05 May 2017 State and Local Tax Weekly for April 28 Ernst & Young's State and Local Tax Weekly newsletter for April 28 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. California FTB provides guidance on application of IRC §§382, 383 and 384 valuation limitations for NOLs and tax credits on a pre-apportioned basis California Franchise Tax Board (FTB) Technical Advice Memorandum (TAM) 2017-03 (April 6, 2017) provides guidance on the application of the loss limitation rules under IRC §§382, 383 and 384 for California tax purposes as it relates to apportioning taxpayers, and provides guidance to California taxpayers that have tax attributes (e.g., net operating losses (NOLs) and tax credits) and have undergone an ownership change such that the attributes are subject to valuation limitations. Before the publication of the TAM, while California's tax law generally conformed to provisions of Subchapter C of the IRC (i.e., IRC §§301-385), neither California tax law nor the FTB provided guidance to taxpayers as to whether IRC §§382-384 applied on a pre-apportionment or post-apportionment basis. Under the TAM, with respect to IRC §382, the FTB determined that the limitation provided in IRC §382(b)(1) and the analogous limitation on the use of excess credits provided in IRC §383(a)(1) are to be applied on a pre-apportioned basis. The FTB reasoned that because IRC §382 does not address any items of income/deductions or gains/losses, apportionment could not apply to IRC §382 absent express legislative action. Under California tax law and case authority, apportionment is only applied to items of income/deductions or gains/losses. As a result, the FTB concluded that IRC §382 must be applied for California purposes on a pre-apportioned basis. Likewise and for the same reasons, the FTB concluded that the valuation limitation for credits under IRC §383 must be applied on a pre-apportioned basis. The FTB pointed out that it had suggested a legislative proposal to apply IRC §§ 382 and 383 on a post-apportioned basis but was unable to find a legislator that would agree to sponsor the legislation. The FTB also spent considerable time distinguishing between California's legislative treatment of IRC §382 loss limitations rules and those in other states that clearly adopted a post-apportionment modification. In analyzing the IRC §382 provisions for net unrealized built-in gains/losses and recognized built-in gains/losses, however, the FTB concluded that because these were items of income/deductions or gains/losses, they should be applied on a post-apportioned basis under existing law. The FTB also applied this reasoning to California's treatment of RBIGs set forth in IRC §384. Because California has not promulgated its own regulations addressing IRC §383, the IRS regulations should be applied, except to account for obvious differences. For additional information on this development, see Tax Alert 2017-645. The Delaware Department of Finance and Secretary of State (collectively, the Delaware UP Authorities) issued Proposed Regulations that are intended to address the lack of remedies in Delaware's recently revised unclaimed property laws (see Del. Laws 2017, SB 13). The revisions followed the federal district court's ruling in Temple-Inland, Inc., which criticized key aspects of Delaware's unclaimed property audit process. Perhaps the most awaited piece of the Proposed Regulations relates to the state's method of estimation (i.e., the process by which unclaimed property exposure is calculated in years under the look-back period for which no accounting records or owner details exist). The Proposed Regulations, however, do not appear to "fix" the issues with the state's method of estimation noted in Temple-Inland, Inc., as they do not alter the long-standing administrative procedures utilized in this calculation. Instead, they propose that Delaware continue to include several factors in the calculation and continue to include property due to any of the 54 other US jurisdictions that require reporting and remission of unclaimed property, even if that jurisdiction chooses to exempt the property from its unclaimed property laws. According to the Delaware UP Authorities, the Proposed Regulations are intended to "establish instructions and guidelines for the administration of the State of Delaware's Abandoned or Unclaimed Property program." More specifically, the Proposed Regulations attempt to provide holders of unclaimed property (hereafter, holders) a clear and consistent understanding of the state's use of estimation, aging criteria for checks, and the definition of what constitutes complete and researchable records. Additionally, once the Proposed Regulations are finalized, a holder will have 60 days to decide whether to convert an audit existing before July 22, 2015, into a voluntary disclosure agreement (VDA) (audit to VDA conversion option) or agree to an expedited audit process for those audits in process as of February 2, 2017 — both of these options were made available by SB 