10 July 2017 State and Local Tax Weekly for June 30 Ernst & Young's State and Local Tax Weekly newsletter for June 30 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 legislature transfers most of the powers of the State Board of Equalization to a new Department of Tax and Fee Administration On June 27, 2017, California Governor Jerry Brown signed AB 102 (2017 Cal. Laws ch. 16) (AB 102), the "Taxpayer Transparency and Fairness Act of 2017," to overhaul and significantly minimize the powers of the California State Board of Equalization (SBE). Effective July 1, 2017 with some transitional rules, the new law relieves the SBE of its duties relating to the administration of many state taxes and fees, including the responsibility to hear appeals of personal income and corporate franchise and income tax matters from the California Franchise Tax Board. The SBE, however, retains its property tax authority to administer state assessed properties (e.g., railroad, utility properties) under the California Constitution. Most of the SBE's non-Constitutional powers and responsibilities will be assumed by the newly created California Department of Tax and Fee Administration. The newly created California Office of Tax Appeals will assume responsibility for the SBE's administrative tax appeals function. For more on the changes contained in AB 102, see Tax Alert 2017-978. It is not known at this time if appeals that have been filed with the current SBE and are fully briefed but not heard by the SBE before the end of the year will simply convert over to the new tax appeals system or if new briefing will be required. Even with the additional six months to staff and implement procedures for the new Department and the appeals office, taxpayers can expect to experience delays in service. We will continue to monitor developments as they arise. On June 30, 2017, Governor John Kasich signed Am. Sub. H.B. 49 (Sub HB 49), the 2018-19 biennial budget legislation, while using his line-item veto authority to eliminate some tax provisions. While most of the proposals made by Governor Kasich in his February 2017 budget proposal (see Tax Alert 2017-226) did not make it into the final legislation, there are nonetheless significant tax changes in the final version, including the adoption of a tax amnesty program along with a severe curtailment of taxpayer appeal rights from Ohio Board of Tax Appeals decisions. Also of import are the adoption of an aggressive economic sales and use tax nexus standard, the elimination of the municipal income tax "throwback" rule and the allowance for business taxpayers to elect to make centralized municipal net profits tax filings with the Ohio Department of Taxation instead of with individual municipalities. Governor Kasich used his line item veto authority to veto the following tax related measures: the direct pay election for vehicle dealers, the change to the definition of electronic information services, and the exemption for prescription glasses/contacts. For an in-depth discussion of these changes, see Tax Alert 2017-1042. New Hampshire: New law (HB 517) will further reduce the rate of the business profits tax (currently 8.2%) and the business enterprise tax (currently 0.72%). Under legislation enacted in 2015, effective for tax periods ending on and after Dec. 31, 2018, the current rates will be reduced to 7.9% and 0.675%, respectively, if revenue thresholds are met. Otherwise, the 2016 rates will continue. Provisions of HB 517 provide additional rate reductions as follows: (1) for tax periods ending on and after Dec. 31, 2019, the rates will be reduced to 7.7% and 0.60%, respectively; and (2) for tax periods ending on and after Dec. 31, 2021, the rates will be reduced to 7.5% and 0.50%, respectively. In addition, provisions of HB 517 also update New Hampshire's date of conformity to the Internal Revenue Code of 1986 (IRC), to the IRC in effect on Dec. 31, 2016 (from Dec. 31, 2015), applicable for all taxable periods beginning on or after Jan. 1, 2018. In addition, the legislation increases the amount allowed under the increased expense deduction under IRC §179, to $500,000 (from $100,000) for property placed in service on or after Jan. 1, 2018. N.H. Laws 2017, Ch. 156 (HB 517), signed by the governor on June 28, 2017. North Carolina: New law (SB 257) reduces the corporate income tax rate to 2.5% (from 3.0%), effective for tax years beginning on or after Jan. 1, 2019. In addition, SB 257 reduced the franchise tax rate for S corporations. Effective for tax years beginning on or after Jan. 1, 2019, the franchise tax rate for