18 April 2016 State and Local Tax Weekly for April 8 Ernst & Young's State and Local Tax Weekly newsletter for April 8 is now available. Prepared by Ernst & Young's State and Local Taxation group, this weekly update summarizes important news, cases, and other developments in U.S. state and local taxation. Don't miss these upcoming EY webcasts on income tax apportionment, credits & incentives, customs, and sales & use tax On Wednesday, April 20, 2016, from 1:00-2:00 p.m. EDT New York; noon-1:00 p.m. CDT Chicago; 11:00 a.m.-noon MDT Denver; 10:00-11:00 a.m. PDT Los Angeles, EY will host a webcast analyzing allocation and apportionment issues. Our sixth income tax seminar in this series will address the quirks of apportionment. The panelists will discuss apportionment related to specific industries and provide an in-depth analysis on the unique provisions used in the financial services industry. They will also discuss the differences between flow-up apportionment factors versus apportioning income at the partnership level. Finally, the panelists will discuss the factors to be considered in determining whether income should be classified as business or nonbusiness income and when it is appropriate to allocate instead of apportion income. Click here to register for this event. On Tuesday, April 26, 2016 from 1:00-2:00 p.m. EDT New York; 10:00-11:00 a.m. PDT Los Angeles EY's Credits & Incentives practice will launch a four-part webcast series that will explore and discuss the extensions of these credits and incentives and the opportunities they may provide. The inaugural webcast will provide an overview of select tax credits and incentives extended under the recently enacted federal PATH Act. Panelists will review the Act's changes and the potential opportunities related to Work Opportunity Tax Credits, New Markets Tax Credits, and Renewable Energy Tax Credits, and will discuss the implications for companies and investors. Future topics in the series include: (1) Seminar #2 — Work Opportunity Tax Credits (May 2016); (2) Seminar #3 — New Markets Tax Credits (June 2016); (3) Seminar #4 — Renewable Energy Tax Credits and Sustainability (July 2016). To register for this event, go to Federal tax credits and incentives. On Wednesday, April 27, 2016 from 1:00-2:15 p.m. EDT New York/Toronto; 10:00-11:15 a.m. PDT Los Angeles/Vancouver, EY will hold a webcast discussing the intersection of transfer pricing for income tax and customs. Multinational enterprises (MNEs) participating in cross border transactions should understand the complexities of transfer pricing and customs issues, as well as how these different "valuation" regimes intersect. These issues are becoming increasingly important as convergence efforts and the Base Erosion and Profit Shifting (BEPS) initiative of the Organization for Economic Co-operation and Development continue to evolve and change the legal landscape across the globe. Join our EY panel as we discuss how these issues can influence your business, with an emphasis on: (1) the tension between transfer pricing and customs, (2) the current US approach to the use of transfer pricing in determining customs valuation, (3) global transfer pricing and customs convergence efforts, and (4) BEPS implications for customs. The panel will also discuss how changes to the customs laws in the European Union (EU) illustrate how the effects of the BEPS initiative are already affecting customs laws in various jurisdictions. To register for this event, go to BorderCrossings. On Wednesday, May 4, 2016, from 2:00-3:00 p.m. EDT New York; 1:00-2:00 p.m. CDT Chicago; noon-1:00 p.m. MDT Denver; 11:00-noon PDT Los Angeles, join EY for its sales tax seminar series. Our second sales tax seminar in this series will address structuring issues and the accompanying sales and use tax consequences. The panelists will discuss common business structures and transactions from a sales tax perspective. They will also discuss the complicated issues that must be considered around legal entity classification risk and the importance of business purpose and economic substance. Topics will include: whether the structure or entity has a purpose or utility apart from the anticipated tax consequences; and whether there are objective indicators of the practical effects of a transaction, independent of taxes. The webcast will also cover some of the challenges businesses face when evaluating the sales tax impact of changing business structures or purchasing processes, such as supply chain realignments, centralization of business functions, mergers, acquisitions and divestitures. Click here to register for this event. Click here for a copy of our Quarterly newsletter, which provides a summary of the legislative, administrative, and judicial updates of state and local income and franchise tax importance that occurred during the first quarter of 2016. Highlights include: — A summary of legislative developments