13. Concurrently with the issuance of the Proposed Regulations, Delaware Secretary of State Jeff Bullock released the "DE SOS Conversion Policy" for holders that qualify for the audit to VDA conversion option. This Policy contains information on the administrative process, scope expectation, and anticipated resolution of such an audit to VDA conversion option. For example, the guidance notes " … the holder's examination work papers will not be transferred to the VDA Administrator, and there will be no coordination or consultation with the Department of Finance or any third-party examination firm." Secretary Bullock further indicated that the VDA is expected to conclude quickly and efficiently for holders that have substantially completed their examination and choose to convert to a VDA. A summary of how the Delaware UP Authorities will use estimation and projection in their unclaimed property audits and VDA reviews follows, along with a closer look at some of the significant items to consider in the Proposed Regulations. For more on this development, see Tax Alert 2017-675. Alabama: New law (HB 263) requires loans and credit card receivables to be included in the calculation for the property factor of the financial institution excise tax apportionment formula, applicable to all tax years beginning on or after Jan. 1, 2017. The loans and credit card receivables are sourced to Alabama using the same sourcing methods as the Alabama Department of Revenue (Department) uses to allocate and apportion a financial institution's interest receipts from related loans and credit card receivables. The Department has 120 days from April 20, 2017, to promulgate related rules, which will be effective for all tax years beginning on or after Jan. 1, 2017. Provisions of HB 263 further provide that if, on or before Dec. 31, 2030, certain conditions are met, including a majority of states requiring financial institutions to allocate and apportion its net income based at least in part on its property in that state and the related definition of property excludes its loans and credit card receivables, then the Department is instructed to promulgate a rule consistent with the laws in those states. Ala. Laws 2017, Act 165 (HB 263), signed by the governor on April 20, 2017. California: The California Franchise Tax Board (FTB) in a technical advice memorandum (TAM) 2017-02 provided guidance on when an S corporation subject to the built-in gains tax must apportion net recognized built-in gains (NRBIG). When an S corporation that apportions its income to California sells property generating NRBIG under IRC §1374, the S corporation must apportion the income according to the factors in the year of the sale (not the apportionment factors in the year of the S corporation conversion). Cal. FTB, TAM 2017-02 (April 3, 2017) Connecticut: The Connecticut Department of Revenue Services issued guidance on changes to the state's apportionment provisions (i.e., the move to a single sales factor apportionment formula and adoption of market-based sourcing) that apply to corporations starting in 2016 and individuals starting in 2017. The guidance addresses the following topics: (1) taxpayers affected by the apportionment changes, including industry specific apportionment, manufacturers, financial services; (2) general sourcing rules; (3) market-based sourcing rules, including sourcing receipts from the sale of services and examples of how these rules apply; (4) sourcing receipts from the rental, lease or license of intangible property with examples of how these rules apply; (5) miscellaneous issues related to market-based sourcing such as reasonable approximation and good faith and consistent sourcing; (6) exclusion of receipts; and (7) the use of an alternative apportionment formula. Conn. Dept. of Rev. Serv., Special Notice 2017(1) (April 17, 2017). Iowa: A foreign parent company (parent) that received revenue from two limited liability company subsidiaries treated as corporations for federal income tax purposes (subsidiaries) in the form of distributed earnings and payments of each member's allocated tax liability was not eligible to join in the subsidiaries' Iowa consolidated tax return because the parent does not have nexus with Iowa under Iowa Code §422.33(1). In reaching this conclusion, the Iowa Supreme Court (Court) found parent lacks a taxable nexus with Iowa as it falls within the exemption under Iowa Code §422.34A(5), which provides a nexus exemption to a foreign corporation for purposes of Iowa Code §422.33(1) if its activities in Iowa amount to owning and controlling a subsidiary corporation and it does not have a physical presence in Iowa related to its ownership or control. The parties agreed that the parent lacked a physical presence with respect to its ownership and control, and the Court found parent's activities with its subsidiaries constituted activities of "owning and controlling a subsidiary corporation," which it interpreted to mean "holding or exercising of the power or authority to directly