20 October 2017 State and Local Tax Weekly for October 13 Ernst & Young's State and Local Tax Weekly newsletter for October 13 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. Delaware unclaimed property holders may need to take immediate action after regulations finalized and VDA notices issued The Delaware Secretary of State (SOS) announced that it will resume issuing Voluntary Disclosure Agreement (VDA) notices to businesses and organizations identified as holders of unclaimed property (hereinafter, Holders). The announcement follows the finalization of long-awaited regulations outlining administration and application of Delaware's recently overhauled unclaimed property law. Holders that do not enroll in the SOS's VDA program within 60 days of the mailing of the notice will be referred to the Delaware State Escheator and DOF for audit examination. If an audit notice is issued, the SOS will have no legal ability to accept a Holder into the VDA program. A Holder receiving one of these letters should consider entering into Delaware's unclaimed property VDA program to benefit from a self-review of its books and records and to have interest and penalties waived. Failure to respond will result in an examination, conducted by a third-party auditor and most likely joined by many other states. Additionally, any Holder currently under an audit that originated before July 22, 2015, may convert the audit into an SOS VDA, but must do so by Dec. 11, 2017. For additional information on this development, see Tax Alert 2017-1712. California: New regulation (Cal. Code Regs. tit. 18 § 25137-15) provides apportionment and allocation of income information for space transportation companies. These companies must generally determine their sales factor as provided by Cal. Rev. and Taxn. Code §§ 25134-25137, and by computing the sales factor numerator by attributing gross receipts to California based on a mileage factor (weighted at 80%) and a departure factor (weighted at 20%). To determine the mileage factor, the taxpayer must compute the mileage ratio applicable to each launch contract for which the taxpayer recognizes revenue in the taxable year. The regulation provides an example of how to determine the apportionment formula. The regulation applies retroactively to taxable years beginning on or after Jan. 1, 2016. Cal. Franch. Tax Bd., Cal. Code Regs. tit. 18, § 25137-15 (adopted Sept. 28, 2017). Indiana: The Indiana Department of Revenue announced that the counties of Allen, Clinton, Fountain, LaGrange, Marion, Sullivan and Vermillion have changed their local withholding income tax rates effective Oct. 1, 2017. The changes are as follows: (1) Allen — the rate increased from .0135 to .0148; (2) Clinton — the rate increased from .02 to .0225; (3) Fountain — the rate increased from .0155 to .021; (4) LaGrange — the rate increased from .014 to .0165; (5) Marion — the rate increased from .0177 to .0202; (6) Sullivan — the rate increased from .003 to .006; and (7) Vermillion — the rate increased from .002 to .015. Additional changes may be announced as of Jan. 1, 2018. For additional information on this development, see Tax Alert 2017-1701. New York: The New York State Department of Taxation and Finance (Department) recently updated its frequently asked questions related to New York's corporate tax reform, addressing combined filing requirements and nexus issues related to alien corporations and foreign corporations. The Department addressed the following issues, among others: when non-taxpayer members of a unitary group that meet certain ownership requirements must be included in a combined report; when an alien corporation that generates income, gain, or loss that is effectively connected with the conduct of its US trade or business must be included in a combined report; and when an alien corporation's treaty-exempt income is subject to New York's Business Corporation Franchise tax. For additional information on this development, see Tax Alert 2017-1717. New York: New law (AB 7863) amends provisions of the New York City Administrative Code to extend transitional provisions that affect corporate taxation under the New York City General Corporation and Banking Tax, for taxable years beginning on or after Jan. 1, 2017 and before Jan. 1, 2020, related to the enactment and implementation of the federal Gramm-Leach-Bliley Act. The previous transitional provisions expired Jan. 1, 2017. AB 7863 took immediate effect. N.Y. Laws 2017, Ch. 302 (AB 7863), signed by the governor on Sept. 12, 2017. Illinois: On Oct. 10, 2017, the Cook County Board of Commissioners voted 15-1 to repeal the penny-per-ounce "soda tax" on sales of sweetened beverages. The tax is set to expire on Dec. 1, 2017, which is the first day of the county's FY18. The controversial tax had been the subject of numerous lawsuits. Most recently, on July 28, 2017, the Cook County Circuit Court dismissed a suit1 filed by the Illinois Retail Merchants Association challenging the constitutionality of the tax. The county must now determine how to make up the loss of a projected $200 million in revenue that was to come from the now repealed tax. Illinois: On Sept. 19, 2017, the Illinois Supreme Court heard arguments on whether a large national bank is entitled to a refund of Retail Occupation Tax Act taxes attributable to