October 5, 2021
State and Local Tax Weekly for September 24
Ernst & Young's State and Local Tax Weekly newsletter for September 24 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.
IRS and many states announce tax filing and payment relief for those affected by Hurricane Ida
The IRS announced tax relief for those affected by Hurricane Ida, including taxpayers in Louisiana, Mississippi, New Jersey, New York and Pennsylvania. For federal income tax purposes, eligible taxpayers will have until applicable new deadlines described in the chart to file various federal individual and business tax returns and pay the associated taxes.
The IRS relief announced for taxpayers located in each such state can be found here.
Following the IRS's lead, a number of states announced similar tax filing and payment relief, although some of them only extended the deadline for filing tax returns. The following summary focuses on filing and payment relief related to individual and business tax returns for taxpayers affected by Hurricane Ida. It should be noted that other jurisdictions may be providing various tax relief due to other natural disasters, such as fires, floods or storms.
Louisiana: The Louisiana Department of Revenue (LA DOR) announced in RIB No. 21-024 that it is providing an automatic filing extension to eligible taxpayers, based on the taxpayer's location address. The automatic extended filing date for Louisiana individual income, corporation income and franchise, fiduciary income, partnership and partnership composite returns with original or extended due dates that occur on or after Aug. 26, 2021 and before Jan. 3, 2022, is Jan. 3, 2022. Taxpayers whose location address is not within a listed parish may still be eligible for penalty and interest relief. Extensions do not apply to any tax that was due before Aug. 26, 2021. RIB No. 21-024 summarizes the extensions granted for income/franchise tax, withholding tax, estimated income tax payments, extensions for taxpayers that had received a filing and payment extension as a result of the February winter storms and extension for severance and excise taxes. Information on additional relief being provided by the LA DOR is available here.
Mississippi: The Mississippi Department of Revenue (MS DOR) announced that it will follow the federal extended due date of Nov. 1, 2021 for filing individual income, corporate income and franchise, partnership and S corporation tax returns and making the quarterly estimated tax payment originally due between Aug. 28, 2021 and Nov. 1, 2021. (These extensions are automatic.) This relief does not extend the time to pay tax due (i.e., the tax payments continue to be due on the original due date) nor does it apply to any other tax types or payments on prior liabilities.
New Jersey: The New Jersey Division of Taxation (NJ DOT) announced that it is following federal guidelines for tax relief for those taxpayers affected by Hurricane Ida. Affected businesses and individuals include taxpayers located in a disaster area and those whose tax records are located in the disaster areas. The NJ DOT said that in addition to income tax relief, it is extending this relief to all NJ state tax filing and payment deadlines that occurred starting Aug. 26, 2021. Thus, affected taxpayers will have until Jan. 3, 2022, to file returns and pay taxes that were originally due during this period. Tax relief does not apply to tax payments that were due before Aug. 26, 2021 and related to a return under extension. Additional information about the NJ DOT's relief is posted on its website.
New York: The New York Department of Taxation and Finance (NY DOTF) announced certain filing and payment relief for those taxpayers affected by Post-Tropical Depression Ida. The NY DOTF is extending to Dec. 14, 2021, certain tax filing and payment deadlines occurring during the period beginning on or after Sept. 15, 2021 and ending on or before Oct. 2, 2021 (hereafter, the period) for the following: (1) filing any returns, including corporate, personal income, sales and other taxes administered by the NY DOTF; (2) paying any tax or installment of tax (with certain exceptions); (3) filing any requests for extensions of time to file; and (4) filing for a credit or refund. Interest must be paid on tax payments received after Dec. 14, 2021. The NY DOTF also extended certain other deadlines occurring during the period including filing for a redetermination of a deficiency or application to review a decision, assessing tax, allowing a credit or refund or making any tax elections, among other procedural deadlines. The NY DOTF's guidance defines who is eligible for relief, provides exceptions to eligibility and explains the relief being provided.
New York City: The New York City Department of Finance (NYC DOF) announced penalty relief for taxpayers affected by Hurricane Ida. The NYC DOF will allow for the waiver or abatement of certain penalties for NYC DOF administered taxes due between Sept. 15, 2021 and Oct. 2, 2021 (hereafter, the eligibility period). Affected taxpayers whose New York City Business Corporation Tax, General Corporation Tax, Unincorporated Business Tax, or Banking Corporation Tax returns were due during the eligibility period and who cannot meet the filing deadline due to Hurricane Ida have until Dec. 14, 2021 to file the return and pay any tax due. This includes extended due dates that fall within the eligibility period. No late filing or late payment penalties will be imposed on such filings made by Dec. 14, 2021. The NYC DOF is also providing relief for taxpayers subject to the New York City commercial rent tax, hotel room occupancy tax, real property transfer tax and utility tax, however this penalty relief does not apply to the payment of interest. The relief guidance issued by the NYC DOF explains who is eligible for this relief (i.e., qualified taxpayers) and how to request penalty abatement.
