July 21, 2021 State and Local Tax Weekly for July 16 Ernst & Young's State and Local Tax Weekly newsletter for July 16 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 Ohio enacts tax changes, including individual rate reductions, excluding certain capital gains from income On June 30, 2021, Governor Mike DeWine signed 2021 Ohio Substitute House Bill 110 (OH HB 110), which is Ohio's biennial budget legislation. OH HB 110 includes numerous tax law changes affecting income taxes, sales/use taxes, the Commercial Activity Tax (OH CAT) and certain Ohio incentives programs. Individual income tax: Individual income tax law changes in OH HB 110 do the following:
Extension of temporary relief for employee withholding and related provisions: In March 2020, Ohio enacted 2020 Ohio HB 197 (OH HB 197), providing emergency relief to Ohioans during the COVID-19 pandemic. Section 29 of OH HB 197 (Section 29) temporarily allowed employers to continue withholding Ohio municipal income taxes based on the employee's principal place of work, even though they were working from their homes due to the COVID-19 emergency restrictions. This relief was tied to Executive Order (EO) 2020-01D, which was issued in March 2020. On June 18, 2021, Governor DeWine lifted the restrictions under EO 2020-01D. As provided in OH HB 197, the temporary withholding provision in Section 29 would have expired 30 days after the restrictions under EO 2020-01D were lifted. OH HB 110 amends Section 29 to decouple the temporary municipal income tax withholding rule from EO 2020-01D and extends that relief through Dec. 31, 2021. OH HB 110 also contains a statement of legislative intent that the temporary provisions apply only to the employer's municipal income tax withholding obligations and to the apportionment and situsing of an employer's net profit. The legislative intent statement also indicates that the temporary provisions were not intended to apply for the purpose of determining the location where an employee worked for the employee's municipal income tax liability. In other words, the legislature attempted to clarify that the relief under Section 29 was intended to govern the employer's withholding obligations only and employees (and municipalities) might still retain the right to situs municipal income taxes based upon where the work was actually performed. Certain provisions of OH HB 110 address the nuances of this possibility. Repeal of sales/use tax on employment and employment placement services and other changes: Effective Oct. 1, 2021, provisions of OH HB 110 does the following: (1) repeals the sales/use tax on receipts derived from providing employment services (i.e., providing personnel to work under the purchaser's supervision and control) and from providing employment placement services (i.e., locating employees for an employer or employment for a jobseeker); (2) exempts from sales/use tax memberships to physical fitness facilities and recreational and sports clubs operated by nonprofit IRC § 501(c)(3) organizations; and (3) restores a sales/use tax exemption for sales of investment metal bullion and coins. OH CAT changes: In March 2021, Ohio enacted a temporary exclusion from OH CAT gross receipts for "dividends" paid to employers in 2020 and 2021 by the Ohio Bureau of Workers Compensation (see Tax Alert 2021-0672). OH HB 110 makes this exclusion permanent. OH HB 110 also changes the computation of the annual minimum fee applicable to the first $1 million in taxable gross receipts for OH CAT purposes, and how the annual minimum tax is computed (from using taxable gross receipts for the current year to using the previous year's taxable gross receipts). This provision is effective immediately. Refund procedures: OH HB 110 amends ORC 5703.70 to allow the Ohio Tax Commissioner to adjust the amount of a state tax refund multiple times before issuing a final refund determination. Ohio megaproject incentives: OHHB 110 authorizes various tax incentives for operators and certain suppliers of a "megaproject" (i.e., a development project by the megaproject operator that includes at least $1 billion in investment or creates $75 million in Ohio payroll). Megaproject suppliers may exclude, for OH CAT purposes, the gross receipts from the sale of tangible personal property to a megaproject operator. Operators and suppliers can apply for these incentives to the Ohio Director of Development Services in a manner similar to the existing application procedures for the Ohio Job Creation Tax Credit. For more on OH HB 110, Ohio's budget bill, see Tax Alert 2021-1322. New Jersey governor signs law revising state credit and incentives programs On July 2, 2021, Governor Phil Murphy