November 2006 Investment Deductions Available to Taxpayers

Are your clients envious of new businesses moving to town and receiving tax abatement on a new plant or equipment?  They, too, often upgrade or expand their business building or install new equipment.  Why shouldn’t they receive a similar credit for their investment?  Well, now they can.

Starting in 2006 taxpayers who qualify can obtain a “capital investment deduction” on their property taxes by notifying local authorities and demonstrating their new business investment has either created or retained at least one local job.

The purpose of the new deduction is to provide an incentive for businesses to invest in new or renovated plant or manufacturing equipment before March 2009.  If any new employment is created or existing employment is retained, a taxpayer may receive a three-year phase-in of the property taxes from the increased assessment.  The first-year deduction is 75% of the increase in assessed value, the second-year is 50% of the increase, and the third-year is 25%.  The maximum available deduction for both real estate improvements and personal property is $2 million.

In the case of traditional tax abatement the taxpayer can normally seek abatement only in areas designated as an “economic revitalization area” and must apply for approval with municipal or county authorities before making the investment.  But with the new capital investment deduction, there is no requirement of advance approval.  Once an investment is made that leads to increased employment and assessment, the taxpayer claims the deduction merely by filing the required forms with the township assessor.

As with traditional tax abatement, some taxpayers are not eligible for the deduction.  Ineligible taxpayers include various recreational facilities, suntan businesses, package liquor stores, retail businesses, and most residential uses.  But others that pay business property taxes, including farms and agribusiness, are eligible so long as they are not already receiving traditional tax abatement or are not located within a TIF district.

To obtain the deduction for real estate improvements, the taxpayer must file a Form RPID-1 with the township assessor.  It must be filed by May 10th of each year or within thirty days after receipt of notice of the assessed value of the new or renovated structure.  That notice comes from the local assessor on a Form 11.

In the case of manufacturing equipment, the deduction is claimed on a Form PPID-1.  It is due each May along with the personal property tax returns filed with the township assessor.

Along with the deduction forms, the taxpayer should provide supporting explanation about the employment levels created or maintained by the new investment.  If taxing authorities reject the application, an appeal process is available.

Further information about the deduction process and forms may be obtained from county and township assessors.  It is also available from the Indiana Department of Local Government Finance website at www.in.gov/dlgf/.  The new law is found at Ind. Code §§ 6-1.1-12.4.

Kent Frandsen is a partner in the law firm of Parr Richey Frandsen Patterson Kruse LLP with offices in Lebanon and Indianapolis.  He serves as general counsel to the Indiana CPA Society and often represents businesses in seeking tax abatement on new investments.

November 2006

The statements contained herein are matters of opinion and general information only and are not to be considered legal advice and should not be construed to form an attorney-client relationship.  If you have any questions regarding this article, please contact an attorney.