Pennsylvania: The Pennsylvania Department of Revenue (PA DOR) announced it is following the federal income tax return filing due date extensions for individuals and businesses affected by Hurricane Ida but will not extend the tax payment deadlines. Guidance issued by the PA DOR describes who qualifies for relief and includes tables listing extended due dates for various Pennsylvania individual and business tax returns affected by the filing due date extensions.
Florida: The Florida Department of Revenue (FL DOR) announced that on a case-by-case basis it will work with affected businesses that are unable to timely file their tax returns due to Hurricane Ida. For corporate filers, the FL DOR will follow the tax relief provided by the IRS regarding postponement of return due dates. New due dates for affected taxpayers are:
Idaho: The Idaho State Tax Commission (ID STC) announced that it is providing relief to taxpayers affected by Hurricane Ida by following the extended filing deadlines set by the IRS for 2020 income tax returns for certain Idaho state tax purposes. The ID STC made clear that this deadline extension only applies to the filing of the returns and it does not extend the time to pay the tax due. The ID STC noted that the new deadline is for all Idaho tax types.
Kentucky: The Kentucky Department of Revenue said that it will honor the relief announced by the IRS for taxpayers in any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual assistance due to Hurricane Ida. This includes federal extensions related to disaster relief for filing income tax returns and paying the associated tax due — specifically Kentucky's individual income tax, corporate income tax, income tax withholding and limited liability entity tax. The extension generally does not apply to other Kentucky taxes such as sales tax, however, affected taxpayers seeking an extension or penalty waiver for these other, non-income taxes should contact the KY DOR to request an extension or penalty waiver.
Maryland is providing certain tax relief related to sales and use, admission and amusement, withholding, and alcohol tax payments due in September.
Multistate: A summary of the significant legislative, administrative and judicial actions that affected state and local income/franchise and other business taxes for the third quarter of 2021 is now available. Highlights include: (1) a summary of legislative developments in Arizona, California, Delaware, Maine, Massachusetts, Minnesota, New Hampshire, Oregon and Rhode Island; (2) a summary of judicial developments in Pennsylvania and Texas; (3) a summary of administrative developments in California, Colorado, Florida, Hawaii, Maine, New Jersey, New York, Pennsylvania and South Carolina, and (4) a discussion of state and local tax items to watch from the US federal government, the Multistate Tax Commission, and Louisiana and Texas. See Tax Alert 2021-1790 for a copy of the newsletter.
California: A company is challenging the constitutionality of the enactment of the "Clean Energy Jobs Act" (California "Proposition 39" approved by voters on Nov. 6, 2012 (Prop. 39)), which among other provisions mandated the use of a single sales factor (SSF) apportionment factor for California corporate franchise tax purposes (and, in effect, eliminated a taxpayer's ability to elect to use either a SSF or a three-factor formula). The company is arguing that the three components of Prop. 39 — (1) creating a fund to support clean energy jobs, (2) mandating the use of a SSF and (3) providing a tax break for certain cable television providers — are not unified under a common subject, object or purpose. Therefore, since the California Constitution prohibits a ballot initiative from having more than one subject, the lack of uniformity renders Prop. 39 invalid in violation of the single subject rule. One Technologies LLC v. Cal. Franchise Tax Bd., Case No. 21STCV21844 (Cal. Super. Ct, Los Angeles County, filed June 11, 2021).
Maine: An individual resident of Maine that owned and operated a Connecticut limited liability company that was treated as an S corporation for federal income tax purposes (hereafter, entity) is not allowed a credit against his Maine income tax liability for Connecticut taxes imposed on and paid by the entity. In so holding, the Maine Board of Tax Appeals (ME BTA) determined that: (1) for purposes of the credit for taxes paid to another jurisdiction under 36 M.R.S. §5217-A, the plain meaning of the statute excludes taxes imposed on and paid by a business entity; (2) after application of all available credits (including the credit for the entity's Connecticut business profits tax) the individual had no Connecticut individual income tax liability; and (3) Maine's income tax scheme, which provides the credit under Section 5217-A, does not violate the Commerce Clause.1 Individual Taxpayer v. Maine Rev. Serv., Dkt. No. BTA-2020-1 (Maine Bd. Tax App. March 1, 2021).