an S corporation is $200 for the first $1 million of the S corporation's tax base and $1.50 per $1,000 of its tax base that exceeds $1 million. The franchise tax rate for C corporations is $1.50 per $1,000 of the corporation's tax base. Under the law, a corporation's tax base is the greater of the following: (1) the proportion of its net worth, (2) 55% of the corporation's appraised value as determined for ad valorem taxation of all the real and tangible property in this State, (3) the corporation's total actual investment in tangible property in this State. N.C. Laws 2017, Sess. Law 2017-57 (SB 257), override of governor veto on June 28, 2017. North Carolina: New law (HB 59) updates the state's date of conformity to the IRC to Jan. 1, 2017, including any provision enacted as of that date that became effective either before or after that date. In addition, HB 59 modifies the definition of "net worth" for purposes of the franchise or privilege tax on corporations, to make clear that a corporation determines the total amount of its net worth on the basis of its books and records as of the close of its income year. N.C. Laws 2017, Sess. Law 2017-39 (HB 59), signed by the governor on June 21, 2017. Oregon: New law (SB 701) updates the state's IRC conformity date to Dec. 31, 2016 (from Dec. 31, 2015). This change applies to transactions or activities occurring on or after Jan. 1, 2017. If a deficiency assessed against a taxpayer for a tax year beginning before Jan. 1, 2017, is attributable to any retroactive treatment under this law change, then any assessed interest and penalties with respect to the deficiency (or portion thereof) will be canceled. Refunds due as a result of the law change will be paid without interest. Ore. Laws 2017, Ch. 527 (SB 701), signed by the governor on June 29, 2017. Oregon: New law (SB 153) allows an insurance company that is a member of an affiliated group, but is required to file an Oregon return on a separate basis and is excluded from the Oregon consolidated return under ORS 317.710 (5) or (7) to deduct 100% of dividends paid to its parent company. Provisions of the bill take effect 91 days after the Legislature adjourns. Ore. Laws 2017, Ch. 316 (SB 153), signed by the governor on June 14, 2017. Arizona: New law (SB 1416) excludes from transaction privilege and use tax the retail sale of aircraft, navigational and communication instruments and other accessories and related equipment sold to a person for use in a fractional ownership program that meets the requirements of Federal Aviation Administration regulations. SB 1416 takes effect from and after Dec. 31, 2017. Ariz. Laws 2017, Ch. 340 (SB 1416), signed by the governor on May 22, 2016. Illinois: The Cook County Circuit Court granted a temporary restraining order halting the imposition of the Cook County sweetened beverage tax (a.k.a. Soda Tax), which was set to take effect July 1, 2017. A hearing on the challenger's request for a preliminary injunction will be held on July 12, 2017. Additional information regarding the status of tax collection and remittance obligations will be posted on the Cook County Government website. Illinois Retail Merchants Association, et al v. Cook County Dept. of Rev., No. 17 L 50596 (Cook Cnty. Cir. Ct. June 30, 2017). Massachusetts: The Massachusetts Department of Revenue issued DOR Directive 17-2 to revoke DOR Directive 17-1 (issued in April, 2017 see Tax Alert 2017-607). The revoked Directive, which would have become effective July 1, 2017, asserted a sales and use tax collection duty on internet vendors regardless of whether or not the vendor had physical presence in Massachusetts. Directive 17-2 states that a new economic nexus rule will be proposed in a forthcoming proposed regulation. In addition, Directive 17-2 indicates that the new rule will be similar to the one in Directive 17-1, but will be applied prospectively. Mississippi: Amended regulation (Amended Miss. Admin. Code Sec. 35.IV.5.03) permits leasing companies to purchase tangible personal property from a customer to be leased back to the same customer as a financing tool for the customer's benefit. A credit for sales or use tax paid by the customer, however, will not be allowed if the condition of the property has been altered or if the customer has used the property since the time of original purchase. The amended regulations took effect June 4, 2017. Miss. Dept. of Rev., Amended Miss. Admin. Code Sec. 35.IV.5.03 (filed May 5, 2017). Alabama: New law (HB 574) extends the sunset date for incentives authorized under the Alabama Jobs Act for qualifying