16 July 2019 State and Local Tax Weekly for June 28 Ernst & Young's State and Local Tax Weekly newsletter for June 28 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. Governor Pritzker signed into law bills that make various changes to Illinois state and local tax laws. These changes:
Further, in anticipation of voter approval of an amendment to the Illinois Constitution which would allow graduated state income tax rates, SB 687 (Pub. Act 101-0008, signed by the governor June 5, 2019) establishes new graduated rates for individuals and establishes a higher flat rate for corporations (7.99% plus the existing 2.5% personal property tax replacement income tax). These changes will only take effect if the ballot measure authorizing the Illinois Constitutional amendment allowing for graduated individual income tax rates is approved by voters at the November 2020 election. See Tax Alert 2019-1205 for a summary of these and other changes. Federal: The IRS has finalized regulations (TD 9864) under IRC §170, largely in keeping with proposed regulations issued in August 2018, to provide rules on the deductibility for federal income tax purposes of charitable contributions for which a taxpayer receives, or expects to receive, a state or local tax (SALT) benefit. Like the proposed regulations, the final regulations also apply similar rules under IRC § 642(c) to payments made by a trust or decedent's estate. (For more on the proposed regulations, see Tax Alert 2018-1714.) Concurrently with the final regulations, the IRS issued Notice 2019-12, which contains a safe harbor that generally allows an individual who itemizes deductions to treat would-be charitable contribution deductions that are disallowed under the final regulations as state or local taxes for federal income tax purposes. The notice allows taxpayers to employ the safe harbor to determine their SALT deduction for the 2018 tax year, either on their original or an amended return. For additional information on this development, see Tax Alert 2019-1150. Multistate: The State income tax quarterly provides a summary of the significant legislative, administrative and judicial actions that affected state and local income/franchise taxes during the second quarter of 2019. Highlights include: (1) a summary of legislative developments in Arizona, Arkansas, Colorado, Connecticut, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Minnesota, New Mexico, New York, Oregon, South Carolina, Tennessee and Vermont; (2) a summary of judicial developments in Colorado, Massachusetts and Tennessee; (3) a summary of administrative developments in Maryland, Massachusetts, New Jersey and Pennsylvania; and (4) a discussion of state and local tax items to watch in Florida, Hawaii, Illinois and Oregon. A copy of the quarterly is available in Tax Alert 2019-1198. Florida: New law (HB 7127) makes various changes to Florida's corporate income tax law. HB 7127 updates Florida's date of conformity to the Internal Revenue Code of 1986, as amended (IRC) to the IRC in effect as of Jan. 1, 2019. In addition, HB 7127 (1) decouples the state's corporate income tax law from the global intangible low-taxed income (GILTI) provisions under IRC § 951A; (2) requires the reporting of several key pieces of taxpayer-specific information and establish penalty provisions for failure to provide such information; and (3) extends a policy set by the tax bill adopted by the Florida legislature in 2018 that if corporate income tax collections exceed state revenue forecasts by more than 7%, any excess will be refunded to taxpayers. Any such overcollections also would trigger a temporary cut to the state's 5.5% corporate income tax rate. The refund and rate-cut policy would apply for fiscal years 2018-19, 2019-20, and 2020-21. Fla. Laws 2019, HB 7127, signed by the governor on June 28, 2019. For more on this development, see Tax Alert 2019-1184. Louisiana: New law (HB 263) modifies the ordering of net operating loss (NOL) carryovers. For NOL carryovers, when more than one loss year must be taken into account, the loss from the earliest tax year (changed from the most recent tax year) will be applied first. This change applies to all tax years beginning on and after Jan. 1, 2020. La. Laws 2019, Act 304 (HB 263), signed by the governor on June 11, 2019. Maine: New law (LD 1798) amends provisions related to sourcing receipts from the sale of a partnership interest and allows nonresidents to make an installment sale election for certain transfers. For corporate income tax purposes, the provisions for sourcing receipts from the sale of a partnership interest are modified to include actual sourcing language instead of a reference to the nonresident individual income tax provisions for sourcing gain or loss on the sale of a partnership interest under 36 MRSA §5142, sub-§3-A. The sourcing rules under both statutes are substantially similar.1 In addition, a nonresident individual who transferred, during the tax year, real or tangible property located in Maine under an installment sale agreement may make an irrevocable election to recognize the total gain or loss in the tax year of transfer or to recognize any remaining gain or loss in a subsequent tax year to the extent the gain or loss was not reported in the prior tax year. The changes apply to tax years beginning on or after Jan. 1, 2019. Maine Laws 