SALES & USE
Illinois: The Illinois Department of Revenue (IL DOR) has adopted new modified emergency rules, implementing the state's "level the playing field for Illinois Retail Act". The emergency rules address the following topics and are codified at: 86 Ill. Adm. Code §§ 131.105 (definitions), 131.107 (description of different types of retailers on and after Jan. 1, 2021 — Scope of the regulations), 131.110 (remote retailers — general provisions), 131.115 (remote retailer — determination of status as a remote retailer), 131.120 (factors used by remote retailers in determining if the nexus threshold has been met), 131.125 (remote retailers hold harmless provisions), 131.130 (marketplace facilitators — general provisions), 131.135 marketplace facilitators — determination of obligation to remit tax), 131.140 (factors used by marketplace facilitators in determining if nexus thresholds are met), 131.145 (marketplace facilitators hold harmless provisions), 131.150 (marketplace sellers hold harmless provisions), 131.155 (tax sourcing provisions), 131.160 (certified service providers hold harmless provisions), 131.165 (certified automated systems hold harmless provisions), 131.170 (IL DOR responsibilities), 131.175 (local taxing jurisdiction and responsibilities), 131,180 (application of other rules) and 131.Illustration A (leveling the playing field retailer flowchart). The modified emergency rules took effect Sept. 15, 2021. For more on this development, see the IL DOR's "Leveling the Playing Field for Illinois Retail Act" resource page.
Mississippi: Proposed amendments to Title 35.IV.5.06 Computer Equipment, Software, and Services would make clear the taxable services subject to the state's sales and use tax include certain services delivered through Software as a Service (SaaS), Platform as a Service (PaaS), Infrastructure as a Service (IaaS) and other cloud computing models. A sales tax exemption would apply to sales of software or software services transmitted via the internet to an out-of-state destination where first use of the software or software service by the purchasers occurs outside Mississippi. The proposed amendments would modify the definitions of "computer hardware" and "computer software" and add definitions of "cloud computing", SaaS, PaaS and IaaS, among other changes. The proposed amendments to the rule were filed with the Mississippi Secretary of State on Sept. 24, 2021. The proposed rule would take effect 30 days after filing.
Delaware: New law (SB 182) extends the Historic Preservation Tax Credit Act through June 30, 2030. Without the extension the act would have sunset on June 30, 2021. Del. Laws 2021, ch. 154 (DE 2021 SB 182), signed by the governor on Sept. 15, 2021.
Louisiana: Amendments to La. Admin. Code 61:I.4909 "Refund Claims" provides that information and documentation required by statute or regulation to be provided in support of a claim for refund or credit must be attached to, and submitted with, the claim. Such information or documentation must be submitted within 30 days of written request by the Secretary of the Louisiana Department of Revenue. The amended rule took effect Sept. 20, 2021.
Louisiana: New La. Admin. Code 61:I.2121, .2123 and .2125 provides guidance on the reasonable cause and good faith and the good cause exceptions to the presumption of the negligence penalty under La. Rev. Stat. 47:1604.1 and on the process for requesting abatement of the presumed penalty. La. Admin. Code 61:I.2121 provides that "[g]enerally, the most important factor in determining reasonable cause and good faith is the extent of the taxpayer's effort to assess the proper tax liability." La. Admin. Code 61:I.2121 describes circumstances that may indicate the extent of the taxpayer's effort to assess the proper tax liability. Such circumstances include an honest misunderstanding of fact or law that is reasonable in light of all the facts and circumstances, an isolated computation or transcription error, and reliance on an information return, advice or other facts if such reliance was reasonable and the taxpayer acted in good faith. La. Admin. Code 61:I.2121 also provides that reliance on an information return or on the advice of a professional tax advisor or tax preparer does not automatically demonstrate reasonable cause and good faith. La. Admin. Code 61:I.2123 explains when the good cause exception applies to the penalty for willful disregard, which is presumed when a taxpayer fails to timely pay tax collected or withheld from others. Examples of good cause include when the delinquency was directly attributable to (1) a significant disaster or emergency declared by the President or governor, or (2) an extraordinary circumstance beyond the taxpayer's control. La. Admin. Code 61:I.2125 describes the process for requesting an abatement of a presumed penalty. The rules took effect Sept. 20, 2021.
