August 9, 2021
State and Local Tax Weekly for July 30
Ernst & Young's State and Local Tax Weekly newsletter for July 30 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.
Delaware enacts significant changes to its unclaimed property law; immediate action may be required for holders currently under audit
On June 30, 2021, Delaware Governor John Carney signed 2021 Del. Senate Bill 104 (Del. Laws vol. 83, ch. 59) (SB 104), which modifies Delaware's unclaimed property laws. Among other changes, SB 104 establishes a permanent expedited audit program that affects certain unclaimed property holders (Holders) currently under an unclaimed property audit in which Delaware is a participating state. For certain Holders, the deadline for applying for this program is Sept. 30, 2021.
Other provisions of SB 104 do the following:
For additional information on this development, see Tax Alert 2021-1429.
Oregon: New law (SB 727) establishes an electable pass-through entity1 business alternative income tax (PTE tax) as a workaround to the $10,000 state and local tax deduction limitation imposed by IRC § 164(b)(6) (the SALT deduction limitation), consistent with IRS Notice 2020-75. Effective for tax years beginning on or after Jan. 1, 2022 and before Jan. 1, 2024, a PTE may elect to pay the PTE tax if all members of the PTE are individuals subject to Oregon personal income tax or entities that are PTEs owned entirely by individuals subject to Oregon personal income tax. In order to make the PTE tax election, consent must be given by all members of the electing PTE who are members at the time of the election is made. The election is made annually on or before the due date (including extensions) of the PTE's return. The election cannot be made retroactively, but it can be revoked by members for a tax year only on or before the due date of the PTE's return for that year. PTEs making this election must annually report to each of its members their share of distributive proceeds and PTE tax paid and eligible for the credit against Oregon income tax. The credit is equal to the member's pro rata share of PTE tax paid for the year. The amount of credit exceeding the taxpayer's tax liability after application of any nonrefundable credits will be refunded to the taxpayer. In determining distributive proceeds and computing the PTE tax, a PTE must add back any amount of Oregon PTE tax deducted at the entity level for federal income tax purposes under IRC § 164. The PTE tax imposed on a PTE is determined with respect to the sum of each member's share of distributive proceeds attributable to the PTE for the tax year. The PTE tax rate is 9.0% of the first $250,000 of the sum of distributive proceeds and then increased to 9.9% of the amount of distributive proceeds exceeding $250,000. Under the new law, the Oregon Department of Revenue may adopt rules and procedures necessary to implement the PTE tax. These provisions are repealed on the date that IRC § 164(b)(6) is repealed; and the repeal will apply to tax years beginning in 2022 or 2023 if IRC § 164(b)(6) is not applicable. Ore. Laws 2021, ch. 589 (2021 Ore. SB 787), signed by the governor on July 19, 2021.
Oregon: New law (SB 139) reduces the tax rates imposed on nonpassive pass-through income (i.e., income from material participation in the trade or business of a partnership, S corporation or sole proprietorship (collectively "pass-through entity" or "PTE")) as follows: 7.0% on the first $500,0000 of taxable pass-through income (from 7.2% on pass-through income exceeding $250,000 but not exceeding $500,000); and 7.5% (from 7.6%) for taxable pass-through income exceeding $500,000 but not exceeding $1 million. These rates apply to income attributable to pass-through entity income: (a) in which the taxpayer materially participates in the trade or business of the PTE; and for income from partnerships or S corporations (b) if the partnership or the S corporation has ordinary business income not in excess of $5 million for the tax year, and (c) the trade or business complies with the employee ratio requirements or the income distribution requirements. The new law sets forth the PTE qualification requirements, which include meeting either an employee or employer ratio or a three-year average limitation on distributions of income as a percentage of ordinary business income. These changes apply to tax years beginning on or after Jan. 1, 2021. Ore. Laws 2021, ch. 570 (2021 Ore. SB 139), signed by the governor on July 19, 2021.