2019, Ch 401 (LD 1798), signed by the governor on June 19, 2019. Minnesota: The U.S. Supreme Court will not review the Minnesota nexus trust case — Fielding. In Fielding, the Minnesota Supreme Court held that the state's resident trust statute, as applied to the trusts at issue, violated the Due Process Clauses of the Minnesota and the U.S. Constitutions, concluding that the trusts lacked sufficient relevant contacts with Minnesota to be subject to tax. Fielding v. Minn. Comm'r of Rev., 2018 WL 3447690 (July 18, 2018), petition for cert. denied, Dkt. No. 18-664 (U.S. S.Ct. June 28, 2019). New York: New law (S.6615/A.8433) (the Bill) enacts a 95% exclusion from the state's corporate franchise business income tax base for any global intangible low-taxed income (GILTI) amounts recognized for federal income tax purposes applicable to tax years beginning on and after Jan. 1, 2019. Specifically, the definition of exempt controlled foreign corporation (CFC) income under N.Y. Tax Law § 208.6-a(b)(iii) is expanded to include 95% of GILTI income required to be included in federal gross income under IRC §951A(a), without regard to the GILTI-related deduction under IRC §250, received from a corporation that is not included in a New York combined report with the taxpayer. The amendments further clarify that this income does not constitute investment income or exempt unitary corporation dividends for New York corporate franchise tax purposes. The definition of "entire net income" (ENI) under N.Y. Tax Law § 208.9(b) is amended by adding a new addition modification to the computation of ENI for the amount of any federal deduction for the GILTI-related amounts allowed under IRC § 250(a)(1)(B)(i). For New York C corporations, GILTI is excluded from the numerator of the apportionment fraction and only 5% of GILTI is included in the denominator of the New York taxpayer's apportionment fraction. For New York S corporations, GILTI is not included in the numerator of the apportionment fraction, but 100% of GILTI is included in the denominator of the apportionment fraction. For insurance franchise tax purposes, the Bill similarly amends the definition of ENI under N.Y. Tax Law §1503.b(1) to exclude from ENI, to the extent not otherwise excluded under certain other provisions of N.Y. Tax Law §1503.b(1): (i) 95% of GILTI income under IRC §951A(a), without regard to the GILTI deduction under IRC §250, that is generated by a corporation that is not included in a combined report with the taxpayer; and (ii) any amount treated as a dividend received by the taxpayer under IRC §78 that is attributable to GILTI required to be included in the taxpayer's federal gross income under IRC §951A(a). In addition, for insurance franchise tax purposes, the Bill amends N.Y. Tax Law §1503.b(2) by adding a new addition modification to the computation of ENI for the amount of any federal deduction for the GILTI-related amounts allowed under IRC § 250(a)(1)(B). N. Y. Laws 2019, Ch. 39 (S.6615/A.8433), signed by the governor on June 24, 2019. For more on this development, see Tax Alert 2019-1186. New York: The New York State Department of Taxation and Finance (Tax Department) recently released draft amended corporate franchise tax regulations under Article 9-A of the New York Tax Law (N.Y. Comp. Codes and Regs. tit. 20, Subpart 3-7) (Draft Regulations), which address the treatment and calculation of New York investment capital losses and business capital losses from tax years beginning on or after Jan. 1, 2015, and capital losses from pre-2015 tax years. Specifically, for tax years beginning on or after Jan. 1, 2015, in which a corporation incurs capital losses and gains, under the New York Tax Law, the corporation could only use New York investment capital losses to offset New York investment capital gains, and New York business capital losses to offset New York business capital gains. Comments on the Draft Regulations are due Sept. 16, 2019; however, the Tax Department has indicated that it will accept and consider comments submitted after the due date. For more on this development, see Tax Alert 2019-1157. Louisiana: New law (HB 209) exempts from sales and use tax trucks, automobiles, aircraft, boats, vessels, and water craft withdrawn from stock or kept in dealer inventory and used as demonstrators. Additionally, the law exempts from the tax used automobiles and trucks and new motorcycle withdrawn from stock or kept in a dealer's inventory and used as demonstrators. HB 209 takes effect July 1, 2019. La. Laws 2019, Act 102 (HB 209), signed by the governor on June 4, 2019. Maine: New law (LD 1452) establishes economic nexus provisions for marketplace facilitators. Starting Oct. 1, 2019, a marketplace facilitator is subject to the state's sales and use tax collection and remittance requirements if in the prior or current calendar year its gross sales from delivery of tangible personal property or taxable services into Maine exceeds $100,000 or it facilitated such sales in at least 200 separate transactions. In determining whether the threshold has been met, a marketplace facilitator's gross sales and total transactions include sales made on its own behalf and facilitated on behalf of marketplace sellers. Marketplace facilitators are required to provide a written statement to marketplace sellers that explicitly provides that it will collect and