Introduced Version






HOUSE BILL No. 1365

_____


DIGEST OF INTRODUCED BILL



Citations Affected: IC 6-2.5; IC 6-3; IC 6-4.1-1-3; IC 6-5.5-1; IC 6-2.5-5-15.

Synopsis: Various state tax matters. Makes the following changes to the sales and use tax: (1) Grants a credit against Indiana use tax for sales tax paid in another state for a vehicle, a watercraft, or an aircraft. (2) Makes the furnishing of satellite television service, cable radio service, and satellite radio service a retail transaction. (3) Indicates that a deduction for sales tax paid on a purchase price that becomes uncollectible is not assignable. Requires interest and intangible expenses incurred in certain related member transactions and taken as a deduction for federal income tax purposes to be added back to income for adjusted gross income and financial institutions tax purposes. Makes the following changes to the adjusted gross income tax: (1) Changes the method of calculating the Indiana net operating loss deduction. (2) Eliminates the carryback of net operating loss deductions. Repeals the sales tax credit for sales of motor vehicles, trailers, watercraft, and aircraft that are sold in Indiana and titled or registered in another state.

Effective: January 1, 2004 (retroactive); March 1, 2004 (retroactive); July 1, 2004.





Cochran, Liggett, Kuzman




    January 20, 2004, read first time and referred to Committee on Ways and Means.







Introduced

Second Regular Session 113th General Assembly (2004)


PRINTING CODE. Amendments: Whenever an existing statute (or a section of the Indiana Constitution) is being amended, the text of the existing provision will appear in this style type, additions will appear in this style type, and deletions will appear in this style type.
Additions: Whenever a new statutory provision is being enacted (or a new constitutional provision adopted), the text of the new provision will appear in this style type. Also, the word NEW will appear in that style type in the introductory clause of each SECTION that adds a new provision to the Indiana Code or the Indiana Constitution.
Conflict reconciliation: Text in a statute in this style type or this style type reconciles conflicts between statutes enacted by the 2003 Regular Session of the General Assembly.

HOUSE BILL No. 1365



    A BILL FOR AN ACT to amend the Indiana Code concerning taxation.

Be it enacted by the General Assembly of the State of Indiana:

SOURCE: IC 6-2.5-3-5; (04)IN1365.1.1. -->     SECTION 1. IC 6-2.5-3-5 IS AMENDED TO READ AS FOLLOWS [EFFECTIVE JULY 1, 2004]: Sec. 5. (a) A person is entitled to a credit against the use tax imposed on the use, storage, or consumption of a particular item of tangible personal property equal to the amount, if any, of sales tax, purchase tax, or use tax paid to another state, territory, or possession of the United States for the acquisition of that property.
    (b) The credit provided under subsection (a) does not apply to the use tax imposed on the use, storage, or consumption of vehicles, watercraft, or aircraft that are required to be titled, registered, or licensed by Indiana.
SOURCE: IC 6-2.5-4-11; (04)IN1365.1.2. -->     SECTION 2. IC 6-2.5-4-11 IS AMENDED TO READ AS FOLLOWS [EFFECTIVE MARCH 1, 2004 (RETROACTIVE)]: Sec. 11. (a) A person is a retail merchant making a retail transaction when he the person furnishes local cable television or radio service or intrastate cable satellite television or radio service that terminates in Indiana.
    (b) Notwithstanding subsection (a), a person is not a retail merchant making a retail transaction when the person provides, installs, constructs, services, or removes tangible personal property which is used in connection with the furnishing of local cable television or radio service or intrastate cable satellite or radio television service.
SOURCE: IC 6-2.5-6-9; (04)IN1365.1.3. -->     SECTION 3. IC 6-2.5-6-9, AS AMENDED BY P.L.257-2003, SECTION 30, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE JULY 1, 2004]: Sec. 9. (a) In determining the amount of state gross retail and use taxes which he a retail merchant must remit under section 7 of this chapter, a the retail merchant shall, subject to subsection subsections (c) and (d), deduct from his the retail merchant's gross retail income from retail transactions made during a particular reporting period, an amount equal to his the retail merchant's receivables which:
        (1) resulted from retail transactions in which the retail merchant did not collect the state gross retail or use tax from the purchaser;
        (2) resulted from retail transactions on which the retail merchant has previously paid the state gross retail or use tax liability to the department; and
        (3) were written off as an uncollectible debt for federal tax purposes under Section 166 of the Internal Revenue Code during the particular reporting period.
    (b) If a retail merchant deducts a receivable under subsection (a) and subsequently collects all or part of that receivable, then the retail merchant shall, subject to subsection (c)(6), (d)(6), include the amount collected as part of his the retail merchant's gross retail income from retail transactions for the particular reporting period in which he the retail merchant makes the collection.
    (c) The right to a deduction under this section is not assignable.
     (d) The following provisions apply to a deduction for a receivable treated as uncollectible debt under subsection (a):
        (1) The deduction does not include interest.
        (2) The amount of the deduction shall be determined in the manner provided by Section 166 of the Internal Revenue Code for bad debts but shall be adjusted to exclude:
            (A) financing charges or interest;
            (B) sales or use taxes charged on the purchase price;
            (C) uncollectible amounts on property that remain in the possession of the seller until the full purchase price is paid;
            (D) expenses incurred in attempting to collect any debt; and
            (E) repossessed property.
        (3) The deduction shall be claimed on the return for the period

