08 March 2018 State and Local Tax Weekly for February 23 Ernst & Young's State and Local Tax Weekly newsletter for February 23 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. 21, 2018, the Franklin County Court of Common Pleas (court) denied a request for a preliminary injunction to block the implementation of an elective centralized administration of Ohio's city net profits taxes (see Tax Alert 2018-0297). In addition, the Court issued a final appealable judgment in favor of the State of Ohio, upholding the constitutionality of the 2017 law that authorized the centralized system. The Court determined that the Ohio General Assembly has the ability to impose limits on city taxation under Ohio Revised Code Chapter 718 and that the law did not impinge on a city's right to home rule. It is unknown at this time whether the Ohio cities will appeal this decision. A similar lawsuit by 22 other municipalities, all members of the Regional Income Tax Agency, was filed in the Lorain County Court of Common Pleas in December 2017. That matter is still pending and has not affected the centralized system at this time. For more on this development, see Tax Alert 2018-0397. Iowa tax reform proposal introduced: includes sales tax nexus expansion, taxation of digital products, individual income tax changes On Feb. 13, 2018, Governor Kim Reynolds and Lt. Governor Adam Gregg announced a proposal for tax reform in Iowa. This proposal was introduced in the Iowa Legislature in the form of two study bills — HSB 671 and SSB 3195. The governor's proposal focuses on Iowa individual taxes and includes the following provisions: — Expand sales and use tax nexus provisions and the reach of the sales and use tax to include specified digital products and digital codes as well as a number of services — Impose hotel and motel excise tax on lodging facilitators and the automobile rental excise tax on a rental facilitator In addition, on Feb. 21, 2018, the Senate proposed its tax reform study bill — SSB 3197, now SF 2383 which was passed out of the Senate on Feb. 28, 2018. The Senate proposal includes some of the above mentioned changes but also includes corporate tax changes. Notably, Iowa would change the method by which it conforms to the IRC changing from the fixed-date method (current corporate conformity date is Jan. 1, 2015), to a rolling conformity method which adopts the IRC of 1986 "as amended." Thus, if adopted, Iowa would conform to the recent changes made to the IRC by the Tax Cuts and Jobs Act (P.L. 115-97), unless the state specifically decouples from a particular change. In the case of this bill, the state would decouple from bonus depreciation. SSB 2383 also would: (1) provide for corporate income tax rate cuts; (2) repeal the separate calculation of NOLs at the state level; (3) repeal the corporate AMT, as well as most deductions and exclusions previously allowed (including the deduction for federal income tax); and (4) amend various franchise tax provisions for financial institutions, including credit unions. For additional information on this development, see Tax Alert 2018-0399. Louisiana: The Louisiana Department of Revenue (Department) issued guidance for taxpayers to claim recovery installments beginning with the tax year 2017 return related to extension recovery provisions in several 2015 laws (Acts 109, 123 and 125). Act 109 imposed restrictions on taxpayers seeking to claim credit for income taxes paid to other states, and Acts 123 and 125 provided across-the-board reductions to numerous deductions, exemptions and credits applicable against income and corporation franchise tax. The reductions apply when claimed on a return filed on or after July 1, 2015, but all three acts permit a taxpayer subject to a denial or reduction to recover the amount denied or reduced when the amount otherwise would have been allowed on a return for which a valid extension was granted before July 1, 2015. The recovery is available in one-third increments during each of the taxable years beginning during calendar year 2017, 2018 and 2019. The Department's guidance provides information on which forms to file, required schedule attachments, and rounding and computation requirements. No recovery is allowed when the reduction is made on a standalone form where an extension is not available, such as Form R-620INS, Request for Refund of Louisiana Citizens Property Insurance Corporation Assessment. Lastly, the Department noted that Tennessee and New Hampshire are the only states that qualify for recovery for purposes of Act 109, since