05 April 2019 State and Local Tax Weekly for March 22 Ernst & Young's State and Local Tax Weekly newsletter for March 22 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. Nebraska: New law (LB 284), effective April 1, 2019, codifies remote retailer economic nexus provisions announced by the Nebraska Department of Revenue (Department) in 2018, and establishes economic nexus provisions for multivendor marketplace platform and retailers that sell on such platforms. In general, nexus will be created if either of the following thresholds is met in the previous or current calendar year: (1) total retail sales of property in Nebraska that exceeded $100,000, or (2) made retail sales into Nebraska in 200 or more separate transactions. Retailers making sales into Nebraska using a multivendor marketplace platform are relieved of their obligation to collect and remit sales tax with regard to tax collected and remitted by the multivendor marketplace platform. In addition, a multivendor marketplace platform will be relieved of its obligation to collect and remit the correct amount of state and local sales taxes to the extent that it can establish the error was due to insufficient or incorrect information given to it by the seller. The new law also makes clear that payment processors appointed by the retailer whose sole activity with regard to the transaction is to process the payment from the customer to the retailer do not have the duties and responsibilities of a seller for purposes of Nebraska sales and use tax. Neb. Laws 2019, LB 284, signed by the governor on March 21, 2019. See also, FAQs and "Notice for Remote Sellers and Marketplace Facilitators" posted on the Department's website. North Carolina: New law (SB 56) codifies the state's economic nexus provision as established by the North Carolina Department of Revenue in Directive SD-18-6 (Aug. 7, 2018). Under these provisions, a remote retailer is engaged in business in North Carolina and subject to the state's sales and use tax if the remote retailer with respect to sales into North Carolina for the previous or current calendar year had either gross sales in excess of $100,000 or 200 or more separate transactions. Remote retailers meeting the threshold are required to register, collect and remit sales and use tax to the state the later of Nov. 1, 2018 or 60 days after meeting the threshold. N.C. Laws 2019, Ch. SL 2019-6 (SB 56), signed by the governor on March 20, 2019. North Dakota: New law (SB 2191) modifies the remote retailer economic nexus thresholds enacted in 2018, by removing the 200 separate transactions threshold, effective for taxable years beginning after Dec. 31, 2018. Thus, for periods from Oct. 1, 2018 through Dec. 31, 2018, the applicable threshold is either (1) gross sales from the sale of tangible personal property and other taxable items delivered in North Dakota exceeding $100,000 or (2) sales of tangible personal property and other taxable items for delivery in North Dakota in 200 or more separate transactions. As of Jan. 1, 2019, only the $100,000 threshold applies. Those meeting the threshold will begin collecting tax on sales delivered during the following calendar year or beginning 60 days after the threshold is met, whichever is earlier. N.D. Laws 2019, SB 2191, signed by the governor on March 14, 2019. Washington: New law (SB 5581) modifies Washington's economic nexus thresholds for remote retailers and marketplace facilitators as well as for the economic nexus provision in place under the business and occupation (B&O) tax. Effective immediately, the new law removes the "200 separate transactions" threshold from the state's sales and use tax economic nexus provision. Thus, remote retailers will have nexus with Washington if they have more than $100,000 of cumulative gross receipts in Washington sales. Effective July 1, 2019, the new law eliminates the notice and reporting requirements established under the state's Marketplace Fairness law, which allowed marketplace facilitators the option of either collecting and remitting tax or notifying taxpayers that they owe tax and provide a report to the Washington Department of Revenue listing their Washington sales. Under the revised provisions, marketplace facilitators meeting the $100,000 threshold will have to collect and remit applicable sales tax. In regard to the B&O tax, effective Jan. 1, 2020, the current economic nexus threshold (which under prior law applied if a business had $53,000 of property, $53,000 of payroll, $267,000 in receipts, or 25% of the business's total property, total payroll, or total receipts are in Washington), is modified to eliminate the payroll, property and 25% of total property, total payroll, or total receipts thresholds, and lowers the receipts threshold to $100,000 based on cumulative gross receipts. The new law also eliminates the state's click-through nexus provisions. Wash. Laws 2019, Ch. 8 (SB 5581), signed by the governor on March 14, 2019. See also, Wash. Dept. of Rev., "New law updates Washington state tax requirements for out-of-state businesses" (March 18, 2019). Arkansas: The Arkansas Department of Finance and Administration (Department) properly