22 July 2019 State and Local Tax Weekly for July 22 Ernst & Young's State and Local Tax Weekly newsletter for July 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. On June 26, 2019, Connecticut Governor Ned Lamont signed into law the state's fiscal 2020–2021 budget bill (HB 7424) (the bill). Notable tax law changes in the bill do the following:
Arizona: New law (HB 2756) expands the definition of multistate service provider used to determine the allocation of sales of services to include a taxpayer that has more than 2,000 employees in Arizona and derives more than 85% of its sales from support services provided to a regionally accredited institution of higher education. This includes all taxpayers required to file a combined report and all members of an affiliated group included in a consolidated return. For such multistate service providers, the benefit of the support services is deemed to be received at the billing address of the student to which the services relate. These changes apply retroactively from and after Dec. 31, 2018. Ariz. Laws 2019, Ch. 272 (HB 2756), signed by the governor on May 31, 2019. Connecticut: New law (HB 7373) (bill) makes changes to Connecticut's pass-through entity (PTE) tax law. Notably, it expands the PTE tax base (both the standard and alternative base method) to include guaranteed payments with respect to a partnership and to exclude any item treated as an itemized deduction for federal income tax purposes. The bill also exempts PTE taxpayers with an annual tax liability of less than $1,000 from having to make required quarterly estimated tax payments. These changes take effect July 1, 2019 and apply to tax years beginning on or after Jan. 1, 2019. Lastly, the bill, for estate tax purposes, sets forth conditions under which real and tangible personal property owned by a PTE will be treated as personally owned by a nonresident decedent. This change took immediate effect. Conn. Laws 2019, Pub. Act 19-186 (HB 7373), signed by the governor on July 8, 2019. Hawaii: New law (HB 495) adopts an economic nexus standard for income tax purposes, setting a threshold comparable to the South Dakota sales tax standard addressed by the U.S. Supreme Court in its historic Wayfair decision. Effective for tax years beginning after Dec. 31, 2019, if a business engages in or solicits 200 or more business transactions with persons in Hawaii or the person's gross income attributable to Hawaiian sources is $100,000 or more, it will be subject to Hawaii business taxes. Haw. Laws 2019, Act 221 (HB 495), signed by the governor on July 2, 2019. Hawaii: Vetoed bill (SB 301) would have temporarily disallowed the dividends paid deduction (DPD) for real estate investment trusts for Hawaii state income tax purposes. Governor David Ige in his July 9, 2019 veto message, said that he vetoed the bill due to concerns that the DPD disallowance "could discourage the business community from investing in Hawaii." New Jersey: The New Jersey Division of Taxation (DOT) issued guidance on the sharing of tax credits among members of a combined group. Under New Jersey law, a taxable member of a combined group may share their tax credits and credit carryovers with other taxable group members included in the same New Jersey combined return. Sharing of credits is allowed regardless of whether the taxable member was part of the same combined group when the credit (or credit carryover) was derived. Credit limitations (e.g., credit cannot reduce the taxpayer's tax liability below 50% of its tax liability) apply on a separate entity basis (and not on the total combined group tax liability). In regard to refundable tax credits, a taxable member does not have to share the credit with other members of the combined group. Further, the DOT explained that credits generally are calculated on a separate entity basis, except the New Jersey research credit, for which members of a combined reporting group will follow the rules applicable to members of a federal consolidated control group applicable to qualified research expenditures and payments for research performed in the state. Lastly, the DOT indicated that a benefit transfer certificate is not required if credits are shared among group members of the same New Jersey combined group. N.J. Div. of Taxn., TB-90 (June 21, 2019). Vermont: New law (HB 541) for individual income tax purposes caps the capital gains exclusion for certain capital gains to the lesser of 40% of federal taxable income or $350,000. According to an explanation of the change issued by the Vermont Department of Taxes, the benefit of this exclusion phases out for capital gains of $875,000 or more. This provision takes effect on July 1, 2019 and applies to sales of assets on or after that date. Vt. Laws 2019, Act 71 (HB 541), signed by the governor on June 18, 2019. Vermont: New law (H. 514) requires the Vermont Department of Taxes to provide to the General Assembly a report