projects for which project agreements have not been executed on or before Dec. 31, 2020 (from Dec. 31, 2019). The new law also modifies the maximum amount of the credit to $300 million annually (from an aggregate of$850 million), unless the legislature by action of both houses votes to allow additional Jobs Act incentives. Further, the bill requires that at least 80% of the eligible employees created by the qualifying project must be employed full-time to receive certain Jobs Act incentives for qualifying projects. HB 574 took immediate effect. Ala. Laws 2017, Act 314 (HB 574), signed by the governor on May 18, 2017. Arizona: New law (SB 1416) modifies various credit and incentive programs. Arizona's quality jobs tax credit is extended through July 2025 (previously July 2017). In addition, the jobs tax credit's eligibility requirements are amended to establish a new tiered incentives structure that varies the tax credit amount based on business location (urban or rural areas), minimum capital investment, number of jobs created, and wage thresholds calculated as a percent of the county median wage. SB 1416 also amends Arizona's research and development (R&D) credit for individual or corporate income tax, increasing the credit for tax years beginning from and after Dec. 31, 2017 through Dec. 31, 2021 to either: (1) 24% (currently 20%) of the excess of any qualified research expenses for the taxable year over the base amount as provided in IRC § 41(c) (credit for increasing research activities) when the excess is $2.5 million or less; or (2) $600,000 plus 15% (previously 11%) of any amount exceeding $2.5 million. Beginning with tax year 2022, the credit is reduced to 20% of expenses not exceeding $2.5 million or $500,000 plus 11% of the amount exceeding $2.5 million. Finally, SB 1416 permits taxpayers that claim the facilities tax credit from individual or corporate income tax to claim all five annual installments of a credit that was preapproved before Jan. 1, 2023, by the Arizona Commerce Authority notwithstanding any intervening repeal or other credit termination. SB 1416 takes effect from and after Dec. 31, 2017. Ariz. Laws 2017, Ch. 340 (SB 1416), signed by the governor on May 22, 2016. New Jersey: New law (SB 158) expands eligibility for the New Jersey Angel Investor Tax Credit Act to allow holding companies of eligible New Jersey emerging technology companies to receive investments. In addition, carbon footprint reduction technology is added as a research field in which a company can engage to be deemed a New Jersey emerging technology business for credit purposes. S corporation shareholders may apply the credit against the tax liability otherwise due under income tax provisions, but the credit amount must be allocated proportionately to each shareholder's share. SB 158 took immediate effect and applies retroactively to qualified investments made for tax years beginning on or after Jan. 1, 2012, other than qualified investments in New Jersey emerging technology businesses, and in New Jersey emerging technology business holding companies that investments in emerging technology businesses in the carbon footprint reduction technology field. NJ Laws 2017, Ch. 40 (SB 158), signed by the governor on May 1, 2017. New York: Shareholders in an S corporation certified as an Empire Zone enterprise could not claim investment tax credits (ITC) against qualifying business property that was expensed under IRC §179(a) rather than depreciated as required by statute. An Administrative Law Judge (ALJ) of the New York Division of Tax Appeals determined that the S corporation's shareholders had not met the IRS Publication 551 requirement to decrease the basis of the qualifying business property by any IRC §179 deduction taken for that property. Because the property was expensed rather than depreciated, the ALJ found that for federal purposes the S corporation shareholders had completely recovered the cost incurred in the purchase of the property, leaving a zero basis upon which to compute the ITC. In the Matter of the Petition of LeBlanc, et al, Nos. 826547 to 826549 (NY Div. Tax App. June 1, 2017). Texas: New law (SB 550) allows an entity to which all or part of a certified historic rehabilitation credit is sold or assigned and that is subject to a premium tax imposed under the Texas Insurance Code to claim all or part of the credit against the premium tax. The provisions of the historic rehabilitation credit (including those related to the total amount of the credit that may be claimed, the credit carryforward, and the credit sale or assignment) apply