adjusted a corporation's 2016 Arkansas corporate income tax return using the statutory three-factor, double-weighted sales factor formula when the corporation did not petition for use of an alternative apportionment before it filed its 2016 original corporate income tax return on which it used the equally weighted three-factor apportionment formula under the Multistate Tax Compact. An Administrative Law Judge (ALJ) of the Department's Office of Hearings & Appeals explained that the petition to use an alternative apportionment formula must be submitted in writing prior to the filing of an original return using such formula, further finding that the corporation's filing of a return did not constitute a petition as required by statute. The ALJ also found that the Department properly applied a 10% underestimate penalty since the corporation did not pay the equivalent of 90% of the amount actually due for the first and second quarters. In re [redacted], No. 18-467 (Ark. Dept. of Fin. and Admin., Ofc. of Hearings & Appeals, March 7, 2019). Iowa: New law (SF 220) increases the Iowa IRC Section 179 expense allowance deduction for corporations and financial institutions. In 2018, SF 2417 raised the IRC Section 179 expansion cap and investment limits for individual taxpayers to $70,000 and $280,000, respectively (see Tax Alert 2018-1123). This increase was not effective for corporations (including S corporations) and financial institutions as the limitations for those taxpayers were $25,000 and $200,000, respectively. This change will put corporations and financial institutions on par with the treatment of individual taxpayers. The changes enacted by SF 220 are retroactively effective for tax years beginning on or after Jan. 1, 2018. Iowa Laws 2019, SF 220, signed by the governor on March 15, 2019. For additional information on this development, see Tax Alert 2019-0567. Mississippi: New law (HB 1699) requires a major medical laboratory service business that has taxable business income from multiple states to apportion its income to Mississippi using a single sales factor formula. The numerator of the sales factor includes receipts from medical laboratory services and other receipts of the business in the state during the taxable year, and the denominator includes the business's total receipts within and without the state during the taxable year. Receipts attributable to medical laboratory services are in Mississippi if the service is provided on behalf of an individual or patient whose service address is located in the state at the time the service is performed (hereafter, the patient service address rule). In addition, such receipts are thrown back to Mississippi if under the patient service address rule: (1) the receipts are sourced to a state or local jurisdiction in which the business is not subject to an income or gross receipts tax (other than a general sales tax) during a given taxable year; or (2) the business is subject to an income or gross receipts tax in another state or local jurisdiction but the laws of that jurisdiction do not source such receipts to that jurisdiction. For purposes of this provision, a business is considered taxable in another state if it files a separate company income or gross receipts tax return, is included in a unitary or combined income or gross receipts tax return, or the state or local jurisdiction has the authority to levy an income or gross receipts tax upon the business regardless of whether it actually does. Other receipts of the business not attributable to medical laboratory services are sourced to Mississippi based on Mississippi Department of Revenue regulations. The new law defines "major medical laboratory service business" as "a company that performs laboratory testing and analysis for the medical industry and that invests a minimum of … [$25 million] in land, building, and/or equipment located in Mississippi and creates … [280] new full-time, direct jobs within … [3] years of start of operations, as certified by the Mississippi Development Authority." These provisions take effect Jan. 1, 2019. Miss. Laws 2019, HB 1699, signed by the governor on March 19, 2019. North Carolina: New law (SB 56) updates the state's date of conformity to the Internal Revenue Code to Jan. 1, 2019 (from Feb. 9, 2018), including any provisions enacted as of the date that becomes effective before or after that date. N.C. Laws 2019, Ch. SL 2019-6 (SB 56), signed by the governor March 20, 2019. Arkansas: New law (SB 336) imposes wholesale sales taxes on motor fuel and on distillate special fuel, and additional registration fees on electric and hybrid vehicles. For both motor fuel and distillate special fuel, the Director of the Arkansas Department of Finance and Administration (Director) must determine the wholesale sales tax rates by multiplying the 12-month average wholesale selling price of the respective fuels during the previous calendar year by the new wholesale sales tax rates, levied at 1.6% for motor fuel and 2.9% for distillate special fuel. For collection efficiency, the Director will convert the tax to a cent-per-gallon amount, rounded to the nearest one-tenth of one cent. The