during which the receivable is written off as uncollectible in the claimant's books and records and is eligible to be deducted for federal income tax purposes. For purposes of this subdivision, a claimant who is not required to file federal income tax returns may deduct an uncollectible receivable on a return filed for the period in which the receivable is written off as uncollectible in the claimant's books and records and would be eligible for a bad debt deduction for federal income tax purposes if the claimant were required to file a federal income tax return.
        (4) If the amount of uncollectible receivables claimed as a deduction by a retail merchant for a particular reporting period exceeds the amount of the retail merchant's taxable sales for that reporting period, the retail merchant may file a refund claim under IC 6-8.1-9. However, the deadline for the refund claim shall be measured from the due date of the return for the reporting period on which the deduction for the uncollectible receivables could first be claimed.
        (5) If a retail merchant's filing responsibilities have been assumed by a certified service provider (as defined in IC 6-2.5-11-2), the certified service provider may claim, on behalf of the retail merchant, any deduction or refund for uncollectible receivables provided by this section. The certified service provider must credit or refund the full amount of any deduction or refund received to the retail merchant.
        (6) For purposes of reporting a payment received on a previously claimed uncollectible receivable, any payments made on a debt or account shall be applied first proportionally to the taxable price of the property and the state gross retail tax or use tax thereon, and secondly to interest, service charges, and any other charges.
        (7) A retail merchant claiming a deduction for an uncollectible receivable may allocate that receivable among the states that are members of the streamlined sales and use tax agreement if the books and records of the retail merchant support that allocation.

SOURCE: IC 6-3-1-3.5; (04)IN1365.1.4. -->     SECTION 4. IC 6-3-1-3.5, AS AMENDED BY P.L.1-2004, SECTION 49, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE JANUARY 1, 2004 (RETROACTIVE)]: Sec. 3.5. When used in this article, the term "adjusted gross income" shall mean the following:
    (a) In the case of all individuals, "adjusted gross income" (as defined in Section 62 of the Internal Revenue Code), modified as follows:
        (1) Subtract income that is exempt from taxation under this article by the Constitution and statutes of the United States.
        (2) Add an amount equal to any deduction or deductions allowed or allowable pursuant to Section 62 of the Internal Revenue Code for taxes based on or measured by income and levied at the state level by any state of the United States.
        (3) Subtract one thousand dollars ($1,000), or in the case of a joint return filed by a husband and wife, subtract for each spouse one thousand dollars ($1,000).
        (4) Subtract one thousand dollars ($1,000) for:
            (A) each of the exemptions provided by Section 151(c) of the Internal Revenue Code;
            (B) each additional amount allowable under Section 63(f) of the Internal Revenue Code; and
            (C) the spouse of the taxpayer if a separate return is made by the taxpayer and if the spouse, for the calendar year in which the taxable year of the taxpayer begins, has no gross income and is not the dependent of another taxpayer.
        (5) Subtract:
            (A) one thousand five hundred dollars ($1,500) for each of the exemptions allowed under Section 151(c)(1)(B) of the Internal Revenue Code for taxable years beginning after December 31, 1996; and
            (B) five hundred dollars ($500) for each additional amount allowable under Section 63(f)(1) of the Internal Revenue Code if the adjusted gross income of the taxpayer, or the taxpayer and the taxpayer's spouse in the case of a joint return, is less than forty thousand dollars ($40,000).
        This amount is in addition to the amount subtracted under subdivision (4).
        (6) Subtract an amount equal to the lesser of:
            (A) that part of the individual's adjusted gross income (as defined in Section 62 of the Internal Revenue Code) for that taxable year that is subject to a tax that is imposed by a political subdivision of another state and that is imposed on or measured by income; or
            (B) two thousand dollars ($2,000).
        (7) Add an amount equal to the total capital gain portion of a lump sum distribution (as defined in Section 402(e)(4)(D) of the Internal Revenue Code) if the lump sum distribution is received by the individual during the taxable year and if the capital gain portion of the distribution is taxed in the manner provided in Section 402 of the Internal Revenue Code.
        (8) Subtract any amounts included in federal adjusted gross

