Indiana Business Law Blog

The "Indiana Smoke Free Air Law," which was passed last year by the Indiana General Assembly and took effect on July 1, 2012, bans smoking in most Indiana businesses and nonprofit organizations. We thought the General Assembly might reconsider some of the details this year, but that hasn't happened. Based on our non-scientific observations, it seems that Indiana businesses and nonprofits have not been very diligent about implementing the law, particularly those regarding signs. So we think it's a good time to review the requirements, or at least some of them.

"Does the smoking ban affect my business?"

Smoking is now prohibited by law in "public places" and "places of employment," as well as the area within 8 feet of public entrances to either of them. "Public places" and "places of employment" sound as if they encompass a lot, and they do. A public place includes any enclosed area of a structure in which the public is permitted or invited, and a place of employment includes any enclosed area of a structure (excluding a private vehicle) that is a place of employment. Lest we forget, there's one other category -- smoking is also banned in government vehicles being used for governmental purposes.

There are some exceptions, but the bottom line is that the smoking ban affects most businesses and nonprofit organizations in Indiana.

"Okay, my office is covered. What do I have to do?"

• Not surprisingly, you must inform your employees and prospective employees that smoking is prohibited.
• You must post conspicuous signs that read "Smoking is Prohibited by State Law," or something to that effect. The law has a specific requirement that restaurants must have a conspicuous sign at each entrance informing the public that smoking is prohibited in the restaurant.
• You must also post signs at each entrance (logically, the sign should be outside or at least visible from the outside) stating "State Law Prohibits Smoking Within 8 Feet of this Entrance" or something similar.
• If someone smokes on the premises anyway, you must ask him or her to refrain, and if he or she refuses to stop, you must have him or her removed from the premises. (Note: Don't try to do it yourself! In the unlikely event it becomes necessary, call the police.)

"I own a bar. Does the smoking ban REALLY apply to my business?"

It depends. There are some exceptions to the smoking ban, and one of them is for bars and taverns, but you have to meet certain requirements. For example, you may not have any employees under 18, and you must exclude anyone else under 21. There are more exceptions for several other types of places of employment and public places, each subject to particular qualifications or additional requirements.

"Does the law apply to our nonprofit organization?"

Probably. There is an exception that covers some social clubs and fraternal organizations or lodges that are tax exempt under Internal Revenue Code Sections 501(c)(7), (c)(8), or (c)(10), and it's possible that some other types of nonprofits fit into an exception, but most nonprofits are subject to the smoking ban.

"I have a home office. Is smoking banned there, too?"

Again, it depends. The ban does not apply to a business located in the business owner's residence, but only if all the people who work there live in the residence. Let's assume that only you (the owner) and your spouse work in your office. In that case, you're allowed to smoke, but if you have any employees who don't live in your home, smoking is prohibited.

"Are there other exceptions?"

Yes. For a complete list see Ind. Code 7.1-5-1-5.

"My facility falls within an exception to the smoking ban, so I'm home free. Right?"

Well, not entirely. There are some other requirements that apply to public places and places of employment in which smoking is permitted. Here's an interesting one -- you have to post signs that state "WARNING: Smoking is allowed in this establishment." You must also certify to the Indiana Alcohol and Tobacco Commission that your bar qualifies for the exception.

Moreover, even if most of your facility or building is exempted from the ban, smoking is prohibited in halls, elevators, and common areas where people under 18 are permitted or in rooms intended for use by people under 18.

And don't forget that even if the state law does not ban smoking in your business, it may be prohibited by local no-smoking laws -- such as the Indianapolis Ordinance -- which are allowed to be more restrictive than the state law.

Other resources

NOTE: This is not a comprehensive analysis of the Indiana Smoke Free Air Law. There are other exceptions and other requirements that may apply to your business or nonprofit (even if it is exempt from the ban itself) that we have not discussed. Here are some other resources:

• The full text of the statute can be found at Ind. Code 7.1-5-1.


• The Indiana State Excise Police have published a list of frequently asked questions.


• And signs that comply with the state law are readily available from a number of suppliers.