signed A.5939/S.3993 (new law), which revises provisions of the New Jersey Economic Recovery Act of 2020 and other previously enacted economic development programs. The new law addresses key aspects of the core incentives programs related to job creation and capital investment, including the new Emerge NJ Program, the Urban Enterprise Zone (UEZ) Program, Grow NJ, Business Employment Incentive Program (BEIP) and the Business Retention and Relocation Assistance Grant (BRRAG) Program. Emerge NJ: The Emerge NJ Program gives taxpayers that meet minimum thresholds and other requirements an annual nonrefundable income tax credit ranging from $500 to $8,000 for up to seven years per new job created. In certain circumstances, projects involving large-scale job retention can also qualify. The tax credits can be sold when taxpayers have insufficient tax liability to offset. The new law sets forth a new requirement obligating eligible program applicants to demonstrate that the new and retained full-time jobs at the qualified business facility are subject to 80% or more of New Jersey withholding tax. UEZ Program: The new law primarily addresses administration, funding and management of the UEZ program and includes the following changes:
GROW NJ, BEIP, BRRAG: The new law changes the definition of "full-time employee" for purposes of several economic development programs, including the GROW NJ Assistance Program, BEIP and the BRRAG. Under the old rules, full-time employees had to be present at a qualified business facility for 80% of their time. The new law reduces this requirement to 60% and clarifies that the amendment of this specific provision does not alter or terminate any waiver of the work-onsite requirement implemented by the New Jersey Economic Development Authority due to the COVID-19 public health emergency and state of emergency. Other: The new law also revises provisions in the New Jersey Economic Recovery Act of 2020 concerning "food deserts," the brownfield program, offshore wind tax credits and more. For additional information on this development, see Tax Alert 2021-1351. INCOME/FRANCHISE Arizona: New law (SB 1828) starting in 2022, reduces the number of individual income tax brackets from four to two. The current four tax rates, depending on taxable income, are 2.59%, 3.34%, 4.17% and 4.5%. The two new rates are: (1) 2.55% for single/married filing separately taxpayers with taxable income less than or equal to $27,272 and for married filing joint/head of household with taxable income less than or equal to $54,544; and (2) 2.98% % for single/married filing separately taxpayers with taxable income of $27,273 or more and for married filing joint/head of household with taxable income of $54,545 or more. If general revenue fund thresholds are met, the rates will be reduced to 2.53% and 2.75%, respectively, when the Arizona Department of Revenue (AZ DOR) receives the FY 2022 revenue notice or the stage one revenue notice. The rates will be further reduced to a flat 2.5% when the AZ DOR receives the stage two revenue notice. The law makes other changes to the individual income tax, clarifying payment of estimated tax payments of state income tax, indexing individual income tax brackets, exempting certain military retirement pay from income tax, and adjusting charitable deductions. In regard to tax credits, the law does the following: (1) creates the healthy forest production tax credit, which can be claimed against individual and corporate income tax; (2) creates with respect to a public service corporation operating a water systems or sewage disposal facility a corporate income tax subtraction for the amount of money or property received as a contribution in aid of construction; (3) increases to $6 million (from $5 million) the limit for corporate credits for contributions to school tuition organizations; among other changes. These changes have various effective and applicable dates. Ariz. Laws 2021, ch. 412 (SB 1828), signed by the governor June 30, 2021. Arizona: New law (SB 1827) caps the combined individual income tax rate for taxpayers subject to the income tax surcharge under Ariz. Stat. §43-1013 and the highest individual income tax rate to 4.5%. If the combined rate exceeds this amount, the highest individual income tax rate imposed will be reduced so that the combined rate is 4.5%. This provision is effective for taxable years beginning from and after Dec. 31, 2020. Ariz. Laws 2021, ch. 411 (SB 1827), signed by the governor June 30, 2021. California: The California Franchise Tax Board (FTB) updated its COVID-19 FAQs for tax relief and assistance to reflect the rescission of Governor Gavin Newsom's stay-at-home order (Executive