22 May 2018 State and Local Tax Weekly for May 11 Ernst & Young's State and Local Tax Weekly newsletter for May 11 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 May 5, 2018, the Iowa Legislature approved, and sent to the governor, a tax reform bill (SF 2417). The bill, which is expected to be signed by Governor Kim Reynolds in the near future, makes a number of changes affecting Iowa's corporate, individual and sales/use taxes. Iowa currently conforms to the IRC as of Jan. 1, 2015. SF 2417 would update Iowa's IRC conformity date to March 24, 2018 for tax years beginning on or after Jan. 1, 2019. Starting for tax years beginning on or after Jan. 1, 2020, Iowa would become a rolling IRC conformity state. The changes to the IRC conformity date would apply to both corporate and individual income taxes. In addition, Iowa would continue to decouple from federal bonus depreciation. For tax years beginning on or after Jan. 1, 2021, the top corporate income tax rate would be reduced from 12% to 9.8% on income over $250,000. The Iowa Alternative Minimum Tax and the ability to deduct federal income taxes would be eliminated for tax years beginning on or after Jan. 1, 2021. SF 2417 also would make changes to certain Iowa economic development incentives. Retroactive to tax years starting on or after Jan. 1, 2017, the Iowa Research Activities Tax Credit is restricted to businesses in the manufacturing, life sciences, software engineering, or aviation/aerospace industries that claim a federal credit for the same research for the same tax year. SF 2417 would enumerate a number of persons who would not be deemed to be engaged in the foregoing activities. Further, SF 2417 would extend the expiration dates of the Innovation Fund Tax Credit program to June 30, 2023 and the Targeted Jobs Pilot Project to June 30, 2019. For tax years beginning on or after Jan. 1, 2019, the top individual income tax rate would be lowered from 8.98% to 8.53%. SF 2417 also provides for future contingent reductions in the individual income tax rates and the number of tax brackets starting in tax years beginning on or after Jan. 1, 2023. These changes would apply only upon certain conditions being met. SF 2417 also would: (1) couple Iowa tax law with the recent changes to IRC §179 as enacted in the Tax Cuts and Jobs Act (P.L. 115-97)(TCJA); (2) allow owners of pass-through entities to elect to depreciate expensing received from the pass-through entity that exceeds the Iowa cap, where each entity cannot exceed the federal cap of 20% per year in the subsequent 5 years; (3) couple to the federal modifications of IRC §1031 that effectively eliminate the ability to enter into a tax-free like-kind exchange for all but real property for tax years beginning on or after Jan. 1, 2018; and (4) provide for an Iowa deduction for income from pass-through entities consistent with the new federal Qualified Business Income rules under IRC §199A for tax years beginning on or after Jan. 1, 2019 (the amount allowed would start at 25% in 2019-20, increase 25% each year, with a full 100% deduction in 2023 (provided revenue thresholds are met)). SF 2417 would make a number of changes to Iowa's sales/use tax laws. SF 2417 would add ride sharing services, streaming video, video-on-demand and pay-per-view services, photography, information services, video game services and tournaments, online travel services, and software-as-a-service to the enumerated services subject to tax. Digital goods also would be specifically enumerated as taxable. SF 2417 would narrow the definition of the term "manufacturer" by excluding certain activities from the definition, such as construction contracting, repairs, farming, and others. This change would take immediate effect. SF 2417 would require out-of-state sellers to collect tax if they have either $100,000 or more in Iowa sales or 200 or more separate Iowa sales transactions in a calendar year. Tax collection also would be required if the out-of-state seller uses software downloaded on devices used in Iowa (including "cookie nexus") or uses a content distribution network or a marketplace facilitator to generate Iowa sales. If the retailer required to collect and remit tax fails to do so, all affiliates that control (directly, indirectly, or constructively) the retailer will be jointly and severally liable for any tax, penalty, and interest due, regardless of whether the affiliate is a retailer. For more on this development, see Tax Alert 2018-0987. Louisiana: A new regulation (La. Admin. Code § 61:I.1115) adopted in Louisiana implements a 2016 statute establishing related party add back rules for otherwise deductible interest expenses, intangible expenses and management fees paid to related parties, subject to specific exceptions (including unreasonable, paid to another state/foreign country, conduit). The regulation defines key terms including "indirectly paid," "intangible expenses," "management fees," "related entity," "related member," "related party," "subject to a tax based on or measured by the related member's net income," "reported and included in income for purposes of a tax on net income," among other terms. Operating rules provide information and examples related to what qualifies for the various exceptions to the add-back requirements. For example, the "corresponding item of income subject to tax" exception applies only to the extent the recipient related member