the payment of tax on interest and dividend income qualifies as "income tax" for purposes of Louisiana's statutory credit for taxes paid in other states. La. Dept. of Rev., Rev. Info. Bulletin No. 17-018 (Feb. 14, 2018). Ohio: The Ohio Department of Taxation (Department) updated guidance regarding the standards applied to determine whether a nonresident has nexus with Ohio and is subject to the state's individual income tax. A nonresident has nexus with Ohio when he or she: (1) earns compensation for services performed in Ohio; (2) has real, tangible or intangible property in Ohio; or (3) either directly or indirectly (e.g., through an investment in a pass-through entity) engages in a trade or business operating in Ohio. A business is "operating in Ohio" if it has property, payroll and/or sales in Ohio. Activities performed in the state on behalf of a nonresident individual by a non-employee professional (such as a lawyer, accountant or investment banker) do not, by themselves, create nexus for the nonresident individual, but the non-employee professional would have nexus. Ohio determines nexus on a tax year basis, and a nonresident is required to file and pay Ohio individual income tax if he or she has nexus for a given tax year. The nonresident is entitled to a "nonresident credit" for any income "that is not allocable or apportionable" to Ohio. The state also provides specifically enumerated "safe harbor" provisions when a nonresident's activities are limited to specific activities. A voluntary disclosure agreement may be available for a nonresident with a filing responsibility who has failed to file and who has not been contacted by the Department regarding the unpaid liability. Ohio Dept. of Taxn., Info. Release No. IT 2001-01 (reissued Feb. 15, 2018). Virginia: New law (SB 230 and HB 154) updates Virginia's conformity date to the IRC to Feb. 9, 2018, except for the provision of the Tax Cuts and Jobs Act (P.L. 115-97) (TCJA). This exception, however, does not apply to the following: (1) relief for 2016 disaster areas pursuant to §11028 of the TCJA; (2) any other provision of the TCJA that affects the computation of federal adjusted gross income and federal taxable income for corporations for taxable years beginning after Dec. 31, 2016 and before Jan. 1, 2018, other than the temporary reduction in the medical expense deduction floor; (3) provisions of the Bipartisan Budget Act of 2018 (P.L. 115-123) that affect any taxable year other than a taxable year beginning after Dec. 31, 2016 and before Jan. 1, 2018. These changes took effect from passage. Va. Laws 2018, Ch. 14 (SB 230) and Ch. 15 (HB 154), enacted Feb. 22, 2018 and Feb. 23, 2018, respectively. See also, Va. Dept. of Taxn. Tax Bulletin 18-1 (Feb. 26, 2018). West Virginia: New law (HB 4135 and HB 4146) updates references to the IRC. HB 4135 provides for the update of the corporate income tax law to the IRC as of Dec. 31, 2017. HB 4146 provides for the update of the personal income tax law to the IRC as of Dec. 31, 2017 and also allows individuals to calculate personal exemptions as if the federal law had not been changed by the Tax Cuts and Jobs Act (P.L. 115-97), which eliminated these exemptions. These changes took effect Feb. 9, 2018. W.V. Laws 2018, HB 4135 and HB 4146, signed by the governor on Feb. 21, 2018. Colorado: An out-of-state non-collecting retailer is not required to issue a recurring monthly Transactional Notice to customers who subscribe to a monthly shipment when payment is automatic and no invoice is generated. In so advising, the Colorado Department of Revenue noted that effective Jan. 1, 2018, the Transactional Notices are required only for transactions for which the customer subscribes, enrolls or renews his or her subscription or membership. Additionally, when a monthly subscription-based shipment purchaser is located outside Colorado, but the subscription shipment is delivered to and consumed by a Colorado resident, a company must provide the out-of-state buyer (considered a Colorado purchaser that made a Colorado reportable purchase) with the Transactional Notice and Annual Purchase Summary, as well as include the out-of-state buyer in the Annual Customer Information Report. Colo. Dept. of Rev., Gen. Info. Letter No. GIL-18-001 (Jan. 9, 2018). Texas: Transcript retrieval and delivery and degree verification services performed by an out-of-state company acting as an agent of public and private educational institutions are taxable data processing services, and 80% of the amount the company charges for these