income under Section 111 of the Internal Revenue Code as a recovery of items previously deducted as an itemized deduction from adjusted gross income.
        (9) Subtract any amounts included in federal adjusted gross income under the Internal Revenue Code which amounts were received by the individual as supplemental railroad retirement annuities under 45 U.S.C. 231 and which are not deductible under subdivision (1).
        (10) Add an amount equal to the deduction allowed under Section 221 of the Internal Revenue Code for married couples filing joint returns if the taxable year began before January 1, 1987.
        (11) Add an amount equal to the interest excluded from federal gross income by the individual for the taxable year under Section 128 of the Internal Revenue Code if the taxable year began before January 1, 1985.
        (12) Subtract an amount equal to the amount of federal Social Security and Railroad Retirement benefits included in a taxpayer's federal gross income by Section 86 of the Internal Revenue Code.
        (13) In the case of a nonresident taxpayer or a resident taxpayer residing in Indiana for a period of less than the taxpayer's entire taxable year, the total amount of the deductions allowed pursuant to subdivisions (3), (4), (5), and (6) shall be reduced to an amount which bears the same ratio to the total as the taxpayer's income taxable in Indiana bears to the taxpayer's total income.
        (14) In the case of an individual who is a recipient of assistance under IC 12-10-6-1, IC 12-10-6-2.1, IC 12-15-2-2, or IC 12-15-7, subtract an amount equal to that portion of the individual's adjusted gross income with respect to which the individual is not allowed under federal law to retain an amount to pay state and local income taxes.
        (15) In the case of an eligible individual, subtract the amount of a Holocaust victim's settlement payment included in the individual's federal adjusted gross income.
        (16) For taxable years beginning after December 31, 1999, subtract an amount equal to the portion of any premiums paid during the taxable year by the taxpayer for a qualified long term care policy (as defined in IC 12-15-39.6-5) for the taxpayer or the taxpayer's spouse, or both.
        (17) Subtract an amount equal to the lesser of:
            (A) for a taxable year:
                (i) including any part of 2004, the amount determined under subsection (f); and


                (ii) beginning after December 31, 2004, two thousand five hundred dollars ($2,500); or
            (B) the amount of property taxes that are paid during the taxable year in Indiana by the individual on the individual's principal place of residence.
        (18) Subtract an amount equal to the amount of a September 11 terrorist attack settlement payment included in the individual's federal adjusted gross income.
        (19) Add or subtract the amount necessary to make the adjusted gross income of any taxpayer that owns property for which bonus depreciation was allowed in the current taxable year or in an earlier taxable year equal to the amount of adjusted gross income that would have been computed had an election not been made under Section 168(k)(2)(C)(iii) of the Internal Revenue Code to apply bonus depreciation to the property in the year that it was placed in service.
         (20) Add an amount equal to:
            (A) interest expenses and costs; and
            (B) intangible expenses and costs;
        directly or indirectly paid, accrued, or incurred to or in connection with one (1) or more transactions with one (1) or more related members in the taxable year.
        (21) Add an amount equal to the deduction allowed under Section 172 of the Internal Revenue Code for net operating losses.

    (b) In the case of corporations, the same as "taxable income" (as defined in Section 63 of the Internal Revenue Code) adjusted as follows:
        (1) Subtract income that is exempt from taxation under this article by the Constitution and statutes of the United States.
        (2) Add an amount equal to any deduction or deductions allowed or allowable pursuant to Section 170 of the Internal Revenue Code.
        (3) Add an amount equal to any deduction or deductions allowed or allowable pursuant to Section 63 of the Internal Revenue Code for taxes based on or measured by income and levied at the state level by any state of the United States.
        (4) Subtract an amount equal to the amount included in the corporation's taxable income under Section 78 of the Internal Revenue Code.
        (5) Add or subtract the amount necessary to make the adjusted gross income of any taxpayer that owns property for which bonus

depreciation was allowed in the current taxable year or in an earlier taxable year equal to the amount of adjusted gross income that would have been computed had an election not been made under Section 168(k)(2)(C)(iii) of the Internal Revenue Code to apply bonus depreciation to the property in the year that it was placed in service.
         (6) Add an amount equal to:
            (A) interest expenses and costs; and
            (B) intangible expenses and costs;
        directly or indirectly paid, accrued, or incurred to or in connection with one (1) or more transactions with one (1) or more related members in the taxable year.

        (7) Add an amount equal to the deduction allowed under Section 172 of the Internal Revenue Code for net operating losses.
    (c) In the case of life insurance companies (as defined in Section 816(a) of the Internal Revenue Code) that are organized under Indiana law, the same as "life insurance company taxable income" (as defined in Section 801 of the Internal Revenue Code), adjusted as follows:
        (1) Subtract income that is exempt from taxation under this article by the Constitution and statutes of the United States.
        (2) Add an amount equal to any deduction allowed or allowable under Section 170 of the Internal Revenue Code.
        (3) Add an amount equal to a deduction allowed or allowable under Section 805 or Section 831(c) of the Internal Revenue Code for taxes based on or measured by income and levied at the state level by any state.
        (4) Subtract an amount equal to the amount included in the company's taxable income under Section 78 of the Internal Revenue Code.
        (5) Add or subtract the amount necessary to make the adjusted gross income of any taxpayer that owns property for which bonus depreciation was allowed in the current taxable year or in an earlier taxable year equal to the amount of adjusted gross income that would have been computed had an election not been made under Section 168(k)(2)(C)(iii) of the Internal Revenue Code to apply bonus depreciation to the property in the year that it was placed in service.
         (6) Add an amount equal to:
            (A) interest expenses and costs; and
            (B) intangible expenses and costs;
        directly or indirectly paid, accrued, or incurred to or in