Continue reading "Indiana Smoking Ban" »

The Indiana Secretary of State has issued a warning about a deceptive letter being received by some Indiana businesses. The letter asks for a fee -- typically $125 or $150 -- to cover the processing of the minutes of a corporation's annual meeting. It is designed to appear as if it is from a state agency, the "Indiana Corporate Compliance Business Division," and it includes a citation to a fictitious law. In fact, it is not from a state agency, and there is no requirement to pay any such fees to the state.

If you receive a letter like the one described above, ignore it. If you have already responded to a letter like this, you may contact the Business Services Division of the Indiana Secretary of State's office at (317) 232-6576.

However, if you receive a letter from the Indiana Secretary of State's office informing you that a business entity report is due by the end of the following month, DO NOT IGNORE IT!

Indiana business corporations and limited liability companies are required to submit a business entity report every two years during the month of the anniversary of the filing of the articles of incorporation or articles of organization. For example, if your articles of incorporation or articles of organization were filed in April of an even-numbered year, a business entity report is due in April of every even-numbered year.

Indiana nonprofit corporations are required to file business entity reports (even though a nonprofit corporation is not usually considered to be a "business") every year in the month of the anniversary of the filing of the articles of incorporation. If the articles of incorporation of your nonprofit were filed in August, a business entity report is due every August.

Business entity reports may be filed on paper or online. The filing fee for business corporations and limited liability companies is $30, and the fee for nonprofits is $10. In both instances, modest discounts are given for filing online.

The Secretary of State's office sends out reminder notices near the end of the month before your business entity report is due, but do not rely on those letters as your only reminder. Because the reports are due even if you do not receive the letter, you should make sure the report is placed on your compliance calendar.

If your organization does not file its business entity reports on time, it is subject to administrative dissolution by the Secretary of State. If that happens, it is possible to have your corporation or LLC reinstated, but the process can be time consuming. It's far better to stay in compliance to begin with.

Continue reading "Letter About Annual Minutes is a Scam -- but Notice About Business Entity Reports is Not!" »

Businesses and nonprofit organizations that have recently hired unemployed veterans and those that do so before 2013 may be eligible for a tax credit of as much as $9,600 for each unemployed veteran hired by a business or as much as $6,240 for each unemployed veteran hired by a qualified tax exempt organization. Qualifying businesses will receive a credit against income tax, and qualifying tax exempt organizations will receive a credit against the employer's share of Social Security tax.

The tax credit is a result of the bipartisan VOW to Hire Heroes Act of 2011, unanimously passed by both houses of Congress and signed by the President on November 21, 2011, which expanded the Work Opportunity Tax Credit (or "WOTC") to include certain classes of unemployed veterans. The amount of credit available depends on the length of time the veteran was unemployed before being hired, the number of hours the veteran works, the amount the veteran is paid in the first year of employment, and whether the veteran has a service-related disability.

Critical Deadlines

Businesses and tax exempt organizations that wish to take advantage of the tax credit need to be aware of two critical deadlines. You will not get the tax credit if you fail to meet either one:

• First, the expanded tax credit expires at the end of the year. The veteran must start work on or before December 31, 2012.
  


• Second, the employer must file certain forms within 28 days after the veteran starts work. (Other rules were in place for veterans hired before May 22, 2012.) Different forms are required for businesses and for tax exempt organizations. The process of for claiming the credit, including a list of the required forms, is summarized here.
  

The IRS has provided several other sources of information on the WOTC for veterans, including a list of frequently asked questions and a detailed description of the WOTC. You should also consult your tax advisor.

Continue reading "Hiring soon? Consider an Unemployed Veteran!" »

The Internal Revenue Service has announced the following standard mileage rates used to calculate income tax deductions for business travel expenses and for travel expenses incurred while serving charitable organizations.

• Business, $0.565 per mile
• Charitable service, $0.14 per mile

These rates, which are one cent per mile higher than the standard rates for 2012, take effect on January 1, 2013.

Continue reading "IRS Standard Mileage Rates Will Increase in 2013" »

As our last post explained, for-profit businesses are very limited in their ability to use unpaid interns legally. Unless the internship program meets six different criteria to qualify the intern as a trainee, the intern is an employee subject to the Fair Labor Standards Act (or FLSA), and the business must comply with the requirements to pay minimum wage and overtime compensation. Nonprofit organizations may also have trainees, and the analysis that applies to businesses also applies to nonprofits.