analyzing the following issues: (1) fiscal, legal, distributional, and administrative issues related to adopting a single sales factor apportionment formula; (2) an evaluation of the impact of the current exclusion of overseas business organizations from an affiliated group and an analysis of any fiscal, legal, distributional and administrative issue with eliminating the exclusion; (3) a comparison of the impact of subjecting financial institutions to the current bank franchise tax or the corporate tax based on Vermont's current apportionment factors with market-based sourcing; and (4) consideration of any alternatives to the state's current corporate income tax. The report is due by Dec. 15, 2019. Vt. Laws 2019, act 51 (H. 514), signed by the governor on June 10, 2019. New law (AB 10 ) eliminates the state tax income tax deduction for moving expenses when a business moves its operations, in whole or in part, out of state or outside the United States. In computing Wisconsin taxable income, such businesses will have to addback the amount of moving expenses deducted for federal income tax purposes. These provisions first apply to tax years beginning on Jan. 1, 2019. Wis. Laws 2019, Act 7 (AB 10), signed by the governor on June 24, 2019. Wisconsin: New law (AB 56) provides a rate reduction in the second lowest individual income tax bracket from 5.84% to 5.21% for tax years beginning after 2018. Wis. Laws 2019, Act 9 (AB 56), signed by the governor on July 3, 2019. For additional information on this development, see Tax Alert 2019-1240. Alabama: New law (HB 183) modifies provisions to the state's simplified seller's use tax provisions. Notably, the amnesty program is amended to provide that eligible sellers participating in the program will receive amnesty for any uncollected remote use tax that may have been due on sales made to Alabama purchasers for all periods preceding Oct. 1, 2019 (previously, amnesty applied to the 12-month period before the effective date of the eligible seller's participation in the program). The law also prohibits class actions against an eligible seller in any Alabama court on behalf of customers for an overpayment of simplified seller's use tax collected and remitted on sales made by the eligible seller. Lastly, it provides that simplified seller's use tax cannot be collected and remitted in lieu of the sales and use tax collected by a licensing official on vehicles, motorboats, and various trailers required to be registered or licensed by the probate judge. HB 183 took effect immediate effect. Ala. Laws 2019, Act 382 (HB 183), signed by the governor on June 5, 2019. Connecticut: New law (HB 7373) delays notice and reporting requirements for referrers. As revised, referrers must provide a quarterly notice to sellers starting Jan. 1, 2020 (formerly July 1, 2019) and must submit an annual report to the tax commissioner by Jan. 31, 2021 (formerly Jan. 31, 2020). Conn. Laws 2019, Pub. Act 19-186 (HB 7373), signed by the governor on July 8, 2019. New Mexico: The deduction from New Mexico's gross receipts and compensating tax provided by NMSA Section 7-9-65 (the statute)1 does not apply to receipts from coal sales because the statute does not clearly and unambiguously provide for such a deduction. The New Mexico Court of Appeals (Court) concluded that coal is not specifically included in the statute or corresponding regulation and it is not unambiguously a "chemical" under the statute. Additionally, the Court found that the legislature did not intend to create a deduction for receipts from coal sales in lots more than 18 tons, when a separate deduction for the sale of coal in car loads previously existed and was repealed without amending the statute to include coal sales. Moreover, since the repeal of the deduction of coal in car loads, the New Mexico Department of Taxation and Revenue has published reports indicating that it taxed the sale of coal. Lastly, the Court noted that the legislature's recent amendment to the statute "further clarified [the legislature's] intent that [the statute] should not apply to the sale of coal to power plants for production of electricity." Peabody Coalsales Co. v. N.M. Taxn. and Rev. Dept., No. A-1-CA-36632 (N.M. Ct. App. June 12, 2019). Vermont: New law (HB 541) requires the Vermont Department of Taxes to develop and implement an outreach and education program for the technology sector related to the sales tax exemption for remotely accessed prewritten software, industry responsibilities under current law, and a possible repeal of the exemption. This provision took effect upon passage. Vt. Laws 2019, Act 71 (HB 541), signed by the governor on June 18, 2019. Wisconsin: New law (AB 251) requires marketplace providers to collect and remit sales tax on sales facilitated on behalf of marketplace sellers. A "marketplace provider" is defined as a person that: (1) facilitates a seller's retail sale by listing or advertising