connection with one (1) or more transactions with one (1) or more related members in the taxable year.
    (d) In the case of insurance companies subject to tax under Section 831 of the Internal Revenue Code and organized under Indiana law, the same as "taxable income" (as defined in Section 832 of the Internal Revenue Code), adjusted as follows:
        (1) Subtract income that is exempt from taxation under this article by the Constitution and statutes of the United States.
        (2) Add an amount equal to any deduction allowed or allowable under Section 170 of the Internal Revenue Code.
        (3) Add an amount equal to a deduction allowed or allowable under Section 805 or Section 831(c) of the Internal Revenue Code for taxes based on or measured by income and levied at the state level by any state.
        (4) Subtract an amount equal to the amount included in the company's taxable income under Section 78 of the Internal Revenue Code.
        (5) Add or subtract the amount necessary to make the adjusted gross income of any taxpayer that owns property for which bonus depreciation was allowed in the current taxable year or in an earlier taxable year equal to the amount of adjusted gross income that would have been computed had an election not been made under Section 168(k)(2)(C)(iii) of the Internal Revenue Code to apply bonus depreciation to the property in the year that it was placed in service.
         (6) Add an amount equal to:
            (A) interest expenses and costs; and
            (B) intangible expenses and costs;
        directly or indirectly paid, accrued, or incurred to or in connection with one (1) or more transactions with one (1) or more related members
in the taxable year.
    (e) In the case of trusts and estates, "taxable income" (as defined for trusts and estates in Section 641(b) of the Internal Revenue Code) adjusted as follows:
        (1) Subtract income that is exempt from taxation under this article by the Constitution and statutes of the United States.
        (2) Subtract an amount equal to the amount of a September 11 terrorist attack settlement payment included in the federal adjusted gross income of the estate of a victim of the September 11 terrorist attack or a trust to the extent the trust benefits a victim of the September 11 terrorist attack.
        (3) Add or subtract the amount necessary to make the adjusted

gross income of any taxpayer that owns property for which bonus depreciation was allowed in the current taxable year or in an earlier taxable year equal to the amount of adjusted gross income that would have been computed had an election not been made under Section 168(k)(2)(C)(iii) of the Internal Revenue Code to apply bonus depreciation to the property in the year that it was placed in service.
         (4) Add an amount equal to:
            (A) interest expenses and costs; and
            (B) intangible expenses and costs;
        directly or indirectly paid, accrued, or incurred to or in connection with one (1) or more transactions with one (1) or more related members in the taxable year.

        (5) Add an amount equal to the deduction allowed under Section 642(d) of the Internal Revenue Code for net operating losses.
    (f) This subsection applies only to the extent that an individual paid property taxes in 2004 that were imposed for the March 1, 2002, assessment date or the January 15, 2003, assessment date. The maximum amount of the deduction under subsection (a)(17) is equal to the amount determined under STEP FIVE of the following formula:
        STEP ONE: Determine the amount of property taxes that the taxpayer paid after December 31, 2003, in the taxable year for property taxes imposed for the March 1, 2002, assessment date and the January 15, 2003, assessment date.
        STEP TWO: Determine the amount of property taxes that the taxpayer paid in the taxable year for the March 1, 2003, assessment date and the January 15, 2004, assessment date.
        STEP THREE: Determine the result of the STEP ONE amount divided by the STEP TWO amount.
        STEP FOUR: Multiply the STEP THREE amount by two thousand five hundred dollars ($2,500).
        STEP FIVE: Determine the sum of the STEP THREE amount and two thousand five hundred dollars ($2,500).

SOURCE: IC 6-3-1-34; (04)IN1365.1.5. -->     SECTION 5. IC 6-3-1-34 IS ADDED TO THE INDIANA CODE AS A NEW SECTION TO READ AS FOLLOWS [EFFECTIVE JANUARY 1, 2004 (RETROACTIVE)]: Sec. 34. For purposes of this chapter, "intangible investments" means investments in:
        (1) stocks;
        (2) bonds;
        (3) notes;
        (4) interests in a partnership;
        (5) patents;
        (6) patent applications;
        (7) trademarks;
        (8) trade names;
        (9) copyrights;
        (10) similar types of intangible assets; and
        (11) other debt obligations, including debt obligations of related members.

SOURCE: IC 6-3-1-35; (04)IN1365.1.6. -->     SECTION 6. IC 6-3-1-35 IS ADDED TO THE INDIANA CODE AS A NEW SECTION TO READ AS FOLLOWS [EFFECTIVE JANUARY 1, 2004 (RETROACTIVE)]: Sec. 35. For purposes of this chapter, "related member" means any of the following:
        (1) An entity whose activities, in one (1) state, are primarily:
            (A) the maintenance and management of intangible investments, including the intangible investments of corporations, including business trusts, and other entities registered as investment companies under the federal Investment Company Act of 1940; and
            (B) the collection and distribution of the income from:
                (i) investments described in clause (A); or
                (ii) tangible property physically located outside that state.
        (2) An entity that is:
            (A) a personal holding company; or
            (B) directly, indirectly, constructively, or beneficially owned in whole or in part by a personal holding company;
        (as defined in Section 542 of the Internal Revenue Code without regard to the stock ownership requirements set forth in Section 542(a)(2) of the Internal Revenue Code).
        (3) An entity that is a foreign personal holding company (as defined in Section 552 of the Internal Revenue Code).
        (4) Any entity that:
            (A) is not a corporation; and
            (B) is directly, indirectly, constructively, or beneficially owned in whole or in part by a foreign personal holding company (as defined in Section 552 of the Internal Revenue Code).