or indirectly manage, govern, or oversee the management and policies of a subsidiary." The activities performed by parent, which include coordination of tax compliance and financial reporting, direction of intergroup distributions of earnings, assistance with legal and financial matters, establishment of strategic priorities, and assistance with day-to-day operations, "are routine features of a parent corporation's ownership and control of its subsidiary entities … ." The Court rejected other nexus creating arguments, including the following: (1) parent's decision to allow subsidiaries to make tax obligation payments on a quarterly basis removed it from the safe harbor set forth in Iowa Code §422.34A(5); and (2) parent had a taxable nexus because it owns two types of intangible property in the state — shares of stock and money — the Court noting that "the certificates evidencing [parent's] ownership interest in [subsidiaries] cannot themselves create a taxable nexus with the state sufficient to remove [parent] from the safe harbor." Since the Court found parent did not have taxable nexus with Iowa, it did not consider whether a distribution of earnings or payments of each member's tax liability under a tax allocation agreement would constitute taxable income under Iowa Code §422.33(1). Myria Holdings Inc. & Subs. v. Iowa Dept. of Rev., No. 15-0296 (Iowa S. Ct. March 24, 2017). Maine: New law (LD 885) updates Maine's date of conformity to the IRC to Dec. 31, 2016. This change is effective for taxable years beginning on or after Jan. 1, 2016 and to any prior tax years as specifically provided by the IRC as of Dec. 31, 2016. Maine Laws 2017, Ch. 24 (LD 885), became law without the governor's signature on April 26, 2017. New York: Recent New York State and City corporate tax law changes may affect the tax liabilities of and filing requirements for a non-captive regulated investment company (RIC) in 2016 and subsequent years. Most significantly, New York State has capped the maximum minimum tax a RIC must pay at $500; New York City, however, has not made this change. New York State and City also have adopted an elective 8% apportionment method that may affect a RIC's computation of New York-source receipts for purposes of calculating the minimum tax. Overall, these changes should resolve minimum-tax issues that RICs were facing at the State level but do not resolve these issues at the City level. For more on this development, see Tax Alert 2017-699. Virginia: New law (HB 1542) requires a home service contract provider (provider) to pay a minimum tax instead of a corporate income tax if the corporate income tax is less than the minimum tax imposed, effective for taxable years beginning on and after Jan. 1, 2018. The minimum tax is equal to 2.25% of a provider's collected provider fees. For corporate income tax purposes, a provider's collected provider fees are considered sales in Virginia when determining the provider's sales factor. In addition, HB 1542 includes guidance on how affiliate corporations that file a consolidated or combined income tax return should calculate the portion of its tax liability attributable to the provider. Estimated income tax declarations, filing, and payment requirements apply to providers regardless of which tax they pay. The minimum tax is in lieu of all other state and local license fees or license taxes on providers and home service contracts. Va. Laws 2017, Ch. 727 (HB 1542), signed by the governor on March 24, 2017. Federal: Proposed bill (HR 2193 — the "Remote Transactions Parity Act of 2017" (the Act)) would allow eligible states to require all sellers (except those qualifying for a small seller exception) to collect and remit sales/use tax on remote sales into the state without regard to the location of the seller. A state would be eligible to require collection by remote retailers either by: (1) being a Streamlined Sales and Use Tax Agreement member state (associate states are not included in this category); or (2) adopting and implementing the minimum simplification requirements set forth under the Act. If enacted, a state would be allowed to require remote sellers to collect tax if a gross receipts threshold is met or the remote retailer uses an electronic marketplace for purpose of making products or services available for sale to the public. The annual gross receipts threshold would be phased down as follows: first calendar year following enactment - annual gross receipts not exceeding $10 million; second calendar year - annual gross receipts not exceeding $5 million, and third calendar year - annual gross receipts not exceeding $1 million. If enacted, the Act would prohibit a state from requiring remote retailers to collect tax until one-year after its date of enactment and not during the period of October 1 through December 31 of the first calendar year after enactment. HR 2193 was introduced on April 27, 2017. Federal: Proposed bill (S. 976 — the "Marketplace Fairness Act of 2017") (Act) would allow eligible states to require