for sale the seller's products or taxable services; and (2) processes the purchaser's payment, directly or indirectly, through agreements or arrangements with third parties. AB 251 defines "marketplace seller" to mean a seller that sells products through a physical or electronic marketplace operated by a marketplace provider, regardless of whether the seller must be registered with the Wisconsin Department of Revenue (Department). These requirements begin on Oct. 1, 2019. AB 251 also provides for a one-time reduction from the total tax due from an audit determination equal to 10% of the additional sales tax imposed for each year of the audit period. This reduction applies if the annual gross sales of the person being audited are less than $5 million for each year of the audit period and, at the time that the Department sends an audit notice, the Department has received all returns required from the person being audited for the entire audit period. This provision will first apply to written notices of audit determinations made on Oct. 1, 2019. Wis. Laws 2019, Act 10 (AB 251), signed by the governor on July 3, 2019. For additional information on this development, see Tax Alert 2019-1240. Connecticut: New law (SB 570) (the bill) modifies certain state incentive provisions to incentivize investment in federally designated opportunity zones located in Connecticut. Effective July 1, 2019, the bill extends the 30% credit for projected qualified rehabilitation expenditures for certified Connecticut historic structures located in a federally designated opportunity zone. Additionally, for purposes of the certified historic structures rehabilitation tax credit, the urban and industrial site reinvestment tax credit, the targeted brownfield development loan program, and brownfield remediation grants, the state must give priority to applications for such projects located in federally designated opportunity zones. Lastly, the bill requires several state agencies to study how the state could incentivize the federal opportunity zone program's use in Connecticut and report their findings and recommendations to the General Assembly by Feb. 1, 2020. Conn. Laws 2019, Pub. Act. 19-54 (SB 570), signed by the governor on June 21, 2019. Maine: New law (LD 854) (bill)expands the list of authorized project costs for purposes of economic development in Maine development districts to include those related to broadband service development, expansion or improvement, including connecting broadband service outside a tax increment financing district. Under the bill, authorized costs associated with broadband and fiber optics expansion projects include preparation, planning, engineering, and other related costs in addition to construction costs of the project. If an area within a municipality or plantation does not have broadband service, then broadband and fiber optics expansion projects may serve residential or other nonbusiness or noncommercial areas in addition to the business or commercial areas within the municipality or plantation. These provisions take effect Sept. 19, 2019. Me. Laws 2019, Ch. 260 (LD 854), signed by the governor on June 10, 2019. Vermont: New law (HB 541 ) extends the property transfer tax to transfers of controlling interests. Effective July 1, 2019, HB 541 expands the tax base for the property transfer tax to include transfers of controlling interests in property, including property transfers when a business or entity takes a majority ownership in a property without a title change. Specifically, the definition of "transfer" is expanded to include the "transfer or acquisition of a direct or indirect controlling interest in any person with title to property." An exemption applies to transfers that effectuate a mere change of identity or form of ownership or organization without a change in beneficial ownership, and certain transfers of controlling interests in a person with a fee interest in property. HB 541 defines "controlling interest" for purposes of corporations and pass-through entities and specifies that the acquisitions of persons acting in concert are aggregated in determining whether a transfer or acquisition of a controlling interest has taken place (an exception applies). The Commissioner is tasked will adopting regulations to determine when persons are acting in concert, subject to certain considerations. Vt. Laws 2019, Act 71 (HB 541), signed by the governor on June 18, 2019. West Virginia: In a case consolidating appeals regarding the property tax valuation of corporations' conventional gas wells, the West Virginia Supreme Court (Court) held that W. Va. Code of State Rule Section 110-1J-4.3 does not permit the West Virginia Tax Department (Department) to impose a "not to exceed" limitation (i.e., a "cap") on an average industry operating expense deduction in conjunction with a percentage deduction. Instead, the Department may only apply a single monetary