SOURCE: IC 6-3-1-36; (04)IN1365.1.7. -->     SECTION 7. IC 6-3-1-36 IS ADDED TO THE INDIANA CODE AS A NEW SECTION TO READ AS FOLLOWS [EFFECTIVE JANUARY 1, 2004 (RETROACTIVE)]: Sec. 36. (a) As used in this chapter, "intangible expenses and costs" includes expenses, losses, and costs for, related to, or in connection directly or indirectly with

the direct or indirect:
        (1) acquisition;
        (2) use;
        (3) maintenance or management;
        (4) ownership;
        (5) sale; or
        (6) exchange;
of, or any other direct or indirect disposition of, intangible property to the extent that the amounts are allowed as deductions or costs in determining taxable income before operating loss deductions and special deductions for the taxable year under the Internal Revenue Code.
    (b) The term includes losses related to or incurred in connection directly or indirectly with:
        (1) factoring transactions;
        (2) losses related to or incurred in connection directly or indirectly with:
            (A) discounting transactions;
            (B) royalty, patent, technical, and copyright fees;
            (C) licensing fees; and
            (D) other similar expenses and costs.

SOURCE: IC 6-3-1-37; (04)IN1365.1.8. -->     SECTION 8. IC 6-3-1-37 IS ADDED TO THE INDIANA CODE AS A NEW SECTION TO READ AS FOLLOWS [EFFECTIVE JANUARY 1, 2004 (RETROACTIVE)]: Sec. 37. For purposes of this chapter, "interest expenses and costs" includes amounts directly or indirectly allowed as deductions under Section 163 of the Internal Revenue Code for purposes of determining taxable income under the Internal Revenue Code.
SOURCE: IC 6-3-2-2.5; (04)IN1365.1.9. -->     SECTION 9. IC 6-3-2-2.5 IS AMENDED TO READ AS FOLLOWS [EFFECTIVE JANUARY 1, 2004 (RETROACTIVE)]: Sec. 2.5. (a) This section applies to a resident person. for a particular taxable year, if the taxpayer's adjusted gross income for that taxable year is reduced because of a deduction allowed under Section 172 of the Internal Revenue Code for a net operating loss. For purposes of section 1 of this chapter, the taxpayer's adjusted gross income, for the particular taxable year, is the remainder determined under STEP FOUR of the following formula:
        STEP ONE: Determine the taxpayer's adjusted gross income, for the taxable year, as calculated without the deduction for net operating losses provided by Section 172 of the Internal Revenue Code.
        STEP TWO: Determine, in the manner prescribed in subsection

(b), the amount of the taxpayer's net operating losses that are deductible for the taxable year under Section 172 of the Internal Revenue Code, as adjusted to reflect the modifications required by IC 6-3-1-3.5.
        STEP THREE: Enter the larger of zero (0) or the amount determined under STEP TWO.
        STEP FOUR: Subtract the amount entered under STEP THREE from the amount determined under STEP ONE.
    (b) For purposes of STEP TWO of subsection (a), the modifications that are to be applied are those modifications required under IC 6-3-1-3.5 for the same taxable year during which each net operating loss was incurred. In addition, for purposes of STEP TWO of subsection (a), the following procedures apply:
        (1) The taxpayer's net operating loss for a particular taxable year shall be treated as a positive number.
        (2) A modification that is to be added to federal adjusted gross income or federal taxable income under IC 6-3-1-3.5 shall be treated as a negative number.
        (3) A modification that is to be subtracted from federal adjusted gross income or federal taxable income under IC 6-3-1-3.5 shall be treated as a positive number.
    (b) Resident persons are entitled to a net operating loss deduction.
    (c) The Indiana net operating loss is equal to the taxpayer's federal net operating loss, calculated according to Section 172 of the Internal Revenue Code, adjusted for the modifications required by IC 6-3-1-3.5, represented as a positive number.
    (d) Subject to the limitations contained in subsection (e), the amount calculated in subsection (c) shall be available as a deduction from the taxpayer's adjusted gross income (as defined in IC 6-3-1-3.5) in future taxable years. The deduction may be taken only after all other deductions from adjusted gross income allowed under this chapter have been taken.
    (e) An amount remaining after the deduction is taken in a taxable year may be carried forward to the following taxable years. The amount of the deduction carried forward from a taxable year shall be reduced to the extent that the carry forward is used by the taxpayer to obtain a deduction in a taxable year until the occurrence of the earlier of the following:
        (1) The entire amount of the deduction is taken.
        (2) Twenty (20) years after the year in which the net operating loss was incurred.


