15 May 2018 State and Local Tax Weekly for May 4 Ernst & Young's State and Local Tax Weekly newsletter for May 4 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. The Texas Comptroller of Public Accounts (Comptroller) is conducting a tax amnesty program that runs from May 1, 2018 through June 29, 2018. Amnesty applies to liabilities previously not reported to the Comptroller (including tax collected but not remitted) for periods before Jan. 1, 2018, and to most state and local taxes and fees administered by the Comptroller. In exchange for participating in, and complying with the terms of, the amnesty program, the Comptroller will waive otherwise applicable penalties and interest. Taxpayers will not be eligible for amnesty if certain conditions are met (e.g., if the taxpayer is under audit). During the amnesty period, taxpayers have the opportunity to file past due reports, amend reports with underreported tax, or register and file reports for taxes that should have been reported. In exchange for doing so, taxpayers will not have to pay applicable penalties and interest. Amnesty is available for most state and local taxes and fees administered by the Comptroller including the revised franchise (Margin) tax, sales and use taxes (state and local), and local-option taxes (i.e., city, county, metropolitan transit authority), among others. Amnesty is not available for the Public Utility Commission gross receipts assessment, property tax, sports and community venue tax, local vehicle tax, unclaimed property payments, and international fuel tax agreement (IFTA) taxes. Amnesty is open to taxpayers that did not file a required return or report originally due before Jan. 1, 2018, or that underreported taxes or fees due for any reason attributable to a return or report. Amnesty is not available for tax periods under audit, tax periods that have been identified for an audit, accounts that have been certified by the Office of the Attorney General, accounts in litigation, or accounts that have been reduced to judgment. Further, taxpayers that have signed a settlement agreement or a voluntary disclosure agreement before the start of the amnesty program are not eligible to participate in the amnesty program. Taxpayers participating in the amnesty program must submit a paper return or report (or paper amended return or report) with the word "Amnesty" written across the top of the return or report and on the check/money order. New filers must write the word "Amnesty" across the tax application and the registration form as well as on the check/money order. Electronic filing and electronic payment are not allowed under the amnesty program; all amnesty returns or reports and payments must be in paper form. A taxpayer must include its Texas taxpayer number (or federal employer identification or social security number) on its payment. For additional information on this development, see Tax Alert 2018-0920. Arizona: In a recently issued notice, the Arizona Department of Revenue said that trusts and estates required to file federal Form 1041 and that had IRC §965 repatriation income for tax year 2017 that was not distributed to beneficiaries will have to adjust their AZ Form 141AZ to report the income to Arizona. The IRC §965 repatriation income is reported on line B3 "other additions to FTI" on Form 141AZ. Ariz. Dept. of Rev., Notice to Fiduciary Return Filers (April 19, 2018). California: On May 18, 2018, the California Franchise Tax Board (FTB) is scheduled to hold its third Interested Parties Meeting to continue ongoing discussions for the next round of proposed amendments to its market-based sourcing rules, promulgated under California Code of Regulations title 18, (CCR) § 25136-2. In anticipation of this meeting, the FTB released draft language (and a corresponding explanation) of the proposed amendments, including language that will affect asset managers, government contractors, research and development companies, and numerous other industries. The proposed regulatory changes arguably represent the FTB's most sweeping and far-reaching changes to date affecting the general market-based sourcing assignment rules, definitions, illustrative examples, and overall structure and organization of CCR § 25136-2. Many of the changes are new, making this is the first time taxpayers and practitioners have seen them. Affected taxpayers should consider submitting written comments by the July 19, 2018 deadline and/or attending the meeting to provide input. For more on this development, see Tax Alert 2018-0956. New Hampshire: New law (HB 1292) modifies the dates of scheduled business profits tax and business enterprise tax rate changes. As revised, the business profits tax rate and the business enterprise tax rates will be reduced to 7.7% (from 7.9%) and 0.60% (from 0.675%), respectively, on Jan. 1, 2019 (from July 1, 2019). The rates will be further reduced to 7.5% and 0.50%, effective Jan. 1, 2021 (from July 1, 2021). N.H. Laws 2018, Ch. 11 (HB 1292), signed by the governor on April 20, 2018. Pennsylvania: The U.S. Supreme Court (Court) has been asked to review the Pennsylvania Supreme Court's (state court) decision in Nextel Communications of the Mid-Atlantic, Inc., in which it held that as applied to the taxpayer, the statutory $3 million cap on Pennsylvania's net loss carryover (NLC) deduction violates