all sellers (except those qualifying for a small seller exception) to collect and remit sales/use tax on remote sales into the state without regard to the location of the seller. A state would be eligible to require collection by remote retailers either by: (1) being a Streamlined Sales and Use Tax Agreement member state (associate states are not included in this category); or (2) adopting and implementing the minimum simplification requirements set forth under the Act. A state would be able to require a remote retailer to collect and remit sales and use tax if its total remote sales in the US in the preceding calendar year exceeds $1,000,000. If the Act is approved, eligible states would not be able to collect tax from remote retailers in the first year after the enactment date of the Act or during the period from October 1 through December 31 of the first calendar year beginning after the date of enactment. The bill is similar to the remote seller legislation of the same name which was passed by the Senate in the 113th Congress in May 2013 but which ultimate died when it was not taken up by the House of Representatives. S. 976 was introduced on April 27, 2017. Multistate: The latest EY Sales and Use Tax Quarterly Update provides a summary of the major legislative, administrative and judicial sales and use tax developments. Highlights of this edition include: (1) an overview of sales and use tax issues related to telecommunications services; (2) a discussion of the latest sales and use tax nexus developments in Massachusetts and Tennessee; and (3) a recap of recent sales and use tax developments related to technology, transactions, tax base, exemptions and compliance. Florida: In reversing the appeals court, the Florida Supreme Court (Court) upheld the state's communications services tax (CST), which imposes a higher tax rate on satellite services than cable services, finding the CST does not violate the dormant Commerce Clause because it is not discriminatory in either its purpose or effect. In reaching this conclusion, the Court found cable and satellite providers are similarly situated in their provision of television service and direct competition for customers in the pay-television market, but neither industry is an in-state interest for dormant Commerce Clause purposes. Citing Amerada Hess, Clover Leaf Creamery Co., and Exxon Corp., the Court reasoned that the cable and satellite business models have different impacts on local communities, but neither business produces anything in Florida, neither is headquartered in the state, both have employees and property inside and outside Florida, both employ Florida residents to sell, maintain, or repair their service to Florida customers, and each own and lease a significant amount of Florida property. Finally, the Court found that there is no evidence from the statute's text that it was enacted with a discriminatory purpose. Fla. Dept. of Rev. v. DirecTV, Inc., No. SC15-1249(Fla. S. Ct. April 13, 2017). Kansas: An assessment of retailers' sales tax against a big-box home improvement store (store) was correctly abated because the store was acting as a contractor, not a retailer, when it installed built-in appliances (e.g., dishwashers, microwaves) into customers' homes. In reaching this conclusion, the Kansas Court of Appeals (Court) held the sales tax exemption statute (Kan. Stat. Ann. §79-3603(p)) specifically exempts all installation services connected with the "reconstruction, restoration, remodeling, renovation, repair or replacement of a residence," and does not include an exclusion distinguishing the installation of built-ins from other residential home improvements. Lastly, the Court found the decision by the Kansas Board of Tax Appeals that the installation services related to built-ins were exempt from sales tax by statute was not unreasonable, arbitrary, or capricious. In the Matter of the Appeal of Lowe's Home Centers, LLC, No. 115,254 (Kan. App. Ct. April 14, 2017). Missouri: An out-of-state business's rental of shipping containers to Missouri customers establishes a physical presence for the business and, therefore the business must collect and remit use tax on the rentals. The business also must collect and remit sales tax on its sale of containers when the customer already possesses the container in Missouri. Finally, the business must collect and remit use tax on the delivery and pick up charges for customers located in Missouri because the charges are part of the rental of tangible personal property, which are included in the sales price. Mo. Dept. of Rev., Private Letter Ruling No. 7798 (March 24, 2017). North Dakota: New law (SB 2298) establishes economic nexus provisions for North Dakota sales and use tax purposes. Under the new provision, an out-of-state seller of tangible personal property or other taxable product for delivery in North Dakota (collectively "goods") that does not have a physical presence in the state, will be required to collect and remit sales or use tax to the state if the seller