24 July 2017 State and Local Tax Weekly for July 14 Ernst & Young's State and Local Tax Weekly newsletter for July 14 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. Notice and reporting requirements take effect in three states and Puerto Rico, no physical presence required for affected retailers On July 1, 2017, new sales and use tax reporting requirements took effect in Colorado and Vermont that apply to any retailer making at least $100,000 in sales to in-state customers during the previous 12 months, regardless of whether the retailer has any physical presence in the state. Similar provisions that took effect in Louisiana and Puerto Rico on the same day do not contain the sales threshold, but Louisiana's law applies a $250 per transaction threshold. Under these provisions, retailers that are not registered and collecting sales tax but make the requisite level of sales to customers with billing addresses in either Colorado, Louisiana, or Vermont are required to: 1) notify customers at the time of the transaction that they owe use tax to their state on their purchases; 2) send annual notification (by January 31st of the following year) to all customers located in the state who purchased $500 or more ($250 or more in Louisiana) of taxable goods and services from the retailer in the previous calendar year, informing them that tax is due on such purchases; and 3) provide to the state's taxing authority (by March 1st of the following year) an annual statement identifying each in-state purchaser and showing the total amount of purchases made by such purchaser during the preceding calendar year. In Puerto Rico, such a customer compilation report must be filed quarterly with the Puerto Rico Treasury Department. Failure to comply with the provisions will result in the following penalties in Colorado and Vermont: — $5 per customer invoice that does not contain the required notification to in-state consumers that use tax is due — $10 per customer for failure to send the annual notification to each in-state customer by January 31st of the following year — $10 per customer omitted from the annual report to the taxing authority if such in-state customer should have been included on the report. Penalties for non-compliance are significantly higher in Puerto Rico but, it is worth noting that the Louisiana statute (La. Rev. Stat Section 47:309.1) does not refer to any penalties for non-compliance. On June 28, 2017, the Colorado Department of Revenue issued emergency regulations that provide some guidance on complying with the reporting requirements, but there continues to be some uncertainty as to their practical operation. The Puerto Rico Treasury Department is said to be formulating regulations, but the Vermont Department of Taxes has not issued any significant guidance. In Louisiana, the Department of Revenue may require a remote retailer subject to the reporting provisions to file its reports electronically if its total sales to Louisiana-based customers exceed $100,000 for the calendar year. For additional information on this development, see Tax Alert 2017-1104. Louisiana: New law (HB 555) (Act), which applies to institutions subject to the Louisiana Bank Shares Tax, provides a deduction against corporate income tax for amounts received as dividends from a related member in a "regulated group of entities." A "regulated group of entities" is a group in which one of the members is either a telecommunications provider or an electric utility in Louisiana. The Act takes effect on Jan. 1, 2018. La. Laws 2017, Act 352 (HB 555), signed by the governor on June 22, 2017. For more on other legislation enacted during 2017 Louisiana general session, see Tax Alert 2017-1121. Massachusetts: The Massachusetts legislation approved a proposed constitutional amendment imposing a 4% surtax on individual taxpayers that earn $1 million or more per year authorizing it to advance to the ballot in November 2018. For additional information on this development, see Tax Alert 2017-1103. New York City: The New York City (NYC) Department of Finance (Department) has released a Statement of Audit Procedure discussing the applicability of basis adjustments under IRC §§734 and 743 to the NYC Unincorporated Business Tax. More specifically, the Department explains the incorporation of the provisions of IRC §§734 and 743 into the computation of unincorporated business taxable income (UBTI), and how this incorporation may affect a partnership's UBTI tax calculation. For additional information on this development, see Tax Alert 2017-1096. North Carolina: New law (SB 257) lowers the North Carolina personal income tax rate from 5.499% to 5.25% for tax years beginning on or after Jan. 1, 2019. The bill also increases the standard deduction effective for taxable years beginning on or after Jan. 1, 2019 as follows: (1) married, filing jointly/surviving spouse to $20,000 (from $17,500); (2) head of household to $15,000 (from $14,000); (3) single to $10,000 (from $8,750; and (4) married, filing separately to $10,000 (from $8,750). In addition, effective Jan. 1, 2018, the child tax credit is converted into a tax deduction. N.C. Laws 2017, Sess. Law 2017-57 (SB 257), legislative override of governor's veto on June 28, 2017. For additional