for a credit claimed against certain premium taxes (property and casualty; life, health and accident insurance; title insurance; and reciprocal and inter-insurance exchange premium tax) to the same extent the credit provisions apply for credits claimed against Texas franchise tax. No additional retaliatory tax is due from an entity claiming all or part of the credit under the premium tax. SB 550 took immediate effect. Tex. Laws 2017, SB 550, signed by the governor on May 4, 2017. Arizona: New law (SB 1416) permits the accelerated depreciation of personal property located in a military use zone or foreign trade zone or subzone, provided it is acquired during or after tax year 2017 and initially classified as class six property during or after tax year 2018. SB 1416 takes effect from and after Dec. 31, 2017. Ariz. Laws 2017, Ch. 340 (SB 1416), signed by the governor on May 22, 2016. Arizona: The Arizona Court of Appeals (Court) affirmed the tax court's holding that the Arizona Department of Revenue did not have the authority to centrally assess companies leased solar panels, because the companies are not in the business of operating an electric generation facility and the solar panels are not "renewable energy equipment" since they do not "generate electricity" under the renewable energy valuation statute. The Court, however, reversed the tax court's determination that the solar energy systems statute violated the Arizona Constitution's Exemptions and Uniformity clauses. In regard to the Exemptions Clause, the Court found that the Legislature did not provide an exemption for solar panels, which it is prohibited from doing; rather, the statute is merely the legislature's directive to assess and tax a specific property class in a particular way. The Court also held the statute does not violate the Uniformity Clause of the Arizona's constitution, finding the companies are not functionally equivalent to local utilities and electric generation facilities (thus, the property of each could be taxed differently), and that the statute applies to all rooftop solar energy systems uniformly and does not treat similar property differently. Lastly, the Court found the tax court erred when it held that the solar panels should be locally assessed, as the statute provides a method for the Arizona Department of Revenue, not the counties, to perform the valuation. SolarCity Corp. v. Ariz. Dept. of Rev., No. 1 CA-TX 15-0008 (Ariz. App. Ct., Div. 1, May 18, 2017). Texas: New law (SB 277) curtails property tax abatements and appraisal limitations on certain wind farms located near military bases located in Texas. An owner or lessee of a real property parcel located wholly or partly in a reinvestment zone cannot receive a tax exemption of any portion of the parcel's value or of the tangible personal property located on the parcel under a tax abatement agreement entered into on or after Sept. 1, 2017, if, on or after that date, a wind-powered energy device is installed or constructed on the parcel at a location within 25 nautical miles of Texas military aviation facility boundaries. This prohibition does not apply if the wind-powered energy device is installed or constructed as part of an expansion or repowering of an existing project. In addition, an owner of a parcel located wholly or partly in a reinvestment zone may not receive a limitation on appraised value for the parcel of land, building, improvement, or tangible personal property under an agreement that is entered into on or after Sept. 1, 2017, if, on or after that date, a wind-powered energy device is installed or constructed on the parcel at a location within 25 nautical miles of the boundaries of a Texas military aviation facility. This applies regardless of whether the wind-powered energy device is installed or constructed in the reinvestment zone. Both prohibitions apply regardless of whether the wind-powered energy device is installed or constructed at a location that is in the reinvestment zone. Neither of these provisions apply to tax abatement agreements or appraisal limitation applications that are pending approval on Sept. 1, 2017. Tex. Laws 2017, SB 277, signed by the governor on June 8, 2017. Georgia: New law (SB 201) requires employers of 25 or more employees that provide paid sick leave to employees allow eligible employees to use their sick days to care for the illness of an immediate family member. The bill is effective July 1, 2017. The bill does not require an employer to offer paid sick leave to employees. An employer that does provide paid sick leave to employees can