in Delaware, Georgia, Idaho, Indiana, Iowa, Louisiana, Maine, Oregon, South Dakota, Utah, Virginia, West Virginia and Wisconsin — A summary of judicial developments in Colorado, Michigan, New Jersey, Oregon, South Carolina, Tennessee, Texas and Virginia — A summary of administrative developments in Alabama, California, Connecticut, Illinois, Massachusetts, New York, Pennsylvania, Rhode Island, Texas and Virginia — A discussion of state and local tax items to watch in Connecticut, the District of Columbia, Louisiana, Mississippi, New York and Tennessee. Federal: On April 4, 2016 and as a part of its anti-inversion regulatory challenge regarding US companies attempting to redomicile outside the US, the Treasury Department and the Internal Revenue Service (IRS) released proposed regulations (REG-108060-15) under IRC §385 (the Proposed Regulations). IRC §385, which was first adopted in 1969, authorizes the Treasury Department to come up with regulations to define indebtedness and equity. Although not the first time Treasury has attempted to wade into this highly complicated area, the Proposed Regulations would: (1) treat as stock certain related-party interests that otherwise would be treated as indebtedness for federal tax purposes; (2) authorize the Commissioner of the IRS to treat certain related-party interests in a corporation as indebtedness in part and stock in part for federal tax purposes; and (3) establish extensive documentation requirements in order for certain related-party interests in a corporation to be treated as indebtedness for federal tax purposes. The Proposed Regulations would have far-reaching consequences for corporations that issue debt instruments to related corporations and partnerships. One significant exception to the Proposed Regulations would treat members of a federal consolidated group as one corporation and, in effect, leave intercompany transactions among members of a federal consolidated group outside the scope of the Proposed Regulations. It is not clear how the Proposed Regulations would apply for state tax purposes. For additional information on this development, see Tax Alert 2016-632. South Carolina: In Duke Energy Corp., the Supreme Court of South Carolina (Supreme Court) ruled that a taxpayer could not include the principal recovered from the sale of short-term securities from 1978 to 1999 in its sales factor for income tax apportionment purposes. In doing so, the Supreme Court affirmed the decision by the Court of Appeals, with a modified analysis. For additional information on this development, see Tax Alert 2016-623. Kentucky: An aluminum manufacturer's purchases of refractory shapes are subject to Kentucky sales and use tax as "repair, replacement, or spare parts" for machinery and equipment because the refractory shapes are necessary to maintain, restore, mend, and repair furnaces for recycling aluminum. The Kentucky Board of Tax Appeals (Board) also held that the refractory shapes are not exempt industrial supplies as they are not consumed or used up in the manufacturing process. Further, the Board found that the refractory shapes are not similar to exempt fire bricks, noting that its finding that the refractory shapes are repair and replacement parts is not at odds with the legislature's inclusion of the term "fire brick" in the industrial supplies example list and that "[a]s a matter of law … it is not up to this Board, to expand the exemption statute, so as to encompass [refractory shapes]." In addition, the refractory shapes do not qualify for the new and expanded industry exemption, since the Board already determined that the refractory shapes are repair, replacement and spare parts. The refractory shapes also do not qualify for the recycling exemption as the exemption does not apply in the case of repair and replacement parts that are used in the manufacturing of aluminum ingots. Finally, the Board did not improperly change its position concerning the taxability of refractory shapes because the doctrine of contemporaneous construction cannot be founded upon an administrative agency's failure to correctly apply the law. The Board did not determine, however, whether the refractory shapes are now entitled treatment as machinery parts for different tax types, finding that determination to be beyond the scope of its decision. Novelis Corp. v. Ky. Dept. of Rev., Nos. K13-R-35, K14-R-22 (Ky. Bd. Tax App. March 24, 2016). West Virginia: New law (HB 4009) authorizes county commissions to impose up to a 1% county transportation sales and service tax and a county use tax to pay for transportation construction projects, provided certain administrative requirements are met. Final road construction project plans, including whether a project is to be funded by the local tax or by bonds, are subject to project certification from the Commissioner of Highways as well as voter approval in a county-wide referendum. HB 4009 provides for