the Uniformity Clause of the Pennsylvania Constitution, but reversed the refund awarded to the taxpayer by the Commonwealth Court. Instead, the state court severed only the $3 million flat cap on NLCs from the NLC statute — not the entire cap including the percentage cap. Thus, the state court's decision handed the taxpayer a victory on the issue, but denied it any corresponding tax relief. In its appeal, the taxpayer is asking the Court whether "the Due Process Clause requires a state to make a remedy available to a taxpayer if the collection of a tax violates state law?" Nextel Communications of the Mid-Atlantic, Inc. v. Commonwealth, No. 6 EAP 2016 (Pa. S. Ct. Oct. 18, 2017), petition for cert. filed, Dkt. No. 17-1506 (U.S. S. Ct. May 3, 2018). Oregon: The Oregon Supreme Court (Court) ruled in Health Net, Inc. that a multistate company is not entitled to a refund of corporate excise tax by making an election to use the Multistate Tax Compact's (Compact) equally weighted three-factor apportionment formula because Oregon "disabled" the election when it legislatively required taxpayers to use a single sales factor apportionment formula. In so holding, the Court cited Moro, 1 finding that the legislature had not "clearly and unmistakably" expressed the intent to enter into a binding contract through the Compact based on the statutory text, context or legislative history. Applying the reasoning of US Steel Corp.,2 the Court further found that the "compact" label does not control whether the Compact actually is considered a compact. The Court noted that when the Compact was drafted the term 'compact' was commonly being used to mean cooperative arrangements among states, a study/advisory commission of states. Additionally, the Court found the Compact apportionment provisions are not functionally different from a uniform law, Compact members can unilaterally withdraw by repealing the enacting statute, and no state or federal contractual rights and obligations exist. Lastly, citing Warren,3 the Court held that 1993 legislation, which requires Oregon's version of the Uniform Division of Income for Tax Purposes Act, which reflects a single sales factor apportionment, to control in the event that it conflicts with the Compact provisions, did not violate an Oregon Constitution requirement (Art. IV., Sec. 22) for legislative amendments to be published at full length rather than amended by reference, and reflected a "complete and perfect" legislative choice to replace one set of apportionment formulas with another. Health Net, Inc. v. Or. Dept. of Rev., No. S063625 (Or. S. Ct. April 12, 2018). Rhode Island: The Rhode Island Department of Revenue (Department) summarized how certain taxpayers should report deferred foreign income under IRC §965 (hereafter "965 income"). For Rhode Island tax purposes taxpayers cannot defer actual tax due. Individual income taxpayers should include 965 income on Form RI-1040, line 1. Partnerships and limited liability companies should include 965 income on Form RI-1065, line 1. Further, such income will flow through to partners on Schedule K-1. In regard to S corporations, 965 income is included in federal taxable income and should be included for Rhode Island tax purposes on Form RI-1120S, Schedule A, line 1. For fiduciaries (trusts/estates), 965 income should be included on line 1 of Rhode Island Form RI-1041. (For federal purposes, if 965 income is reported on different forms depending on whether it has or has not been distributed). The Department noted that for apportionment purposes, 965 income is included only in the denominator, and not in the numerator. The Department indicated that guidance for corporate taxpayers is forthcoming. RI Dept. of Rev., 2018-21 Reminder on 'Section 965' income (April 25, 2018). South Dakota: A federal law change requiring foreign dividends be recaptured, included in federal taxable income, and then taxed in the current period, could result in some instances in double taxation for South Dakota bank franchise tax purposes. Consequently, the South Dakota Department of Revenue will allow a subtraction for dividend income from foreign dividends required to be recaptured for federal purposes and that is included in the South Dakota taxable income for the 2017 filing period, provided that the recaptured foreign dividend has already been included in the taxable income of South Dakota bank franchise tax return filed in a prior period. Recaptured dividends can only be subtracted to the extent they are included in taxable income on South Dakota bank franchise tax return filed for the 2017 period. Further, federal tax credits, modifications, or adjustments pertaining to recaptured dividends are not allowable for South Dakota filing purposes. Taxpayers making the subtraction must include work papers prepared in calculating the subtraction amount. S.D. Dept. of Rev., Foreign Dividend Recapture Guidance (April 26, 2018). Arizona: New law (SB 1382) starting in 2019 requires an online lodging marketplace register with the Arizona Department of Revenue (Department) for a license for the payment of state and local transaction privilege tax for taxes due from an online lodging operator on any online lodging transaction it facilitated. Through the remainder of 2018, registration with the Department for such license is elective for online lodging