SALES & USE
Arizona: New law (HB 2153) exempts from state and municipal transaction privilege, sales and use taxes the gross proceeds of sales or gross income derived from the sales of machinery and equipment used directly for energy storage for later electrical use. In computing tax, such amounts are deducted from the tax base. For purposes of this provision, the law defines "machinery and equipment used directly" as "all machinery and equipment that are used for electric energy storage from the point of receipt of such energy in order to facilitate storage of the electric energy to the point where the electric energy is released." The term "energy storage" is defined as "commercially available technology for electric utility scale that is capable of absorbing energy, storing energy for a period of time and thereafter dispatching the energy and that uses mechanical, chemical or thermal processes to store energy." The bill takes effect Sept. 29, 2021. Ariz. Laws 2021, ch. 417 (2021 Ariz. HB 2153), signed by the governor on July 9, 2021.
Oklahoma: New law (SB 355) creates the Peer-To-Peer Car Sharing Program Act to regulate and tax peer-to-peer car sharing. Oklahoma imposes a 6% rental tax on the gross receipts of all motor vehicle rental agreements of 90 days or less duration. Starting Nov. 1, 2021, the tax will apply to peer-to-peer car sharing agreements only involving shared vehicles for which the shared vehicle owner has not paid the applicable taxes (i.e., motor vehicle excise taxes for in-state purchases; sales, use, excise or other tax generally due in the out-of-state jurisdiction in which the vehicle was purchased) upon purchase of the shared vehicle. Tax is collected from the person renting the vehicle or shared vehicle driver at the time of payment of the rental agreement and is due and payable to Oklahoma Tax Commission by the business engaged in renting the vehicle or peer-to-peer car sharing program, but only with respect to shared vehicles upon the purchase of which applicable taxes were not paid. Okla. Laws 2021, ch. 280 (2021 Okla. SB 355), signed by the governor on April 27, 2021.
Texas: New law (SB 477) modifies marketplace provider and marketplace seller provisions. Effective July 1, 2022, marketplace providers that process sales of, or payments for, lead-acid batteries not for resale are required to collect at the time of sale a fee for each nonexempt lead-acid battery sold. Marketplace providers also are required to collect on behalf of sellers the Prepaid 9-1-1 Emergency Service Fee on sales made though the marketplace. Effective Oct. 1, 2021, marketplace sellers that place a ticket or other admission document for sale through a marketplace are required to certify to the marketplace provider that the taxes imposed on the original purchase of the ticket or admission document were paid. A marketplace provider that accepts in good faith the seller's certification can take the deduction of tax on ticket or admission document to amusement service on behalf of the marketplace seller. The law also provides that the occasional sales exemption under Tex. Tax Code §151.304 does not apply to sales of taxable items made by a marketplace seller through a marketplace. In regard to municipal and county sales and use tax, a sale of an item made by a marketplace seller through a marketplace is consummated at the location in Texas to which the item is shipped or delivered or at which possession is take by the purchaser, except as provided for sales of (1) natural gas and electricity, (2) mobile telecommunications services, (3) certain telecommunications services, (4) post-paid calling services, (5) amusement services, (6) services delivered through a cable system, (7) certain solid waste collection or removal services, (8) certain nonresidential real property services at the location of the job site, among other exceptions. Tex. Laws 2021, SB 477, signed by the governor on June 14, 2021.
Texas: New law (SB 153) modifies the definition of "data processing services" to exclude certain payment processing services for sales and use tax purposes. Effective Oct. 1, 2021, the term "data processing services" does not include: (1) services exclusively to encrypt electronic payment information for acceptance onto a payment card network in compliance with payment card industry standards; or (2) settling of an electronic payment transaction by (a) certain downstream payment or point of sale payment processers, (b) persons engaged in the business of money transmissions, (c) federally insured financial institutions, (d) persons who have entered into a sponsorship agreement with certain entities for the purpose of settling the entity's electronic payment transaction through a payment card network, or (e) a payment card network that allows a person to accept a specific brand of debit or credit cards. For purposes of these provisions, the law defines "downstream payment processor", "point of sale payment processor", and "settling of an electronic payment transaction". Tex. Laws 2021, SB 153, signed by the governor on June 14, 2021.