services is subject to Texas sales and use tax unless an exemption applies. In this case, an exemption is available to public educational institutions but not private education institutions. The Texas Comptroller of Public Accounts explained that Texas Rule 3.322 exempts from sales tax fees charged by a governmental body for furnishing copies of documents not open to public inspection to a person who is authorized to obtain such documents. This exemption applies to public educational institutions (Tex. Tax Code §151.309 entities), but not to private educational institutions (Tex. Tax Code §151.310 entities). Tex. Comp. of Pub. Accts., No. 201801011L (Jan. 19, 2018). Texas: In response to a city's request for guidance on the qualifications for various tax rebates available by statute for a mixed-use development related to a capital improvement convention center project, the Texas Comptroller of Public Accounts (Comptroller) found that the city under Tex. Tax Code § 351.102(c) is eligible for rebates of state sales and use tax and state hotel occupancy taxes generated by the new hotel in the development for the first 10 years after the hotel is open for initial occupancy, provided it meets statutory requirements. During that time, the city may be entitled to receive rebates of the state sales and use taxes generated at the facilities that qualify as "facilities ancillary to a hotel" (e.g., food and beverage operations and retail stores that exclusively sell tangible personal property). The city also could receive rebates for ad valorem taxes, local sales and use taxes, local hotel occupancy taxes, and local mixed beverage taxes if agreed to by the local governmental body. Lastly, the Comptroller explained the requirements to initiate a rebate request, refund or payment of taxes. Tex. Comp. of Pub. Accts., Nos. 201801009L and 201801010L (Jan. 9, 2018). Hawaii: The Hawaii Department of Taxation issued guidance on the renewable fuels production tax credit, defining related terms and providing guidance to the Hawaii Department of Business, Economic Development and Tourism (DBEDT) regarding its verification and certification duties and administration of the $3 million aggregate cap. The credit is available for the "credit period," which is five consecutive years beginning with the first taxable year that a taxpayer claiming the credit begins renewable fuels production at a level of at least 15 billion British thermal units (BTUs) per year. The guidance also defines "sold," "distribution," "year," and "renewable fuel." It also clarifies that the $3 million aggregate cap applies on a first-come, first-served basis, which requires the DBEDT to allocate the credit based on the postmark date if the credit certificate is mailed, the receipt date of the email transmitting the credit certificate if submitted electronically, or the date stamp that DBEDT imprints upon receipt if the credit certificate is hand-delivered. If multiple taxpayers submit credit certificates on the same day and the total requested credits exceed the $3 million aggregate cap, the DBEDT must apply a proportional allocation between these taxpayers based on the amount of renewable fuels production. The guidance is effective for taxable years beginning after Dec. 31, 2016. Haw. Dept. of Taxn., Tax Info. Release No. 2018-03 (Feb. 9, 2018). Nebraska: On a matter of first consideration, the Nebraska Supreme Court (Court) held that an environmental conservation trust fits within the definition of a "charitable organization" within the meaning of Neb. Rev. Stat. § 77-202 because it operated exclusively for the purpose of mental, social, or physical benefit of the public. Thus, the trust's property qualifies for charitable organization property tax exemption. In so holding, the Court reversed the Nebraska Tax Equalization and Review Commission's finding that the trust did not operate exclusively for the public's benefit, noting such conclusion was not supported by evidence. Further, the Court determined that the Nebraska legislature intended for conservation groups like the trust to be considered "charitable organizations" when they meet the charitable organization criteria. Lastly, the Court found the properties at issue were used exclusively for charitable purposes and they were not owned or used for financial gain or profit. Platte River Crane Trust v. Hall Cty. Bd. of Equal., 298 Neb. 970 (Neb. S. Ct. Feb. 9, 2018). New Jersey: Proposed bill (SB 1893) that, if enacted, would allow New Jersey municipalities, school districts and counties (each, a "local unit") to establish charitable funds, and would allow a credit of up to 90% of any donation made to such a fund against the contributor's local unit property tax obligations. Under the bill, a local unit would be required to enact an ordinance or resolution establishing a charitable fund with a specified public purpose that is narrower than the range of general purposes for which a local unit can raise money. The local unit also would have to establish an annual cap on the amount of donations that could qualify for the property tax credit, although there would be no cap on the amount of donations in general to such fund. The amount of the property tax credit cannot exceed 90% of the annual cap, or a different percentage if determined by the Director of the New Jersey Division of Local Government Services. Property tax owners would be able to choose to apply their donations to specific properties in order to receive credits related to those properties, and they would be able to carry forward donations that exceed the cap for up to the next five succeeding years. Local units would be allowed to apply the donations to tax collection fees and administrative costs before applying them to charitable fund purposes. For additional information on this development see Tax Alert 2018-0415. Minnesota: The Minnesota Department of Revenue (Department) issued individual income tax guidance related to federal adjustments, notifying taxpayers that they may need to complete "Schedule M1NC, Federal Adjustments" when filing their 2017 Minnesota income tax return based on federal legislation changes since Dec. 16, 2016 that extended or modified tax provisions for tax year 2017. The Department provided a list of 2017 occurrences that would require a taxpayer to complete the form, including claiming accelerated depreciation for business property on an Indian reservation, claiming the modified treatment of certain qualified film and television expenses, claiming bonus depreciation that exceeds 50% of the taxpayer's cost in the asset, and other items. The Department advised taxpayers to wait until the end of the Minnesota Legislative Session to amend the 2017 Minnesota return, and noted it will provide guidance if changes occur for the adjustments. Minn. Dept. of Rev., Federal Adjustments (Feb. 23, 2018). Tennessee: In resolving conflicting opinions among the Tennessee appellate courts, the Tennessee Supreme Court (Court) held that Tenn. Code Ann. § 67-1-901, et seq., governs actions to recover disputed municipal taxes and under Tenn. Code Ann. § 67-1-901(a) taxpayers must pay under protest disputed municipal taxes before seeking a refund. Consequently, alcoholic beverage retailers that failed to pay disputed municipal taxes under protest before filling a suit for refund are not entitled to refunds of the overpaid taxes. In so holding, the Court explained that the taxpayer recovery process for state taxes differs from the recovery process for municipal taxes, and that statutory changes to Tenn. Code Ann. §§ 67-1-901 and 67-1-1801 et seq. enacted in 1986 removed the requirement of payment under protest by referencing only taxes collected by the revenue commissioner without mentioning taxes collected by a municipality. Additionally, the Court found that the provision in Tenn. Code Ann. § 67-1-1807(a) that removed the requirement of payment under protest for state taxes is self-limiting and does not apply to Tenn. Code Ann. § 67-1-901. Furthermore, nothing in Tenn. Code Ann. § 67-1-1801 et seq. makes these sections applicable to municipal taxes. Lastly, the Court concluded that the legislature intended to maintain the payment-under-protest requirement for municipal taxes, because implied repeals are disfavored and any construction of Tenn. Code Ann. § 67-1-1807 that removes the payment-under-protest requirement for all taxes, including municipal taxes, would impliedly repeal the payment-under-protest requirement for municipal taxes. To the extent Admiralty Suites & Inns and Vulcan Materials Co. are inconsistent, the Court overruled them.1 Chuck's Package Store et al. v. City of Morristown, No. E2015–01524-SC-R11-CV (Tenn. S. Ct. Feb. 6, 2018). Louisiana: Adding to its emergency rule on income tax withholding starting in 2018, the Louisiana Department of Revenue has issued additional guidance concerning the L-4, Employee Withholding Allowance Exemption Certification. As previously reported, employers were instructed to begin using the revised 2018 withholding tables by no later than Feb. 16, 2018. For additional