marketplace. Ariz. Laws 2018, Ch. 189 (SB 1382), signed by the governor on April 11, 2018. Colorado: An out-of-state company (company) that contracts with a Colorado printer to print and deliver catalogues is not subject to sales and use tax on the catalogues when they are printed in Colorado and delivered by common and contract carrier to out-of-state recipients and distributors. The catalogues, however, are subject to sales and use tax when they are delivered by common carrier to in-state recipients. The Colorado Department of Revenue found that the printer, and not the company, hired the carriers and, thus, the exemption provided by Colo. Reg. 39-26-704.2 applies. The printer contacted the carriers and made all the shipping arrangements. The company's only interaction with the carriers was to pay the invoice. Further, based on the terms of the sales contract, the carriers are fulfilling the printer's delivery obligations, and not taking possession of the catalogues on the company's behalf. Colo. Dept. of Rev., PLR 18-001 (Feb. 22, 2018). Georgia: New law (HB 61) establishes economic nexus and notification requirements for sales and use tax purposes. Effective for sales made on or after Jan. 1, 2019, the definition of "dealer" is amended to include a person who receives gross revenue exceeding $250,000 in the prior or current calendar year from retail sales of tangible personal property, or conducts 200 or more separate retail sales of tangible personal property in the prior or current calendar year, to be delivered electronically or physically to a location within Georgia for use, consumption, distribution or storage in the state. Dealers making retail sales of tangible personal property outside of Georgia that are to be delivered electronically or physically to a location within Georgia will be liable for tax on purchases delivered in the state. Further, a delivery retailer — a non-collecting retailer that meets the above economic/transaction threshold — will be required to either collect sales/use tax due or notify each purchaser prior to the completion of the sales transaction that sales or use tax may be due to Georgia. Delivery retailers also will be required to file a sales and use tax report with the state. A penalty will be imposed for failure to comply with the notification requirements. Ga. Laws 2018, Act 365 (HB 61), signed by the governor on May 3, 2018. Louisiana: The 24th Judicial District Court for the Parish of Jefferson, Louisiana ruled that an online retailer is liable for local sales and use taxes (plus interest) on third-party sales made through its marketplace. In so holding, the court found the "definition of 'dealer' is not limited to a retail seller" and the definition of "dealer" applies to the remote retailer's marketplace program. The court found "[o]f particular significance" the fact that the marketplace retailer agreement requires customers purchasing items on the marketplace to place orders using the remote retailer's check-out system and the remote retailer will collect the proceeds from the transactions. Thus, the third-party marketplace retailers could not collect any proceeds on the transactions directly from the customers or directly invoice the customer for sales tax. Only the remote retailer could do so. Newell Normand, Sheriff and Ex-Offico Tax Collector for the Parish of Jefferson v. Wal-Mart.Com USA, LLC, No. 769-149 (La. Dist. Ct. for Jefferson Parish, 24th Dist., March 2, 2018) Wisconsin: New law (AB 583) exempts from sales and use tax the sales price of a service for disaster relief work performed during a disaster period (e.g., 10 days before a state of emergency and 60 days after it ends) provided by an electric cooperative to another electric cooperative, or by a telecommunications utility to another telecommunications utility. Disaster relief work includes repairing, renovating, installing, building, or performing other services or activities relating to Wisconsin infrastructure that has been damaged, impaired or destroyed in connection with a state of emergency. AB 583 took effect retroactively to Jan. 1, 2017. Wis. Laws 2018, Act 290 (AB 583), signed by the governor on April 16, 2018. Mississippi: New law (HB 1557) designates percentages of the Mississippi small business investment company tax credits that participating investors may claim, and increases the aggregate amount of credits that may be allocated to participating investors. For taxable years 2021 through 2025, participating investors may claim 16.66% of their designated capital investment (increased to 16.7% for the 2026 taxable year). Beginning July 1, 2018, the aggregate amount of the credits that may be allocated to participating investors is increased by $45 million. The additional $45 million will be divided into certified primary and secondary tax credit pools that may be applied for by certified primary and secondary Mississippi small business investment companies, respectively. Any credits that remain in a secondary tax credit pool allocation on Aug. 1, 2019 will revert to the primary tax credit pool. Lastly, before Aug. 1, 2022, primary Mississippi small business investment companies, including any wholly owned subsidiary company, cannot apply to be additionally certified as a secondary Mississippi small business investment company, and cannot apply for any tax