Texas: New law (HB 1445) exempts from sales and use tax medical or dental billing services performed before the submission of a medical or dental insurance claim related to health or dental coverage or a claim related to health or dental coverage made to a federal or state funded medical assistance program. The law specifically excludes such services from the definition of insurance services. The law defines "medical or dental billing services" as "assigning codes for the preparation of a medical or dental claim, verifying medical or dental insurance eligibility, preparing a medical or dental claim form for filing, and filing a medical or dental claim." This change takes effect Jan. 1, 2022. Tex. Laws 2021, HB 1445, signed by the governor on April 30, 2021. See also, Tex. Comp. of Pub. Accts., Letter Ruling 202106003L (June 4, 2021).
Oregon: New law (HB 2343) allows the governing body of an Enterprise Zone (EZ) sponsor to adopt a resolution suspending the EZ employment requirements if the reduced employment or financial distress of a qualified business firm is a result of the COVID-19 pandemic. An adopted resolution for suspension has the following effects: (1) tolls the deadline for claiming exemption for additional property until after the suspension period ends (if provided by the resolution); (2) converts a denial of an exemption on qualified property that would have otherwise begun on July 1, 2021, into a one year suspension. The resolution may provide that the suspension applies to either or both of the property tax years beginning on July 1, 2021 and July 1, 2022. Ore. Laws 2021, ch. 522 (2021 Ore. HB 2343), signed by the governor on July 19, 2021.
Texas: New law (SB 1524) creates a sales and use tax refund pilot program for certain persons that employ apprentices. The refund equals $2,500 for each apprentice hired. To be eligible for the refund, a person must be certified by the Executive Director of the Texas Workforce Commission and employ at least one apprentice in a qualified apprenticeship position for at least seven months during the calendar year. The maximum number of apprentices for which a person may receive a refund in a calendar year is one or up to six if at least half of the apprentices employed are foster children who have transitioned (or are transitioning) to independent living, military veterans, military spouses or women. The maximum number of eligible applicants that may be certified in a year is capped at 100. These provision take effect Jan. 1, 2022 and expire Dec. 31, 2026. Tex. Laws 2021, SB 1524, signed by the governor on June 7, 2021.
Arizona: New law (HB 2153) provides that all energy storage equipment, both collocated with renewable energy and stand-alone energy storage equipment, qualifies for the valuation prescribed for renewable energy and storage equipment. Thus, the full cash value of all energy storage equipment is 20% of the depreciated cost of the equipment. For purposes of this provision, "energy storage" is defined as "commercially available technology for electric utility scale that is capable of absorbing energy, storing energy for a period of time and thereafter dispatching the energy and that uses mechanical, chemical or thermal processes to store energy." The bill takes effect Sept. 29, 2021. Ariz. Laws 2021, ch. 417 (2021 Ariz. HB 2153), signed by the governor on July 9, 2021.
Oregon: New law (HB 2331) excludes certain television and radio stations licensed by the Federal Communications Commission (FCC) from the meaning of "communication" for purposes of central assessment for property tax. Specifically excluded by the new law are FCC-licensed television and radio stations that use primarily earth-based transmitters to broadcast programming through radio waves to television or radio receivers using indoor or outdoor antennas for reception. This change applies to property tax years beginning on or after July 1, 2021. Ore. Laws 2021, ch. 421 (2021 Ore. HB 2331), signed by the governor on June 29, 2021.
Rhode Island: New law (SB 580) modifies the classification of manufacturing machinery and equipment acquired or used by a manufacturer eligible for a property tax exemption by eliminating the requirement that the machinery be new. This change took effect upon the bill's passage (i.e., the date the Governor signed the legislation). R.I. Laws 2021, ch. 295 (2021 R.I. SB 580), signed by the governor on July 9, 2021.
