16 April 2019 State and Local Tax Weekly for April 5 New Mexico enacts tax reform bill, includes mandatory combined reporting, economic nexus provisions for remote retailers and marketplace providers, among other changes On April 4, 2019, New Mexico Governor Michelle Lujan Grisham signed into law N.M. Laws 2019, Ch. 270 (HB 6) (hereafter, the Bill) which makes significant changes to New Mexico's tax laws. Key provisions of the Bill include:
Arkansas: In response to a ruling request regarding the state's conformity to Sections 448, 263A, 460 and 481(a) of the Internal Revenue Code of 1986, as amended (IRC) in light of changes made to these provisions by enactment of the federal Tax Cuts and Jobs Act (P.L. 115-97) (TCJA), the Arkansas Department of Finance and Administration (Department) explained that the state has a stand-alone tax code that conforms to certain IRC provisions as of a specific date. Arkansas has adopted IRC Section 263A(a)-(h) (capitalization and inclusion in inventory costs of certain expenses) as in effect on Jan. 1, 2007. Thus, until Arkansas law is changed, corporations will continue to follow this provision as in effect on Jan. 1, 2007. (Note: HB 1953, which was approved by the legislature on April 5, 2019, would update the state's date of conformity to IRC Section 263A to Jan. 1, 2019. The bill will be sent to the governor for his consideration.) The Department further advised that since Arkansas has not specifically adopted the method of accounting provisions under IRC Section 448 (limitation on use of cash method of accounting), IRC Section 460 (special rules for long-term contracts), or 481 (adjustments required by changes in method of accounting), Arkansas taxpayers must use the same accounting method they use for federal income tax purposes, and if a federal filing is necessary or allowed under those sections, Arkansas would require or allow the same. Ark. Dept. of Fin. and Admin., Legal Op. No. 20190104 (March 1, 2019). Idaho: New law (HB 183) deletes a 2018 law change that required corporations to add back the amounts deducted under IRC Section 245A, IRC Section 250 and IRC Section 965 in computing Idaho taxable income. Enactment of this provision allows the same deductions made for federal income tax purposes for Idaho corporate income tax purposes. The change related to IRC Section 965 is retroactively effective for tax years commencing on or after Jan. 1, 2017, while the changes related to IRC Section 245A and IRC Section 250 are retroactively effective to Jan. 1, 2018. Idaho Laws 2019, Ch. 249 (HB 183), signed by the governor on April 3, 2019. Indiana: Three out-of-state subsidiaries could not include their parent company in their 2013 and 2014 Indiana consolidated returns because the parent did not have adjusted gross income derived from Indiana sources. The subsidiaries also were required to throw back sales to Indiana for sales to customers in states in which each of the subsidiaries — on a separate basis — were not subject to tax. The Indiana Department of Revenue determined that the parent had no Indiana property or payroll, and its sales of goods to Indiana were protected from tax by P.L. 86-272 when the goods were picked up in Ohio and delivered to Indiana by third-party common carriers. Additionally, the parent did not receive income from Indiana sources by means of providing various intercompany administrative and management services for two of the subsidiaries when the subsidiaries and the parent shared the expenses, and the parent was reimbursed annually for the costs of providing the services without a mark-up. Further, the parent did not have verifiable supporting documentation of interest income from Indiana sources through intercompany advances and promissory notes since the subsidiaries did not claim interest expense deductions and the parent did not report the interest income on its tax returns. In regard to the throwback sales, the Department found that the subsidiaries did not have verifiable supporting documentation that they were taxable in the other states. Ind. Dept. of Rev., Final Order Denying Refund 02-20181190R (Dec. 20, 2018) (posted Feb. 27, 2019). Oregon: Oregon's enactment of SB 1528 (Laws 2018), which decoupled Oregon's income tax laws from the federal Tax Cuts and Jobs Act's (P.L. 115-97) 20% pass-through entity deduction under IRC Section 199A by requiring the amount of the federal deduction to be added back in computing Oregon taxable income, is not a "bill for raising revenue" and, therefore, its enactment does not violate the Oregon Constitution's Origination and Supermajority Clauses. The Oregon Tax Court (Court) found that while SB 1528 brings money into the treasury by adding an amount to Oregon taxable income that taxpayers could otherwise deduct for federal income tax purposes, it does not have the "essential features of a bill levying a tax" since it changes the Oregon personal income tax base rather than levying or imposing a tax. The Court noted that a bill's revenue effect (projected to raise more than $1 billion over six years), by itself, does not determine if the bill is a "bill for raising revenue." Boquist v. Ore. Dept. of Rev., TC 5332 (Ore. Tax Ct. March 21, 2019). Tennessee: A corporation that sells and installs automotive glass derived the majority of its taxable gross sales from the sale of glass rather than the sale of services and, as such, for Tennessee Business Tax purposes it was properly classified as a person who makes sales of glass and not as a seller of services. The Tennessee Court of Appeals (Court) affirmed the lower court's conclusion that the commissioner improperly reclassified the corporation, and rejected the commissioner's argument that under Revenue Rule 43 all of the charges must be