limit the number of sick days allowed for employees to use for the illness of family members to no more than five days per calendar year. For more on this development, see Tax Alert 2017-1025. Illinois: Chicago and Cook County, Illinois both passed paid sick leave ordinances that take effect July 1, 2017. Officials in Cook County report they are currently experiencing difficulties making the requirements uniform, as several suburbs of Cook County have voted or plan to vote (e.g., the Villages of Glenview, Niles and Northbrook) to opt-out of the sick leave ordinance and/or another ordinance providing for a gradual increase to $13 in the county's minimum wage. For more information on this development, see Tax Alert 2017-1040. Massachusetts: Governor Charlie Baker recently sent to the state legislature a proposed plan to partially fund the $600 million MassHealth shortfall with an increase in employment taxes. This plan would replace the previously proposed $2,000 per employer fair-share contribution. Per the Associated Industries of Massachusetts blog, the proposal was the result of a compromise between the Baker Administration and the business community. The plan provides for a two-year rate increase (2018-2019) in the current Employer Medical Assistance Contribution (EMAC), offset by a two-year state unemployment insurance (SUI) rate decrease. As proposed, employers' EMAC taxes would increase by $200 million per year while the SUI rate decrease is expected to save employers $335 million over the two-year period. For more on this development, see Tax Alert 2017-1054. Missouri: Approved bill (HB 1194), as passed by the legislature, if enacted would overturn the St. Louis minimum wage increase to $10 effective May 5, 2017, and $11 effective Jan. 1, 2018. The law also blocks Kansas City from increasing its minimum wage. According to the bill language, the bill preempts and nullifies all political subdivision ordinances, rules, and regulations currently in effect or later enacted relating to the establishment or enforcement of a minimum or living wage or the provision of employment benefits (i.e., paid sick leave) that exceed state laws, rules, or regulations. The governor is expected to sign off on the measure. For additional information on this development, see Tax Alert 2017-1034. Puerto Rico: According to a representative of the US Department of Labor (DOL), the Puerto Rico 2017 state unemployment insurance (SUI) wage base will remain at $7,000 for the entire calendar year rather than increase to as much as $10,500 as allowed under a recent change in the law. According to a DOL legislative team member, it has been determined that under Puerto Rico legislation enacted in January of this year (Puerto Rico Chapter 453, L. 2017, the Law of Transformation and Labor Flexibility) the decision of whether to increase the SUI taxable wage base is left with the Puerto Rico Secretary of Labor and Human Resources. Absent a decision by the Secretary, the director of the Puerto Rico unemployment program has decided that the taxable wage base will remain at $7,000 for calendar year 2017. For additional information on this development, see Tax Alert 2017-1024. Philadelphia, Pennsylvania: New law (Bill No. 170205) exempts the Philadelphia Land Bank from realty transfer tax and from Philadelphia recording fees on properties it acquires. In addition, the bill excludes from realty transfer tax: (1) the transfer to the Land Bank by gift, dedication, or deed in lieu of condemnation or deed of confirmation in connection with condemnation proceedings, or certain reconveyances related to condemnations; (2) conveyance to the Land Bank pursuant to acquisition of a tax delinquent property at sheriff sale or tax claim bureau sale; and (3) certain transfers of property for no or nominal actual consideration. The bill took immediate effect. Philadelphia Laws 2017, Bill No. 170205, signed by the mayor on May 17, 2017. Minnesota: New law (SF 1456) requires the Minnesota Revenue Commissioner (Commissioner) provide an electronic list of all persons that appear to own abandoned property to requesting legislators and counties. Beginning Jan. 1, 2018, the Commissioner must annually provide to each requesting legislators an electronic list of all persons that appear to own abandoned property in the legislator's district. Beginning July 1, 2017, and every six months thereafter, the Commissioner must provide each requesting county a list of all persons appearing to own abandoned property in the requesting county. In addition, by Feb. 15, 2018, the Commissioner must issue