07 October 2019 State and Local Tax Weekly for October 7 Ernst & Young's State and Local Tax Weekly newsletter for October 7 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. New Hampshire budget bill updates IRC conformity date, addresses GILTI, modifies business tax rates, adopts single sales factor apportionment, among other tax law changes On Sept. 26, 2019, Governor Chris Sununu signed into law budget bill HB 4 (the law). Key tax provisions of the law make various changes to New Hampshire's business profits tax and business enterprise tax including updating the state's date of conformity to the Internal Revenue Code (IRC), subjecting a portion of global intangible low-taxed income (GILTI) to New Hampshire business tax, modifying future tax rates, adopting market-based sourcing for sales of non-tangible property and moving to a single sales factor apportionment formula for business tax purposes. The law also clarifies the applicability of the communications services tax to voice over internet protocol (VoIP) and wireless telecommunications services. Effective for tax periods beginning on or after Jan. 1, 2020, the law updates the date of conformity of the business profits tax to the IRC to Dec. 31, 2018 (from Dec. 31, 2016) thereby incorporating many of the provisions of the federal Tax Cuts and Jobs Act (P.L. 115-97) into New Hampshire's business tax law. The law also subjects a portion of GILTI to the business profits tax, applicable to tax periods beginning on or after Jan. 1, 2020. The law allows the GILTI deduction by providing a new deduction of such amounts of gross business profits as is attributable to GILTI under IRC Section 951A as determined in accordance with IRC Section 250(a). In order to avoid the potential double taxation of GILTI in the event of a subsequent dividend of the same earnings, the law allows a subtraction of dividends from foreign subsidiaries for amounts previously included in gross business profits and subject to the New Hampshire tax as GILTI (adjusted for the GILTI deduction). In other words, the amount of "net" GILTI (i.e., GILTI after the deduction contained in IRC Section 250(a)) is included in the New Hampshire tax base subject to the business profits tax. The law also sets the business profits tax and the business enterprise tax rates for 2019 and subsequent years and repeals a rate reduction that was set to take effect in 2021. It provides, however, for a possible rate reduction or rate increase in 2021 depending on the level of revenue collections. The rates for tax periods ending on and after Dec. 31, 2019 for the business profits tax and the business enterprise tax are 7.7% and 0.60%, respectively. For tax periods ending on and after Dec. 31, 2021, the rates will be: (1) 7.9% or 0.675%, respectively, if for the fiscal year ending June 30, 2020 New Hampshire's combined general fund and education trust fund revenue collected is 6% or more below official revenue estimates for the fiscal year; or (2) 7.5% and 0.50%, respectively, if such revenue collected is 6% or more above official revenue estimates for the fiscal year; or (3) 7.7% and 0.60%, respectively, if such revenue collected is not 6% below or above official revenue estimates for the fiscal year. In addition, the law adopts, for purposes of the business profits tax and the business enterprise tax, market-based sourcing for sales of non-tangible property, applicable to tax periods ending on or after Dec. 31, 2021. Reasonable approximation will be used if the state(s) of assignment for non-tangible property cannot be determined. If the taxpayer is not taxable in a state to which a sale of non-tangible property is assigned, or if the state of assignment cannot be determined or reasonably approximated, the sale is excluded from the sales factor denominator. Lastly, a committee is established to study the apportionment of gross business profits under the business profits tax and to monitor the market-based sourcing laws of other states, among other issues. (Similar provisions were enacted on Sept. 6, 2019 under SB 190.) Applicable to tax periods ending on or after Dec. 31, 2022, the law changes the apportionment formula for purposes of the business profits tax from a three-factor (e.g., payroll, property and sales) to a single sales factor apportionment formula. Lastly, applicable to tax periods ending after Dec. 31, 2019, the communications services tax is imposed on intra- and inter-state communications services that are VoIP services provided by a retailer to a person with a primary use in New Hampshire, regardless of where the VoIP service originates, terminates or passes through. Tax will not be imposed on a person whose place of primary use is outside the state. In addition, the communications services tax is imposed on each retail transaction in New Hampshire of intra- and inter- state communications services that are prepaid wireless telecommunications services. The law provides a hierarchy for determining whether the sale is sourced to New Hampshire; the seller is responsible for collecting and remitting the tax. Multistate: A summary of the significant legislative, administrative, and