meets either of the following in the previous or current calendar year: (1) has gross sales of goods in North Dakota that exceed $100,000; or (2) sold goods in 200 or more separate transactions. These new economic nexus provisions have a contingent effective date and will only take effect on the date the U.S. Supreme Court issues an opinion overturning Quill (which requires a physical presence for sales and use tax nexus purposes) or otherwise confirms that a state may constitutionally impose its sales or use tax as outlined above. N.D. Laws 2017, SB 2298, signed by the governor on April 10, 2017. Pennsylvania: The Pennsylvania Department of Revenue (Department) issued a revised ruling on the extent "support" to canned computer software and other digital property is subject to the state's sales and use tax. In this context, the term "support" means "the providing of advice or guidance concerning otherwise taxable digital or electronic tangible personal property." "Support" includes identifying the source of a problem affecting the usability of property as well as placing/restoring the property in/to a useable state, such as help desk and call center support. Support can be delivered verbally, on-line, automatically or live discussion, and it may be delivered by the property vendor or by a third party support provider. The ruling includes examples of taxable support. The Department noted that support does not include training and generally does not include consulting unless the consulting falls within the aforementioned definition of support. Pa. Dept. of Rev., Legal Letter Ruling No. SUT-17-001 (revised April 4, 2017). Rhode Island: A company's monthly or annually paid subscription product that gives customers access to several benefits, including free and discounted shipping, streaming or downloadable digital products and video games, and discount pricing, is subject to sales and use tax as a bundled transaction whose real object is ready access to both taxable and nontaxable benefits for no additional consideration. The Rhode Island Division of Taxation reasoned that even if some of the customers do not access or use the taxable benefits, the customers are paying for the unconditional right to access those items along with all of the other product benefits at no additional cost. Lastly, the one-month free trial subscription to the product is not subject to sales and use tax because there is no consideration paid in the transaction. R.I. Div. of Taxn., Ruling Request No. 2017-01 (March 31, 2017). Rhode Island: A company's charges for various cloud computing services (e.g., remote storage service and computing service with an open source instance or a third party instance) and data transfer fees are not subject to sales and use tax, as they are neither sales of tangible personal property nor taxable telecommunications services. The Rhode Island Division of Taxation determined the storage service, which provides digital storage space for data, applications and software, is not subject to sales and use tax because the customer does not purchase any tangible personal property, prewritten computer software, or specifically enumerated taxable services. The storage service is not subject to the telecommunications tax when the storage service is used to store data and not to route communications. Additionally, computing services with an open source instance or a third party instance are not a specifically enumerated taxable service, as neither the operating system nor the software is licensed to the customers, neither can be electronically downloaded for customers' own use, and customers do not receive a physical copy of the software. Further, these are not bundled transactions because customers pay for access to computing power rather than two or more distinct, identifiable products for a non-itemized price. Lastly, the data transfer fee is not subject to the sales tax; it is not an enumerated taxable service or a taxable telecommunications service. R.I. Div. of Taxn., Ruling Request No. 2017-02 (March 31, 2017). West Virginia: The U.S. Supreme Court has been asked to review the West Virginia Supreme Court's (WVSC) ruling in CSX Transportation, in which it found a transportation corporation (corporation) required to pay West Virginia's motor fuel use tax is entitled to a credit for sales tax paid to both other states and to the subdivisions of other states on purchases of motor fuel in the respective jurisdictions. Citing the U.S. Supreme Court's 2015 ruling in Wynne, the WVSC concluded that the disallowance of the sales tax credit for sales tax imposed by the subdivisions of other states would produce a total tax burden on interstate commerce higher than a purely intrastate transaction and, therefore, the sales tax credit violates the dormant Commerce Clause. In addition, allowing the sales tax credit only for sales tax paid to other states unfairly discriminates against interstate commerce. Matkovich v. CSX Transportation, Inc., No. 15-0935 (W.Va. S. Ct. Nov. 16, 