credit allocation from the secondary tax credit pool. HB 1557 takes effect July 1, 2018. Miss. Laws 2018, HB 1557, signed by the governor on April 13, 2018. Virginia: New law (SB 902) limits Virginia's property tax exemptions for solar energy equipment and facilities owned and operated by a business. Under current law, an exemption applies to 80% of the assessed value of projects for which an initial interconnection request form is filed with an electric utility or a regional transmission organization and greater than 20 megawatts as measured in alternating current (AC) generation capacity for projects first in service on or after Jan. 1, 2017. Starting July 1, 2018, the exemption is limited to projects greater than 20 megawatts and less than 150 megawatts. In addition, a limitation is added to the exemption for80% of the assessed value of all other projects equaling more than five megawatts, so that it is now limited to projects equaling less than 150 megawatts,. Va. Laws 2018, Ch. 849 (SB 902), enacted on April 18, 2018. Georgia: In partially reversing the Georgia Court of Appeals, the Georgia Supreme Court (Court) held that the state's law4 does not require a telecommunications company seeking a sales tax refund to reimburse its customers before applying for a refund from Georgia Department of Revenue (Department). The Court found it unreasonable to interpret "secure a refund" in Ga. Comp. R. & Regs. R. 560-12-1-.25(2) to mean "apply for a refund." Rather, based on the regulation's plain language and context, "secure a refund" means "acquire a repayment." Thus, the regulation requires a dealer (in this case the company) to pay any refund amount to customers before it may acquire repayment of the funds from the Department; it does not require the dealer to repay the funds to customers before filing a refund request or before the Department determines whether a refund is due. Further, to the extent Georgia law is ambiguous regarding when a dealer must repay taxes to a customer, requiring a dealer to provide refunds to customers before seeking a refund from the Department "would upend [the] orderly and logical refund process … " Moreover, the Department's construction creates a strong disincentive to seek refunds on customers' behalf and undercuts statutory intent to repay taxpayers for overpaid or illegally collected taxes. The Court partially vacated and remanded the Court of Appeals opinion for failure to address whether the company had standing to seek a refund on behalf of its customers before May 5, 2009, when an amendment to Ga. Code Ann. § 48-2-35.1 expressly allowing dealers to do so became effective. New Cingular Wireless PCS, LLC et al. v. Ga. Dept. of Rev., No. S17G1256 (Ga. S. Ct. April 16, 2018). Indiana: The Indiana Department of Revenue (Department) is conducting a voluntary disclosure initiative (VDI) through Dec. 31, 2018, for remote online retailers that have inventory in third-party Indiana warehouses and sell to Indiana customers. In exchange for participating in the VDI, the Department will waive penalties and shorten the look-back period for any sales, use and income taxes due. To participate in the VDI, remote retailers must meet all of the following qualifications: (1) have inventory located in a third-party Indiana warehouse and sell to Indiana customers, (2) never filed tax returns in Indiana or registered for the tax types in question, (3) never been audited or contacted by the Department about the tax type in question, (4) is not an Indiana resident that has clearly defined sales and income tax filing obligations in the state. Ind. Dept. of Rev., News Release: "DOR Offers Special Tax Program for Certain Online Retailers" (May 2, 2018). Idaho: The Idaho State Tax Commission (tax commission) has released to its website its revised publication A Guide to Idaho Income Tax Withholding (rev. April 27, 2018), containing updated 2018 state income tax withholding tables adjusted for inflation and reflecting a reduction in the income tax rates. The supplemental withholding rate is reduced to 6.925% (down from 7.4%). The tax commission also changed the method for claiming state allowances on the federal Form W-4. Under recent legislation, personal and dependent exemptions have been eliminated and most itemized deductions have been eliminated or capped. Starting with tax year 2018, the Idaho withholding allowances used in the percentage computation method are the number of children who qualify for the new Idaho Child Tax Credit. This number is reported on line 5 of the Form W-4 following the federal allowances. For more on this development, see Tax Alert 2018-0929. Michigan: New law (H5091, P.A. 118) changes the due date for filing Forms W-2 with the Michigan Department of Treasury (Department) from February 28 to January 31 effective with tax year 2018 (filed in 2019). Also effective for the 2018 tax year, the law requires employers with 250 or more employees to electronically file Form 5081, Sales, Use and Withholding Taxes Annual return. Currently, and unchanged by the new law, employers with 250 or more employees must submit copies of Forms W-2 to the Department using magnetic media. For more on this development, see Tax Alert 2018-0924. See Tax Alert 2018-0936 for a summary of the updated 2018 Michigan Income Tax Withholding Guide and revised 2018 wage-bracket