May 6, 2021 State and Local Tax Weekly for April 23 Ernst & Young's State and Local Tax Weekly newsletter for April 23 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. TOP STORIES New York temporarily increases income tax rates on certain businesses and individuals, creates electable tax on pass-through entities, makes other tax changes On April 19, 2021, Governor Cuomo signed the New York State (NYS) Fiscal Year 2021-22 budget bill (S.2509-C/A.3009-C, 2021 N.Y. Laws ch. 59) (Final Bill). The Final Bill includes various temporary tax increases and provisions affecting certain individuals, pass-through entities and corporations. The more significant provisions in the Final Bill do the following:
Other changes in the Final Bill extend certain sales tax exemptions related to Dodd-Frank Protection Act, waive employment-location requirements for business tax credits, decouple from federal opportunity zone benefits for corporate income tax purposes, extend various tax credits and incentives, provide credits and grants to certain businesses impacted by the COVID-19 pandemic emergency, and regulate and impose a state tax on sports wagering, among other changes. Tax Alert 2021-0806 summarizes changes included in the Final Bill, as well as important proposals which did not make the Final Bill but could be the subject to further consideration in the coming months. Florida enacts remote seller nexus and marketplace provider provisions for sales tax, reduces commercial rent tax rate On April 19, 2021, Florida Governor Rick DeSantis signed SB 50, which imposes a sales and use tax collection obligation on remote sellers and marketplace providers that have at least $100,000 in annual sales of tangible personal property to Florida customers in the previous calendar year. The new nexus standard applies to remote sales made or facilitated on or after July 1, 2021. SB 50 requires dealers, which includes remote sellers and marketplace providers that meet the substantial sales threshold, to calculate sales and use tax due based on a rounding algorithm (moving away from the current bracket system), effective July 1, 2021. The rounding algorithm may be applied to the aggregate tax amount computed on all taxable items on an invoice or to each individual item on the invoice. This change also applies to the calculation of admission tax and the taxation of service warranties. For the period from July 1, 2021 through Sept. 30, 2021, taxpayers can calculate tax due using the rounding algorithm or the bracket system. Lastly, SB 50 reduces the tax rate on the total rent or license fee charged for commercial real property to 2% (from 5.5%). This reduction will take effect after the Unemployment Compensation Trust Fund balance exceeds a set threshold. For more on this development, see Tax Alert 2021-0834. INCOME/FRANCHISE Idaho: New law (HB 317) allows a partnership or S corporation to elect to become an "affected business entity" required to pay tax at the entity level (i.e., pass-through entity tax (PTE tax)). A separate election must be made each year, and the PTE election may be made for any taxable year by filing the election with a timely filed original return for the tax year. The law explains how to calculate the amount of tax due and sets the tax rate as that applicable to corporations. If the amount calculated results in a net loss, the loss may be carried forward until fully used. Further, if an affected business entity is a direct or indirect member of another affected business entity, it must, when calculating its net income or loss, subtract its distributive share of income, or add its distributive share of loss, from the affected business entity in which it is a member to the extent the income or loss was derived from or connected with an Idaho source. Individual members subject to Idaho income tax are entitled to a credit against the tax in an amount equal to the individual's direct and indirect pro rata share of PTE tax paid. Individual members who are residents or part-time residents of Idaho are entitled to a credit against the tax for the individual's direct or indirect pro rata share of taxes paid to another state with an income tax the Idaho Tax Commission determines is substantially similar to that of Idaho. Corporate members also are entitled to a credit; the credit equals the amount of the corporation's direct and indirect pro rata share of tax paid by any affected business entity of which it is a member. This credit will be applied after all of the applicable credits. These provision are retroactively effective to Jan. 1, 2021. Idaho Laws 2021, ch. 239 (HB 317), signed by the governor April 15, 2021. Idaho: New law (HB 276) provides that in determining Idaho taxable income a taxpayer is not required to add back to federal taxable income the amount of bonus depreciation claimed under IRC §168(k) that the taxpayer cannot use for federal income tax purposes because of loss limitations imposed by IRC §§ 465, 469, 704(d) and 1366(d). These loss limitations must be calculated without regard to the bonus depreciation claimed for federal income tax purposes. These provisions are retroactively effective to Jan. 1, 2021. Idaho Laws 2021, ch. 211 (HB 276), signed