2016), petition for cert. filed, Dkt. No. 16-1251 (U.S. S. Ct. April 17, 2017). North Dakota: New law (HB 1045) replaces North Dakota's current angel fund investment tax credit with a new angel investor tax credit program, effective July 1, 2017. The rate of the new angel investor credit is 35% of the amount invested by the angel fund on behalf of the angel investor in an in-state qualified business during the taxable year, reduced to 25% if the investment is in an out-of-state qualified business. In addition, the new angel investor credit can only be claimed when the angel fund invests in a qualified business (this differs from the angel fund investment tax credit, which could be claimed when an angel investor deposited money into an angel fund). Further, the new angel investor tax credit program requires that on or before Dec. 31, 2019, and every two calendar years thereafter, at least 50% of an angel fund's investments be invested in an in-state qualified business. Provisions of HB 1045 also defines terms related to the new angel investor tax credit program; sets forth eligibility requirements under the new credit for an angel fund, an in-state qualified business, and an out-of-state qualified business; includes reporting requirements and penalty provisions; and provides annual and lifetime caps for the new angel investor tax credit, among other provisions. It should be noted that current law will continue to apply to angel fund investments made before July 1, 2017. HB 1045 is effective for taxable years beginning after Dec. 31, 2016. N.D. Laws 2017, HB 1045, signed by the governor on April 13, 2017. North Dakota: New law (HB 1354) requires the North Dakota Tax Commissioner (Commissioner) to disclose the amount of any tax deduction or credit that a taxpayer claimed or earned, upon written request from the chairman of the legislative management or chairman of a standing committee of the legislative assembly. Disclosure of the taxpayer's name or any other information prohibited from disclosure under North Dakota's tax laws is not authorized. The Commissioner must give taxpayers notice of possible disclosure. HB 1354 is effective for tax incentives awarded after July 31, 2017. ND Laws 2017, HB 1354, signed by the governor on April 11, 2017. Puerto Rico: Puerto Rico's Treasury Department (PRTD) issued guidance (Internal Revenue Circular Letter (CL) 17-07) on the procedure for providing information electronically for tax credits held by natural and legal persons. Administrative Order 2017-01 (AO 17-01), requires the Secretary of the PRTD to take an inventory of tax credits (Credits Inventory) that have been granted and requires all holders of authorized tax credits to provide certain information about those credits. Following the issuance of AO 17-01 and in response to its mandate, Resolution 2017-01 was issued to specify the extent to which tax credits may be used for tax year 2016. Under the Resolution and subject to the reporting guidance issued under CL 17-07, a taxpayer may sell or claim a granted tax credit against the income tax for the 2016 tax year without limitations or conditions other than those stated in the Puerto Rico IRC. Further, the Resolution specifically lists and defines what are considered granted credits for purposes of the Credits Inventory requirement. CL 17-07 requires holders of granted credits to report on Form 480.71, Information Return for Tax Credits Held, information on all tax credits held as of April 19, 2017, that meet one of the following characteristics: (1) all or part of a tax credit was or will be claimed against the income tax for tax year 2016; or (2) a portion of the tax credit balance can be sold or claimed against the income tax for tax year 2017 and thereafter. If authorized tax credits are acquired through purchase, assignment or transfer on April 19, 2017, CL 17-07 requires the acquirer to report the amount of the authorized tax credits acquired on April 19, 2017, and the amount that was claimed or will be claimed against the income tax for 2016 and thereafter. For additional information on this development, see, Tax Alert 2017-679. Oklahoma: New law (HB 2298) shortens the eligibility date to qualify for the wind energy credit for zero-emission facilities. Under the amended provisions, electricity generated by wind for any facility placed in operation not later than July 1, 2017 (from Jan. 1, 2021) qualifies for the tax credit of $0.0050 for each kilowatt-hour of electricity generated by a zero-emission facility. HB 2298 took effect upon passage and approval. Okla. Laws 2017, HB 2298, signed by the governor on April 17, 2017. Indiana: New law (SB 440) requires the party requesting the use of an alternative apportionment formula prove that the standard allocation and apportionment formula does not fairly represent the taxpayer's income derived from sources within Indiana and that the proposed alternative formula is reasonable. This change takes effect July 1, 2017. Ind. Laws 2017, P.L. 73-2017 (SB 440), signed by the governor