million a year, many larger manufacturers would be unable to take advantage of the law. (Patrick J. Kiely, president of the Indiana Manufacturer’s Association, is in favor of exempting all manufacturers from the personal property tax.) Additionally, many manufacturers are concerned with another proposal inside the bill which reduces the Research and Development tax credit by 50% to supplement revenue lost.

For more information regarding personal property taxes, please consult your KSM tax advisor.

Trent Gerbers is a staff accountant in Katz, Sapper & Miller’s Business Advisory Group. For more information, contact Trent at tgerbers@ksmcpa.com.

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Indiana Statehouse Attacks the Manufacturing Skills Gap

The skills gap in the manufacturing industry is a hot topic right now. With the manufacturing industry being so vital to Indiana's economy, the skills gap has now gotten the attention of the Indiana legislature. State Representative Wendy McNamara has announced plans to author legislation that would create a Career and Technical Education (CTE) Diploma as an alternative to the Academic Honors or Core 40 Diplomas currently offered to high school students. The idea behind this would be that high school students will still build their skills in English, math and science, but under the CTE Diploma track it will all be in the context of a career that interests them.

"Manufacturers need workers skilled in Technical Writing, Technical Reading and Technical Communication, which students aren't given the opportunity under the Core 40 to develop and strengthen. Additionally, the same can be said for math skills acquired in Algebra and Geometry, in which Technical Math or Technical Problem Solving courses would make for a more successful member of the industrial work force," said Rep. McNamara. The full news release can be found here.

Justin Hayes is a manager in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.

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