by the governor April 13, 2021. Kansas: New law (HB 2074) establishes the Technology Enabled Fiduciary Financial Institution Act and provides that staring in 2021, a fiduciary financial institution is entitled to an income and privilege tax credit equal to its qualified charitable donations made in connection with its fidfin activities (i.e., financing of fidfin trusts, including loans, extensions of credit and direct investments) during the year, provided that it maintained its principal office in an economic growth zone during the tax year. Unused credit can be carried forward for up to five years. A member of a fiduciary financial institution that is a pass-through entity also will be entitled to a percentage of the credit that exceeds the fiduciary financial institution's tax liability; this credit cannot be sold, assigned, conveyed or otherwise transferred. In any taxable year, a fiduciary financial institution will pay the greater of the qualified charitable distributions made during the tax year or its income or privilege tax liability. Kan. Laws 2021, HB 2074, signed by the governor April 21, 2021. Michigan: The Michigan Department of Treasury (MI DOT) issued guidance outlining the state's conformity to the federal income tax treatment of the proceeds from Paycheck Protection Program (PPP) loans. According to the guidance, Michigan law, for both corporate and individual income tax purposes, conforms to the exclusion of cancellation of indebtedness income from forgiven PPP loans and allows the deduction of business expenses paid with PPP loans. For corporate income tax purposes, neither borrowing of a loan or the subsequent forgiveness of the loan is a "sale". Thus, PPP loans are not included in either the numerator or the denominator of a taxpayer's sales factor. However, for individual income tax purposes, the proceeds of a forgiven PPP loan is a gross receipt that is included in the taxpayer's calculation of its sales factor. The proceeds of the forgiven loan are included in the denominator of the sales factor for all taxpayers and included in the numerator of borrowers with a commercial domicile in Michigan. The MI DOT further explained that for corporate income tax purposes, the proceeds from a PPP loan are included in gross receipts only to the extent that the loan is forgiven. The MI DOT included guidance on taxpayer PPP loan recordkeeping obligations. Mich. Dept. of Treas., Notice: Treatment of Paycheck Protection Program (PPP) Loans Under the Michigan Income Tax Act (April 19, 2021). Mississippi: New law (HB 1446) allows the deduction of business expenses paid with Paycheck Protection Program loan proceeds. This change is retroactively effective and in force from and after March 27, 2020. Miss. Laws 2021, HB 1446, signed by the governor April 14, 2021. Vermont: New law (HB 315) updates the state's date of conformity to the Internal Revenue Code to Dec. 31, 2020 (from Dec. 31, 2019), noting that this "shall continue in effect as adopted until amended, repealed, or replaced by act of the General Assembly." This change took effect Jan. 1, 2021 and applies to tax years beginning on and after Jan. 1, 2020. The law also follows the federal income tax treatment related to Paycheck Protection Program (PPP) loans. Thus, Vermont excludes from the computation of Vermont taxable income any cancellation of indebtedness (COI) income from forgiven PPP loans and allows the deduction of business expenses paid with the proceeds from PPP loans, including loans that are forgiven. This treatment applies to loans forgiven in 2020. For tax year 2021, COI from forgiven PPP loans will be subject to Vermont income tax; business expenses paid with forgiven PPP loans, however, will still be deductible. Vt. Laws 2021, HB 315, became law without the governor's signature on April 17, 2021. See also, Vt. Dept. of Taxes, COVID-19: Resources for Taxpayers *Updated Tax Treatment of Forgiven PPP Loans in Vermont (updated April 2021). SALES & USE Kansas: New law (HB 2143) extends to June 30, 2024 (from June 30, 2021) the sales tax exclusion for cash rebates granted by manufacturers to purchasers or lessees of new motor vehicles when the rebates are paid directly to retailers. The law also provides a sales tax exemption for purchases of tangible personal property or services made by nonprofit integrated community care organizations. This change takes effect and is in force after its publication in the Kansas Register. Effective Jan. 1, 2024, the threshold filing amounts for retailers are increased as follows: (1) annual filing — annual sales tax liability is less than $1,000 (from $400); (2) quarterly filing — annual sales tax liability is less than $5,000 (from $4,000); monthly filing — annual sales tax liability exceeding $5,000 (from $4,000); pay sales tax liability for the first 15 days of each month by the 25th day of the month - $50,000 (from $40,000). Kan. Laws 2021, HB 2143, signed by the governor April 21, 2021. Mississippi: New law (HB 1139) eliminates accelerated payments for sales and use tax. Under prior law, accelerated payments were required to be made by taxpayers that had an average monthly sales or use tax liability of at least $50,000 for the