withholding tables. Kentucky: New law (HB 394) adopts select provisions of the Revised Uniform Unclaimed Property Act, including certain definitions, dormancy periods, reporting and notice requirements, and penalties. The periods of time after which certain property will be considered abandoned are provided for items including travelers' checks (15 years); money orders (7 years); state or municipal bonds, bearer bonds, or original-issue-discount bonds (3 years); debts of a business association (3 years); payroll cards or demand, saving, or time deposit accounts (e years); wages, commissions, bonuses, or reimbursements to which an employee is entitled, or other compensation for personal services (1 year); tax-deferred accounts (3 years); tangible property held in a safe-deposit box (5 years); securities (3 years); the net card value of stored-value cards (3 years); and others. The law provides holders' notice requirements for apparent owners (permitting e-mail notification in some circumstances), and specifies deadlines for holders to file unclaimed property reports with the state (generally November 1 annually covering the 12 months before July 1 of that year; insurance company holders must file before May 1 annually for the previous calendar year). Records retention requirements are provided (generally, 10 years after the later of the date the report was filed or the last date a timely report was due to be filed unless the state provides otherwise), as are statutes of limitations for reporting, payment or delivery of property. Additionally, HB 394 limits the fees from contingent-fee unclaimed property contracts to 10% of the amount or value of property paid or delivered as a result of the examination, and requires the Kentucky State Treasurer to promulgate regulations, including those for use of estimation, extrapolation and statistical sampling. HB 394 takes effect July 14, 2018. Ky. Laws 2018, Ch. 163 (HB 394), signed by the governor on April 13, 2018. International: Argentina has published, in the Official Gazette (April 24, 2018), Regulatory Decree No. 353/2018 (D. 353) on the tax revaluation option for resident taxpayers, enacted as part of the recent tax reform (Law 27,430). Argentina also published Regulatory Decree No. 354/2018 (D. 354) on the application of value added tax (VAT) on digital services. Companies doing business in Argentina should consider the consequences of the changes and evaluate the effect on their current Argentine operations. For more on this development, see Tax Alert 2018-0932. International: Under the prior Value Added Tax (VAT) Act, in effect until Dec. 31, 2017, a company in Switzerland became mandatorily liable to register for Swiss VAT if it generated turnover in excess of CHF100,000 from taxable supplies in Switzerland within a one year period. Under the revised VAT Act, in force as of Jan. 1, 2018, the annual turnover threshold in excess of CHF100,000 remains unchanged but the amended reference is to worldwide generated turnover. In other words, turnover of CHF1 from supplies in Switzerland can now constitute a VAT liability if the worldwide turnover is in excess of CHF100,000. For more on this development, see Tax Alert 2018-0939. International: The United Arab Emirates (UAE) introduced Value Added Tax (VAT) from Jan. 1, 2018. Most taxpayers are on a quarterly tax period, with their first VAT returns due on April 29, 2018. During the VAT return preparation and review process, a number of common issues were identified across many businesses. For more on this development, see Tax Alert 2018-0937. Multistate: On Wednesday, May 23, 2018 from 1:00 — 2:30 p.m. EDT (from 10:00 — 11:30 a.m. PDT) Ernst & Young LLP (EY) will host its state tax quarterly webcast. For this webcast, EY panelists will discuss the following topics: (1) current state tax policy matters, including a review of the current state of the economy, the upcoming state elections and their possible impact on state taxation, and state responses to federal tax reform, including New York's new elective employer compensation expense tax; (2) tax reform in Kentucky and Iowa; (3) the latest developments in sales and use tax nexus, including an overview of the U.S. Supreme Court hearing in Wayfair; and (4) an update covering major judicial, legislative and administrative developments at the state level. Click here to register for this event. Multistate: On Tuesday, June 5, 2018 at 2:00 p.m. EDT (11:00 a.m. PDT), Ernst & Young LLP (EY) and Bloomberg Tax will host a webcast discussing employment tax compliance across the states in 2018. Topics to be discussed during this webcast include: (1) multistate payroll tax compliance — what we learned from our 2017 employer survey; (2) federal actions to simplify multistate income tax compliance; (3) how states are adapting to the TCJA, including the new voluntary New York payroll expense tax; (4) healthcare changes with employer implications; (5) disability and paid family and medical leave; (6) mandatory participation in state retirement plans; (7) unemployment insurance trends; (8) state information reporting and withholding for nonwage income; and (9) employee communications and supplementary statements and why they are important in 2018. Click here to register for this event. 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: 2018-1012 |