rates are effective Oct. 1, 2019 through Sept. 30, 2020, and can be recalculated each year. SB 336 limits the wholesale sales tax rate increase to no more than one-tenth of one cent per gallon in years in which the 12-month average wholesale selling price is more than the previous year, and keeps the rate the same in other years. The wholesale sales taxes are paid by motor fuel dealers to motor fuel distributors, and by distillate special fuel dealers to suppliers, with the distributors and suppliers, respectively, reporting and remitting the taxes. Lastly, SB 336 levies a $200 registration fee on electric vehicles and a $100 fee on hybrid vehicles. These provisions take effect on the first day of the calendar quarter following the legislation's effective date, which is 90 days after the legislature adjourns sine die. Ark. Laws 2019, Act 416 (SB 336), signed by the governor on March 11, 2019. Massachusetts: A corporation's sales of eFax services are subject to sales tax as taxable telecommunications services, are not protected from tax by the Internet Tax Freedom Act (ITFA), and are properly sourced to Massachusetts. In making these determinations, the Massachusetts Appellate Tax Board (Board) found that the critical component of the eFax service is the transmission of messages or information between points to its customers. Further, under 830 CMR 64H.1.6(7), the entire sales price is taxable as a sale of telecommunications services, when the corporation sold the eFax service as a package with other features. The Board also determined that the eFax service is not exempt under the ITFA as (1) a purchase and resale of internet access; or (2) an email service, personal electronic storage capacity service, or a service offered over the internet when the corporation required customers provide their own internet access and email service to use the eFax service, and the email and personal electronic storage capacity were packaged as an additional feature of the eFax service (and not provided independently). Lastly, the Board found that the Massachusetts Department of Revenue properly sourced the corporation's sales to Massachusetts using an alternative method based on the corporation's nationwide revenue as reported on its federal Form 1120, multiplied by a percentage of the total US population attributable to the Commonwealth, in light of the fact that the corporation failed to keep adequate records. J2 Cloud Services, Inc. v. Mass. Comr. of Rev., No. C325426 (Mass. App. Tax Bd. Feb. 27, 2019). Arkansas: New law (HB 1461) extends the Digital Product and Motion Picture Industry Development Act of 2009 (Act) to June 30, 2029 (from June 30, 2019). The new law also provides that rebates granted under the Act are awarded at the discretion of the Executive Director of the Arkansas Economic Development Commission (formerly approved by the Film Office). HB 1461 takes effect 90 days after the legislature adjourns sine die. Ark. Laws 2019, Act 367 (HB 1461), signed by the governor on March 7, 2019. Virginia: New law (HB 2539) accelerates the sunset date of the worker retraining tax credit to Jan. 1, 2019 (from Jan. 1, 2022), and establishes the worker training tax credit. For taxable years beginning on or after Jan. 1, 2019 and before July 1, 2022, a business can claim a credit against certain taxes (including corporate and individual income taxes, bank franchise tax, and license taxes on certain insurance corporations and public service corporations), equal to 35% of expenses incurred by the business during the taxable year for eligible worker training. Credits are available for up to $500 per qualified employee annually, and up to $1,000 per non-highly compensated worker annually. Additionally, for taxable years beginning on or after Jan. 1, 2019 but before Jan. 1, 2022, a business primarily engaged in manufacturing can take a credit against corporate and individual income taxes for an amount equal to 35% of its direct costs incurred during the taxable year in conducting orientation, instruction, and training in Virginia related to its manufacturing activities. This credit cannot exceed $2,000 for any taxable year. Virginia can award up to $1 million under the worker training tax credit program. Unused credits can be carried forward for up to three years, are not refundable, and cannot be carried back. Va. Laws 2019, Ch. 189 (HB 2539), signed by the governor on March 5, 2019. Puerto Rico: Generally, domestic and foreign corporations that are engaged in a trade or business in Puerto Rico must file a corporate income tax return no later than the 15th day of the fourth month following the close of the tax year. For tax year 2018, the corporate income tax return for calendar-year taxpayers must be filed no later than April 15, 2019; and for fiscal-year taxpayers, by no later than the 15th day of the fourth month following the close of the tax year. Foreign corporations that do not have an office or place of business in Puerto Rico must file their corporate income tax returns no later than the 15th day of the sixth month following the close of the tax year. For tax year 2018, corporations and limited liability companies taxed