includes the corresponding item of income in post-allocation income or apportioned income reported to the taxing jurisdiction(s). Income offset or elimination of the item in a combined reporting state does not qualify for the exception. The regulation was adopted and took effect on April 20, 2018. La. Dept. of Rev., La. Admin. Code § 61:I.1115 (La. Register, Vol. 44, No. 4, April 20, 2018). Oklahoma: New law (HB 3715) provides that an election made under IRC § 965(h) to make installment payments of amounts due under IRC §965, will be followed for Oklahoma income tax purposes. This applies to tax years ending after Jan. 1, 2017. Okla. Laws 2018, HB 3715, signed by the governor on May 7, 2018. Georgia: New law (HB 696), effective from July 1, 2018 through Dec. 31, 2028, exempts from sales and use tax certain high-technology data center equipment that is incorporated or used in a high-technology data center that meets the minimum investment thresholds and other requirements. The tax commissioner will issue exemption certificates to high-technology data centers that he/she determines will "more likely than not meet" the investment threshold (i.e., creation of 20 new jobs and $100 million to $250 million, depending on the population, in aggregate expenditures incurred over any consecutive seven-year period between July 1, 2018 and Dec. 31, 2028, on the design and construction of the high-technology data center/equipment to be used or incorporated in the center). Exemption recipients must file reports both annually and at the end of the seventh year following a recipient's exemption start date with information about expenditures that count toward the minimum investment threshold, the number of new quality jobs created, and other information. If the tax commissioner finds that it failed to meet the minimum investment threshold, a high-technology data center must repay all taxes exempted or refunded under the exemption certificate, plus interest,. A high-technology data center cannot claim certain tax credits if it receives this exemption (but can file amended returns claiming the credits if it is required to repay the exemption). High-technology data centers must file a refund of sales and use tax paid on purchases that qualify for the exemption and were purchased on or after July 1, 2018 through the period during which it had not yet applied for and received its exemption certificate from the commissioner. HB 696 takes effect Jan. 1, 2019 and applies to transactions on or after July 1, 2018. Ga. Laws 2018, Act 421 (HB 696), signed by the governor on May 7, 2018. Oklahoma: New law (HB 1019) expands Oklahoma's sales and use tax laws to include remote sellers, marketplace facilitators, and referrers. Effective July 1, 2018 and before June 1 of each calendar year thereafter (starting in 2019), a remote seller, a marketplace facilitator or a referrer that had aggregate sales of tangible personal property in, or delivered to locations within, Oklahoma of at least $10,000 during the immediately preceding 12-calendar month period is required to file an election with the Oklahoma Tax Commission to collect and remit the state's sales/use tax or to comply with the notice and reporting requirements. In regard to a marketplace facilitator, the election made only applies to: (1) sales through its forum made by or on behalf of a marketplace seller that does not maintain a place of business in Oklahoma, and (2) sales made on its own behalf if it does not maintain a place of business in Oklahoma. For a referrer, the election only applies to sales: (1) directly resulting from a referral of a purchaser to a marketplace seller that does not maintain a place of business in Oklahoma, (2) directly resulting from a referral of a purchaser to a remote seller, and (3) of its own products if the referrer does not maintain a place of business in Oklahoma. The referrer may make an election under (1) and (2) that differs from the election made for (3). Remote sellers, marketplace facilitators and referrers that do not make an election will be deemed to have made an election to comply with the notice and reporting requirements. HB 1019 details the procedures and deadlines for the notice and reporting requirements. A marketplace facilitator or a referrer will be relieved of liability for collecting and remitting the correct amount of tax if it can show that the under-collecting was due to incorrect information provided by the marketplace seller or remote seller. Further, class action suits cannot be brought against a marketplace facilitator or referrer on behalf of a purchaser related to overpayment of sales/use tax. HB 1019 defines terms including "affiliated person," "marketplace facilitator," "marketplace seller," "referrer," and "remote seller," among other terms. HB 1019 took immediate effect. Okla. Laws 2018 (Second Special Session), HB 1019, signed by the governor on April 10, 2018. South Carolina: The South Carolina Department of Revenue (Department) advised that a company's charge for subscription services that provide an internet-based platform where viewers can watch video games, engage in other activities (e.g., music, painting), play in live e-sport events, chat or save past videos for viewers as videos on demand, are subject to the state's sales and use tax. The Department determined that the company is "providing the ways or means for the transmission of the voice or