For nonprofits, however, there is a third possibility. The intern may qualify as a volunteer, in which case the intern is not an employee under FLSA and not subject to the minimum wage and overtime compensation requirements. The footnote to Fact Sheet #71 issued last year by the Department of Labor explained that the Department's Wage and Hour Division recognizes an exception to FSLA for individuals who volunteer their time to nonprofit organizations for religious, charitable, civic, or humanitarian purposes, provided they do so freely and without expecting any compensation. In those situations, unpaid internships are generally allowable.

There are some limits, however. Perhaps most importantly, individuals who work in a commercial operation (such as a clothing store or a farm) operated by a nonprofit organization are likely to be deemed employees and therefore subject to the FLSA. That's essentially what happened in the 1985 U.S. Supreme Court decision, Tony and Susan Alamo Foundation vs. Secretary of Labor. Although that case had the additional factor that the individuals who worked for the nonprofit also received benefits such as clothing and room and board, in my opinion it is likely the Court would have reached the same decision even if the individuals had received nothing.

In addition, the Wage and Hour Division has hinted that relevant factors might also include whether the intern works full-time and whether the intern displaces any employees. For example, in a 2006 opinion letter, in describing the exemption for volunteers, the Division stated,

"Typically, such volunteers serve on a part-time basis and do not displace paid workers or perform work that would otherwise be performed by employees."

Although the volunteer must work without any expectation of being paid, it is nonetheless permissible for the nonprofit to pay the expenses of the volunteer, to provide some reasonable benefits, and even to pay a nominal fee. In order for the fee to be "nominal," the amount may not depend on the volunteer's productivity or the number of hours worked. In addition, the fee or stipend should not exceed 20% of the amount it would cost the nonprofit organization to pay an employee to perform the same tasks. For more explanation, you might want to read Opinion Letter FLSA2005-51.

A final note of caution: As I mentioned in the entry dealing with business interns, determining whether an intern is either a trainee or a volunteer, and therefore not an employee, is relevant only for the Fair Labor Standards Act. There are many other legal requirements, including state law requirements, that apply to "employees," and each of those requirements has its own definition which may be different from the FLSA definition.

Continue reading "Is it legal for a nonprofit organization to use unpaid interns?" »

In the next few days, I'll get back to the discussion of the basics of limited liability companies, but first I want to mention a bill that has been introduced in the Indiana General Assembly that takes on an advanced, cutting-edge topic: the low-profit, limited liability company or "L3C." The bill is Senate Bill 501, authored by Sen. Brandt Hershman (R-Lafayette).

The L3C is a new variation on a limited liability company. The primary purpose of the L3C is to pursue a charitable mission, with the generation of a profit being a secondary purpose. The L3C is not, itself, a tax exempt organization. Instead, it is intended to be a vehicle that can attract both private capital and philanthropic investments to address issues such as low income housing.

Why? Primarily because the L3C is designed to be eligible for program related investments from private foundations. A program related investment is an alternative to a traditional philanthropic grant. An example of the use of program related investments in Indiana is the support of charter schools by the Annie E. Casey Foundation.

You can read more about L3C's from Americans for Community Development.

Continue reading "Indiana General Assembly Report: L3C Bill Introduced" »

Earlier this week, Friendly Family Productions, LLC, the company that produced the television series Little House on the Prairie settled its lawsuit against a nonprofit corporation that operates a small museum outside Independence, Kansas. The museum is located at the site of the original house that Laura Ingalls Wilder wrote about in her book of the same title. Friendly Family Productions alleged that the museum infringed the trademark LITTLE HOUSE ON THE PRAIRIE. According to complaint filed in U.S. District Court in Los Angeles, the predecessor to Friendly Family Productions acquired rights to that trademark from the author's descendants in 1974.

What got Friendly Family Productions all riled up (to use a term that Ms. Wilder would have been comfortable with) was the use of the trademark on merchandise that the museum sold, including the merchandise that it sold through a website with the domain name www.littlehouseontheprairie.com. Friendly Family Productions acknowledged that it had no quarrel with the museum using the words "little house on the prairie" to describe the homesite or the museum, because a purely descriptive use like that does not infringe a trademark. On the other hand, Friendly Family Productions had considerable quarrel with the museum putting those words on merchandise (caps, T-shirts, magnets, note cards, key chains, and other items typical of promotional merchandise) and selling them over the internet. Friendly Family Productions claimed that the use of those words implied that the merchandise came from the owner of the trademark, when it did not. That is, in a nutshell, the reason trademarks exist -- to identify the source of the goods that bear the mark.