information on other tax changes contained in SB 257, see Tax Alert 2017-1137. Seattle, Washington: New law (Ord. 125339) imposes an income tax on residents who are high-income wage earners. Effective for income received on and after Jan. 1, 2018, a 2.25% income tax is imposed on resident individuals on total income in the tax year in excess of $250,000 (increased to $500,000 for joint filers). Starting in 2019, all total income amounts will be adjusted annually on January 1 by 100% of the average annual growth rate of the bi-monthly Consumer Price Index for the Seattle-Tacoma-Bremerton area. Tax returns and payments are due on or before April 15 of the year following the tax year. An automatic six-month extension will be granted. An additional extension for good cause may be granted by the revenue director. Penalties and interest can be assessed for failure to pay and file. Penalties can be waived for reasonable cause but not for willful neglect. Seattle, Wash. Laws 2017, Ord. 125339, enacted July 14, 2017. Multistate: The 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 state efforts to expand sales and use tax collection obligations to online marketplace providers; (2) A discussion of the latest sales and use tax nexus developments at the federal and state levels; and (3) A recap of recent sales and use tax developments related to technology, transactions, the determination of the tax base, exemptions and compliance. Click here for a copy of the newsletter. Louisiana: New law (HB 264) expands the types of construction contracts excluded from the imposition of a new sales and use tax to include construction contracts for sales of materials or services in lump sum, unit price, fixed-fee or guaranteed maximum price. These provisions apply to any additional state sales and use tax enacted on or after July 1, 2017. La. Laws 2017, Act 209 (HB 264), signed by the governor on June 14, 2017. For more on other legislation enacted during 2017 Louisiana general session, see Tax Alert 2017-1121. Louisiana: New law (HB 601) establishes the Louisiana Uniform Local Sales Tax Board, whose main goal is to establish uniformity and efficiency for the collection and administration of sales and use taxes. The Board has the authority to support and advise local tax collectors, establish rules related to the collection of local sale and use taxes, and develop a coordinated multi-parish audit process, among other things. La. Laws 2017, Act 274 (HB 601), signed by the governor on June 16, 2017. For more on other legislation enacted during 2017 Louisiana general session, see Tax Alert 2017-1121. Louisiana: New law (HB 313) codifies the definition of "inventory" as set forth by the Louisiana Court of Appeals in its ruling in Louisiana Machinery,1 which states that items previously rented and, which in the good-faith and ordinary course of business are ultimately sold, may qualify as "inventory," for purposes of the inventory tax credit against ad valorem property taxes. HB 313 also defines short-term rentals and clarifies the definition of a retailer. Provisions of the HB 313 apply retroactively to tax periods beginning on or after Jan.1, 2016. La. Laws 2017, Act 338 (HB 313), signed by the governor on June 22, 2017. For more on other legislation enacted during 2017 Louisiana general session, see Tax Alert 2017-1121. North Carolina: New law (SB 257) eliminates the existing 1% privilege tax on certain purchases of manufacturing equipment and machinery and exempts from tax the sales of certain equipment, or an accessory, an attachment, or a repair part for equipment used at a fulfillment center. Previously, mill machinery and mill machinery parts and accessories were exempt from sales and use tax but subject to a privilege tax at the rate of 1% of the sales price, with a maximum tax of $80 per article. SB 257 eliminates the privilege tax on such property and adds various mill machinery, property, repair or replacement parts, and equipment to the list of sales that are specifically exempt from retail sales and use tax. This change is effective July 1, 2018 and applies to sales made on or after that date. In addition, SB 257 exempts from tax the sale of equipment, or an accessory, an attachment, or a repair part for equipment that meets all of the following requirements: (1) is sold to a large fulfillment facility; (2) is used at the facility in the distribution process, which includes receiving, inventorying, sorting, repackaging, or distributing finished retail products; and (3) is not electricity. SB 257 also defines "large fulfillment facility." The sales and use tax exemption for fulfillment centers is effective beginning July 1, 2017 and applies to sales made on or after that date. Lastly, effective beginning July 1, 2017 and applicable to sales made on or after that date, an owner or lessee of a business that is the recipient of a grant under the Job Development Investment Grant Program on or before June 30, 2019, for a transformative project as defined in N.C.G.S. §143B-437.51(9a) is allowed a refund of the sales and use tax paid by it on building materials, building supplies, fixtures, and equipment that become a part of the real property of the facility. N.C. Laws 2017, Sess. Law 2017-57 (SB 257), override of