average deduction based on the rule's terms. In so holding, the Court found that the Department's imposition of both an average industry operating expense deduction percentage and a cap on the deduction treats similarly situated taxpayers differently in violation of the West Virginia Constitution's "equal and uniform" requirement, and runs afoul of the equal protection provisions of both the US and West Virginia Constitutions. Additionally, the Court found the economic classifications the Department created through its regulatory interpretation did not pass the "rational relationship" test, when it provided no governmental purpose for the use of a method providing differing operating expense percentage deductions depending on the amount of gross receipts. Lastly, the legislative rules did not address whether expenses "directly related to the maintenance and production of natural gas" included expenses incurred from the time the gas is extracted from the ground but before the gas reaches the buyer. Therefore, the Court applied Chevron2 and found that the Department's exclusion of such expenses from its average expense calculation was a reasonable construction of the regulation and not facially inconsistent with the enabling statute. Steager et al. v. Consol Energy, Inc., d/b/a CNX Gas Co. LLC and Antero Resources Corp., Nos. 18-0121 - 18-0125, 18-0227, and 18-0228 (W. Va. S.Ct. June 5, 2019). Louisiana: Joint resolution (HB 428) proposes a constitutional amendment that would extend the jurisdiction of the Louisiana Board of Tax Appeals (BTA) to matters addressing the constitutionality of taxes and fees. The proposed constitutional amendment will be presented to voters in a statewide election on Oct. 12, 2019, and the question presented to voters will be: "Do you support an amendment to protect taxpayers by requiring a complete remedy in law for the prompt recovery of any unconstitutional tax paid and to allow the jurisdiction of the Board of Tax Appeals to extend to matters related to the constitutionality of taxes?" HB 428, signed by the Senate President and House Speaker on June 5, 2019, and sent to the Secretary of State on June 7, 2019. Maine: New law (LD 1819) adopts federal partnership audit rules, applicable to partnership-level audits for tax years beginning on or after Jan. 1, 2018. Partners must file a federal adjustments report with the assessor to report and pay amounts due from adjustments made through a partnership-level audit or certain other IRS actions for the reviewed year, with any applicable tax, penalties, and interest due within 180 days after the final determination date. Similarly, partners included in a composite return or subject to withholding requirements also must file an amended composite return and amended withholding return and pay amounts due within 180 days after the final determination date. Direct and indirect partners of an audited partnership that are tiered partners, and the partners of those tiered partners that are subject to individual income tax, corporate income tax, and tax on trusts and estates, are subject to partnership-level audit reporting and payment requirements. However, the partners of a partnership which reports the final federal adjustments and pays the amounts due do not have any tax liability from their distributive shares of the reported adjustments, and direct or indirect partners cannot claim a deduction, credit, or refund for these amounts. Maine Laws 2019, Ch. 380 (LD 1819), signed by the governor on June 18, 2019. Vermont: New law (H. 514) repeals pay-to-play rules that require a taxpayer appealing a decision of the tax commissioner to provide surety before filing an appeal with the Vermont Superior Court. This provision took effect upon passage. Vt. Laws 2019, act 51 (H. 514), signed by the governor on June 10, 2019. New Hampshire: Governor Chris Sununu vetoed a bill (SB 1) that would have established a paid state family and medical leave program funded by a payroll tax on employees. Sununu called the employee withholding an income tax masquerading as paid family leave program. For more on this development, see Tax Alert 2019-1217. New Jersey: New law (AB 4134) (Act) establishes the New Jersey Secure Choice Savings Program, requiring employers of 25 or more employees that do not offer a retirement plan to automatically enroll employees in a state-run individual retirement account (IRA) program funded by payroll deductions. The IRA program must be active within 24 months after the Act's effective date of March 29, 2019. The yet-to-be-established New Jersey Secure Choice Savings Board may extend the implementation deadline by not more than 12 additional months. The program will be implemented in two phases based on the size of the participating employers. N.J. Laws 2019, Ch. 56 (AB 4134), signed by the governor on March 28, 2019. For more on this development, see Tax Alert 2019-1209. New Jersey: New law (AB 