29 July 2019 State and Local Tax Weekly for July 19 Ernst & Young's State and Local Tax Weekly newsletter for July 19 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 July 5, 2019, Rhode Island Governor Gina Raimondo signed into law the FY2020 budget bill (HB 5151 Sub. A) (the bill), provisions of which include a number of tax law changes. Notable changes, which are in Art. 5 of the bill, do the following:
In addition to these tax changes, Article 13 of the bill establishes the Opioid Stewardship Act, which requires all manufacturers, distributors, and wholesalers that manufacture or distribute opioids to pay an annual opioid registration fee, with the first payment due Dec. 31, 2019. The total opioid stewardship fund amount is $5 million and each manufacturer's, distributor's, and wholesaler's annual fee will be based on its in-state market share (certain sales are excluded from the determination of market share). The Rhode Island Department of Health (DOH) will notify these manufacturers, distributors, and wholesalers of their 2018 market share by Oct. 15, 2019 (and each Oct. 15 thereafter). Manufacturers, distributors, and wholesalers are required to provide the DOH director a report detailing their opioid sales and distributions along with other information. DOH may assess various penalties against any licensee for failing to comply with these provisions. Lastly, the bill adopts an individual mandate for health insurance, effective Jan. 1, 2020. The mandate was modelled after the one set forth in the federal Affordable Care Act (ACA), and generally requires Rhode Island residents to carry health insurance for themselves, their spouses and their dependents and if not, be subject to a compensating tax. For more on this development, see Tax Alert 2019-1250. Arizona: On May 31, 2019, Governor Doug Ducey signed into law HB 2757 (Ch. 273), provisions of which update the state's conformity date to the Internal Revenue Code of 1986, as amended (IRC) to Jan. 1, 2019 and address whether Arizona's tax law will conform or not to certain provisions of the federal Tax Cuts and Jobs Act (P.L. 115-97). For more on this development, see Tax Alert 2019-1272. California: New law (AB 91 ) (bill) updates select provisions of California's tax code to conform to certain provisions of the federal Tax Cuts and Jobs Act (P.L. 115-97) (TCJA). Unlike the IRC conformity bills in other states, the bill is not a general federal conformity bill, so California continues to generally conform to the IRC only as of Jan. 1, 2015. Under AB 91, California conforms to the following business-related provisions of the TCJA: (1) eliminating technical termination of partnerships, (2) small business accounting method "reform and simplification", (3) disallowance of FDIC premiums, (4) elimination of net operating loss carrybacks, (5) limitation of like-kind exchanges, (6) limitation on losses for taxpayers other than corporations, and (7) modification to the limit on "excessive employee remuneration." In addition, the bill also enacts a non-TCJA federal change by eliminating the ability of all taxpayers to make a separate California IRC Section 338 election that differs from the taxpayer's federal election. These conformity updates have various effective dates. Cal. Laws 2019, Ch. 39 (AB 91), signed by the governor on July 1, 2019. California: The California Franchise Tax Board (FTB) issued a legal ruling addressing the appropriate subject matter for which a request for variance from the standard apportionment formula may be granted (i.e., use of an alternative apportionment method) under Cal. Rev. and Tax Code Section 25137. The FTB considered four scenarios and determined that use of the variance provisions applied to the scenario under which the taxpayer would be permitted to exclude the sales factor from its formula. The FTB rejected the taxpayer's variance requests to use an alternative apportionment formula related to decombination, treating dividends as nonbusiness income, and including apportionment factors of a unitary foreign affiliate in the combined report. The FTB noted that the variance provisions only address issues related to allocation and apportionment of income (and listed examples for when alternative apportionment may be available). Thus, the variance provisions cannot be used to address issues related to: (1) unitary combinations; (2) combined report mechanics; (3) issues relating to tax rates, tax credits, or tax procedures; (4) income determinations; (5) water's-edge