COMPLIANCE & REPORTING
Nevada: The Nevada Commerce Tax return is due 45 days following the end of Nevada's fiscal year, which ended on June 30, 2021. That means that this year, the return for all taxpayers is due Aug. 16, 2021. (Unlike the gross receipts tax returns of nearly every other state, the filing of the return is not tied to the taxpayer's year end but that of the state.) The Nevada Commerce Tax is based on a taxpayer's Nevada gross receipts over $4 million earned from July 1, 2020 through June 30, 2021. Businesses with $4 million or less of Nevada gross receipts are not required to file a return. The rate of the tax varies according to a schedule based on the type or classification of the earned business revenue. For more on this development, see Tax Alert 2021-1480.
Hawaii: New law (HB 1204) replaces the district tax boards of review with a single statewide taxation board of review (board) that will be within the Hawaii Department of Taxation. The board will consist of up to 10 members who are appointed by the governor. A board decision must be in writing and separately state the board's findings of fact and conclusions of law. HB 1204 took effect upon approval. Haw. Laws 2021, Act 118 (HB 1204), signed by the governor on June 28, 2021.
Tennessee: New law (HB 38), effective July 1, 2021, provides that when the Tennessee tax commissioner publishes guidance on the taxability of any privilege, affected taxpayers are entitled to rely on that guidance. If the commissioner changes the guidance, taxpayers that relied on the guidance before it was changed are not liable for any assessment of additional tax, interest or penalty that accrued before the change and was unpaid because of the taxpayer's reliance on that guidance. Further, if a taxpayer is audited by the Tennessee Department of Revenue (TN DOR) or requested specific advice from the TN DOR and receives an erroneous audit finding or advice, the taxpayer is not liable for any assessment of additional tax, interest or penalty attributable to that erroneous finding or advice, if certain conditions are satisfied. The commissioner's changes to TN DOR policy on the taxability of any privilege must be applied to the exercise of those privileges occurring after the date of the policy change, unless otherwise provided by law. Tenn. Laws 2021, ch. 214 (HB 38), signed by the governor April 22, 2021.
PAYROLL & EMPLOYMENT TAX
All states: EY's guide to the various US federal and state employment tax rates and limits has been updated for 2021. The updated EY guide reflects numerous changes to the state income tax withholding rates/tables that occurred in 2021 due to retroactive legislation enacted this year. Topics covered in the EY guide include 2020 FUTA credit reduction, state unemployment insurance wage base limits for 2019 through 2021, disability and paid family leave insurance wage bases and rates for 2021, federal income tax withholding rates and limits for 2021, state income tax withholding tables for 2021, supplemental withholding and the highest marginal tax rates for 2021, the Social Security wage base for 2021, qualified pension plan limits for 2021, Health Savings Account limits for 2020 and 2021, fringe-benefit inflation adjustments and Form W-2 penalties for 2021, federal mileage rates and luxury vehicle limit for 2021, and per diem rates under high-low substantiation method for 2021. A copy of the EY guide is available here.
Wisconsin: New law (AB 68), effective Jan. 1, 2021, lowers one Wisconsin individual income tax bracket from 6.27% to 5.3% for individuals with taxable income of between $23,930 to $263,480 and between $31,910 and $351,310 for married persons filing jointly. Governor Evers, however, vetoed a provision of AB 68 that would have required the Wisconsin Department of Revenue (WI DOR) to update the income tax withholding tables to reflect the income tax rate reduction. In his veto message, Governor Evers explained that he objects to requiring the WI DOR to make these withholding table adjustments "at a cost of approximately $700 million while other critical priorities have not been sufficiently funded by the legislature." He further states that the "[WI DOR] has the ability under current law to make these adjustments as appropriate and will assess whether and when these updates should be made within the full context of revenue collection trends and other state priorities." 2021 Wis. Act 58 (AB 68), signed by the governor with a partial veto on July 8, 2021. For more on this development, see Tax Alert 2021-1428.
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 A pass-through entity (PTE) includes a partnership, an S corporation, or a limited liability company (LLC) electing to be treated as a partnership or an S corporation. See SB 727, Sec. 2 (defining "pass-through entity").