on April 13, 2017. Pennsylvania: The Pennsylvania Department of Revenue (Department) announced changes to its process for handling large sales and use tax refund petitions, which may be addressed through the field audit process. A large refund request generally means a single request that exceeds $100,000, or multiple petitions in one year that in the aggregate exceed this threshold. The determination to conduct a field audit is at the discretion of the Department. The field audit will encompass at least the same periods within the three year refund window, and may be extended to additional years if the taxpayer agrees to waive the statute of limitations. Refunds not granted under a field audit may be raised in a refund petition filed within the later of six months of the mailing date of the notice of assessment or within three years of the actual payment of tax. In addition, the Pennsylvania Board of Tax Appeals has introduced two new appeal schedules for sales and use tax refund procedures. Pa. Dept. of Rev., Sales & Use Tax Bulletin 2017-01 (April 10, 2017). Mississippi: The 2017 Mississippi state unemployment insurance (SUI) tax rates continue to range from 0.0% to 5.4%, plus the 0.2% workforce investment and training surcharge. The surcharge decreased from 0.24% for 2016. New employers continue to pay SUI taxes at 1.0% for the first year of liability, 1.1% for the second year, and 1.2% for the third year, plus the 0.2% surcharge. For more on this development, see Tax Alert 2017-649. Pennsylvania: Effective May 5, 2017, Pennsylvania employers wishing to pay employees by payroll debit card must have an employee's permission to pay by this method. Payment by payroll debit card must not be mandated; instead the employee must be given the option of payment by direct deposit or paper check. For more on this development, see Tax Alert 2017-650. Pennsylvania: A local township's assessment of business privilege tax (BPT) against a multistate convenience store (store) based on sourcing 100% of the store's receipts from in-state franchise stores to Pennsylvania violated the Commerce Clause because the BPT was not fairly apportioned under the U.S. Supreme Court's ruling in Complete Auto, making the tax externally inconsistent. In so holding, the Pennsylvania Commonwealth Court (Court) agreed with the trial court's determination that the economic activity generating the Pennsylvania charges from the franchise stores was the result of interstate activity and the township's assessment was disproportionate as it failed to fairly apportion charges that reflected both intrastate and interstate activities. In addition, the store was not required to prove that a specific amount of its charges resulted from interstate commerce, because fair apportionment is the mechanism that performs the segregation function. The Court found the trial court erred in invalidating the assessment and in the "interest of fairness to other taxpayers in the township" remanded the case for recalculation of the assessment. Upper Moreland Township v. 7 Eleven, Inc., No. 144 C.D. 2016 (Pa. Commw. Ct. April 13, 2017). International: Saudi Arabia ratified the Gulf Cooperation Council (GCC) Value Added Tax (VAT) Framework Agreement by Royal Decree No. M/51 dated January 31. The text of the agreement has been published in the Official Gazette, by way of Circular Number 4667 dated April 20. The Government is determined to implement VAT in Saudi Arabia with effect from January 1, 2018 and has commenced active engagement with business groups on the need to be ready for VAT in 2018. The Saudi Government is expected to issue the draft VAT law by the end of May 2017 and the VAT by-laws are expected to be issued for comment in July 2017. For more on this development, see Tax Alert 2017-695. Multistate: On Wednesday, 21 June 2017, from 1:00-2:30 p.m. EDT New York (10:00-11:30 a.m. PDT Los Angeles), EY will host a webcast on US multistate payroll tax developments. In this webcast, our panelists will explain the general concept of nexus, its symbiotic ties to employment, how sourcing rules differ for income tax withholding and employer tax purposes and how proposed federal legislation could reduce compliance burdens for both businesses and employees. The panelists will also share the key findings from the EY/Bloomberg BNA 2016 Multistate Payroll Tax Compliance Survey identifying trends in compliance, governmental audits and payroll tax policy design. Specific topics of focus will include: (1) 2016 survey results — key compliance trends, (2) 2016 survey results — state and local tax audit trends, (3) 2016 survey results — policies governing business travelers, (4) Business tax nexus generally, (5) Employment and voluntary income tax withholding and their impact on nexus, (6) Sourcing for income tax withholding vs. unemployment insurance, (7) Policy design considerations, and (8) Where and how benchmarking can matter. Click here to register for this event. 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: 2017-0752 |