judicial actions that affected state and local income/franchise taxes during the third quarter of 2019 is now available. Highlights from Q3 include: (1) a summary of legislative developments in California, the District of Columbia, Hawaii, Illinois, Missouri, New Hampshire, and Oregon; (2) a summary of judicial developments in California, Minnesota, Montana, New York, Texas, and Wisconsin; (3) a summary of administrative developments in Florida, Illinois, Louisiana, Michigan, Nebraska, New Jersey, New York City, Pennsylvania, Tennessee, Texas, and Vermont; and (4) a discussion of state and local tax items to watch in California, Kentucky, Maryland, Mississippi, New York, and Texas. For a copy of the summary, see Tax Alert 2019-1755. Florida: The Florida Department of Revenue announced that the corporate income tax rate is reduced to 4.458% (from 5.5%) for tax years beginning on or after Jan. 1, 2019 but before Jan. 1, 2022. The tax rate may be further reduced in 2020. The tax rate will revert back to a 5.5% tax rate in 2022. Fla. Dept. of Rev., TIP No. 19C01-04 (Sept. 12, 2019). Massachusetts: The Massachusetts Department of Revenue (Department) issued guidance on when the Massachusetts personal income tax credit for taxes paid to another jurisdiction (hereafter, credit) can be claimed for a Massachusetts resident part of his or her distributive share of Connecticut pass-through entity (PTE) tax (CT PTE tax) paid. A Massachusetts resident personal income taxpayer (i.e., an individual or other taxpayer under Chapter 62 of the Massachusetts General Laws) who is a member of a PTE subject to the CT PTE tax is eligible for the credit on his/her distributive share of CT PTE tax paid by the PTE. The taxpayer may claim the credit if the statutory requirements are met and the taxpayer adds back his/her pro rata share of CT PTE tax paid by the PTE to the amount of his/her distributive share of income subject Massachusetts tax. The distributive share income amount and the amount of CT PTE tax paid on the member's behalf should be reported on either Massachusetts Schedule 3K-1 (by partnerships) or Schedule SK-1 (by S corporations). Mass. Dept. of Rev., Directive 19-1: Application of the Massachusetts Personal Income Tax Credit for Taxes Paid to Another Jurisdiction to the Connecticut Pass-through Entity Tax (Sept. 19, 2019). Michigan: The Michigan Department of Treasury (Department) issued updated guidance on the Michigan tax treatment of select provisions of the Tax Cuts and Jobs Act (P.L. 115-97), including IRC Section 965 (updated), global intangible low-taxed income (GILTI) (updated), and foreign-derived intangible income (FDII) (new). Under the guidance, a taxpayer subject to the Michigan Corporate Income Tax (CIT) will subtract the amount of deemed repatriated income under IRC Section 965 included in its federal taxable income (FTI) from its 2017 CIT tax base. With respect to GILTI, the net amount of GILTI included in the taxpayer's FTI is deducted in determining the taxpayer's CIT tax base. The Department indicated that instructions for the CIT return will provide guidance on how to deduct net GILTI in calculating the CIT tax base. Turning to FDII, the Department said that "there is currently no provision in the CIT statute that requires a taxpayer's FDII deduction to be added back when calculating the CIT tax base." Mich. Dept. of Treas., Tax Policy Newsletter (Sept. 2019). New York City: In Finance Memoranda No. 18-09 (issued Sept. 1, 2019) and No. 18-10 (issued Sept. 2, 2019), the New York City Department of Finance issued guidance on the City's treatment of GILTI, FDII and IRC Section 965 repatriation amounts under the City's business corporation tax, general corporation tax, unincorporated business tax, and banking corporation tax. Texas: On Sept. 27, 2019, the Texas Comptroller of Public Accounts proposed amendments to its franchise "margin" tax nexus rule (34 TAC Section 3.586) that would adopt an economic nexus standard. As proposed, a foreign taxable entity (i.e., a taxable entity not chartered or organized in Texas) with no physical presence in Texas would have nexus if it had gross receipts from business done in the state of $500,000 or more, as determined using the state's apportionment sourcing rules set forth in 34 TAC Section 3.591. In addition, the rule change would presume nexus for a foreign taxable entity that has a Texas use tax permit. These changes would apply to franchise tax reports due on or after Jan. 1, 2020. Interested parties have 30 days from Sept. 27, 2019 to submit comments on the proposed rule amendments. For additional information on this development, see Tax Alert 2019-1768. Arkansas: A remote seller that sells over $100,000 a month of natural gas in Arkansas that is exempt from sales and use tax as either a resale or the purchaser provided the seller with its Arkansas direct pay permit is not required to collect and remit tax under the state's new economic nexus provisions because the $100,000 in sales/200 transaction threshold has not been met. The Arkansas Department of Finance and Administration (Department) explained that in determining whether