as corporations will be required to electronically file their Puerto Rico corporate income tax returns (Form 480.20) through a program certified by the Puerto Rico Treasury Department (PRTD). Certified programs can be accessed on the PRTD's website under Corporate Returns 2018 under the "Hacienda Virtual" link. For more on this development, see Tax Alert 2019-0604. New Jersey: Governor Phil Murphy recently approved legislation that will require employers of 20 or more employees to offer pretax transportation fringe benefits to employees. The legislation (SB 1567) will take effect upon the earlier of March 1, 2020 or the effective date of regulations to be adopted by the New Jersey Department of Labor & Workforce Development. Employees may elect to exclude from taxable income qualified transportation benefits (except parking) up to the maximum level allowed by federal law (IRC Section 132(f)). For 2019, the federal limit is $265 per month for transit and van pool benefits. New Jersey: In late 2018, Jersey City, New Jersey approved the establishment of a 1% payroll tax paid by employers. The adoption of the Jersey City payroll tax was legally challenged by a group of businesses as being "special legislation" barred by the state's constitution, arguing that the tax targets out-of-towners who happen to work in the city. On March 15, 2019, Superior Court Judge Peter F. Bariso, Jr. dismissed the case, ruling that the payroll tax ordinance is not special legislation prohibited under the state and federal constitution. "The Legislature's decision to cut funding to school districts is not the sole basis that supports the constitutionality of the Local Tax Authorization Act (LTAA); its basis also lies in the characteristics of cities of the first class, being distinct and unique because of their size, that allows the Legislature to address Jersey City separately from other municipalities," Judge Bariso wrote, adding that Newark and Jersey City are home to the state's largest populations of residents and biggest school districts. (Mack-Cali Realty Corp. et al. v. State of New Jersey et al., Case No. HUD-L-004903-18, in the Superior Court of New Jersey, Hudson County.) According to information posted by the Payroll Tax Unit of the City of Jersey City on its website, employers must register for the new payroll tax here. For more information on this development, see Tax Alert 2019-0570. Alabama: New law (HB 2) imposes an additional excise tax on gasoline and diesel fuel, a floor-stocks tax on motor fuel, and annual taxes and fees on certain electric vehicles. The additional excise tax is imposed at a rate of $0.06 per gallon of gasoline and diesel fuel effective for tax periods beginning after Aug. 31, 2019, and is increased to $0.08 per gallon effective Oct. 1, 2020, and to $0.10 per gallon effective Oct. 1, 2021. Beginning Oct. 1, 2023 and on July 1 of every other year afterward, the rate will be adjusted; the maximum increase or decrease, however, cannot exceed $0.01 per gallon. Additionally, a floor-stocks tax is imposed on motor fuel held in inventory outside the bulk transfer/terminal system on the effective dates of tax increases, and must be paid by the last day of the third month following each tax increase. Lastly, beginning Jan. 1, 2020, HB 2 imposes annual license taxes and registration fees of $200 on each battery electric vehicle and $100 on each plug-in hybrid electric vehicle. Beginning July 1, 2023, and every four years after that, these license taxes and fees will increase by $3. Ala. Laws 2019 (First Special Session), Act 2 (HB 2), signed by the governor on March 12, 2019. See also, Ala. Dept. of Rev., Notice: Rebuild Alabama Act (March 20, 2019). Arkansas: New law (HB 1427) permits Arkansas to sell abandoned securities when received from the holder, instead of being subject to a three-year waiting period as required under prior law. If the securities are still in the state administrator's custody when a person claims them, the person is entitled to receive the securities. If the securities have been sold, the person is entitled to the proceeds from the securities sale, less fees and expenses incurred from the sale. Additionally, HB 1427 prohibits a person from maintaining an action or bringing a proceeding for appreciation or depreciation in the securities' value that could occur after the holder delivers the security to the administrator. These actions are prohibited against the state, the administrator, the holder, a securities transfer agent, an auctioneer, or an agent acting for or on behalf of the holder or administrator. HB 1427 took immediate effect. Ark. Laws 2019, Act 492 (HB 1427), signed by the governor on March 15, 2019. Tennessee: New law (SB 340) excludes transit fare cards from unclaimed property provisions by excluding them from both the definitions of "property" and "stored-value card." The new law defines "transit fare card" as "any pass or instrument purchased to use public transportation facilities or services." SB 340 took immediate effect. Tenn. Laws 2019, Ch. 11 (SB 340), signed by the governor on March 13, 2019. 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: 2019-0706 |