Order N-33-20), which causes the FTB's limited nexus relief to end. In September 2020, the FTB issued nexus guidance for out-of-state corporations that previously had no connections with California but now have employees teleworking in the state in response to the governor's stay-at-home order. The FTB said that it would not treat out-of-state corporations whose only connection to California is an employee currently teleworking in the state due to the governor's stay at home order as "being actively engaged in a transaction for the purposes of financial or pecuniary gain or profit." The FTB also said it would not include such employee's compensation in computing the minimum payroll threshold under California's factor presence nexus standard, and that the presence of such employee would not cause a corporation to exceed the protections of P.L. 86-272. This guidance applied while the stay-at-home order was in effect. With the rescission of Executive Order N-33-2 as of June 15, 2021, out-of-state corporations could now be considered to be doing business in California and may no longer fall within the protection of P.L. 86-272, based on the in-state activity of teleworking employees. Cal. FTB, COVID-19 FAQs (updated July 2021). Hawaii: The Hawaii Department of Taxation (HI DOT) issued guidance on the state's treatment of Paycheck Protection Program (PPP) loan forgiveness. Hawaii law excludes forgiven PPP loans from gross income. Hawaii, however, does not allow a deduction for business expenses paid with PPP loans if the taxpayer has a reasonable expectation that the loan will be forgiven. The HI DOT explained that a reasonable expectation of forgiveness "is based on the taxpayer's satisfaction of the forgiveness requirements of the PPP loan program." The HI DOT noted that taxpayers who already filed a 2020 Hawaii income tax return taking the benefit will have to file an amended return to remove the benefit if the taxpayer has a reasonable expectation of forgiveness. If the PPP loan is ultimately not forgiven, the taxpayer may claim the deduction for the year in which the expense was paid. Haw. Dept. of Taxn., Tax Info. Release No. 2021-05 (July 2, 2021). Louisiana: If proposed amendments to Art. VII of the Louisiana Constitution are approved by voters during a statewide election to be held Oct. 9, 2021, provisions of HB 292 would eliminate the state deduction for federal income tax paid for corporations and reduce the corporate income tax rate. The number of corporate income tax brackets, of which there are currently four (with income tax rates ranging from 4% on the first $25,000 of net income to 8% on net income over $200,000), would be reduced to three brackets, with rates ranging from 3.5% on the first $50,000 of net income up to 7.5% on net income over $150,000. If approved, these changes would apply to tax periods beginning on or after Jan. 1, 2022. SB 161 (signed by the governor June 16, 2021) extends the suspension of the first tier of the franchise tax, which is imposed on the first $300,000 of taxable capital, on small business corporations through July 1, 2023. In addition, if proposed amendments to Art. VII of the Louisiana Constitution are approved by voters during a statewide election to be held Oct. 9, 2021, SB 161 would further modify the state's franchise tax. Effective for tax periods beginning on or after Jan. 1, 2023, the first tier of the franchise tax would be eliminated and the rate of the franchise tax would be reduced to $2.75 for each $1,000, or major fraction thereof, in excess of $300,000 of taxable capital (from $3.00 for each $1,000, or major fraction thereof, in excess of $300,000 of taxable capital). Starting in 2024 the rate would be further reduced if certain conditions are met. If proposed amendments to Art. VII of the Louisiana Constitution are approved by voters during a statewide election to be held Oct. 9, 2021, provisions of HB 278 would reduce individual and fiduciary income tax rates, repeal the deductibility of federal income tax paid for purposes of calculating individual and fiduciary income taxes, provide for future rate reductions if certain conditions are met, among other changes. If approved, these changes would become operative on Jan. 1, 2022. Michigan: Vetoed bill (HB 4288) would have established an elective pass-through entity tax. Governor Whitmer, in her July 13, 2021 veto message, said that "HB 4288 would require the state to spend nearly five million dollars to implement new IT systems to administer a tax break that would primarily benefit a small number of Michiganders." The governor further said that she'd "be willing to work with this Legislature to secure the necessary