remit sales/use tax on the sales it facilitates for the marketplace seller. These provisions do not apply to a room remarketer's rental of living quarters or such rentals made on a transient rental platform. Maine Laws 2019, Ch. 441 (LD 1452), signed by the governor on June 20, 2019. Maine: New law (LD 1798) makes various changes to the state's sales and use tax provisions. Notably, the law adds sourcing provisions for retail sales of tangible personal property (TPP) and taxable services. In general, when the TPP or service is received by the purchaser at the seller's business location, the sale is sourced to the business location. If, however, the TPP or service is not received at the business location the sale is sourced to the location where the purchaser (or the purchaser's donee) receives it. If neither of these provisions apply, the sale is sourced to the location indicated by an address for the purchaser available in the seller's records. When this information is not available, the sale is sourced to the location indicated by an address for the purchaser obtained during the sale. If none of these provisions apply, the location of the sale is determined by the address from which the TPP was shipped or, if transferred electronically, the location where the property or services were first available for transmission by the seller. For purposes of the sourcing provisions "receive" and "receipt" are defined as taking possession of TPP, making first use of services, or taking possession or making first use of products transferred electronically, whichever comes first. These terms do not include possession by a shipping company on behalf of the purchaser. In addition, the law: (1) updates "persons required to register" for sales and use tax provisions; (2) expanding, effective for sales on or after Oct. 1, 2019, the tax on liquor to include the sale of liquor for on-premises consumption by a certain breweries, wineries and distilleries; and (3) exempts from sales and use tax sales of oxygen delivery equipment sold or leased for personal use, effective retroactively to sales on or after Jan. 1, 2012. Lastly, the law provides that resale certificates issued between Jan. 1 and Sept. 30 are effective for the duration of the calendar year in which they are issued and three (previously two) subsequent years, and resale certificates issued between Oct. 1 and Dec. 31 are effective until the end of the fourth (previously third) succeeding calendar year. Unless otherwise noted, these changes apply to sales occurring on or after Oct. 1, 2019. Maine Laws 2019, Ch 401 (LD 1798), signed by the governor on June 19, 2019. New York: New law (S.6615/A.8433) modifies the economic nexus thresholds for remote sellers and marketplace facilitators under N.Y. Tax Law §§ 1101.b(8)(iv) and 1101.e(1), respectively. The sales threshold under both provisions is increased to $500,000 from $300,000. The law does not, however, alter the additional 100 transaction requirement which already existed under current law. These changes took effect immediately. The law provides for retroactive effect of the change to the threshold for remote sellers to periods beginning on or after June 21, 2018 (which was the date of the U.S. Supreme Court's opinion in South Dakota v. Wayfair, Inc., 585 U.S. ____ (2018)), while the threshold change applicable to marketplace facilitators is deemed to be effective only to periods on and after June 1, 2019. N. Y. Laws 2019, Ch. 39 (S.6615/A.8433), signed by the governor on June 24, 2019. For more on this development, see Tax Alert 2019-1186. Alabama: New law (HB 540) amends provisions of the Alabama Jobs Act and Growing Alabama Tax Credits provisions, and adopts provisions related to Opportunity Zones. Changes to the Alabama Jobs Act include the following: (1) remove the requirement that the incentivized company and a transferee be subject to the same type of income/excise tax (e.g., corporate, bank, insurance) in order to transfer the credit; (2) lower, for projects in targeted counties, the population threshold to 50,000 (previously 250,000) or less; (3) expand credit availability to "jumpstart counties" by reducing the number of new employees required in targeted or jumpstart counties to 10 (from 25), requiring at least $2 million of capital, providing a 15-year incentive period for an investment credit in a targeted or jumpstart county, and eliminating the requirement for the qualifying project to sell the majority of its output or services to a business located in Alabama; and (4) provide additional incentives for certain technology companies. The Growing Alabama Tax Credit is amended by adding terms to track what aspects of a property or project cause an industry or business to not locate at a particular site suggested for economic development; among other changes. With regard to Opportunity Zones, HB 540 applies federal provisions related to capital gains invested in Opportunity Zones to an investment in an approved opportunity fund in calculating income tax and financial institution excise tax. Additionally, it permits an opportunity fund to enter into a project agreement with the Alabama Department of Economic and Community Affairs (ADECA) to provide the fund's investors impact investment tax credits against any income tax or financial institution excise tax. Guidance is provided on how to calculate