A net operating loss deduction may not be carried back.
SOURCE: IC 6-3-2-2.6; (04)IN1365.1.10. -->     SECTION 10. IC 6-3-2-2.6, AS AMENDED BY P.L.192-2002(ss), SECTION 73, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE JANUARY 1, 2004 (RETROACTIVE)]: Sec. 2.6. (a) This section applies to a corporation or a nonresident person. for a particular taxable year, if the taxpayer's adjusted gross income for that taxable year is reduced because of a deduction allowed under Section 172 of the Internal Revenue Code for a net operating loss. For purposes of section 1 of this chapter, the taxpayer's adjusted gross income, for the particular taxable year, derived from sources within Indiana is the remainder determined under STEP FOUR of the following formula:
        STEP ONE: Determine, in the manner prescribed in section 2 of this chapter, the taxpayer's adjusted gross income, for the taxable year, derived from sources within Indiana, as calculated without the deduction for net operating losses provided by Section 172 of the Internal Revenue Code.
        STEP TWO: Determine, in the manner prescribed in subsection (b), the amount of the taxpayer's net operating losses that are deductible for the taxable year under Section 172 of the Internal Revenue Code, as adjusted to reflect the modifications required by IC 6-3-1-3.5, and that are derived from sources within Indiana.
        STEP THREE: Enter the larger of zero (0) or the amount determined under STEP TWO.
        STEP FOUR: Subtract the amount entered under STEP THREE from the amount determined under STEP ONE.
    (b) For purposes of STEP TWO of subsection (a), the modifications that are to be applied are those modifications required under IC 6-3-1-3.5 for the same taxable year during which each net operating loss was incurred. In addition, for purposes of STEP TWO of subsection (a), the amount of a taxpayer's net operating losses that are derived from sources within Indiana shall be determined in the same manner that the amount of the taxpayer's income derived from sources within Indiana is determined, under section 2 of this chapter, for the same taxable year during which each loss was incurred. Also, for purposes of STEP TWO of subsection (a), the following procedures apply:
        (1) The taxpayer's net operating loss for a particular taxable year shall be treated as a positive number.
        (2) A modification that is to be added to federal adjusted gross income or federal taxable income under IC 6-3-1-3.5 shall be treated as a negative number.
        (3) A modification that is to be subtracted from federal adjusted

gross income or federal taxable income under IC 6-3-1-3.5 shall be treated as a positive number.
        (4) A net operating loss under this section shall be considered even though in the year the taxpayer incurred the loss the taxpayer was not subject to the tax imposed under section 1 of this chapter because the taxpayer was:
            (A) a life insurance company (as defined in Section 816(a) of the Internal Revenue Code); or
    (B) an insurance company subject to tax under Section 831 of the Internal Revenue Code.
    (b) Corporations and nonresident persons are entitled to a net operating loss deduction. The amount of the deduction taken in a taxable year may not exceed the taxpayer's unused Indiana net operating losses carried forward for use in that year.
    (c) The Indiana net operating loss is equal to:
        (1) the taxpayer's federal net operating loss, calculated according to Section 172 of the Internal Revenue Code, adjusted for the modifications required by IC 6-3-1-3.5, represented as a positive number; multiplied by
        (2) the taxpayer's Indiana apportionment percentage as determined under section 2 of this chapter for the same year that the federal loss was incurred.
    (d) Subject to the limitations contained in subsection (e), the amount calculated in subsection (c) shall be available as a deduction from the taxpayer's adjusted gross income (as defined in IC 6-3-1-3.5) in future taxable years. The deduction shall be taken only after all other deductions from adjusted gross income allowed under this chapter have been taken.
    (e) An amount remaining after the deduction is taken in a taxable year may be carried forward to the following taxable years. The amount of the deduction carried forward from a taxable year shall be reduced to the extent that the carry forward is used by the taxpayer to obtain a deduction in a taxable year until the occurrence of the earlier of the following:
        (1) The entire amount of the deduction is taken.
        (2) Twenty (20) years after the year in which the net operating loss was incurred.

A net operating loss deduction may not be carried back.

SOURCE: IC 6-4.1-1-3; (04)IN1365.1.11. -->     SECTION 11. IC 6-4.1-1-3 IS AMENDED TO READ AS FOLLOWS [EFFECTIVE JULY 1, 2004]: Sec. 3. (a) "Class A transferee" means a transferee who is a lineal ancestor or lineal descendant of the transferor.
    (b) "Class B transferee" means a transferee who is a:
        (1) brother or sister of the transferor;
        (2) descendant of a brother or sister of the transferor; or
        (3) spouse, widow, or widower of a child of the transferor.
    (c) "Class C transferee" means a transferee, except a surviving spouse, who is neither a Class A nor a Class B transferee.
    (d) For purposes of this section, a legally adopted child is to be treated as if he the child were the natural child of his the child's adopting parent if the adoption occurred before the individual was totally emancipated. For purposes of this section, if a relationship of loco parentis has existed for at least ten (10) years and if the relationship began before the child's fifteenth birthday, the child is to be considered the natural child of the loco parentis parent.
SOURCE: IC 6-5.5-1-2; (04)IN1365.1.12. -->     SECTION 12. IC 6-5.5-1-2, AS AMENDED BY P.L.105-2003, SECTION 4, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE JANUARY 1, 2004 (RETROACTIVE)]: Sec. 2. (a) Except as provided in subsections (b) through (d), "adjusted gross income" means taxable income as defined in Section 63 of the Internal Revenue Code, adjusted as follows:
        (1) Add the following amounts:
            (A) An amount equal to a deduction allowed or allowable under Section 166, Section 585, or Section 593 of the Internal Revenue Code.
            (B) An amount equal to a deduction allowed or allowable under Section 170 of the Internal Revenue Code.
            (C) An amount equal to a deduction or deductions allowed or allowable under Section 63 of the Internal Revenue Code for taxes based on or measured by income and levied at the state level by a state of the United States or levied at the local level by any subdivision of a state of the United States.
            (D) The amount of interest excluded under Section 103 of the Internal Revenue Code or under any other federal law, minus the associated expenses disallowed in the computation of taxable income under Section 265 of the Internal Revenue Code.
            (E) An amount equal to the deduction allowed under Section 172 or 1212 of the Internal Revenue Code for net operating losses or net capital losses.
            (F) For a taxpayer that is not a large bank (as defined in Section 585(c)(2) of the Internal Revenue Code), an amount equal to the recovery of a debt, or part of a debt, that becomes worthless to the extent a deduction was allowed from gross