the criteria and requirements to impose the taxes, requires that the rates of the sales and use taxes must at all times be identical, describes the tax base, requires that the Tax Commissioner administer the taxes, describes who collects the tax, provides that credit is available for sales tax paid to another county, discusses applicable sourcing rules, provides how to calculate the effective dates of the taxes, and discusses when the taxes terminate. W.Va. Laws 2016, HB 4009, signed by the governor on April 1, 2016. Maine: New law (LD 1480) creates the Maine Capital Investment Program to increase the availability of capital to eligible business development projects via loan or bond financing through the Finance Authority of Maine (Authority). Business development project means a project that involves the construction, development, rehabilitation, modernization or acquisition of a building, a structure, a system, machinery, equipment or a facility that has a projected cost of at least $50 million or is projected to result in the creation or retention of at least 250 full-time employment positions that pay at least 125% of the annual average weekly wage. Applicants can receive a direct loan of up to $50 million from the fund for a single business development project, which must be matched by an amount that is equal to at least 25% of the loan amount and that is obtained from a source other than the fund; or up to $100 million in bond funding from bonds issued for a single business development project and up to $200 million in bond funding to the same applicant for multiple business development projects. Financial support recipients must both repay the financial support provided and, within five years after the completion of the business development project, must pay to the fund an amount equal to 10% of the amount of financial support received. The act takes effect only upon the receipt by the Authority for the Capital Investment Fund of an appropriation or allocation by the Legislature or funds from another funding source of at least $50 million. Me. Laws 2016, Pub. L. Ch. 415 (LD 1480), became law without the governor's signature on March 30, 2016. New York: A corporation's election to expense costs related to rehabilitation of a brownfield property disqualified the costs from being claimed as part of a site preparation credit under New York's brownfield redevelopment tax credit. The New York Tax Appeals Tribunal (Tribunal) affirmed the Administrative Law Judge's decision, concluding that the corporation's costs were not properly chargeable to a capital account within the meaning of the statute because the costs were not actually charged to such account, and were instead treated as expenses and deducted accordingly, which is plainly consistent with the ordinary meaning of chargeable. The Tribunal further noted that the legislature intended to exclude deducted expenses from the credit calculation because in 2015 it amended the tax credit provision to specifically exclude from the credit "costs that would have been included in the calculation of such components if not treated as an expense and deducted … " In the Matter of the Petition of Coltec Industries, Inc., No. 825211 (N.Y. Tax App. Trib. March 18, 2016). Georgia: Eight parcels of real property owned by a hospital authority are exempt from ad valorem property taxes because all of the parcels furthered the legitimate function of the hospital authority. In reaching this conclusion, the Georgia Court of Appeals (Court), citing the Georgia Supreme Court's ruling in Hospital Authority of Albany v. Stewart, explained that the mere fact that property is owned by a hospital authority does not exempt it from property taxes, and "the property need not actually contain a healthcare facility to be exempt, as long as the use of the property or its income furthers 'the legitimate functions of the hospital authority.'" Here, the Court found that none of the properties were used for a purpose "wholly unrelated" to the hospital authority's function. The nature of the property at issue included a parking lot and walking trails that medical staff and patients could use. Finally, a parcel of land that included both a non-profit hospital and a for-profit clinic did not lose the tax exemption because less than 50% of the property was leased to the for-profit clinic. Columbus, Ga., Bd. of Tax Assessors v. The Medical Center Hospital Authority, No. A15A2407 (Ga. Ct. App. March 22, 2016). Wisconsin: New law (AB 576) amends the definition of "major class of property" to mean any class of property that includes more than 10% (previously 5%) of the full value of the taxation district. In addition, AB 576 requires that if the Wisconsin Department of Revenue (Department) determines that the assessed value of each major class of property of a taxation district, including first class cities, has not been established within 10% of the full value