funding for this program as part of a comprehensive budget agreement that works for all Michiganders." Minnesota: New law (HF 9) retains the state's Dec. 31, 2018 date of conformity to the IRC but conforms to select federal provisions adopted since that date. The law excludes from gross income forgiven Paycheck Protection Program (PPP) loans and advances through the Economic Injury Disaster Loan (EIDL) grants and targeted EIDL Advance programs. The law also allows the deduction for business expenses paid with PPP loans or EIDL grants. Other federal provisions the state conforms to include: expensing rules for certain film, television and live theater production; accelerated depreciation for business property on Indian reservations; special allowance for second generation biofuel plant property; the extended deduction for energy efficient commercial building property; certain disaster-related tax relief provisions; among other provisions. The law also clarifies that no state addition is required for the IRC §179 expense deduction claimed for tax year 2020 and thereafter. The conformity provisions have various effective and applicable dates. Minn. Laws 2021 (First Spec. Sess.), ch. 14 (HF 9), signed by the governor July 1, 2021. For more on this development, and a discussion of other provisions in the budget bill, see Tax Alert 2021-1393. Minnesota: New law (HF 9) establishes an electable pass-through entity tax (PTE tax). Effective for tax years beginning after Dec. 31, 2020, in which the taxes of a qualifying owner1 are limited by IRC § 164 (i.e., the federal SALT deduction limitation), a qualifying entity2 may elect to file a return and pay the PTE tax. The election, once made is irrevocable for the tax year, and it (1) must be made on or before the due date (or extended due date) of the qualifying entity's PTE tax return; (2) may only be made by qualifying owners who collectively hold more than a 50% ownership interest in the qualifying entity; and (3) is binding on all qualifying owners who have an ownership interest in the qualifying entity. The PTE tax is imposed on a qualifying entity in an amount equal to the sum of the tax liability of each qualifying owner. The qualifying owner's tax liability is the amount of the owner's income multiplied by the highest tax rate for individuals. A qualifying owner of a PTE electing to pay the PTE tax, may claim a credit against income tax due in an amount equal to the owner's tax liability. If the amount of the credit exceeds the taxpayer's tax liability, the excess shall be refunded to the taxpayer. Qualifying owners are required to make estimated payments of PTE tax in the same manner as required for composite return filers. Minn. Laws 2021 (First Spec. Sess.), ch. 14 (HF 9), signed by the governor July 1, 2021. For more on this development, and a discussion of other provisions in the budget bill, see Tax Alert 2021-1393. Philadelphia, PA: The City of Philadelphia Department of Revenue (Phil. DOR) announced that its temporary waiver of the legal nexus threshold under the Business Income & Receipts Tax (BIRT) Regulations, which considers the presence of employees working temporarily from home within Philadelphia as sufficient to establish nexus for out-of-Philadelphia businesses, ended June 30, 2021. This waiver applied if and when an employee worked from home solely as a result of the COVID-19 pandemic." Further, the Phil. DOR said its temporary apportionment rules for BIRT and net profits tax (NPT) for services performed by COVID-19 related work from home (WFH) employees ended June 10, 2021 (the date the Governor's emergency declaration ended). Under the temporary apportion provisions, for purposes of sourcing BIRT and NPT, the Phil. DOR deemed services performed by COVID-19 related WFH employees to be performed within the city and employees ordinarily working outside the city will be deemed to perform services in the location of their ordinary workplace. After the end date of the temporary rule, both BIRT and NPT receipts will be sourced in accordance with the definition of taxable receipts under Philadelphia Code §19-2601. Philadelphia Dept. of Rev., "Business Income & Receipts Tax (BIRT), Net Profits Tax (NPT) nexus and apportionment policies due to the COVID-19 pandemic" (updated June 25, 2021). SALES & USE Multistate: The EY Sales and Use Tax Quarterly Update provides a summary of recent major legislative, administrative and judicial sales and use tax developments. Highlights of this edition include a review of developments involving nexus, tax base and exemptions, technology and compliance and controversy. A copy of the newsletter is available through Tax Alert 2021-1335. Arizona: New law (SB 1828) provides a deduction from the retail classification of the transaction privilege tax base and an exemption from the use tax base, for "containment structures" that are used directly to meet or exceed rules or regulations adopted by various federal or state government agencies to prevent, monitor, control or reduce land, water or air pollution. These changes apply retroactively to tax periods beginning from and after Dec. 31, 2015. Ariz. Laws 2021, ch. 412 (SB 1828), signed by the governor June 30, 2021. Florida: The Florida Department of Revenue adopted emergency rules (emergency rules 12ER21-6, 12AER21-9, 12AER21-12, and 12AER21-13) to provide guidance on the state's new, recently enacted remote seller and marketplace provider provisions, including electronic registration requirements and definition of key terms (e.g., remote seller, marketplace provider, marketplace seller, substantial number of remote sales). The new rules took effect July 1, 2021. Fla. Admin. Reg. (Vol. 47, No. 129, July 6, 2021). Louisiana: If proposed amendment to Section 3.1 of Art. VII of the Louisiana Constitution is approved by voters during a statewide election to be held Oct. 9, 2021,3 provisions of HB 199 would create the State and Local Streamlined Sales and Use Tax Commission (Commission). The Commission would "[p]rovide for the streamlined electronic filing, electronic remittance, and the collection of sales and use taxes levied within the state ensuring prompt remittance of the respective tax returns and monies received electronically by the commission to the single collector for each taxing authority and to the Department of Revenue for distribution." The Commission also would (1) issue policy advice on sales and use tax levied by all taxing authorities within the state; and (2) develop rules, regulations and guidance to simplify and streamline the sales and use tax audit process. A year after the first meeting of the Commission, the Louisiana Sales and Use Tax Commission for Remote Sellers and the Louisiana Uniform Local Sales Tax Board would be abolished. Their powers would be transferred to Commission. Rules adopted by the Commission, and statutory provisions related to the Commission, would have to be approved by two-thirds vote of the members of the Commission and each house of the legislature, respectively. HB 199 was approved by the Legislature on June 9, 2021. Minnesota: New law (HF 9) makes changes to the requirement of certain vendors to remit June accelerated sales tax liabilities, reducing the percentage of accelerated June sales tax liabilities of certain businesses and providing an exception for a vendor of construction materials. For purposes of this provision, a "vendor of construction materials" is defined as a "retailer that sells any of the following construction materials, if 50% or more of the retailer's sales revenue for the fiscal year ending June 30 is from the sale of these materials: (1) lumber, veneer, plywood, wood siding, wood roofing; (2) millwork, including wood trim, wood doors, wood windows, wood flooring; or (3) concrete, cement, and masonry." This change applies to sales and purchases made after June 30, 2021. Minn. Laws 2021 (First Spec. Sess.), ch. 14 (HF 9), signed by the governor July 1, 2021. For a discussion of other provisions in the budget bill, see Tax Alert 2021-1393. Montana: In affirming a lower court ruling, the Montana Supreme Court (Court) held that a resort's no-show and cancellation forfeited deposits are not subject to Lodging Facility Use Tax and Sales Tax, but the resort services fee charged guests for amenities is subject to such taxes. The Court reasoned that the amenities fee does not qualify for the sales tax exclusion because the fee is not only necessary for the transaction, it is the transaction along with the room. Boyne USA, Inc. v. Mont. Dept. of Rev., 2021 MT 155 (Mont. S.Ct. June 29, 2021). New Mexico: The New Mexico Taxation and Revenue Department (NM TRD) issued guidance on the new destination sourcing rules that took effect July 1, 2021. Under these rules, the reporting location of a sale generally, with some exceptions, will be sourced to the location where the property or product of a service is delivered and not the location of the seller. Sales of tangible personal property delivered at the seller's location and certain services (e.g., when the seller performs services that meet the definition of professional services) are sourced to the location of the seller's business. Sales of tangible personal property delivered to the purchaser at a different location than the seller's location and in-person and certain other services are sourced to the delivery