income in a prior taxable year under Section 166(a) of the Internal Revenue Code.
            (G) Add The amount necessary to make the adjusted gross income of any taxpayer that owns property for which bonus depreciation was allowed in the current taxable year or in an earlier taxable year equal to the amount of adjusted gross income that would have been computed had an election not been made under Section 168(k)(2)(C)(iii) of the Internal Revenue Code to apply bonus depreciation to the property in the year that it was placed in service.
             (H) An amount equal to:
                (i) interest expenses and costs; and
                (ii) intangible expenses and costs;
            directly or indirectly paid, accrued, or incurred to or in connection with one (1) or more transactions with one (1) or more related members in the taxable year.

        (2) Subtract the following amounts:
            (A) Income that the United States Constitution or any statute of the United States prohibits from being used to measure the tax imposed by this chapter.
            (B) Income that is derived from sources outside the United States, as defined by the Internal Revenue Code.
            (C) An amount equal to a debt or part of a debt that becomes worthless, as permitted under Section 166(a) of the Internal Revenue Code.
            (D) An amount equal to any bad debt reserves that are included in federal income because of accounting method changes required by Section 585(c)(3)(A) or Section 593 of the Internal Revenue Code.
            (E) Subtract The amount necessary to make the adjusted gross income of any taxpayer that owns property for which bonus depreciation was allowed in the current taxable year or in an earlier taxable year equal to the amount of adjusted gross income that would have been computed had an election not been made under Section 168(k)(2)(C)(iii) of the Internal Revenue Code to apply bonus depreciation.
    (b) In the case of a credit union, "adjusted gross income" for a taxable year means the total transfers to undivided earnings minus dividends for that taxable year after statutory reserves are set aside under IC 28-7-1-24.
    (c) In the case of an investment company, "adjusted gross income" means the sum of the company's federal taxable income, as adjusted

under subsection (e), multiplied by the quotient of:
        (1) the aggregate of the gross payments collected by the company during the taxable year from old and new business upon investment contracts issued by the company and held by residents of Indiana; divided by
        (2) the total amount of gross payments collected during the taxable year by the company from the business upon investment contracts issued by the company and held by persons residing within Indiana and elsewhere.
    (d) As used in subsection (c), "investment company" means a person, copartnership, association, limited liability company, or corporation, whether domestic or foreign, that:
        (1) is registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.); and
        (2) solicits or receives a payment to be made to itself and issues in exchange for the payment:
            (A) a so-called bond;
            (B) a share;
            (C) a coupon;
            (D) a certificate of membership;
            (E) an agreement;
            (F) a pretended agreement; or
            (G) other evidences of obligation;
        entitling the holder to anything of value at some future date, if the gross payments received by the company during the taxable year on outstanding investment contracts, plus interest and dividends earned on those contracts (by prorating the interest and dividends earned on investment contracts by the same proportion that certificate reserves (as defined by the Investment Company Act of 1940) is to the company's total assets) is at least fifty percent (50%) of the company's gross payments upon investment contracts plus gross income from all other sources except dividends from subsidiaries for the taxable year. The term "investment contract" means an instrument listed in clauses (A) through (G).
     (e) The federal adjusted gross income of an investment company shall be adjusted by adding an amount equal to:
        (1) interest expenses and costs; and
        (2) intangible expenses and costs;
directly or indirectly paid, accrued, or incurred to or in connection with one (1) or more transactions with one (1) or more related members
in the taxable year.


SOURCE: IC 6-5.5-1-10.5; (04)IN1365.1.13. -->     SECTION 13. IC 6-5.5-1-10.5 IS ADDED TO THE INDIANA CODE AS A NEW SECTION TO READ AS FOLLOWS [EFFECTIVE JANUARY 1, 2004 (RETROACTIVE)]: Sec. 10.5. For purposes of this chapter, "intangible investments" means investments in:
        (1) stocks;
        (2) bonds;
        (3) notes;
        (4) interests in a partnerships;
        (5) patents;
        (6) patent applications;
        (7) trademarks;
        (8) trade names;
        (9) copyrights;
        (10) similar types of intangible assets; and
        (11) other debt obligations, including debt obligations of related members.