the credit and allocate the credits among some or all of the fund owners. Unused credits can be carried forward for five years. The credits are capped at $50 million cumulatively, and ADECA cannot enter into any such project agreements after Dec. 31, 2024. The gain realized by a qualified employee or a qualified investment fund will not be recognized when the employee's or fund's ownership interest in the qualified entity is disposed. HB 540 further requires the ADECA to provide a report to the legislature on the overall economic activity, usage, and impact to Alabama from opportunity fund investments for which impact investment tax credits have been permitted. Lastly, HB 540 defines key terms, such as "disposition date," "qualified entity," and "qualified employee." HB 540 takes effect 60 days after becoming law. Ala. Laws 2019, Act 392 (HB 540), signed by the governor on June 6, 2019. Nevada: New law (SB 410) expands the eligibility requirements for the issuance of transferable tax credits for certain projects making a capital investment in Nevada of at least $1 billion, to require the Interim Finance Committee to approve a written request for the transferable tax credits. Only the Office of Economic Development (Office) can submit the request, which is due to the Interim Finance Committee within 30 days after the Office issues a decision approving the transferable tax credits application. The Interim Finance Committee may approve a request, only if it determines that approval of the request will not impede the legislature's ability to provide for annual taxes to defray the state's fiscal year estimated expenses, and that it will promote Nevada's economic development and help to implement Nevada's Plan for Economic Development. SB 410 took immediate effect. The statutory provisions containing these changes expire on June 30, 2032. Nev. Laws 2019, Ch. 416 (SB 410), signed by the governor on June 5, 2019. Connecticut: New law (SB 1, Pub. Act 19-25) creates a state paid family and medical leave insurance (FMLI) program to be funded 100% by employees through payroll deduction. Effective Jan. 1, 2021, employers will begin withholding up to 0.5% (to be determined by a state board) of covered wages up to the Social Security wage limit in effect for the year (for example, $132,900 if the tax were in effect in 2019). Up to 14 weeks of paid FMLI benefits are available to eligible individuals starting Jan. 1, 2022. Sole proprietors and independent contractors may opt into the state FMLI program. The law allows employers to alternatively provide the same or better benefits as the FMLI program at the same or lesser cost to employees through a private plan. Private plans must be approved by the state and meet certain requirements. Employees covered by an approved private plan are not required to contribute to the state's FMLI program. Conn. Laws 2019, Pub. Act 19-25 (SB 1), signed by the governor on June 25, 2019. For more on this development, see Tax Alert 2019-1194. District of Columbia: Beginning July 1, 2019, and no later than July 31, 2019, all District of Columbia private employers must begin reporting and paying an employer assessment that will fund the District's universal paid family leave program. The employer assessment is equal to 0.62% of covered employees' gross wages for the quarter. Unlike other recently enacted state paid leave programs, the District's program is funded 100% by employers, and employers are not allowed to deduct any of the assessment from employee wages. Note that the misleading effective date of July 1, 2019, does not mean that the third quarter 2019 is the first quarter of required reporting. Employers must report gross employee wages from April 1, 2019 through June 30, 2019 (second quarter 2019) and pay 0.62% of these gross wages beginning July 1, 2019. The final deadline for reporting and paying for the quarter is July 31, 2019. For more on this development, see Tax Alert 2019-1177. Illinois: The Illinois legislature passed and sent to Governor Pritzker SB 1515, which would reduce the income tax burden for certain nonresidents by providing that nonresident employees are subject to the state's income tax only if they spend more than 30 days within the state in the calendar year. To support the new de minimis exception, employers would be required to maintain reasonable records of working days nonemployees spend within the state. Under current law, Illinois income tax applies to all wages paid to Illinois nonresident employees for services provided within the state. For more on this development, see Tax Alert 2019-1154. Nebraska: New law (LB 428) increases the state unemployment insurance (SUI) taxable wage base to $24,000 for employers assigned the maximum rate (5.4% for calendar year 2019). This change is effective for calendar year 2020 while the taxable wage base remains $9,000 for all other employers. Also, a recent change to Nebraska Department of Labor regulations allows positive-balanced non-delinquent employers, upon approved application, to file SUI contribution returns and pay the associated taxes on an annual basis, rather than quarterly. Employers must still file wage detail reports on a quarterly basis. Employers desiring to file and pay SUI contributions annually must apply by February 15 of the year for which the election is made. This change is effective