the threshold is met, only taxable sales of goods, services, or specified digital products (and not tax-exempt sales) of the seller are considered. The Department recommended that remote sellers making tax exempt sales into the state retain appropriate records. Ark. Dept. of Fin. and Admin., Rev. Legal Counsel Op. No. 20190511, Gross Receipts Tax — Remote Seller and Marketplace Facilitator Thresholds (Sept. 9, 2019). Hawaii: New law (SB 1314) extends the state's research activity tax credit through 2024 (from 2019) and modifies its provisions. Applicable to tax years beginning after Dec. 31, 2019, references to the research and development credit base amount under IRC Section 41 shall not apply, and the credit for all qualified research expenses may be taken without regard to the amount of expenses for prior years. The credit is repealed on Dec. 31, 2024. Haw. Laws 2019, SB 1314, signed by the governor July 5, 2019. Illinois: A time-limited franchise tax amnesty program will run Oct. 1, 2019 through Nov. 15, 2019. This amnesty program will be administered by the Illinois Secretary of State (Secretary) and runs concurrently with a general tax amnesty program that will be administered by the Illinois Department of Revenue. (For more on the general amnesty program, see Tax Alert 2019-1542.) The franchise tax amnesty program applies to all taxpayers owing a franchise tax or license fee imposed under Art. XV of the Illinois Business Corporation Act of 1983 (Art. XV) for any tax period ending after March 15, 2008 and on or before June 30, 2019. In exchange for participating in the franchise tax amnesty program and paying all franchise tax liabilities due, the Secretary will waive applicable penalties and interest and will not pursue civil or criminal prosecution for the time period that amnesty has been granted. For more on this development, see Tax Alert 2019-1684. West Virginia: Effective July 1, 2019, the City of Montgomery, West Virginia requires employers with a place of business located within the city to withhold a city service fee from the wages of employees working within the city. Employers must submit fees withheld from employees on either a monthly or quarterly basis, based on the employer's choice. The definition of city employer includes all for-profit and not-for-profit entities and all local, county, state and federal government entities. For the first fiscal year (July 1, 2019 through June 30, 2020), the service fee to be withheld is $1 per calendar week, increasing to $1.50 per week on July 1, 2020 and $2 per week on July 1, 2021. Employers may choose to pay the fee rather than withholding it from employees' wages. For more information on this development, see Tax Alert 2019-1693. California: New law (SB 740) modifies provisions of the state's unclaimed property law related to funds owed under a life insurance policy or annuity contract, by providing standards for identifying a deceased individual whose death may require an insurer to pay benefits or proceeds to beneficiaries of a life insurance policy, annuity contract, or retained asset account. It also provides standards for locating a deceased individual's beneficiaries and providing them with appropriate claims forms or instructions. If a beneficiary does not contact the insurer within 120 days of the insurer gaining knowledge of an insured's death, the insurer must perform and complete a thorough search for the beneficiary within one year. If the beneficiary cannot be found, the insurer must escheat the proceeds of the policy, annuity contract, or retained asset account to California as provided by statute (i.e., if unclaimed and unpaid for more than three years after the funds became due and payable). These provisions apply to an in-force policy, annuity contract, or retained asset account, a policy or annuity contract (collectively, "policy") effective on or after July 1, 2020, and a policy that has lapsed on or after Jan. 1, 2019 if the insurer has not engaged in "asymmetric conduct" if either the insurer is domiciled in, or the policy was issued or delivered in, California. Cal. Laws 2019, SB 740 (Ch. 286), signed by the governor on Sept. 12, 2019. International: On Sept. 18, 2019, Argentina's Government published, in the Official Gazette, General Resolution 4,581/2019 (GR 4,581), which establishes the early reimbursement procedure for VAT associated with fixed-asset investments. Argentine companies should review the new procedure and determine whether it might provide them with an opportunity to improve their working capital position. For more on this development, see Tax Alert 2019-1687. 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 statutory requirements include: (1) the PTE must pay the CT PTE tax during the taxpayer's taxable year; (2) it must be measured by income earned by the entity, a distributive share of which must be included in the taxpayer's Massachusetts gross income; (3) the entity may not deduct any portion of the tax from its income in computing net income available for distribution to such member; and (4) the tax must otherwise be allowable as a credit by statute. Document ID: 2019-1773 |