location. The guidance explains how to determine the reporting location under the state's new destination sourcing rules, specifically addressing the following topics: (1) gross receipts transaction involving real property; (2) sales or licenses of tangible property; (3) lease of tangible personal property; (4) sale, lease or license of franchises; (5) sales of services (i.e., professional, construction/construction-related, selling real estate, transportation, advertising, other); (6) mixed transactions; (7) use of reasonable estimates; (8) transactions on tribal territory; and (9) examples. The guidance also discusses how to determine the reporting location for filing periods before July 1, 2021. N.M. Taxn. And Rev., Dept., FYI-200 "Your Business Location and the Appropriate Tax Rate: Determining the Reporting Location for Gross Receipts Tax" (July 12, 2021). BUSINESS INCENTIVES Minnesota: New law (HF 9) modifies various tax credit provisions. The law extends by one year through 2022 the sunset date of the small business investment tax credit (the angel credit) and allocates $5 million to the credit for tax years beginning in 2022 (reduced from the $10 million allocated to the credit for years prior to 2022). The law also extended by one year (through 2022) the sunset date of the historic structure credit. In addition, the law establishes a film production tax credit equal to 25% of eligible production costs paid during the tax year. The credit can be claimed against Minnesota income, franchise and premium tax; the amount claimed is limited to the tax liability. Unused credit can be carried forward for five years. To claim this credit, a taxpayer must be issued a credit certificate from the Minnesota Department of Employment and Economic Development. The taxpayer can assign the credit certificate to another taxpayer; the assignment is not valid unless the assignee notifies the Minnesota revenue commissioner within 30 days of the date of assignment. The total amount of credit available in a year is $4.95 million; credits will be allocated on a first-come, first-served basis. The film production tax credit is available starting in 2021 through 2024. Another new credit established by the law is the Minnesota housing tax credit, which can be claimed against Minnesota income, franchise and premium tax. The amount of the credit equals 85% of a contribution to the housing tax credit contribution account. Contributions can range from at least $1,000 up to $2 million. The credit is nonrefundable but unused credit can be carried forward for up to 10 years. The credit is available for tax years 2023 through 2028. Lastly, the law establishes the Tax Expenditure Review Commission, which is required to review the state's tax expenditures and evaluate their effectiveness and fiscal impact. Minn. Laws 2021 (First Spec. Sess.), ch. 14 (HF 9), signed by the governor July 1, 2021. For a discussion of other provisions in the budget bill, see Tax Alert 2021-1393. Rhode Island: The Rhode Island Division of Taxation properly denied historic preservation tax credits where the project was deemed to have been idle for more than six months. Although the taxpayer filed quarterly reports, the reports lacked the required documentation to show, and additional information provided by the taxpayer failed to show, that the project had not remained idle from October 2016 to March 2018. Under Rhode Island law, when a project is idle for more than six months, the credits are null and void. In the Matter of Taxpayer, Case No. 19-T-013 (R.I. Div. of Taxn. June 28, 2021). PROPERTY TAX Arizona: New law (SB 1828) reduces the assessed valuation of Class 1 property from 18% to 17.5% of its full cash value or limited valuation beginning Jan. 1, 2022 through Dec. 31, 2022. The rate is further reduced to 17% beginning Jan. 1, 2023 through Dec. 31, 2023; to 16.5% beginning Jan. 1, 2024 through Dec. 31, 2024; and to 16% starting in 2025. Ariz. Laws 2021, ch. 412 (SB 1828), enacted June 30, 2021. Minnesota: New law (HF 9) requires the Commissioner of the Minnesota Department of Revenue to review the process by which utility and pipeline property is valued. This provision took effect July 2, 2021. Minn. Laws 2021 (First Spec. Sess.), ch. 14 (HF 9), signed by the governor July 1, 2021. For a discussion of other provisions in the budget bill, see Tax Alert 2021-1393. COMPLIANCE & REPORTING Minnesota: New law (HF 9) modifies Minnesota's composite income tax return provisions for nonresident partners, shareholders and beneficiaries (collectively, partners) to allow a pass-through entity (PTE) to file a composite return on behalf of such nonresidents partners if their Minnesota source