for calendar year 2020. For more on this development, see Tax Alert 2019-1178. Philadelphia, PA: The Philadelphia, Pennsylvania Department of Revenue announced that effective July 1, 2019, the Philadelphia wage tax rates will decrease. The rate as of July 1, 2019 for residents of Philadelphia decreases from 3.8809% to 3.8712%, and the rate for nonresidents of Philadelphia decreases from 3.4567% to 3.4481%. The City of Philadelphia wage tax is a tax on salaries, wages, commissions and other compensation paid to an employee who is employed by or renders services to an employer. Covered wages follow those that apply for Pennsylvania income tax purposes with certain exceptions noted in the Philadelphia regulations. Employers must begin withholding at the new rates from paychecks issued after June 30, 2019. For more on this development, see Tax Alert 2019-1197. California: New law (SB 78) establishes the Minimum Essential Coverage Individual Mandate. The mandate, which was modelled after the federal Affordable Care Act (ACA), generally requires all individuals who are California residents to carry to minimum essential coverage for themselves, their spouses and their dependents for every month beginning on and after Jan. 1, 2020. The mandate excludes individuals for hardship or religious conscience reasons. A penalty will be imposed for not having minimum essential coverage. Cal. Laws 2019, Ch. 38 (SB 78), signed by the governor June 27, 2019. For additional information on this development, see Tax Alert 2019-1162. San Francisco, CA: On May 28, 2019, San Francisco Supervisors Hillary Ronen and Matt Haney proposed a new additional gross receipts tax based on CEO pay. Titled the Mental Health Gross Receipts Tax and dubbed the "Excessive CEO Salary Tax", the proposal will likely appear on this November's ballot. If approved, a 0.1% surcharge would be imposed on the San Francisco gross receipts of any company doing business in the city whose CEO makes 100 times more than the median wage of its workers. The surcharge would be increased to 0.2% if the company's CEO earns 200 times more than its median employee wage, 0.3% if 300 times more, 0.4% if 400 times more, 0.5% if 500 times more with a cap of 0.6% of gross receipts for any company whose CEO makes 600 times or more than the company's median employee salary. For more on this development, see Tax Alert 2019-1160. International: On March 1, 2019, the United States Trade Representative (USTR) formally released United States (US) President Donald Trump's 2019 Trade Policy Agenda and Annual Report. The report outlines the Administration's trade policies in detail and its objectives of: (i) updating the global trading system; (ii) making US Trade Policy work better for American workers; and (iii) pursuing new trade deals and stronger enforcement to continue rebalancing America's trade relationships. Following through on commitments under its Trade Agenda, the Trump Administration recently took further actions regarding tariffs for China-origin goods including an announcement of an exclusion process in limited circumstances. Additionally, measurable actions have occurred towards ratification of the US-Mexico-Canada Agreement (USMCA) as well as in response to the Administration's recent removal of India from the Generalized System of Preferences (GSP) program. In a June 20, 2019 Notice, the USTR published guidelines for the exclusion process on Section 301 List 3 products. The process, which allows for interested parties to request a product exemption from the Section 301 List 3 tariffs, will begin on June 30, 2019 at noon EDT and will close on Sept. 30, 2019. This is the first exclusion process outlined for List 3 since the tariffs went into effect on Sept. 24, 2018 at the initial 10% rate. With respect to the USMCA, the Mexican Senate voted on June 19, 2019 to ratify the USMCA, making Mexico the first of the three signatory countries to do so. Separately, on June 16, 2019, India increased tariffs on 28 targeted products of US origin. The action was in response to India's removal from the US' GSP program earlier this month.For more on this development, see Tax Alert 2019-1172. Multistate: On Thursday, July 18, 2019 from 1:00-2:00 p.m. EDT (10:00-11.00 a.m. PDT) Ernst & Young LLP's state income tax group will host the first webcast in its new state income tax seminar series focusing on the ongoing impacts of TCJA on state taxation. The first webcast will focus on how state responses to the TCJA are currently impacting state tax compliance. Topics to be addressed include compliance considerations for: (1) global intangible low-taxed income (GILTI), (2) deduction for GILTI and foreign-derived intangible income (FDII), (3) Section 163(j) limitation on business interest expense, and (4) enduring implications of the Section 965 transition tax. Future webcasts in this series will address impacts elsewhere along the tax lifecycle — including financial reporting, tax policy, tax strategy, and controversy — as well as further technical developments. To register for this event, go to Ongoing impacts of TCJA on state taxation. 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 The corporate rule uses "gross receipts on the sale of a partnership interest" while the individual rule uses "gain or loss on the sale of a partnership interest." Document ID: 2019-1265 |