message" (which is a taxable communication service in the state) through its streaming transmission service. S.C. Dept. of Rev., Private Letter Ruling #18-1 (April 10, 2018). Oklahoma: New law (SB 893) caps at $500,000 the amount of zero emission facilities electricity production tax credits generated from electricity produced by non-wind sources (i.e., moving water, sun or geothermal energy), effective for tax years beginning on or after Jan. 1, 2019. Each year, the Oklahoma Tax Commission (Commission) must calculate and publish the percentage by which the credits will be reduced so that the total amount of credits used to offset tax, or paid as a refund, does not exceed the $500,000 cap. If the total credits authorized exceed $500,000, the Commission will permit the excess but must factor it into the percentage adjustment formula for later years. Credits not used or unable to be used due to the cap may be carried over until they are fully used. Lastly, SB 893 includes a sunset date for credits generated by these non-wind sources; allowing the credit for tax years 2003 through 2021. SB 893 takes effect Jan. 1, 2019. Okla. Laws 2018, SB 893, signed by the governor on May 8, 2018. Connecticut: Businesses are reminded that effective with payments made on or after Jan. 1, 2018, Connecticut state income tax withholding is required from pension and annuity distributions and other deferred compensation paid to Connecticut residents. The withholding requirement applies to businesses that maintain an office or transact business in Connecticut. Form CT-W4P, Withholding Certificate for Pension and Annuity Payments is revised effective Jan. 1, 2018, to reflect this new requirement. For additional information on this development, see Tax Alert 2018-0968. Kentucky: The Kentucky Department of Revenue (DOR) released revised 2018 withholding tables and computer formulas in response to recently enacted legislation that replaces the graduated personal and corporate income tax tables with a flat income tax rate of 5%. Also effective with tax years beginning on and after Jan. 1, 2018, any withholding tax exemptions are no longer allowed and Form K-4, Kentucky DOR Employee's Withholding Exemption certificate will no longer apply.According to a DOR withholding tax section representative, the revised withholding tables are effective with wages paid on and after June 1, 2018. Employers are not required to retroactively adjust withholding, but should begin using the revised withholding tables by June 1, 2018. For more on this development, see Tax Alert 2018-0980. New York: Recently enacted New York State 2018-19 Fiscal Year budget bill requires employers to report withholding tax information per employee on a quarterly basis, effective with the first quarter of 2019 (report due April 30, 2019). For more on this development, see Tax Alert 2018-0967. Georgia: New law (HB 205) imposes a state severance tax on oil and gas removed from the ground in Georgia by an extractor, at the rates of $0.03 per barrel of oil and $0.01 per 1,000 cubic feet of gas. Additionally, counties and municipal corporations may impose a severance tax within their jurisdictions on oil or gas removed from the ground by an extractor, at rates of up to $0.09 per barrel of oil and up to $0.02 per 1,000 cubic feet of gas. The Georgia Department of Revenue has the authority to make applicable rules and regulations, and will provide forms for extractors to use for tax compliance purposes. It will collect local severance tax on behalf of counties and municipalities that choose to impose it, and will remit the tax to the jurisdictions accordingly. HB 205 took effect upon becoming law. Ga. Laws 2018, Act 481 (HB 205), signed by the governor on May 8, 2018. International: The German Ministry of Finance published a decree on May 2, 2018 (dated April 23, 2018). According to the decree, a simplification for certain European Union (EU) transactions will be abolished, with a grace period in place until Dec. 31, 2018. For additional information on this development, see Tax Alert 2018-0985. Multistate: On Tuesday, June 5, 2018 at 2:00 p.m. EDT (11:00 a.m. PDT), Ernst & Young LLP 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 a discussion of 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. Federal: On Wednesday, June 6, 2018 from 1:00-2:00 p.m. EDT New York (10:00-11:00 a.m. PDT Los Angeles), Ernst & Young LLP tax professionals will provide an overview of the new Opportunity Zone program that was created under the federal Tax Cuts and Jobs Act. The Opportunity Zone program (codified in IRC Sections 1400Z-1 and 1400Z-2) authorizes states to designate Opportunity Zones in qualified low-income census tracts to spur investment in those areas. The following topics will be discussed during the webcast: (1) federal economic development policy behind Opportunity Zone program; (2) overview of the benefits of investing in Opportunity Zones and the applicability to diverse sectors: individual investors; corporations; real estate; financial services; venture capital; and others; (3) key definitions and requirements for the Opportunity Zone program; (4) mechanism required to secure the benefits and on-going compliance of the Opportunity Zone investment; and (5) aspects of the Opportunity Zone program that may seem simple, but have technical complexity. 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: 2018-1145 |