treated as service charges since the corporation's transactions usually include both charges for purchased glass as well as installation labor charges. The Court explained the statutory language from which Revenue Rule 43 is derived makes clear that the term "services" does not include sales of tangible personal property. The Court further noted that the commissioner "cannot enlarge the scope of a taxing statute by regulation" and that had the commissioner's position been endorsed, such endorsement would effectively allow the Tennessee Department of Revenue, through the regulation, "to define certain sales as 'services' in clear conflict with statutory authority." Auto Glass Co. of Memphis Inc. d/b/a Jack Morris Auto Glass v. Gerregano, No. W2018–01472-COA-R3-CV (Tenn. Ct. App. March 25, 2019). Virginia: New law (SB 1205/HB 2526) amends Virginia's definition of "resident estate or trust" to exclude a trust or estate being administered in Virginia. This change takes effect July 1, 2019. Va. Laws 2019, Ch. 23 (HB 2526) and Ch. 192 (SB 1205), signed by the governor on Feb. 15, 2019 and March 5, 2019, respectively. Utah: New law (SB 168) adopts economic nexus provisions for marketplace facilitators for Utah sales and use tax purposes. Nexus will be established for a marketplace facilitator if in the prior or current calendar year the marketplace facilitator makes sales of tangible personal property, products transferred electronically, or services on its own behalf or facilitates such sales on behalf of one or more marketplace sellers: (1) that exceed $100,000, or (2) in 200 or more separate transactions with Utah customers. In determining whether the threshold has been met, a marketplace facilitator will separately total: (1) the marketplace facilitator's sales, and (2) any sales the marketplace facilitator makes or facilitates for the marketplace sellers. A marketplace facilitator is required to collect and remit tax for its own sales and those made on behalf of the marketplace sellers, regardless of whether the sellers have an obligation to pay or collect and remit sales and use tax. The Utah tax commission (commission) is authorized to audit a marketplace facilitator's sales it makes and facilitates, but the commission may not audit the marketplace seller for sales made or facilitated through the marketplace facilitator's marketplace. Further, marketplace sellers will have to collect and remit sales and use tax on sales they make into Utah, other than through a marketplace facilitator, if they meet the above mentioned thresholds. Marketplace sellers do not have to collect and remit sales and use tax for sales for which a marketplace facilitator is required to collect and remit the tax. The new law defines terms including "affiliate", "marketplace", "marketplace facilitator", and "marketplace seller". Marketplace facilitators that do not have nexus with Utah are required to begin collecting and remitting tax no later than the first day of the calendar quarter that is at least 60 days after the day it meets or exceeds the threshold. These provisions take effect Oct. 1, 2019. Utah Laws 2019, SB 168, signed by the governor on April 1, 2019. Virginia: New law (HB 1722/SB 1083) adopts economic nexus provisions for remote retailers and marketplace providers. Under the revised law, the definition of "dealer" is expanded to include every person that in the prior or current calendar year (1) received more the $100,000 in gross revenue from retail sales in Virginia, or (2) engaged in 200 or more separate retail sales transactions with Virginia customers. In determining whether the threshold has been met, the total number of a dealer's gross revenues/retail sales transactions and the sales made by all commonly controlled persons are aggregated. In order for a marketplace facilitator to have nexus with Virginia in addition to meeting the aforementioned thresholds, it must engage in certain other specified activities (such as listing products for sale, setting prices, transmitting or communicating an offer or acceptance between a purchaser and a marketplace seller). A marketplace facilitator may be relieved of liability for incorrect collection of sales and use tax under certain circumstances. If a marketplace seller makes both direct sales and sales through a marketplace facilitator, only its direct sales will be considered in determining whether the seller must register to collect and remit tax. The requirement to collect and remit sales and use tax does not apply to retail sales transactions occurring before July 1, 2019, however, such transactions may be included in determining whether the threshold has been met. Va. Laws 2019, Ch. 815 (HB 1722) and Ch. 816 (SB 1083), signed by the governor on March 26, 2019. New Mexico: New law (HB 165) amends the high wage jobs tax credit eligibility requirements and amount of the available credit. As modified, the high wage jobs tax credit amount equals 8.5% (from 10%) of the wages distributed to an eligible employee in a new high-wage job, up to $12,750 (previously $12,000) per job per qualifying period. Additionally, if a taxpayer lost eligibility to claim the credit from the previous application, the amount of time that a taxpayer must wait before submitting a new credit application is reduced to two (from five) calendar years from the closing date of the last qualifying period. The definition of a "new high-wage job" is amended to mean a new job created in New Mexico by an eligible employer on or after July 1, 2014 and before July 1, 2026 (from July 1, 2020) that is occupied for at least 44 (from 48) weeks of a qualifying period by an eligible employee who is paid certain wages. The new law adds a definition for the term "new job" — a job that is occupied by an employee