mechanics; or (6) other issues addressed by appropriate California authority outside the Uniform Division of Income for Tax Purposes Act (UDITPA). Cal. FTB, Legal Ruling 2019-01 (June 7, 2019). Massachusetts: The Massachusetts Department of Revenue (Department) announced that for corporate excise tax purposes the Commonwealth conforms to the federal opportunity zone provisions under Subchapter Z (IRC Section 1400Z-1 to 1400Z-2), but does not conform to these provisions for personal income tax purposes. Corporate excise taxpayers that elect to defer gains invested in opportunity zones for federal income tax purposes will defer the gain for Massachusetts corporate excise tax purposes. The federal basis adjustment also will apply for Massachusetts corporate excise tax purposes, subject to existing rules for determining Massachusetts tax basis. The Department further explained that Massachusetts does not conform to opportunity zone provisions for personal income tax purposes, since its personal income tax laws conform to the IRC as amended and in effect on Jan. 1, 2005 (which is pre-enactment of the opportunity zone provisions in the Tax Cuts and Jobs Act (P.L. 115-97) in December 2017). Thus, for Massachusetts personal income tax purposes, gain from the sale or exchange of property deferred under the opportunity zone provisions for federal income tax purposes is recognized in the year of the sale or exchange, and federal basis adjustments do not apply for purposes of calculating future gain that may be recognized on the sale or exchange of an investment in a qualified opportunity fund. Mass. Dept. of Rev., TIR 19-7: Massachusetts Treatment of Investments in Qualified Opportunity Zones (June 17, 2019). Oregon: New law (SB 851), for corporate excise tax purposes, treats global intangible low-taxed income (GILTI) amounts under IRC Section 951A in the same manner as a dividend and, as a result, allows an 80% dividends received deduction for GILTI. Taxpayers in deriving Oregon taxable income, are required to add back to federal taxable income the amount of GILTI deducted under IRC Section 250 and subtract the amount of GILTI included in gross income under IRC Section 951A. A subtraction is not allowed for any amount of foreign-source dividend income under IRC Section 245A that is included in gross income. Further, the amount deducted under IRC Section 245A is excluded from the sales factor apportionment formula. Dividends and GILTI amounts are included in the sales factor for apportionment purposes. These changes apply to tax years beginning on or after Jan. 1, 2018. Effective for tax years beginning on or after Jan. 1, 2017, individuals in calculating their Oregon taxable personal income are required to add back to federal taxable income amounts deducted for deemed repatriation as part of the transition tax under IRC Section 965(c). The Oregon Department of Revenue is prohibited from imposing interest or penalties on individuals who underpay or underreport solely as a result of this new add back requirement. Ore. Laws 2019, SB 851, signed by the governor on July 15, 2019. Tennessee: The Tennessee Department of Revenue (Department) explained that under recently enacted law (Pub. Ch. 306), taxpayers who report global intangible low-taxed income (GILTI) as part of their federal taxable income will have to make certain adjustments to net earnings for Tennessee excise tax purposes. Effective for tax periods beginning on or after Jan. 1, 2018, affected taxpayers will have to: (1) reverse out all GILTI, before any deductions, and (2) add back an amount equal to 5% of GILTI, before any deductions. The Department's guidance states where corporations (on Line 1 of Schedule J4), S corporations (on Line 2 of Schedule J3), and partnerships (on Line 2 of Schedule J1) should report GILTI on their excise tax forms. For taxpayers with GILTI, state adjustments are made as follows: (1) for taxpayers filing FAE170, GILTI is subtracted on Schedule J, Line 18 and added back on Line 4; and (2) for those filing FAE174, GILTI is subtracted on Schedule J, Line 22 and added back on Line 7. A deduction for GILTI under IRC Section 250 is not allowed. Tenn. Dept. of Rev., Notice #19-13 (July 2019). Tennessee: The Tennessee Department of Revenue (Department) explained that under recently enacted law (Pub. Ch. 306), taxpayers who report deemed repatriated earnings under IRC Section 965 on their federal income return will have to make certain adjustments to net earnings for Tennessee