15) increases the state minimum wage incrementally to $15 per hour by 2024, starting with an increase from the current $8.85 to $10 per hour effective July 1, 2019. Thereafter, the state minimum wage will increase to $11 per hour on Jan. 1, 2020, and then will increase by $1 per hour every January 1 until it reaches $15 per hour on Jan. 1, 2024. After 2024, the minimum wage will increase based on inflation. For more on this development, see Tax Alert 2019-1216. New Jersey: During recent testimony to the state Senate budget committee, New Jersey Department of Labor & Workforce Development Commissioner Robert Asaro-Angelo stated that employers may see a further decrease of $200 million in state unemployment insurance (SUI) taxes for fiscal year (FY) 2020 (July 1, 2019 through June 30, 2020), resulting in a combined savings of nearly a half-billion dollars over two years. For more on this development, see Tax Alert 2019-1218. Washington: The Washington Employment Security Department announced that the deadline for filing the first and second quarters' 2019 paid family and medical leave reports has been further extended to Aug. 31, 2019. The new reporting system launched on July 1 to allow employers to start the reporting process. Employers have from July 1 to Aug. 31, 2019 to file and pay for the first and second quarters 2019. For more on this development, see Tax Alert 2019-1227. New York: A new excise tax on the first sale of an opioid unit by a registrant in New York state took effect on July 1, 2019. The rate is $0.0025 on each morphine milligram equivalent (MME) with a wholesale acquisition cost of less than $0.50 per unit, and $0.015 on each MME with a wholesale acquisition cost of $0.50 or more per unit. A "first sale" is any transfer of title to an opioid unit for consideration, where actual or constructive possession of such opioid unit is transferred by a registrant holding title to such opioid unit to a purchaser or its designee in New York for the first time. First sales do not include dispensation to a consumer by prescription, or transfer of title to an opioid unit from a manufacturer in New York to a purchaser outside of New York when such opioid unit will be used or consumed outside the state. Certain other sales are also exempt from the excise tax. The first filing is due on Jan. 21, 2020, with future returns due on a quarterly basis. For more on this development, see Tax Alert 2019-1235. Rhode Island: On July 5, 2019, Rhode Island Governor Gina Raimondo signed the fiscal year 2020 budget legislation (HB 5151), provisions of which include an individual health insurance mandate. The legislation was modelled after the federal Affordable Care Act (ACA), and generally requires Rhode Island residents to carry health insurance for themselves, their spouses and their dependents, effective Jan. 1, 2020. For additional information on this development, see Tax Alert 2019-1250. Vermont: New law (HB 541 ) expands the applicability of Vermont's rooms tax. Effective July 1, 2019, HB 541 modifies the rooms tax by expanding the definition of "operator" to include booking agents and the definition of "rent" to include all amounts collected by booking agents except the rooms tax. A "booking agent" is defined at a person who facilitates the rental of an occupancy, collects rent for it, and has the right, access, ability, or authority, through an internet transaction or other means, to offer, reserve, book, arrange for, remarket, distribute, broker, resell, or facilitate an occupancy that is subject to rooms tax. Vt. Laws 2019, Act 71 (HB 541), signed by the governor on June 18, 2019. Federal: On July 10, 2019, the United States Trade Representative announced it would commence an investigation under Section 301 of the Trade Act of 1974 into France's pending Digital Services Tax (DST). The DST legislation in France, which is moving through the French legislative process, is the farthest advanced, but many other countries around the world also are considering the enactment of such a tax that would apply to digital businesses based on the local presence of users. The US action is utilizing the trade mechanism under Section 301 to address what is seen as unfair treatment of US-based companies under the DST. In addition, with respect to US-China trade, the USTR published, in a Federal Register Notice on July 9, 2019, a new set of exclusions to 110 products subject to a 25% punitive tariff as part of the 818 tariff lines covering US$34 billion worth of imports from China annually (US List 1). For more on this development, see Tax Alert 2019-1256. 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 statute provides that "receipts from selling chemicals or reagents in lots in excess of 18 tons may be deducted from gross receipts" and the corresponding regulation defines "chemical" as "a substance used for producing a chemical reaction." NMAC 3.2.223.7(B). Document ID: 2019-1310 |
