22 February 2018 State and Local Tax Weekly for February 9 Ernst & Young's State and Local Tax Weekly newsletter for February 9 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. On Feb. 9, 2018, the President signed the Bipartisan Budget Act of 2018 (HR 1892; P.L. 115-123) (hereafter, "the Act"), setting spending levels for two years and extending multiple tax credits and incentives. Additionally, in Notice 2018-17, the IRS provided low-income housing credit disaster relief for Hurricane Maria damage in Puerto Rico through May 2019. Further, in Revenue Procedure 2018-16, the IRS provided information that state chief executive officers may use to determine which census tracks in their jurisdictions are eligible to be nominated as Qualified Opportunity Zones under Sections 1400Z-1 and -2. The Act generally harmonizes the energy credit expiration dates and phase-out schedules for different types of property. The 30% investment tax credit (ITC) for solar energy, fiber optic solar energy, qualified fuel cell, and qualified small wind energy property will be available for property whose construction begins before 2020. It phases out for property beginning construction in 2021 and is fully phased out in 2022. The 10% ITC for qualified microturbine, combined heat and power system, and thermal energy property is available for property whose construction begins before 2022. The Act also includes enhancement of the carbon dioxide sequestration credit. The credit for residential energy is extended for property placed in service before 2022, subject to a reduced rate of 26% for property placed in service during 2020 and 22% for property placed in service during 2021. The Act also includes modifications of the advanced nuclear power production credit, modifications of the cover over of rum excise taxes, and enhancement of the carbon dioxide sequestration credit. The Act also extended the placed-in-service dates for certain property that may be eligible for various sustainability incentives, including the following: — Section 179D energy-efficient commercial buildings deduction — extended to property placed in service before Jan. 1, 2018 — Section 30C alternative fuel refueling property credit — extended to alternative fuel refueling property placed in service before Jan. 1, 2018 For additional information on this development, see Tax Alert 2018-0302. Idaho: New law (HB 355), effective for tax years beginning on or after Jan. 1, 2017, updates Idaho's date of conformity to the IRC to the IRC in effect on Dec. 21, 2017, except that IRC §§ 965 and 213 are applied as in effect on Dec. 31, 2017. In addition, HB 355 requires a corporation to add back to federal taxable income the amount deducted under IRC § 965 (relating to dividends received by corporations and other special deductions), among other items, as limited by IRC 246(b)(1). HB 355 is in full force and effect retroactively to Jan. 1, 2018. Idaho Laws 2018, Ch. 3 (HB 355), signed by the governor on Feb. 9, 2018. New York City: The New York City Tax Appeals Tribunal (Tribunal) held that a consulting firm's receipts from providing expert knowledge, analysis and views to clients are flat payments for a subscription service that is the product of the efforts of the firm's employees and consultants performed within and without New York City, but found the sourcing methodologies for calculating the firm's receipts factor advanced by the firm, the New York City Department of Finance and the administrative law judge (ALJ) "are all incorrect." In reaching this conclusion, the Tribunal exercised its authority under GCT Rule §11-65(b)(3) to determine a method for allocating those receipts for the tax years at issue based on "the relative values of, or amounts of time spent in performance of, such services within and without New York City, or … some other reasonable method." The Tribunal used compensation information for the firm's New York City employees and its consultants for all tax years for which that information was available, and used the undisputed payroll factors for years for which certain compensation information was unavailable. The Tribunal modified the ALJ determination and remanded the case to the ALJ to determine the New York City General Corporation Tax liability for the tax years using the recalculated receipts factor. In the Matter of Gerson Lehrman Group, Inc., Nos. TAT (E) 08-79 (GC), TAT(E) 12-38 (GC) and TAT (E) 12-39 (GC) (NYC Tax App. Trib. Dec. 28, 2017). South Dakota: New law (HB 1049) updates South Dakota's date of conformity with the IRC to the IRC as amended and in effect on Jan. 1, 2018, for purposes of the income tax imposed on financial corporations. S.D. Laws 2018, HB 1049, signed by the governor on Feb. 5, 2018. Texas: A company's charges for subscriptions to an internet streaming platform are subject to sales and use tax as taxable cable television and amusement services. The Texas Comptroller of Public Accounts determined that the entire lump charge for subscription to the streaming services is taxable because the services meet the statutory definition of cable television services. The company also provides services that meet the statutory definition of amusement services through the lump-sum subscription fees, when all of the company's paid and unpaid services provide access to game communities with chat functions and similar areas were game players comment, interact, find information, or communicate generally regarding games and game play. Further, the company's provision of live and recorded musical performances and eSports competition also fall within the scope of taxable amusement services. Tex. Comp. of Pub. Accts., No. 201801006L (Jan. 4, 2018). Virginia: The Virginia Tax Department issued a ruling addressing sourcing sales under Virginia's new sales and use tax nexus standard, which effective June 1, 2017, requires an out-of-state business to register as a dealer with Virginia if the business "owns tangible personal property that is located for sale in the Commonwealth." Under Va. Code § 58.1-612(C)(9), an out-of-state dealer must source the local use tax and the regional use tax implemented in certain transportation districts to the locality of