income is only from PTEs electing to file a composite return or elect to pay the new PTE tax (discussed above in the "Income/Franchise Tax" section). This change is effective for tax years beginning after Dec. 31, 2020. Minn. Laws 2021 (First Spec. Sess.), ch. 14 (HF 9), signed by the governor July 1, 2021. For a discussion of other provisions in the budget bill, see Tax Alert 2021-1393. CONTROVERSY Minnesota: New law (HF 9) adopts requirements for state reporting of federal partnership audit adjustments, allowing Minnesota tax assessments of a partnership to be paid at the entity level. Generally, within 90 days after the final determination date of a final federal adjustment, an audited partnership must file a federal adjustments report with the Minnesota Department of Revenue (MN Department) and notify each of its direct partners of their distributive share of the final federal adjustment. Direct partners will have 180 days to file a federal adjustments report reporting their distributive share of reported adjustments and pay additional tax, penalty and interest due. An audited partnership that originally reported or paid Minnesota income tax on behalf of some or all of its partners through a composite return or a withholding report, must file an amended composite return/withholding report and pay additional tax, penalty and interest due. This must be done no later than 90 days after the final determination date. Alternatively, an audited partnership can make an irrevocable election to pay the assessed tax, penalty and interest due at the entity level. If this election is made, the partnership will have 180 days after the final determination date to pay the additional Minnesota tax owed. These reporting and payment provisions, including the payment election, apply to direct and indirect partners of an audited partnership that are tiered partners and all of the partners of such tiered partners that are subject to Minnesota income tax. These provisions are retroactively effective for tax years beginning after Dec. 31, 2017, except for partnerships making an election under Treas. Reg. §301.9100-22T (i.e., those that made an early election into the federal partnership audit regime). For those making that election the provisions are retroactively effective and apply to the same tax periods to which the election relates. Minn. Laws 2021 (First Spec. Sess.), ch. 14 (HF 9), signed by the governor July 1, 2021. For a discussion of other provisions in the budget bill, see Tax Alert 2021-1393. PAYROLL & EMPLOYMENT TAX Colorado: The Colorado Department of Labor & Employment again confirmed that employers' state unemployment insurance tax accounts will not be charged with regular unemployment insurance (UI) benefits that were paid to claimants in connection with COVID-19. Colorado Governor Jared Polis ordered in March 2020 that regular COVID-19 UI benefits not be charged against employers' UI tax accounts. (Colorado employer update newsletter, June 2021; Executive Orders 2020-012 and 2020-100, extended most recently by Executive Order 2021-118 on June 25, 2021.) For additional information on this development, see Tax Alert 2021-1365. Louisiana: On June 16, 2021, Louisiana Governor John Bell Edwards signed into law SB 157, which exempts employees from the state's nonresident income tax when they work within the state for fewer than 25 days in the calendar year. Effective Jan. 1, 2022, compensation paid to an employee is exempt from Louisiana nonresident income tax if all the following conditions are met: (1) the employee performs services within the state for 25 or fewer days in the calendar year; (2) the employee performed employment duties in more than one state in the calendar year; (3) the wages are not paid in the individual's capacity as a professional athlete, staff member of a professional athletic team, professional entertainer, public figure or qualified production employee; and (4) the employee's state of residence either provides a substantially similar exemption or does not impose a personal income tax. Also, effective Jan. 1, 2022, employers are not required to withhold Louisiana nonresident income tax from wages paid to employees for services performed within the state for 25 or fewer days in the calendar year. If the working days in the calendar year exceed 25, the employer is required to remit and withhold nonresident income tax from all wages for services performed within the state, including wages earned for the first 25 days. For additional information on this development, see Tax Alert 2021-1346. Louisiana: On June 16, 2021, Louisiana Governor John Bell Edwards signed into law SB 31, which provides an income tax incentive