SOURCE: IC 6-5.5-1-12.5; (04)IN1365.1.14. -->     SECTION 14. IC 6-5.5-1-12.5 IS ADDED TO THE INDIANA CODE AS A NEW SECTION TO READ AS FOLLOWS [EFFECTIVE JANUARY 1, 2004 (RETROACTIVE)]: Sec. 12.5. For purposes of this chapter, "related member" means any of the following:
        (1) An entity whose activities, in one (1) state, are primarily:
            (A) the maintenance and management of intangible investments, including the intangible investments of corporations, including business trusts, and other entities registered as investment companies under the federal Investment Company Act of 1940; and
            (B) the collection and distribution of the income from:
                (i) investments described in clause (A); or
                (ii) tangible property physically located outside that state.
        (2) An entity that is:
            (A) a personal holding company; or
            (B) directly, indirectly, constructively, or beneficially owned in whole or in part by a personal holding company;
        (as defined in Section 542 of the Internal Revenue Code without regard to the stock ownership requirements set forth in Section 542(a)(2) of the Internal Revenue Code).
        (3) An entity that is a foreign personal holding company (as defined in Section 552 of the Internal Revenue Code).
        (4) Any entity that:
            (A) is not a corporation; and
            (B) is directly, indirectly, constructively, or beneficially owned in whole or in part by a foreign personal holding company (as defined in Section 552 of the Internal Revenue Code).

SOURCE: IC 6-5.5-1-12.6; (04)IN1365.1.15. -->     SECTION 15. IC 6-5.5-1-12.6 IS ADDED TO THE INDIANA CODE AS A NEW SECTION TO READ AS FOLLOWS [EFFECTIVE JANUARY 1, 2004 (RETROACTIVE)]: Sec. 12.6. (a) As used in this chapter, "intangible expenses and costs" includes expenses, losses, and costs for, related to, or in connection directly or indirectly with the direct or indirect:
        (1) acquisition;
        (2) use;
        (3) maintenance or management;
        (4) ownership;
        (5) sale; or
        (6) exchange;
of or any other direct or indirect disposition of intangible property to the extent that the amounts are allowed as deductions or costs in determining taxable income before operating loss deductions and special deductions for the taxable year under the Internal Revenue Code.
    (b) The term includes losses related to or incurred in connection directly or indirectly with:
        (1) factoring transactions;
        (2) losses related to or incurred in connection directly or indirectly with:
            (A) discounting transactions;
            (B) royalty, patent, technical, and copyright fees;
            (C) licensing fees; and
            (D) other similar expenses and costs.

SOURCE: IC 6-5.5-1-12.7; (04)IN1365.1.16. -->     SECTION 16. IC 6-5.5-1-12.7 IS ADDED TO THE INDIANA CODE AS A NEW SECTION TO READ AS FOLLOWS [EFFECTIVE JANUARY 1, 2004 (RETROACTIVE)]: Sec. 12.7. For purposes of this chapter, "interest expenses and costs" includes amounts directly or indirectly allowed as deductions under Section 163 of the Internal Revenue Code for purposes of determining taxable income under the Internal Revenue Code.
SOURCE: IC 6-2.5-5-15; (04)IN1365.1.17. -->     SECTION 17. IC 6-2.5-5-15 IS REPEALED [EFFECTIVE JULY 1, 2004].
SOURCE: ; (04)IN1365.1.18. -->     SECTION 18. [EFFECTIVE JANUARY 1, 2004 (RETROACTIVE)] (a) IC 6-2.5-3-5, as amended by this act, applies

only to vehicles, watercraft, and aircraft that are initially titled, registered, or licensed in Indiana after June 30, 2004.
    (b) IC 6-2.5-4-11, as amended by this act, applies only to transactions occurring after March 1, 2004. A retail transaction to which IC 6-2.5-4-11, as amended by this act, applies shall be considered as having occurred after March 1, 2004, if charges are collected for the retail transactions upon original statements and billings dated after March 31, 2004.
    (c) The repeal of IC 6-2.5-5-15 by this act applies only to retail transactions occurring after June 30, 2004. A retail transaction shall be considered as having occurred after June 30, 2004, to the extent that delivery of the property or services constituting selling at retail is made after that date to the purchaser or to the place of delivery designated by the purchaser. However, a transaction shall be considered as having occurred before July 1, 2004, to the extent that the agreement of the parties to the transaction was entered into before July 1, 2004, and payment for the property or services furnished in the transaction is made before July 1, 2004, notwithstanding the delivery of the property or services after June 30, 2004.
    (d) IC 6-2.5-6-9, as amended by this act, applies only to deductions assigned after June 30, 2004.
    (e) The following provisions apply only to taxable years beginning after December 31, 2003:
        (1) IC 6-3-1-3.5.
        (2) IC 6-5.5-1-2.
    (f) The following provisions apply only to the use of a net operating loss as a deduction for taxable years beginning after December 31, 2003, regardless of the taxable year when the loss that is the basis for the net operating loss deduction occurred:
        (1) IC 6-3-2-2.5.
        (2) IC 6-3-2-2.6.
        (3) IC 6-5.5-2-1.
    (g) IC 6-4.1-1-3, as amended by this act, applies only to an adopting parent who dies after June 30, 2004.

SOURCE: ; (04)IN1365.1.19. -->     SECTION 19. An emergency is declared for this act.