the Virginia customer, when the purchased items are shipped from a Virginia fulfillment center or from an out-of-state location. Additionally, under Va. Admin. Code tit. 23, 10-210-2070, an initial order for tangible personal property for sale by a Virginia dealer is first taken at the Virginia dealer's place of business when a third-party data center conveys the order information to the dealer. Va. Tax Dept., Ruling No. 18-3 (Jan. 5, 2018). West Virginia: New law (SB 263) eliminates film tax credits in West Virginia. The state will not issue credits for expenditures incurred after Jan. 26, 2018. Taxpayers may use (or transfer) film tax credits they became entitled to before Jan. 26, 2018, until the credits are exhausted or are otherwise terminated. The West Virginia Film Office will cease operations on July 1, 2018, and the Division of Tourism will administer any remaining duties. SB 263 took effect Jan. 26, 2018. W.Va. Laws 2018, SB 263, signed by the governor on Jan. 29, 2018. Texas: A regional water district's property that includes a pavilion, common areas and a for-profit restaurant qualifies for the ad valorem tax exemption under Tex. Tax Code § 11.11(a) because the property is used for public purposes as a matter of law. In reaching this conclusion, the Texas Court of Appeals found that the regional water district had no obligation to prove that the property was devoted exclusively to the use and benefit of the public to avail itself of the tax exemption. Tarrant Appraisal Dist. v. Tarrant Regional Water Dist., No. 02-17-00042-CV (Tex. App. Ct., 2d Dist., Jan. 25, 2018). Wisconsin: The real property of a manufacturer located at its Racine, WI facility (category two manufacturing property: office, warehouse, storage facility) and used to support its category one manufacturing property (e.g., "hardcore" manufacturing property) located in Wisconsin and in other states and foreign countries, is properly classified as manufacturing property. In reaching this conclusion, the Wisconsin Tax Appeals Commission (Commission) rejected the Wisconsin Department of Revenue's argument that the category two property located at the manufacturer's Racine facility cannot qualify as manufacturing property because it predominantly supports category one manufacturing property at the manufacturer's out-of-state locations, instead determining that the applicable statutory provisions (Wis. Stat. § 70.995(1)(a)) do not include geographic qualifiers such as "in this state" or "in Wisconsin." The Commission noted that "[t]here is simply no basis for our writing such a geographic qualifier into the category one and two manufacturing property definitions when the legislature chose not to, and the statutory language is otherwise clear and unambiguous." Modine Mfg. Co. v. Wis. Dept. of Rev., No. 14-M-248 (Wis. Tax App. Comn. Jan. 3, 2018). Maryland: The Maryland legislature overrode Governor Larry Hogan's 2017 veto of HB 1, the Maryland Healthy Working Families Act (Act). The Act requires employers of 15 or more employees to provide paid sick and safe leave to their employees. Employers of 14 or less employees are required to provide unpaid sick leave to their employees. The legislation takes effect Feb. 12, 2018. For additional information on this development, see Tax Alert 2018-0265. Ohio: On Feb. 5, 2018, the Ohio Department of Taxation (Department) announced that the ability to register for centralized Ohio city net profits tax filings and administration through the Ohio Business Gateway (OBG) is now open. The deadline for "opting in" to this elective centralized registration is March 1, 2018. Details regarding this new system, which applies to business entities of all types (e.g., corporations and pass-through entities) are discussed in Tax Alert 2017-1761. For additional information on this development, see Tax Alert 2018-0297. Colorado: Online travel companies (OTCs) are not required to remit accommodation taxes to the town of Breckenridge because the OTCs are not lessors or renters of hotel rooms and, therefore, have no possessory interest in those rooms. In reaching this conclusion, the Colorado Court of Appeals (Court) cited Bedford Park1 and found that under the Breckenridge ordinance the OTCs function more like brokers since they only "furnish" purchasers the opportunity to rent rooms from hotels, and do not have an interest that would allow them to furnish for rent any hotel room. The Court distinguished Expedia II's2 conclusion that OTCs are liable under Denver's lodger's tax, since "furnishing lodging" under Denver's lodging tax means making hotel rooms available to purchasers, while Breckenridge's code imposes liability only on those who furnish property for leasing and renting (and only those with a possessory interest can do so). Town of Breckenridge v. Egencia, LLC et al, No. 2018COA8 (Colo. Ct. App. Jan. 25, 2018). International: The Thai Revenue Department issued a draft value added tax bill (the Draft VAT Bill) on Jan. 17, 2018 to amend the current VAT law related to services rendered by e-business operators in foreign countries. This VAT specific development follows the draft tax proposal on foreign e-business activities, introduced and opened for a public consultation last year. The amendment primarily focuses on the collection of VAT on services rendered by foreign e-business operators to individuals in Thailand due to the limitations in enforcing a reverse charge mechanism under the current VAT law. For additional information on this development, see Tax Alert 2018-0274. International: Further to the publication of a recent Circular (Circular 221) by the Cyprus Tax Department (CTD) on Jan. 12, 2018, the scope of applicability of the favorable Value Added Tax (VAT) Grouping regime has been further extended to include companies with an establishment in Cyprus. Such CTD guidance permits entities not incorporated in Cyprus but possessing a business establishment or fixed place of business in the Republic to join a VAT Group and benefit from both a cash-flow and administrative perspective.For additional information on this development, see Tax Alert 2018-0275. 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: 2018-0392 |