excise tax purposes. For the 2018 tax year, affected taxpayers will have to: (1) reverse out any repatriated earnings included in federal taxable income, and (2) add back an amount equal to 5% of the repatriated earnings. The Department's guidance states where corporations (on Line 1 of Schedule J4), S corporations (on Line 2 of Schedule J3), and partnerships (on Line 2 of Schedule J1) should report repatriated earnings on their excise tax forms. State adjustments are made as follows: (1) for taxpayers filing FAE170, repatriated earnings are subtracted on Schedule J, Line 18 and added back on Line 4; and (2) for those filing FAE174, repatriated earnings are subtracted on Schedule J, Line 22 and added back on Line 7. A deduction under IRC Section 965(c) for repatriated earnings is not allowed. Tenn. Dept. of Rev., Notice # 19-14 (July 2019). Arizona: On May 31, 2019, Governor Doug Ducey signed into law HB 2757 (Ch. 273), provisions of which adopt economic nexus provisions for remote sellers and marketplace facilitators for purposes of the state's transaction privilege (sales) and use taxes. For more on this development, see Tax Alert 2019-1272. California: New law (SB 92) allows a delivery network company to elect to be deemed a marketplace facilitator. In addition, the law clarifies that newspapers, internet websites, and other entities that advertise tangible personal property for sale, refer purchasers to the seller by internet link, telephone or other similar means to complete the sale, and do not participate further in the sale are not facilitating a sale as a marketplace. Lastly, the law provides liability relief to certain marketplace sellers that used a marketplace facilitator to facilitate sales for delivery in the state, and the facilitator stored the seller's inventory in a fulfillment center located in California. Tax will not be imposed on sales made before April 1, 2016, and penalties and interest will not be imposed on sales made during the period from April 1, 2016 to March 31, 2019. Cal. Laws 2019, Ch. 34 (SB 92), signed by the governor on June 27, 2019. See also, Cal. Dept. of Tax and Fee Admin., Special Notice: Relief May Be Available to Marketplace Sellers Using Fulfillment Centers in California (July 2019). Florida: New law (HB 7123) reduces the tax on commercial real property rentals and exempts from sales and use tax certain purchases related to damages from Hurricane Michael. The tax rate on the total rent or license fee charged for commercial real property is reduced to 5.5% (from 5.7%), beginning Jan. 1, 2020. In addition, from Oct. 10, 2018 through June 30, 2019, the purchase of the following materials used to replace or repair items damaged by Hurricane Michael are exempted from sales and use tax: (1) the purchase of fencing materials used to replace or repair farm fences on agricultural land; and (2) building materials used to replace or repair a nonresidential farm building. The exemptions are only available as refunds of previously paid taxes from the Florida Department of Revenue. The taxpayer must apply for the exemptions by Dec. 31, 2019. Fla. Laws 2019, Ch. 2019-42 (HB 7123), signed by the governor on May 15, 2019. Nevada: New law (AB 446) (bill) makes various amendments to the Nevada New Markets Jobs Act. Under prior law, the Nevada Department of Business and Industry (Department) had the authority to certify $200 million in qualified equity investments eligible for insurance premium tax credits. As modified, the Department has the authority to certify $200 million in qualified equity investments before July 1, 2019, and $200 million in qualified equity investments on or after July 1, 2019. In addition, the bill prohibits the Department from certifying any single qualified equity investment of less than $8 million (previously $5 million). Further, if an entity makes a qualified entity investment on or after July 1, 2019, it may not use any portion of the credit against its insurance premium tax liability for any period beginning before July 1, 2021. The bill also modifies recapture provisions, defining "cash proceeds" or "proceeds" to mean the amount paid to the issuer of a qualified equity investment for the qualified equity investment. AB 446 took effect July 1, 2019. Nev. Laws 2019, Ch. 573 (AB 446), signed by the governor on June 12, 2019. Puerto Rico: On July 1, 2019, the Governor of Puerto Rico signed into law Act 60, also known as the Puerto Rico Tax Incentives Code (Incentives Code), which consolidated dozens