According to an article in the Wichita Eagle and other sources, Friendly Family Productions originally offered to pay the museum $40,000 if it would stop using the trademark. The museum refused the offer, choosing instead to fight the lawsuit. The terms of the settlement agreement are confidential, but we know that the nonprofit corporation has changed its name from Little House on the Prairie, Inc. to the more descriptive Little House on the Prairie Museum, Inc., and www.littlehouseontheprairie.com is no longer active.

There's no way to know how much the two-year litigation cost the parties.

Continue reading "Nonprofit Organization Settles Trademark Lawsuit: Little House on the Prairie" »

Unlike Indiana, most states require that non-profit organizations register with an agency such as the Attorney General's office before soliciting any charitable donations within the boundaries of that state. In addition to initial registration, those states typically have annual reporting requirements as well. Although Indiana is not one of the 40 states requiring registration, non-profits located in Indiana that solicit contributions outside the state cannot ignore the requirements.

The primary purpose of registration is to protect citizens from potential scams put on by fraudulent charities. To that end, some states, such as Illinois, provide an online index of registered non-profit organizations and encourage their residents to "investigate" before they make any donations. If a non-profit is not listed there, it is likely that a potential donor will decide not to make a contribution.

Because Indiana does not currently require non-profit registration, some non-profit organizations located in Indiana may be unaware of the registration requirements in other states. However, all four states that surround Indiana -- Illinois, Kentucky, Michigan, and Ohio -- require this type of registration for non-profits engaging in fundraising within their borders.

States that require registration insist non-profits register BEFORE conducting any fundraising efforts in their jurisdiction. If your nonprofit organization is not currently registered but has been soliciting charitable donations within a state that requires registration, you should take immediate steps to get in compliance.

Continue reading "Indiana Non-Profit Organizations should be aware of Non-Profit Registration Requirements in Other States" »

Internal Revenue Service Form 1023 is entitled "Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code," which is why most people call it simply "Form 1023." Most types of nonprofit organizations that fall within Section 501(c)(3) must submit Form 1023 within 27 months of their formation, along with a user fee that depends on the amount of revenue that the organization anticipates.

Last year the user fees for Form 1023's increased significantly. For 2011, they remain the same as in they were in 2010. The fees are:

• $400 for organizations with annual gross revenues less than $10,000
• $850 for organizations with annual gross revenues equal to or greater than $10,000

Continue reading "Form 1023 User Fees Remain the Same for 2011" »

As discussed in my post of November 24, businesses and nonprofit organizations face a significant increase in the requirements to issue 1099 forms beginning with payments made after December 31, 2011. However, a lot could change between now and then. Several legislators introduced bills during the previous session of Congress that would have dramatically reduced the new reporting requirements or even repealed them altogether. Although none of them passed, similar bills are being introduced again in the new session.

Representative Dan Lungren (R. California) originally introduced a repeal measure last April, just one month after the original legislation was passed, but was unable to obtain the signatures necessary for a vote on the matter. Rep. Lungren re-introduced his bill to repeal the 1099 tax provision earlier this week and plans to continue fighting against the new tax provisions. The bill, referred to as "The Small Business Paperwork Mandate Elimination Act," has 180 co-sponsors and was one of the first bills to be introduced during the 112th Congressional Session.

Other members of Congress have sought to lighten the impact of the reporting changes without repealing them altogether. Senator Mary Landrieu (D. Louisiana) introduced a bill last September that would increase the reporting threshold from $600 to $5,000. Senator Landrieu has yet to re-introduce the bill, but it is likely that similar efforts will begin to surface in the new Congress.

Many organizations representing small business owners have also shown great concern about these changes, which increases the possibility of amendments or a total repeal before next year. Continue checking back here for updates on the 1099 reporting requirements and how they will affect your small business or non-profit organization.