who has not been employed in New Mexico by the eligible employer in the three years before the hire date. Lastly, the definition of "eligible employer" is amended to mean an employer, which during the applicable qualifying period, would be eligible for development training program assistance under the fiscal year 2019 policies defining development training program eligibility developed by the industrial training board. These changes apply to qualifying periods beginning on or after Jan. 1, 2019. N.M. Laws 2019, Ch. 233 (HB 165), signed by the governor on April 4, 2019. New Jersey: The New Jersey Superior Court, Appellate Division, (appeals court) affirmed the New Jersey Tax Court's (tax court) determination that a tax assessment district (borough) could not retroactively revoke a hospital's nonprofit property tax exempt status for 2014 and 2015 in tax year 2016 using New Jersey's statutory provisions governing assessment of omitted property, because the hospital did not change owners or change use that would cause it to cease being entitled to a tax exemption (i.e., exemption cessation statute). Calling the tax court's opinion "thorough and well-reasoned," the appeals court added that by statute the only way the borough could appeal the 2014 and 2015 assessments was by meeting the April 1 statutory deadlines, but it did not do so. The borough also did not provide evidence of a change in use of the property, as required by the omitted assessments statute. Lastly, the appeals court determined that it was not bound by AHS Hosp. Corp.1 (in which an unrelated hospital lost its tax-exempt status when it failed the profit test), distinguishing the case on the grounds that the borough tried to impose an omitted assessment for the 2014 and 2015 tax years, rather than challenge an already omitted assessment. Borough of Red Bank v. RMC-Meridian Health, Nos. A-0277-18T2 & A-0278-18T2 (N.J. Super. Ct., Appel. Div., March 14, 2019) (unpublished). Wisconsin: Two airlines are not entitled to Wisconsin's "hub facility" exemption from property tax for the 2013 or 2014 tax years because neither met the hub facility exemption's requirement of operating at least 45 common carrier departing flights each weekday in the prior year. In so concluding, the Wisconsin Circuit Court in Dane County rejected the airlines' arguments that they needed only to "schedule" departing flights rather than actually have departing flights, and that they only needed an average of 45 departing flights each weekday rather than 45 flights that actually depart. Southwest Airlines v. Wis. Dept. of Rev., No. 17-CV-1965 (Wis. Cir. Ct., Dane Cnty., March 4, 2019). Washington: In Washington State Dept. of Licensing v. Cougar Den, Inc., the U.S. Supreme Court (Court) held that a wholesale fuel importer owned by a member of the Yakama Nation who imported fuel from out-of-state over Washington's public highways to the Yakama Reservation to sell to Yakama-owned retail gas stations located within the Reservation, is not subject to Washington's tax on motor vehicle fuel imports because the 1855 US-Yakama Nation Treaty preempts such tax. Washington State Dept. of Licensing v. Cougar Den, Inc., No. 16-1498 (U.S. S.Ct. March 19, 2019). Utah: New law (SB 70) modifies various provisions under Utah's Uniform Unclaimed Property Act (UUPA). The new law amends the definition of "property" under the UUPA to exclude patronage capital of an electric, telephone, or agricultural cooperative. Additionally, an indication of an apparent owner's interest in property for purposes of determining whether property is presumed abandoned includes any other action the apparent owner which reasonably demonstrates to the holder that the apparent owner knows the account exists. Further, SB 70 provides that a company is deemed to have knowledge of the death of an insured or annuitant when: (1) the company receives a death certificate or court order determining that the insured or annuitant has died; (2) the company validates the death through due diligence in maintaining contact with the insured or annuitant; (3) the company validates the death through comparison between a death master file and the names of the company's insureds or annuitants, with a match giving notice of the death; or (4) the company validates the death after receiving notice from a special administrator, beneficiary, policy owner, relative of the insured, or trustee from a personal representative, executor, or other legal representative of the insured's or annuitant's estate. Lastly, the insurance company must make a good faith effort using available records and information, no later than 90 days after the insurance company has notice of a death, to validate the death and document the effort taken, if a time for validation of an insured's or annuitant's death was not established. SB 70 takes effect May 14, 2019. Utah Laws 2019, SB 70, signed by the governor on March 21, 2019. International: The latest edition of Trade Watch is now available. Trade Watch is a quarterly communication prepared by Ernst & Young's Customs & International Trade Practice. International: Indonesia's Minister of Finance has issued MOF Regulation No. 32/PMK.010/2019 (PMK-32), amending the regulation on exported services (Exported Services) which are eligible for zero-rated Value Added Tax (VAT). Prior to the amendment, the export services subject to the zero-rated VAT only covered three types of services. PMK-32 aims to stimulate the economy by encouraging Exported Services transactions and improving the ability of domestic services providers to compete. PMK-32 is effective for service transactions entered into on or after March 29, 2019. For additional information on this development, see Tax Alert 2019-0711. Document ID: 2019-0782 |