governor veto on June 28, 2017. For additional information on other tax changes contained in SB 257, see Tax Alert 2017-1137. Connecticut: New law (HB 5583) expands the Angel Investor Tax Credit program to any business with its principal place of business in Connecticut, rather than only specifically enumerated technology-related businesses. In addition, the amount of credit available for investments in emerging technology businesses is capped at 75% of available tax credits unless credits remain available for reservation after April 1 in any fiscal year. "Emerging technology business" is defined as "any business that is engaged in bioscience, advanced materials, photonics, information technology, clean technology or any other emerging technology as determined by the Commissioner of Economic and Community Development." HB 5583 took effect July 1, 2017. Conn. Laws 2017, Pub. Act 17-110 (HB 5583), signed by the governor on June 30, 2017. Louisiana: New law (SB 254) makes significant changes to the Louisiana motion picture credit program. Under the new law, the maximum amount of credits that can be issued each fiscal year (July 1 to June 30) is $150 million for fiscal years beginning on or after July 1, 2017. Additionally, the state now offers five types of credits, including: (1) a base investment credit of 25% for projects over $300,000 or if the production is a Louisiana screenplay, (2) an additional base investment credit of 5% for projects filmed outside the New Orleans Metro Zone, (3) an additional base investment credit of 10% for certain expenditures equal to or greater than $50,000 but no greater than $5 million for projects meeting certain Louisiana screenplay requirements, (4) a 10% credit for Louisiana resident payroll expenditures, and (5) a 5% credit for certain Louisiana-based visual effects expenditures meeting certain requirements. SB 254 also ends the transfer of certain motion picture credits to third parties after Dec. 31, 2017. La. Laws 2017, Act 309 (SB 254), signed by the governor on June 15, 2017.For more on other legislation enacted during 2017 Louisiana general session, see Tax Alert 2017-1121. Louisiana: New law (HB 454) extends the sunset of the Angel Investor Tax Credit Program from July 1, 2017 to July 1, 2021. The program authorizes a tax credit for certain investments in a qualifying "Louisiana Entrepreneurial Business," as defined by the Department of Economic Development. La. Laws 2017, Act 345 (HB 454), signed by the governor on June 22, 2017. For more on other legislation enacted during 2017 Louisiana general session, see Tax Alert 2017-1121. Louisiana: New law (HB 664) adds criteria for a health maintenance organization (HMO) to qualify for the insurance premium tax credit for insurers that invest a portion of their total admitted assets in Louisiana financial institutions and investment products. The new requirements include that the HMO must offer fully insured commercial or Medicare Advantage products, be licensed and operating in Louisiana, maintain its primary corporate office and at least 70% of employees in Louisiana, and maintain its core business functions in Louisiana. These provisions take effect Jan. 1, 2018. La. Laws 2017, Act 313 (HB 664), signed by the governor on June 16, 2017. For more on other legislation enacted during 2017 Louisiana general session, see Tax Alert 2017-1121. North Carolina: New law (SB 257) extends the repeal of the renewable energy tax credit from Jan. 1, 2017 to May 5, 2017 for certain renewable energy property utilizing renewable biomass resources. N.C. Laws 2017, Sess. Law 2017-57 (SB 257), override of governor veto on June 28, 2017. For additional information on other tax changes contained in SB 257, see Tax Alert 2017-1137. Oregon: New law (SB 310) amends Oregon's vertical housing development zones (zones) by allowing cities and counties to designate zones, removing that authority from the Oregon Housing and Community Services Department. SB 310 also provides program requirements, such as notifying certain local taxing districts that have territory in the proposed zone, explaining how the taxing district can opt out, and zone notification and property tax exemption application requirements. A city or county may terminate a zone at any time, however, such termination does not affect the exemption of any property of a vertical housing development project that was certified before zone termination, provided that it qualifies for the exemption at the time of zone termination. A city or county may not certify a zone on or after Jan. 1, 2026. SB 310 takes effect Oct. 6, 2017, with various applicable dates. Or. Laws 2017, Ch. 326 (SB 310), signed by the governor on June 14, 2017. Texas: New law (HB 1003) expands the Texas franchise tax credit for certified rehabilitation of certified historic structures to institutions of higher education or university systems. "Eligible costs and expenses" for purposes of the credit means qualified rehabilitation expenditures as defined by IRC §47(c)(2), except that the depreciation and tax-exempt use provisions of that section do not apply to costs and expenses incurred by a non-profit entity exempt from franchise tax or by certain institutions of higher learning or university systems. Those costs