preceding calendar year. These provisions took effect after the bill's passage. Miss. Laws 2021, HB 1139, signed by the governor April 20, 2021. BUSINESS INCENTIVES Alabama: New law (SB 274) extends the one-year period in which to satisfy the initial employment and wage requirements for an approved project under the capital credit program to a period not to exceed two years for any otherwise qualifying project placed into service in calendar years 2019, 2020 and 2021 that has been directly affected by the COVID-19 pandemic. An approved qualifying project that fails to meet the annual employment and wage requirements for tax years beginning after Dec. 31, 2019 but before Jan. 1, 2022, will not be considered in determining a project's disqualification from the program, provided the COVID-19 pandemic is the primary cause of the disqualification. Further, an approved project entity will not be subject to certain forfeiture penalties imposed on qualifying projects that fail to maintain employment and wage requirements for any tax year ending before Jan. 1, 2022. Starting in 2022, the applicable forfeiture penalty equals 100% of the capital credits claimed in the year immediately preceding the year in which the approved project entity failed to maintain the employment and wage requirements. The penalty is reduced to 20% for each successive prior year in the five-year forfeiture period. These provisions took immediate effect. Ala. Laws 2021, Act 2021-240 (SB 274), signed by the governor April 20, 2021. New York: New law (Part AA of S.2508C/A.3008C) extends certain brownfield credit periods that expire on or after March 20, 2020 and before Dec. 31, 2021 for two years if the commissioner of the New York Department of Taxation and Finance, in consultation with the New York State Commissioner of Environmental Conservation, determines that the credit requirements would have been met if not for the state disaster emergency declared in response to the COVID-19 pandemic. This provision took immediate effect. N.Y. Laws 2021, ch. 58, Part AA (S.2508C/A.3008C), signed by the governor April 19, 2021. COMPLIANCE & REPORTING Arkansas: The Arkansas Secretary of State (AR SOS) announced that due to the transition of the administration and collection of the franchise tax from the Arkansas Department of Finance and Administration back to the AR SOS's office, the deadline for filing the 2021 franchise tax is extended to July 15, 2021 (from May 1, 2021). The AR SOS is waiving penalties and interest on 2021 franchise tax until July 15, 2021. Ark. Sec. of St., News Release "Franchise Tax Deadline is July 15th" (April 16, 2021). Pennsylvania: New law (HB 766) extends the corporate net income tax annual return filing and tax payment deadline to the 15th day of the month following the due date of the federal income tax return. This change applies to tax years beginning after Dec. 31, 2020. Pa. Laws 2021, Act 10 (HB 766), signed by the governor April 22, 2021. CONTROVERSY Arkansas: New law (HB 1468 and HB 1705) establishes the Independent Tax Appeals Commission Act, makes conforming changes related to the creation of the new tax appeals commission, and amends provisions related to hearing and appeals of state tax disputes. The new tax appeals commission is created within, and under the direction, control and supervision of, the Arkansas Department of Inspector General, and it is "separate from and independent of the authority, control, and supervision of the [Arkansas] Department of Finance and Administration [AR DFA]." The tax appeals commission will consist of three commissioners, who can serve no more than two nine-year terms (different term limits apply to commissioners appointed during the creation of the commission). HB 1468 describes (1) the qualifications of the commissioners, (2) the process for appointing the commissioners, (3) the jurisdiction of the tax appeals commission, (4) settlement or compromise of tax disputes, (5) information that should be in a petition protesting an action or decision of the AR DFA, (6) hearings before the tax appeals commission, (6) decisions of the tax appeals commission and publication of these decisions, (7) judicial relief from a tax appeals commission decision, and (8) representation before the tax appeals commission. The tax appeals commission must be created by July 1, 2022 and must be ready to begin accepting and trying tax disputes by Jan. 1, 2023. Further, the Arkansas Office of Hearings and Appeals (AR OHA) within the AR DFA has until May 31, 2023 to conclude its decisions on tax disputes initiated before Jan. 1, 2023. HB 1705 transfers all duties of the AR OHA to the tax appeals commission and makes conforming changes to the Arkansas Tax Procedure Act related to the commission. The provisions in HB 1705 are effective on and after Jan. 1, 2023. Ark. Laws 2021, Act 586 (HB 1468) and Act 593 (HB 1705), both bills signed by the governor April 6, 2021. Idaho: New law (HB 277) allows a taxpayer to have another person of his/her choosing represent them in a hearing or rehearing before the Board of Tax Appeals. This change takes effect July 1, 2021. Idaho Laws 2021, ch. 212 (HB 277), signed by the governor on April 13, 2021. PAYROLL & EMPLOYMENT TAX Federal: Proposed legislation entitled the Remote and Mobile Worker Relief Act of 2021, (S. 1274) would limit the ability of any state or other local taxing jurisdiction to impose tax on the income of employees for certain employment duties performed in those jurisdictions. Wages or other remuneration earned by an employee who performs employment duties in more than one jurisdiction would be subject to income tax in the taxing jurisdiction of the employee's residence and any other taxing jurisdiction within which the employee is present and performing employment duties for more than 30 days during the calendar year and in which the wages or other remuneration is earned. An employee would be deemed present and performing employment duties in a taxing jurisdiction for a day if the employee performs more of his/her employment duties within that taxing jurisdiction than in any other taxing jurisdiction during that day. If the employee performs duties in his/her resident taxing jurisdiction and only one nonresident taxing jurisdiction during one day, the employee would be considered to have performed more of his/her employment duties in the nonresident taxing jurisdiction than in the resident taxing jurisdiction for that day. The portion of the day the employee is in transit would not be considered in determining the location of an employee's performance of employment duties. If approved and as currently proposed, these provisions would apply to calendar years beginning after Dec. 31, 2019. S. 1274 was introduced on April 21, 2021. Florida: The Florida Department of Revenue announced that, due to Governor Ron DeSantis's Executive Order 21-80, the deadline for paying first-quarter 2021 state unemployment insurance (SUI) taxes has been extended to June 1, 2021 (May 31, 2021 falls on a federal holiday). Note, however, that the first-quarter 2021 contribution and wage report (Form RT-6, Employer's Quarterly Report) is still due by April 30, 2021. For additional information on this development, see Tax Alert 2021-0790. Mississippi: New law (HB 1139) eliminates accelerated payments for withholding. Under prior law, accelerated payments were required to be made by employers with an average monthly withholding tax liability of at least $50,000 for the preceding calendar year. This change took effect after the bill's passage. Miss. Laws 2021, HB 1139, signed by the governor April 20, 2021. West Virginia: On April 9, 2021, West Virginia Governor Jim Justice signed into law HB 2026, which effective Jan. 1, 2022, provides relief from income tax for employees working temporarily within the state. West Virginia joins 27 other states that provide a de minimis exception from their nonresident income tax requirement based on the number of days or amount of earnings accruing from performing services in the state. For several years, the US Congress has unsuccessfully attempted to enact federal legislation that would relieve businesses and their employees of the burden that nonresident state income taxes impose for short-term business travel. For more on this development, see Tax Alert 2021-0799. MISCELLANEOUS TAX Minnesota: In its opinion in Hibbing Taconite Co., J.V. v. Commissioner of Revenue, the Minnesota Supreme Court held that two mining partnerships could claim a full federal depletion deduction for occupation tax purposes and were not required to reduce the deduction by 20%, as required for corporations for federal income tax purposes. For additional information on this development, see Tax Alert 2021-0863. VALUE ADDED TAX International — Norway: The Norwegian Tax Authority has announced that digital value-added tax (VAT) reporting will be implemented with effect from 2022 with testing from the third quarter of 2021. The new digital VAT return will be submitted directly from the taxpayer's enterprise resource planning (ERP)-system based on the standard audit file for tax (SAF-T) standard VAT codes. For additional information on this development, see Tax Alert 2021-0824. UPCOMING WEBCASTS Thursday, May 6: Unclaimed property enforcement amidst regulatory compliance challenges (1 pm ET). The topic of unclaimed property still mystifies some organizations, particularly the enforcement and application, of such laws which differ greatly from other indirect regulatory obligations. Why is it important? Why does my organization need to annually comply? Panelists from Ernst & Young LLP will describe the basics of the states' unclaimed property laws and why an organization would benefit from sound accounting policies and tracking in order to mitigate risk and decrease costs. Additionally, the panelists will discuss the regulatory and audit landscapes as they continue to change, often contradicting one another as holders strive to adapt and comply. State statutes are in flux, as more and more states are adopting, or considering adopting, the Revised Uniform Unclaimed Property Act (RUUPA) of 2016, a model law. Please join members of Ernst & Young LLP's Unclaimed Property and Escheat Services practice as they address the current landscape. Register. 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. | ||||
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