Continue reading "Important Update on 1099 Form Reporting Changes...Could they be Repealed?" »

The recent changes to the filing requirements for 1099 forms may turn out to be quite a hassle for many business owners beginning with payments made in 2012. Having to file a 1099 for each entity a small business or non-profit organization pays more than $600 in a calendar year has the potential to be time-consuming and confusing. Thankfully, the Internal Revenue Service (IRS) has decided to allow an exception for all payments made with credit cards. Any time a small business or non-profit organization uses a credit card to make a purchase, that transaction will NOT require a 1099 form. This exception stems from the fact that credit card companies are required to report transactions to the IRS, so there is no need for double-reporting.

For those businesses that do not already use a credit card for their purchases, now would be a great time to consider applying for one. Not only will all transactions made with a credit card be exempt from 1099 reporting, credit cards are also great tools for organization. It is much easier to keep accurate business records when you have an itemized credit card bill that shows exactly what you spent and where you spent it. Obviously, there are some purchases that cannot be made using a credit card. For those transactions, businesses will need to be sure and obtain the Tax Identification Number (TIN) for the person or company they are paying.

In addition, if you're a business owner and you don't already accept credit cards, now might be a good time to start. Your customers may thank you at tax time!

While these changes do not take effect until January 2012, it is still crucial that small businesses and non-profit organizations begin thinking about these new changes. Hopefully, the exception for credit cards will lighten the load for many businesses and make compliance easier and less time-consuming.

**Please note this entry has been amended to reflect that the changes to the 1099 form filing requirements take effect in 2012 for 1099 forms issued in 2013.**

Continue reading "The credit card exception to the 1099 filing requirement changes may ease the burden for many small businesses and non-profit organizations" »

Click here for an update to this post.

Congress recently passed legislation that will dramatically change the filing requirements for 1099 forms beginning in early 2013 for payments made in 2012. Under the new rule, small businesses and non-profit organizations will be required to file 1099 forms with the Internal Revenue Service (IRS) for goods as well as services. The new legislation also requires that 1099 forms be filed for transactions with corporations, while currently reporting is only required for expenditures made to non-corporate entities. It is clear at this point that these changes will greatly affect the way many businesses operate on a day-to-day basis.

The new rule will require all small businesses and non-profit organizations to file a 1099 form with the IRS for every entity they pay $600 or more for goods in a calendar year. That means that even the smallest of businesses will likely be filing many more 1099 forms than they have in the past. It is not difficult to imagine how even minor purchases with a single vendor can add up to over $600 in a year. For example, even spending only $50 a month on lunch for employees or for flowers to decorate the office would add up to $600+ over a year. In order to properly and completely fill out their 1099 forms, businesses will also need to provide the Taxpayer Identification Number of each company or individual they report.

To minimize extra burden in the future, small businesses and non-profit organizations should begin tracking their spending more efficiently now. Obtaining the correct Taxpayer Identification Numbers for each of their payees and recording ALL payments, large and small, made to both corporate and non-corporate entities will reduce headaches in 2012. A future article will explain the exception for payments made with credit cards.

**Please note that this entry has been amended to reflect that the 1099 filing changes take effect for payments that are made beginning in 2012 for 1099 forms issued in 2013, NOT for payments made in 2011.**

Continue reading "How will the upcoming changes to the filing requirements for 1099 forms affect your small business or non-profit organization?" »

Often referred to as an "information return," a 1099 form is a tax document that businesses are required to file with the Internal Revenue Service (IRS) to report certain business expenditures. 1099 forms must be filed by all businesses and non-profit organizations, regardless of their size and yearly revenue. Currently, the threshold for reporting is limited to expenditures for services to a single non-corporate entity that total $600 or more in a calendar year. The $600 amount includes not only single transactions with a service provider, but also reccurring transactions with a single entity that add up throughout the year.

Businesses and non-profit organizations must file a separate form for each service provider to whom they pay $600 or more. The IRS website provides a list of some of the services for which a 1099 form is required and which specific version of the 1099 must be filed for that particular service. After filling out the correct 1099 form and filing it with the IRS, a business is also required to send a copy of the completed form to the service provider or "payee." Given that $600 is a fairly low threshold, some businesses file hundreds of 1099 forms each year. Businesses are allowed to submit up to 249 information returns each year on paper, but all businesses who file 250 or more must do so electronically.

Due to recent legislation, the filing requirements will expand in 2012 to include corporate payees and transactions for goods as well as services. Stay tuned for more information on these changes and how they will affect your small business or non-profit organization.

Continue reading "What is a 1099 form and how does it apply to your small business or non-profit organization?" »