and expenses are eligible costs and expenses if the other IRC § 47(c)(2) provisions are met. This expansion applies to costs and expenses incurred on or after June 14, 2017, and it expires Jan. 1, 2022. Tex. Laws 2017, HB 1003, signed by the governor on June 14, 2017. Pennsylvania: In Valley Forge Towers Apartments, LP v. Upper Marion Area School District, the Pennsylvania Supreme Court, in a unanimous decision, held that, under the Uniformity Clause of the Pennsylvania Constitution, a taxing authority may not selectively appeal only assessments of commercial properties, such as apartment complexes, while choosing not to appeal the assessment of other types of properties, such as single-family residences. Valley Forge Towers Apartments, LP v. Upper Marion Area School District, 49 MAP 2016 (Pa. S. Ct. July 5, 2017) (Slip Op.). For more on this development, see Tax Alert 2017-1095. Texas: A petroleum refinery company was not entitled to an ad valorem tax exemption for its inventory held in a subzone of a Foreign Trade Zone (FTZ) because the subzone status was not properly activated when the refinery changed owners. In reaching this conclusion, the Texas Court of Appeals (Court) found that following the change in ownership the refinery became a new FTZ operator and, as such, it was required to apply for and obtain the concurrence of the zone grantee and approval of a new activation (then the grantee of an activated zone will submit a written application to the port director for approval of a new operator). In this case the Court found no evidence showing that the refinery ever obtained approval to operate the subzone. Rather, the evidence showed the subzone had been deactivated. Moreover, the US Customs and Border Protection's temporary authorizations for the refinery to operate on a month-to-month basis are not evidence that the subzone was "activated" and the authorizations did not "activate" the subzone as required by federal regulations. Because the subzone was not activated no goods could have been properly admitted to the subzone and, therefore, the refinery is not entitled to an ad valorem tax exemption. Harris County v. Harris County Appraisal Dist. and PRSI Trading, LLC, No. 01-16-00389-CV (Tex. Ct. App., 1st Dist. June 22, 2017). Louisiana: New law (HB 333) allows the Louisiana Department of Revenue (LDR) to require payment of taxes by electronic funds transfer (EFT). Previously, the return had to exceed $5,000 to meet this requirement. HB 333 includes a hardship exception, whereby taxpayers can be excluded from the LDR requirement if they can prove that electronic filing and payment would create undue hardship. These provisions took effect June 12, 2017. La. Laws 2017, Act 150 (HB 333), signed by the governor on June 12, 2017. For more on other legislation enacted during 2017 Louisiana general session, see Tax Alert 2017-1121. Idaho: The Idaho State Tax Commission has released to its website its revised A Guide to Idaho Income Tax Withholding (rev. 7-3-2017), containing updated 2017 state income tax withholding tables adjusted for inflation. Employers are instructed to not adjust the withholding for the months prior to receiving the revised tables, but instead to begin withholding under the new tables now. For additional information on this development, see Tax Alert 2017-1129. Illinois: Following the enactment of budget bill SB 9, a provision of which increases the personal income tax rate from 3.75% to 4.95% effective July 1, 2017, the Illinois Department of Revenue has issued revised Publication IL-700-T, Illinois Withholding Tax Tables, to be used effective with wages paid on and after that date. For additional information on this development, see Tax Alert 2017-1093. Kansas: The Kansas Department of Revenue has released revised withholding tables for calendar year 2017, to be used by employers for the remainder of calendar year 2017. For additional information on this development, see Tax Alert 2017-1071. Minnesota: Under recently enacted HF1, the deadline for employers to submit Forms W-2 to the state Department of Revenue is accelerated to January 31, effective with calendar year 2017 Forms W-2 due in 2018. The requirement to submit Forms W-2 electronically if submitting 10 or more forms is repealed and instead authorizes the commissioner to determine the content, format, and manner in which employers submit Forms W-2. For additional information on this development, see Tax Alert 2017-1100. Minnesota: Recently enacted HF1 opens the door to a possible reinstatement of the reciprocal agreement between Minnesota and Wisconsin with respect to nonresident withholding for residents of one state working in the other, which lapsed in 2009. Effective for tax year 2017, HF1 modifies the credit for income taxes paid by Minnesota residents working in Wisconsin to provide that in years that the states do not have a reciprocal agreement, affected individuals are allowed the same tax treatment as they would receive if there had been a reciprocal agreement between the two states. Effective in tax year 2018, the Minnesota Commissioner of Revenue is authorized to enter into an income tax reciprocity agreement with the Wisconsin Secretary of Revenue. For additional information on this development, see