12 March 2020 State tax trends emerging in the 2020 state legislative sessions The 2020 state legislative sessions are in full swing. Although most state sessions are just two months in, several legislative trends have developed. Many of these trends continue to follow ongoing state tax themes, such as promoting mandatory unitary combined reporting and developing marketplace facilitator legislation for state sales tax purposes. Other trends, such as state digital service tax proposals, represent new state tax policy efforts. Following on existing trends, state legislative efforts to enact mandatory unitary combined reporting in the remaining separate-return states are once again prevalent around the country. Significant proposals are being considered in (1) Maryland, where the Democrat-controlled legislature is seeking to generate additional revenue for education funding initiatives; (2) Pennsylvania, where the Governor has renewed his perennial call for combined reporting; (3) Florida; and, (4) Virginia, where, after Democrats took full control of the executive and legislative branches of state government for the first time in 25 years, mandatory combined filing bills were introduced for the first time in many years. Meanwhile, states that already have combined filing requirements, such as Maine, Massachusetts, New Hampshire and Kentucky, are revisiting their statutes with proposals to expand the scope of combined reporting by enacting so-called "tax haven" provisions or by eliminating "water's-edge" filing requirements in favor of mandatory worldwide combined reporting, a trend that has been somewhat absent in recent years. While proposals to impose sales tax collection responsibilities on marketplace facilitators dominated the 2019 legislative cycle, the issue has picked up steam in the 2020 sessions as well. In January 2020, Georgia enacted marketplace facilitator legislation, leaving just six states — Florida, Kansas, Louisiana, Mississippi, Missouri, and Tennessee — without such provisions. In addition, the legislatures of Florida and Missouri, the only two states with a sales and use tax but no economic nexus provisions for remote sellers, have introduced proposals to establish such provisions. Meanwhile, even the US Congress has shown renewed interest in the issue, with the House Small Business Subcommittee on Economic Growth, Tax, and Capital Access conducting a hearing on March 3, 2020. The hearing addressed the complex challenges small businesses face in dealing with multistate sales tax registration, collection and remittance requirements, and state tax audits following South Dakota v. Wayfair, Inc.1(Wayfair), in which the US Supreme Court eliminated the physical presence requirement for sales tax nexus. What may be the least expected and most surprising state tax trend emerging in 2020 is the proliferation of various iterations of state efforts to tax the digital economy, with digital advertising and data usage directly in state legislators' sights. This trend seemingly aligns with discussions at the Organisation for Economic Cooperation and Development (OECD) to propose changes to the international tax system in response to the disruption of the digital economy and ongoing efforts around the world to impose new tax regimes. Leading the charge was Maryland, with a measure that would impose a new gross receipts tax on digital advertising sourced to the state. Soon after, Nebraska introduced a measure to subject digital advertising to the state's sales tax. Meanwhile, members of the New York legislature introduced a bill that would impose a 5% corporate franchise tax on companies that derive income from New York residents' data shared with the company. Similar bills focusing on various aspects of the digital economy failed in West Virginia (would have imposed a new tax on data mining) and in South Dakota (would have eliminated all advertising services from an existing exemption to the state's sales tax), and are still under consideration in Minnesota (would impose a social media registration fee). These measures represent a new avenue for both revenue-raising and social impact legislation. Another trend that has taken root in 2020 is a wave of proposals to increase state or local real estate transfer and recordation taxes. Proposals have included creation of high-value thresholds for increased rates in Oregon and Rhode Island. In Massachusetts and Illinois, the legislatures are being asked to authorize or increase local transfer taxes to benefit Boston and Chicago, respectively. These bills represent the larger picture of states and localities continuing to hunt for additional revenue to fund their budgetary needs. One last trend worthy of attention is an effort to establish a multistate compact to eliminate company-specific incentives. Legislation has been introduced in at least 14 states2 to join this new interstate compact, which would prohibit its members from offering or providing financial development incentives to specific companies to attract them from one state to the next. The plethora of state legislative trends and fast-moving developments pose significant challenges to multistate taxpayers in the United States. States' continued pursuit of new and expanded revenue while grappling with the ramifications of conforming with the Tax Cuts and Jobs Act of 2017 and the 2018 Wayfair decision highlights the importance of taxpayers proactively engaging in tax policy discussions with their governmental affairs teams and tax advisors. In addition, recent federal, state, and local governmental responses to the COVID-19 virus outbreak require employers to remain abreast of changing rules that may impact telecommuting, filing deadlines, and financial assistance. EY continues to monitor legislative developments and trends across the United States to help taxpayers stay abreast of rapidly changing legislative developments to meet constantly evolving tax compliance demands.
2 Alabama, Arizona, Connecticut, Delaware, Florida, Hawaii, Illinois, Iowa, Maryland, New Hampshire, New York, Rhode Island, Utah, and West Virginia. Document ID: 2020-0542 | |||||||||