a report to the legislative committees that cover unclaimed property describing the process abandoned property owners must comply with to file a statutorily allowed claim (including any required identification and documentation necessary for the owner to file a claim). Minn. Laws 2017, Ch. 94 (SB 1456), signed by the governor on May 30, 2017. Tennessee: New law (HB 420) amends Tennessee's unclaimed property laws, renaming it the Uniform Unclaimed Property Act and including revisions incorporating some recommendations of the Uniform Law Commission's recently promulgated model uniform act. Notably, HB 420 shortens unclaimed property's default dormancy period to three years (from five years), except Tennessee maintains its unclaimed property exemption for gift cards and business to business property. In addition, HB 420 establishes presumed abandoned/dormancy periods for certain tax-deferred accounts such as retirement, health savings, and other custodial accounts. Furthermore, the Treasurer must sell or otherwise liquidate a security no sooner than eight months and not later than one year after receiving it and provide notice to the apparent owner. Finally, among other changes, HB 420 permits the Treasurer to prescribe by rules the procedures and standards for examinations, provides for informal conferences for failure to deliver reportable property to the state, and subjects the conferences to judicial review. The portion of HB 420 addressing rulemaking authority took immediate effect, while the remaining provisions take effect July 1, 2017. Tenn. Laws 2017, Ch. 457 (HB 420), signed by the governor on May 25, 2017. Texas: New law (HB 1866) amends unclaimed property provisions to provide for the report, delivery, and claims process for unclaimed restitution payments (URPs) for crime victims. The government department that holds the abandoned funds must report and deliver to the Texas Comptroller of Public Accounts (Comptroller) all URPs presumed abandoned, less a 1.5% collection fee. Government departments that do not hold presumptively abandoned URPs as of March 1 must file a property report certifying such, while those with URPs must file a report with the Comptroller on or before the following July 1. HB 1866 takes effect Sept. 1, 2017. Tex. Laws 2017, HB 1866, signed by the governor on June 1, 2017. Federal: On Tuesday, July 18, 2017 from 2:00 - 3:15 p.m. EDT New York (11:00 a.m. - 12:15 p.m. PDT Los Angeles), join Ernst & Young LLP for a webcast on the latest with respect to the Affordable Care Act (ACA). With the House passage of the American Health Care Act (AHCA) on May 8, 2017, the focus of healthcare reform shifts to the Senate, which is drafting its own bill to repeal and replace the ACA. While including many AHCA provisions, the Senate's Better Care Reconciliation Act (BCRA) differs significantly from the House bill. Further changes to the BCRA are likely, as Senate Republicans work to get the votes needed to pass their bill. Join our panel of EY professionals for a discussion of how US healthcare reform may affect your business and your employees. Topics to be discussed include: (1) potential effects of the AHCA and the BCRA on businesses; (2) next steps in the legislative process; (3) possible state reactions to enactment of the proposed legislation; (4) potential effects of the proposed legislation on employer reporting requirements; (5) the possibility of new IRS guidance on large employer information reporting; (6) employers' reactions to the uncertainty in the current healthcare legislative and regulatory environment, particularly as it relates to their employees. Register for this event. Multistate: On Wednesday, July 26, 2017 from 1:00-2:15 p.m. EDT New York (10:00-11:15 a.m. PDT Los Angeles) Ernst & Young LLP presents its 2017 state tax legislative session round-up webcast. During the webcast, the following topics will be discussed: (1) focused discussion of California's overhaul of the State Board of Equalization and establishment of the new Department of Tax and Fee Administration and the new Office of Tax Appeals; (2) Kansas's repeal of pass-through entity individual income tax exemption; (3) states' continued expansion of sales and use tax nexus provisions aimed at remote retailers; (4) other significant state tax law changes enacted across the US, including the new Illinois budget; and (5) identification of state legislative action to watch during the remainder of 2017. To register for this event, go to 2017 state tax legislative round-up. 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: 2017-1092 |