PAYROLL & EMPLOYMENT TAX
Connecticut: The Connecticut Paid Leave Authority announced that employers making additional catch-up deductions for Connecticut Paid Family and Medical Leave Act (PFMLA) have until Sept. 30, 2021 to complete the process and remit the withheld amounts. After Sept. 30, 2021, employers will only be allowed to deduct the 0.5% contribution from employees' wages. For additional information on this development, see Tax Alert 2021-1690.
South Carolina: The South Carolina Department of Revenue announced in SC Information Letter #20-22 that it is extending through Dec. 31, 2021, its income tax withholding relief and the assertion of nexus for employees working from home temporarily within and outside of the state due to COVID-19. For more on this development, see Tax Alert 2021-1734.
Nevada: A federal court rejected the class action lawsuit filed by the City of Reno, Nevada (Reno) against entities providing streaming services (e.g., TV shows, movies, documentaries, cartoons), alleging that the entities failed to pay franchise fees to various cities and counties in violation of the state's video service law (Nev. Rev. Stat. §711.670) (Video Service Law). The Video Service Law authorizes local governments to impose a franchise fee on video service providers; however, an exception applies, providing that the term "video service provider" does not include "[a]ny video content provided solely as part of, and through, a service which enables users to access content, information, electronic mail or other services that are offered via the public Internet." The court determined that the services the entities provide do not fall within the definition of "video service provider", but instead fall within the exception. Accordingly, the court concluded that Reno cannot seek franchise fees from these entities under the Video Service Law. The court also found that the Video Service Law does not provide local governments, such as Reno, a private right of action to assert its claim. City of Reno, Nevada v. Netflix, Inc., et al., Case No. 3:20-cv-00499-MMD-MGC (Fed. Dist. Ct., Dist. of Nev., Sept. 3, 2021).
International — Switzerland: The Swiss Federal Parliament (Swiss Parliament) has acted to unilaterally abolish import duties on almost all industrial goods and simplify the Swiss customs tariff to reduce costs for consumers and companies alike. If no major changes occur in the final vote of the Swiss Parliament, the policy could enter into force as early as Jan. 1, 2022 or during the first quarter of 2022. For additional information on this development, see Tax Alert 2021-1726.
Thursday, Oct. 21, 2021. Examining the MTC's revised statement on P.L. 86-272: Updates, impact and considerations (1:00-2:15 pm ET). Join us for a discussion of how multistate taxpayers may be affected by the Multistate Tax Commission's (MTC) recently approved fourth revision to its Statement of Information concerning practices of the MTC and supporting states under P.L. 86-272 (statement). The revision added a new section on protected and unprotected activities conducted over the internet and clarified other items such as those performed by telecommuting employees and independent contractors, among other changes. Specifically, our panelists will: (1) provide a history and overview of P.L. 86-272, the MTC and prior revisions to the statement; (2) examine the specific changes made to the statement and examples to which the statement may apply; (3) review the authoritative power of the MTC generally; (4) consider whether states will adopt the revised statement and whether such adoption would spur Congress to amend P.L. 86-272; (5) consider the interplay between the U.S. Supreme Court's decision in South Dakota v. Wayfair and the MTC's interpretation in the statement of protected and unprotected internet activities within the framework of P.L. 86-272; and (6) evaluate the impact of the statement on combined versus separate reporting states. Register.
Wednesday, Nov. 3, 2021. The indirect tax technology journey. Now. Next. Beyond (1:00-2:00 ET). Join our EY team of tax technology professionals for the third in a series of six webcasts focused on the evolving technology landscape. During these 60-minute webcasts, we will share insights into how market-leading organizations are using technology to adapt to new legislation and market trends, and to effectively transform tax operations. Because technology is a vital component for every business looking to build a resilient, future-ready tax function, these webcasts will be relevant across all sectors and to businesses of every size. This third webcast in the series will focus on the following: (1) how artificial intelligence (AI) is transforming the tax function through automation of key tax processes; (2) the use of AI to aggregate, analyze, prepare and review unprecedented volumes of information; and (3) blockchain technology's ability to provide secure, auditable records of transactions and assets. 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 Citing Goggin v. State Tax Assessor, 2018 ME 111, 191 A.3d 341, in which the Maine Supreme Judicial Court examined the constitutionality of Section 5217-A, finding it internally consistent because "if all states had Maine's tax statutes — including its statutes regarding the taxation of pass-through entities — there would be no disproportionate taxation of out-of-state income."