information on this development, see Tax Alert 2018-0401. Nebraska: The Nebraska Department of Revenue issued draft guidelines explaining when payments to nonemployees who are nonresidents are subject to income tax withholding. The Department has also published new Form W-4NB, Nonresident Individuals Performing Personal Services in Nebraska, to document circumstances when it is not necessary to withhold state income tax. For additional information on this development, see Tax Alert 2018-0382. North Carolina: The North Carolina Department of Revenue recently announced that employers failing to file calendar year 2017 Forms NC-3, Annual Withholding Reconciliation, and corresponding Forms W-2 and/or 1099 by the Jan. 31, 2018, filing deadline will not be assessed the $50 failure-to-file penalty. The waiver of penalty is automatic (no need to request the waiver) if the employer files the forms by the former filing deadline of Feb. 28, 2018. For additional information on this development, see Tax Alert 2018-0383. Alabama: New law (HB 190) requires transportation network companies (TNCs) to collect a local assessment fee equal to 1% of the gross trip fare for all prearranged rides that originate in Alabama, effective Aug. 1, 2018. Counties, municipalities, special districts, airport authorities, port authorities or other local governmental entities or subdivisions (collectively, local governmental entities) are prohibited from imposing a tax on or requiring licenses for TNCs, TNC drivers or TNC vehicles if the tax or licenses relates to providing prearranged rides. In addition, local governmental entities cannot subject a TNC, TNC driver or TNC vehicle to a rate, entry, operation, or other local requirement if the rate, entry, operation or other requirement relates to providing prearranged rides or transportation network services. Airports and cruise terminals, however, can charge reasonable pick up fees for use of the airport's or cruise terminal's facilities, and the Alabama State Port Authority can charge reasonable and necessary fees when the regulations, fees and any required credentials are consistent with those applicable to taxicab companies. Finally, within 30 days after the end of each calendar quarter, TNCs are required to submit to the Public Service Commission the total local assessment fees collected by the TNC and reports that delineate prearranged rides and gross trip fare that originated inside and outside municipalities. These provisions take effect July 1, 2018, unless otherwise noted. Ala. Laws 2017, Act 127 (HB 190), signed by the governor on Feb. 22, 2018. Michigan: New law (HB 4950) exempts health maintenance organizations from Michigan's insurance premium tax, retroactive and effective for tax years that begin on and after Jan. 1, 2016. Mich. Laws 2018, P.A. 31 (HB 4950), signed by the governor on Feb. 20, 2018. Pittsburgh, Pennsylvania: On Dec. 19, 2017, Pittsburgh, Pennsylvania Mayor Bill Peduto signed into law an ordinance increasing the rate of the Home Rule Realty Transfer Tax from 1% to 1.5% starting Feb. 1, 2018 and to 2% starting Jan. 1, 2020. When fully phased in, Pittsburgh will tie for the highest total combined real estate transfer tax rate in the US at 5% (Reading, PA was the sole recordholder), surpassing the City of Philadelphia, currently at 4.1%.Before the new law's enactment, the combined state and local transfer tax rate in Pittsburgh was either 3.5% or 4%, made up of a 1% Realty Transfer Tax rate imposed by the Commonwealth of Pennsylvania, a 1% Realty Transfer Tax rate imposed by the City of Pittsburgh, a 1% Home Rule Realty Transfer Tax rate imposed by the City of Pittsburgh, and, depending on the school district, a Realty Transfer Tax rate of 0.5% (Baldwin-Whitehall School District) or 1% (Pittsburgh School District).For additional information on this development, see Tax Alert 2018-0396. International: The Uganda Revenue Authority (URA) recently issued a Communication to address concerns raised by insurance companies through their umbrella agency, the Uganda Insurers Association. The Communication is intended to clarify Value Added Tax (VAT) and withholding tax (WHT) issues related to insurance companies and brokers. For additional information on this development, see Tax Alert 2018-0378. 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 Admiralty Suites & Inns v. Shelby County, 138 S.W.3d 233 (Tenn. Ct. App. 2003); Decatur County v. Vulcan Materials Co., No. 2001–00858-COA-R3-CV, 2002 WL 31786985 (Tenn. Ct. App. Dec. 12, 2002). Document ID: 2018-0522 |