uncollected debts assigned by retailers. If the Court upholds the appellate court's decision, similarly situated taxpayers could be eligible for refunds. Since the Court's decision has no time limit, taxpayers should consider filing protective refund claims. Citibank, N.A. v. Illinois Department of Revenue, Dkt. No. 121634 (Ill. S. Ct., oral arguments Sept. 19, 2017). For additional information on this development, see Tax Alert 2017-1718. California: New law (AB 1130) establishes a rebuttable presumption that a qualified heavy equipment renter and a lessee agree to the addition of estimated personal property tax reimbursement to the rental price of heavy equipment property. The presumption applies if all of the following conditions occur: (1) the rental agreement expressly provides for the addition of estimated personal property tax reimbursement; (2) estimated personal property tax reimbursement is separately stated and charged on the rental agreement; and (3) the estimated personal property tax reimbursement amount does not exceed 0.75% of the heavy equipment property rental price. A "qualified heavy equipment renter" is defined as a renter that satisfies both of the following: (1) the principal business of the renter is the rental of heavy equipment property; and (2) the renter is engaged in a line of business described in the 2012 North American Industry Classification System Code 532412 (Construction equipment rental and leasing) or 532310 (General Rental Centers). The provisions of AB 1130 take effect Jan. 1, 2018. Cal. Laws 2017, Ch. 505 (AB 1130), signed by the governor Oct. 5, 2017. Oklahoma: A company that offers cable television, cable modem (internet access), and interconnected Voice over Internet Protocol (VoIP) services to Oklahoma subscribers falls within the statutory definition of "cable television company" and, therefore, is subject to locally valued and assessed ad valorem taxes by the assessor in the counties in which it owns properties. The Oklahoma Court of Civil Appeals further found that the company is not a "transmission company" subject to central assessment, because it does not own, lease, or operate a telephone line, and by statute it cannot be both a transmission company and a cable television company. Moreover, although the company may contract with, and gain a benefit from, a business that does own, lease, or operate a telephone line the company has not shown that it owns property subject to tax as a transmission company. Cable One, Inc. v. Okla. State Bd. of Equal., No. 113818 (Okla. Civ. App. Ct., Div. II, March 24, 2017, mandate issued Oct. 3, 2017). Virginia: The Virginia Department of Taxation (Department) provided guidance to a pass-through entity filing a Unified Nonresident Individual Income Tax Return (i.e., a composite return). A pass-through entity filing a composite return must: (1) provide a completed copy of Schedule VK-1 to each qualified nonresident owner included in the composite return; (2) compute the nonresident owner's Virginia income tax using the highest individual income tax rate without itemized or standard deductions, personal exemptions, credits for income taxes paid to states of residence, any tax credit carryover amounts, or any other tax credits that are not attributable to the pass-through entity; (3) obtain a signed composite return consent form from each participating qualified nonresident owner; (4) have each owner, officer, or employee of the pass-through entity who is authorized to act on behalf of the pass-through entity in tax matters sign the composite return; and (5) make estimated payments on behalf of the qualified nonresident owners included on a composite return. By agreeing to participate in a composite return, the nonresident owner consents to be taxed by Virginia. Va. Dept. of Taxn., Ruling No. 17-164 (Sept. 13, 2017). Multistate: The Multistate Tax Commission (MTC) has extended the application date for its National Nexus Program voluntary disclosure initiative (VDI) for sellers that make sales through an online marketplace sellers to Nov. 1, 2017. Participating states will consider VDI applications and, in exchange for executing a voluntary disclosure agreement (VDA), most states will waive sales/use and income/franchise tax liabilities for online marketplace sellers, including penalties and interest, for prior tax periods without regard to any lookback period. Both Wisconsin and Colorado have deviated from the general waiver, with Wisconsin requiring payment of back sales/use tax liability and interest beginning Jan. 1, 2015, and back income/franchise tax liability for the 2015 and 2016 tax years. Further, Wisconsin is limiting the lookback period to prior years in which the marketplace seller had nexus. Colorado is providing relief from back tax liability for sales/use tax purposes, but for income/franchise tax purposes is requiring payment of back tax liability and interest for a four-year lookback period. Participating states include: Alabama, Arkansas, Colorado, Connecticut, District of Columbia, Florida, Idaho, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Minnesota, Missouri, Nebraska, New Jersey, North Carolina, Oklahoma, Rhode Island, South Dakota, Tennessee, Texas, Utah, Vermont, and Wisconsin. Multistate Tax Commission, Online Marketplace Seller Voluntary Disclosure