of tax decrees, incentives, subsidies and tax benefits into a single statute, including Act No. 21 of May 14, 2019, also known as the "Development of Opportunity Zones of Economic Development Act of Puerto Rico of 2019" (the Act). Through the enactment of the Incentives Code, the Act was repealed. However, most of the provisions of the Act establishing various tax incentives in Puerto Rico for investments in qualified opportunity zones were codified in the Incentives Code. The tax incentives for investments in qualified opportunity zones include preferential tax rates, transferable tax credits, and partial exemptions of property and municipal taxes. Generally, these incentives are available to an eligible business under the Act that complies with certain requirements, including being certified as a priority project. For additional information on this development, see Tax Alert 2019-1298. Florida: New law (HB 7123) provides property tax relief related to certain farms affected by Hurricane Michael. Applicable retroactively to Jan. 1, 2019 and for the 2019 tax roll only, tangible personal property owned and operated by a farm, farm operation, or agricultural processing facility located in specific counties is deemed to have a market value no greater than its salvage value if the tangible personal property was unable to be used for at least 60 days due to Hurricane Michael. Applications for this assessment are due Aug. 1, 2019. Fla. Laws 2019, Ch. 2019-42 (HB 7123), signed by the governor on May 15, 2019. Massachusetts: The Massachusetts Department of Revenue (Department) explained that for personal income tax purposes, Massachusetts generally conforms to the IRC as amended and in effect on Jan. 1, 2005 and, therefore, it does not conform to the repeal of the federal partnership termination rules under IRC Section 708(b)(1)(B) enacted as part of the federal Tax Cuts and Jobs Act (P.L. 115-97) (TCJA). Under Massachusetts personal income tax law, a partnership will be treated as being terminated if, within a 12-month period, there was a sale or exchange of 50% or more of the total interest in the partnership's capital and profits (consistent with the federal rule which existed prior to enactment of the TCJA). The Department's guidance further explains that partnerships for which a termination occurs mid-year must file two Massachusetts short-year tax returns, even though the partnership may not have short tax years for federal income tax purposes. In addition to the automatic six-month extension granted to partnerships to file their state returns, the Department also will permit partnerships that are treated as having terminated for Massachusetts personal income tax purposes to file both of its Massachusetts short-year returns by the partnership's federal return due date, including any federal extensions. Failure to file these short-year returns may result in penalties. Mass. Dept. of Rev., TIR 19-9: Extension of Time to File Short-Year Returns Resulting from Partnership Technical Termination (July 2, 2019). Colorado: Effective Jan. 1, 2020, recently enacted Colorado HB 1256 gives the Colorado Department of Revenue the power to mandate that taxpayers file and pay taxes electronically. This includes the requirement that employers electronically file withholding returns, including Forms W-2, and pay withholding taxes. Currently, employers with 250 or more employees must file Forms W-2 electronically by January 31. Employers that withhold more than $50,000 of withholding tax annually must file all withholding payments by Electronic Funds Transfer. Employers filing and paying electronically do so over the Department's Revenue Online system. For more on this development, see Tax Alert 2019-1281. New Jersey: Recently enacted New Jersey legislation (A 3975) (bill) makes significant changes to the state's family leave (FLI) and temporary disability insurance (TDI) programs. One change will, effective Jan. 1, 2020, increase the FLI/TDI taxable wage base by almost four times the current level to fund the changes to state paid leave benefits. As a result of this law change, the FLI/TDI taxable wage base will no longer be coupled with the state unemployment insurance taxable wage base. The benefit increases and higher administrative costs under the law will be charged exclusively to workers through increased withholding. For more on this development, see Tax Alert 2019-1271. Texas: News sources are reporting that a San Antonio business coalition has filed a lawsuit