Tax Alert 2017-1101. New Jersey: On June 5, 2017, AB 4945, the Healthy New Jersey Act, was introduced to establish the framework for a universal single-payer healthcare coverage program. The bill calls for the program to be funded by two premiums, one a progressively graduated premium on all payroll and self-employed income, and the second, a progressively graduated premium on taxable non-payroll income, such as interest, dividends, and capital gains.? For additional information on this development, see Tax Alert 2017-1139. Vermont: A home builder that paid a single-member limited liability company (SMLLC) for work related to building a house was not liable for unemployment taxes because the SMLLC is not an "individual" for the purposes of assessing unemployment taxes. In addition, the Vermont Supreme Court affirmed a lower court's finding that four individuals who performed work related to building a house are employees for purposes of Vermont's unemployment compensation system and, as such, they must pay unemployment taxes. In re Bourbeau Custom Homes, Inc., 2017 VT 51, No. 2016-157 (Vt. S. C.t. June 23, 2017). Kentucky: The portion of Kentucky's Multichannel Video Programming and Communications Services Tax (the Telecom Tax) that prohibits cities from levying franchise fees on multichannel video programming (MVP) services, including fees intended as compensation for the use of the cities' rights-of-way, is unconstitutionally void as applied to cities in violation of Sections 163 and 164 of the Kentucky Constitution. In reaching this conclusion, the Kentucky Supreme Court (Court) found that cities have both the power to grant franchises and the power to collect fees in exchange for granting those franchises. Additionally, the Kentucky General Assembly could not, under the delegation provisions set forth in Section 181 of the Kentucky Constitution, prohibit cities from collecting franchise fees in exchange for the use of their rights-of-way, because Sections 163 and 164 constitutionally grant cities that power. The Court noted that Kentucky must still collect taxes due under the remaining parts of the Telecom Tax, and cities can opt to forgo collecting a franchise fee in lieu of participating in the Telecom Tax scheme. Ky. CATV Assn., Inc. (D/B/A Ky. Cable Telecom. Assn., Inc.) v. City of Florence, Ky. et al., Nos. 2015-SC-000178, 2015-SC-000181-DG (Ky. S. Ct. June 15, 2017). Louisiana: New law (HB 639) excludes from Louisiana state income tax the compensation and wages of out-of-state employees and nonresident businesses that perform disaster or emergency-related work in Louisiana during a declared state disaster or emergency. This provision applies to all years beginning on and after Jan. 1, 2018. La. Laws 2017, Act 358 (HB 639), signed by the governor on June 22, 2017. For more on other legislation enacted during the 2017 Louisiana general session, see Tax Alert 2017-1121. Seattle, Washington: New law (Ord 125324) imposes a privilege tax on every person engaging within Seattle in the business of distributing sweetened beverages (i.e., a soda tax). The tax is based on the volume of sweetened beverages distributed multiplied by the applicable rate. Tax rates vary as follows: (1) beverages that are concentrates - $0.0175 per fluid ounce of the resulting beverage; (2) sweetened beverages manufactured by a manufacturer with a worldwide gross income of more than $2M but less than $5M - $0.01 per fluid ounce of sweetened beverage the distributor distributes (a manufacturer must apply to the city for certification of this rate); (3) all other sweetened beverages - $0.0175 per fluid ounce of sweetened beverages the distributor distributes. A taxpayer paying the business license tax on a quarterly basis will be required to file its soda tax return on a quarterly basis, and a taxpayer filing its business license tax on an annual basis will file its soda tax return on an annual basis. The soda tax does not apply to direct retail sales of sweetened beverages by a manufacturer to a consumer (without use of a third party to transport or distribute the beverage). The tax will be imposed starting Jan. 1, 2018, if there is no election on a referendum on this ordinance pursuant to Seattle City Charter, or April 1, 2018, if there is such an election. Seattle, Wash. Laws 2017, Ord 125324, enacted June 6, 2017. International: The Court of Justice of the European Union (the CJEU) has found that a repayment of value added tax (VAT) cannot be delayed for unreasonable periods of time to allow for tax authority inquiries and that default interest should be paid to the claimant where there is a delay. This judgment results from a Hungarian referral, but it applies to VAT taxpayers throughout the European Union (EU). Therefore, any businesses that have been subject to protracted inquiries regarding requests for the repayment of VAT in an EU Member State, should consider whether a claim for default interest should be made in light of this judgment. For additional information on this development, see Tax Alert 2017-1090. 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. 1 La. Mach. Co., LLC v. Bridges, 2015 La. App. Unpub. LEXIS 365 (La. App. 2015) writ denied 187 So. 3d 1003 (La. 2016). Document ID: 2017-1200 |