Initiative (Notice updated Oct. 11, 2017). For additional information on this development, see Tax Alert 2017-1690. California: New law (SB 813) expands the scope of California's voluntary disclosure agreement (VDA) to include non-resident partners of out-of-state partnerships and out-of-state trusts with California beneficiaries. SB 813 also allows the Franchise Tax Board as part of the VDA to waive certain penalties applicable to S corporations or limited liability companies classified as partnerships (e.g., penalties for failure to file or to timely file). These changes apply to VDAs entered into on or after Jan. 1, 2018. Cal. Laws 2017, Ch. 288 (SB 813), signed by the governor on Sept. 25, 2017. Nevada: A proposed revision of a Nevada unemployment insurance regulation would require all employers to electronically file quarterly state unemployment insurance (SUI) contribution and wage reports after July 1, 2018. Under the proposed regulation, an employer that fails to comply with the requirement to file electronically may be subject to penalties. Employers that are unable to comply due to a lack of automation or a severe economic hardship may request a one-year waiver from the electronic filing requirements. For additional information on this development, see Tax Alert 2017-1693. Alabama: A lumber company is not entitled to a refund of the City of Prichard's business license taxes it paid for 2013 and 2014 that were based in part on its gross receipts for exported goods, because the city's business license tax is not a prohibited impost or duty under the U.S. Constitution's Import-Export Clause. In reaching this conclusion, the Alabama Court of Civil Appeals (Court) cited Michelin2 and Washington Stevedoring,3 and found that the city's business license tax has no impact on the federal government's regulation of foreign commerce and does not interfere with the flow of goods among the states. The city's business license tax does not restrain the ability of the federal government to conduct foreign policy because it is a nondiscriminatory tax applied to all businesses operating within the geographical limits of the city, it did not create a special protective tariff, and it does not impede the regulation of foreign trade. In addition, the city's business license tax does not create an interstate rivalry or friction between the states. P.J. Lumber Co., Inc. v. City of Prichard, No. 2160627 (Ala. Civ. App. Ct. Sept. 22, 2017). International: In April 2017, the Supreme Court of Cyprus (the Court) ruled that Directors bear personal criminal liability for a company's failure to comply with provisions of the Value Added Tax (VAT) Law. Further to this decision, the Court has now ordered the imprisonment of two Directors of an entity that failed to comply with the provisions of the VAT Law. For additional information on this development, see Tax Alert 2017-1686. International: With effect from Jan. 1, 2018, Belgium is expected to introduce a measure that will allow landlords to opt to apply the value-added tax (VAT) regime on the rental of "new" commercial real estate. This measure is a positive development for landlords of commercial buildings, as it will increase their right to input tax deduction. For additional information on this development, see Tax Alert 2017-1697. International: The United Arab Emirates (UAE) Federal Tax Authority (FTA) has announced that "large" taxpayers, defined as businesses with an annual turnover exceeding AED150 million (US$40.8 million), must register for UAE Value Added Tax (VAT) by October 31, 2017. In addition, businesses with annual turnover in excess of AED10 million (US$2.7 million) must register for VAT by Nov. 30, 2017. Businesses failing to register for UAE VAT by their respective deadlines may be subject to a late registration penalty. For additional information on this development, see Tax Alert 2017-1699. Illinois: On Nov. 2, 2017, from 4:00 p.m.-5:00 p.m. EDT, join EY as we discuss the ever-changing unclaimed property landscape, specifically in Illinois after that state's recent adoption of the Revised Uniform Unclaimed Property Act (IL-RUUPA). IL-RUUPA repeals the existing business-to-business (B2B) exemption and also adds a transitional provision to the law, requiring holders to look back over an eight-year transactional period. Following the IL-RUUPA, holders will be required to reverse the B2B exemption previously taken and report additional due property by the May or November 2018 deadlines to ensure penalties and interest are not applied. The impact of IL-RUUPA is substantial and potentially material to holders of unclaimed property operating in Illinois or transacting with businesses in Illinois, which likely represents nearly all US business organizations. Topics that will be covered during this webcast include: introduction to the shifting unclaimed property landscape, overview of B2B exemptions, due diligence requirements, a discussion of the notable changes brought about through enactment of the IL-RUUPA, and practical application of the Illinois law changes. To register for this event, go to link. 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 Illinois Retail Merchants Ass'n. et al v. Cook Cnty. Dept. of Rev., No. 17 L 50596 (Cir. Ct. of Cook Cnty., Ill. July 28, 2017). Document ID: 2017-1753 |