of the same major class of property during the same year at least once during the four-year period consisting of the current year and the three preceding years, the Department must notify the clerk of the taxation district in writing on or before November 1 of the year of determination of the Department's intention to order special supervision for that taxation district for the second year following the four-year period. Furthermore, if during the second year, the Department determines the assessed value of each major class of property is not within 10% of the full value of the same major class of property, the Department must order special supervision for that taxation district for the assessments of the third year following the four-year period. The changes took effect April 1, 2016. Wis. Laws 2016, Act 322 (AB 576), signed by the governor on March 30, 2016. Wisconsin: New law (AB 837) requires that for state tax purposes the following transactions be treated in the same manner as they are treated for federal tax purposes: the conversion of a business entity to another form of business entity, the merger of a business entity with one or more business entities, certain business entity interest exchanges, and certain domestications of business entities. AB 837 repeals the requirement that a surviving business entity of a merger or conversion submit a report to the Wisconsin Department of Revenue when an acquired or converted business entity owned a fee simple ownership in any Wisconsin real estate immediately prior to the merger or conversion. For purposes of the real estate transfer fee, AB 837 amends the definition of "merger of entities" (previously, "merger of corporations") to mean the combination of two or more corporations, non-stock corporations, limited liability companies, limited partnerships, or other entities, or any combination thereof, under a plan of merger or a plan of consolidation permitted by the laws that govern the entities. In addition, the new law amends real estate transfer fee exemptions to include conveyances pursuant to (1) mergers of entities; (2) partnerships filing or cancelling a statement of qualification or a corresponding statement under the law of another jurisdiction; (3) the conversion of a business entity to another form of business entity under certain statutory provisions, if, after the conversion, the ownership interests in the new entity are identical with the ownership interests in the original entity immediately preceding the conversion. Provisions of AB 837 also create a new real estate transfer fee exemption for conveyances pursuant to an interest exchange or a domestication. Finally, it repeals and reenacts Wisconsin's uniform partnership law, adopting with modifications the Revised Uniform Partnership Act, as amended by the National Conference of Commissioners on Uniform State Laws in 2013. The changes in AB 837 are generally effective July 1, 2016. Wis. Laws 2016, Act 295 (AB 837), signed by the governor on March 30, 2016. Wisconsin: New law (AB 721) establishes a process to escheat abandoned US savings bonds if unredeemed by the owner. Under the new law, a US savings bond that remains unredeemed by the owner for more than five years after the date of final maturity is presumed abandoned, with "final maturity" meaning the date a US savings bond stops earning interest upon reaching its final extended maturity date. The administrator may bring an action for judgment that a US savings bond, including a US savings bond in the possession of the administrator or a US savings bond that has been lost, stolen, or destroyed, is abandoned and for an order transferring ownership of the abandoned US savings bond to Wisconsin, if all of the following conditions apply: (1) the US savings bond has been presumed abandoned for at least one year, (2) it is subject to the custody of Wisconsin as unclaimed property, and(3) at least one year has elapsed since the administrator published the required notice. However, any person who could have claimed an interest in a US savings bond immediately before Wisconsin became the owner of it pursuant to a judgment may file a claim, and in some cases could receive the bond redemption amount minus any amounts used to pay administrative expenses. These provisions took effect April 1, 2016. Wis. Laws 2016, Act 309 (AB 721), signed by the governor on March 30, 2016. (Note: Tax Alerts are available in the EY Client Portal. If you are not a subscriber to EY Client Portal and would like to subscribe to EY Client Portal and receive our Tax Alerts via email, please contact your local state tax professional.) Because the matters covered herein are complicated, State and Local Tax Weekly should not be regarded as offering a complete explanation and should not be used for making decisions. Any decision concerning matters covered herein should be reviewed with a qualified tax advisor. Document ID: 2016-0705 |