to stop San Antonio's paid sick leave ordinance from taking effect. As we reported, effective Aug. 1, 2019, private San Antonio employers with more than 15 employees must provide a minimum of 64 hours of paid sick leave a year to their employees by allowing them to accrue one hour of sick leave for every 30 hours worked. Employers with 15 or fewer employees must provide 48 hours per employee per year, unless the employer chooses a higher limit. It remains to be seen if the lawsuit will halt the effective date. For more on this development, see Tax Alert 2019-1289. Florida: New law (HB 7123) exempts from all state and county taxes on motor fuels and diesel fuels purchased and used in Florida from Oct. 10, 2018 through June 30, 2019 in any motor vehicle driven or operated on Florida public highways for agricultural shipment or hurricane debris removal after Hurricane Michael. The exemption does not apply to the constitutional fuel tax and the additional motor fuel tax imposed by Fla. Stat. Section 206.41(1)(a) and (h). The exemption is only available through a refund from the Florida Department of Revenue, with the application due Dec. 31, 2019. Fla. Laws 2019, Ch. 2019-42 (HB 7123), signed by the governor on May 15, 2019. Louisiana: New law (HB 575) establishes provisions regulating, and imposing fees on, transportation network companies (TNC). Each TNC must quarterly remit to the Louisiana Department of Revenue (Department) an assessment fee equal to 1% of the gross trip fare for all prearranged rides that originate in Louisiana. A local governmental subdivision that imposed a per-trip fee on a TNC operating within its corporate limits as of March 1, 2019 can impose a fee that equals the per-trip fee imposed as of March 1, 2019 on intrastate prearranged ride originating within its corporate limits. Other local governmental subdivisions may impose a fee of up to 1% of the gross trip fare for each intrastate prearranged ride. A municipality's fee can apply only to intrastate prearranged rides that originate within the municipality's incorporated limits, and a parish's fee can apply only to the intrastate prearranged rides that originate within the unincorporated portions of the parish. The TNC must collect the fee on drivers' behalf and must remit the total fee to the local governmental subdivision quarterly within 30 days after the calendar quarter ends. A local governmental subdivision cannot: (1) impose a tax on, or require a license for, a TNC, a driver, or a vehicle if the tax or license relates to providing prearranged rides; (2) require a TNC or a driver to obtain a business license or other similar authorization to operate within the jurisdiction; or (3) subject a company, a driver, or a vehicle to any rate, entry, operation, or other requirement of the governing authority. HB 575 took effect July 1, 2019. La. Laws 2019, Act 286 (HB 575), signed by the governor on June 13, 2019. Nevada: New law (SB 44) adopts certain provisions of the 2016 Revised Uniform Unclaimed Property Act. The law provides that an unclaimed property holder may contract with a third party to make an unclaimed property report, but the holder is ultimately responsible for filing a timely and accurate report of property presumed abandoned, for paying and delivering the abandoned property to the state, and for any penalties, interest, and fees due. A holder of unclaimed property must electronically file its report and pay the amount due (this electronic filing requirement could be waived for good cause). Failure to electronically file and pay could result in assessment of a fee equal to the greater of $50 or 2% of the payment amount. The law amends presumption of abandonment provisions for: (1) amounts owed by an insurer on a life or endowment insurance policy or annuity when a policy or contract for which payment is owed on proof of death has not matured; and (2) property in certain retirement accounts. An abandonment presumption period is added for an account of funds established to meet burial costs. Lastly, the law adds definitions of "payroll card" and "stored-value card," and amends the definitions of "holder," "money order" and "property." SB 44 took effect July 1, 2019. Nev. Laws 2019, Ch. 501 (SB 44), signed by the governor on June 7, 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. 1 PTEs include S corporations, partnerships, limited partnerships, limited liability partnerships, limited liability companies, trusts, sole proprietorships. Document ID: 2019-1372 |