for teleworkers relocating to the state. For purposes of Louisiana economic development, SB 31 provides an income tax exemption of 50% of gross wages up to $150,000 to qualifying remote workers (referred to as "digital nomads") who establish residency within the state after Dec. 31, 2021. This exemption applies for a period of up two years from 2022 through 2025 and only to those wages earned from remote work. The law defines a digital nomad as an individual who: (1) is considered a covered person with major medical health insurance; (2) works remotely full-time for a nonresident business as provided for by a rule to be published by the Louisiana Department of Revenue; (3) is required to file a Louisiana resident or part-year resident individual income tax return for the taxable year in which the exemption is claimed; (4) has not established residency or domicile in Louisiana for any of the prior three years immediately preceding the establishment of residency or domicile after Dec. 31, 2021; (5) has not been required to file a Louisiana resident or part-year resident individual income tax return for any of the prior three years; and (6) is performing the majority of employment duties in Louisiana either remotely or at a coworking space. For more on this development, see Tax Alert 2021-1346. New York: The New York Department of Taxation and Finance has published revised income tax withholding tables and methods that reflect legislation signed into law on April 19, 2021 by Governor Andrew Cuomo (S.2509-C/A.3009-C) that increased the top personal income tax rate effective retroactively to Jan. 1, 2021. For additional information on this development, see Tax Alert 2021-1354. MISCELLANEOUS TAX Hawaii: New law (HB 1043) expands those subject to the transient accommodations tax to include taxpayers who receive gross rental proceeds. (Transient accommodations brokers, travel agencies, and tour packagers that arrange transient accommodations at noncommissioned negotiated contract rates were already subject to the tax.) The law also replaces the misdemeanor criminal penalty imposed on those who fail to register for the transient accommodations tax with a monetary fine. These changes take effect Jan. 1, 2022. Haw. Laws 2021, Act 90 (HB 1043), signed by the governor on June 25, 2021. Hawaii: New law (HB 286) provides that effective Jan. 1, 2022, the Hawaii Department of Taxation (HI DOT) shall require a real estate investment trust (REIT) to notify the HI DOT of its operations as a REIT in Hawaii. Such notification is due no later than 15 days from the first day of operation in Hawaii; however, for REITs operating in Hawaii as of July 1, 2021, they will have until Jan. 15, 2022 to notify the HI DOT. The REIT also must: (1) designate on its tax return that it is a REIT as required by the HI DOT; (2) complete its tax return in the specific manner required by the HI DOT; and (3) submit to the HI DOT a copy of the REIT's federal tax return covering the same period with each state tax return that the REIT files. A $50 per day penalty will be imposed for failure to comply with these provisions. Haw. Laws 2021, Act 78 (HB 286), signed by the governor on June 24, 2021. UPCOMING WEBCASTS Thursday, August 5, 2021. The indirect tax technology journey: Now. Next. Beyond. (1:00 PM EDT). Join our EY team of tax technology professionals for the second in a series of six webcasts focused on the evolving technology landscape. During these 60-minute webcasts, we will share our insights into how market-leading organizations are using technology to adapt to new legislation and market trends, and to effectively transform tax operations. During this second webcast in the series, we will focus on the impact of digital transformation on the tax department. 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. ——————————————— 1 For purposes of the Minnesota PTE law, a "qualifying owner" is (1) a resident or nonresident individual or estate that is a partner, member, or shareholder of a qualifying entity, or (2) a resident or nonresident trust that is a shareholder of a qualifying entity that is an S corporation. 2 For purposes of the Minnesota PTE law, a "qualifying entity" is a partnership, limited liability company (LLC), or S corporation including a qualified subchapter S subsidiary; it does not include a partnership, LLC, or corporation that has a partnership, LLC other than a disregarded entity, or a corporation as a partner, member or shareholder. 3 If a statewide election is not held Oct. 9, 2021, then the measure would be submitted for the Louisiana statewide election to be held on Nov. 8, 2022. | ||||
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