November 1, 2021
State and Local Tax Weekly for October 22
Ernst & Young's State and Local Tax Weekly newsletter for October 22 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.
Proposed federal bills would reinstate, expand and increase superfund excise taxes as soon as January 1, 2022
Taxpayers in multiple sectors may soon be obligated to pay superfund excise taxes on products they manufacture or import. Provisions in H.R. 3684 (the Infrastructure Investment and Jobs Act (IIJA))1 and H.R. 5376 (the Build Back Better Act (BBB)),2 as currently drafted, would reinstate significant federal superfund excise taxes on the industrial chemical, petroleum, oil and gas industries. The proposals' breadth would expand the reach of the federal superfund excise taxes to potentially include consumer product manufacturers and retailers, taxpayers that historically have not been subject to the federal superfund excise taxes.
The IIJA would expand and reinstate superfund excise taxes on the domestic production of certain chemicals, broaden the scope of "taxable substances" sold or used by the importer and impose these taxes at twice the historic rateat which they have been imposed. The IIJA's proposed expanded definition of "taxable substances" would not only impact a broader scope of businesses in the oil and gas and advanced manufacturing sectors, but it may subject many consumer product manufacturing and retail companies to the federal superfund excise tax on their imports. The proposed effective date for these provisions in the IIJA is July 1, 2022, creating a narrow window of time for newly affected taxpayers to develop a plan for integrating these additional costs into their pricing models and figuring out how to comply with the expansion of these taxes to their direct and indirect costs.
Starting Jan. 1, 2022, the BBB would reimpose and increase the rate of superfund excise taxes for crude oil and petroleum products, in addition to the current oil spill liability tax.
For more on this development, see Tax Alert 2021-1896.
Michigan: Proposed bill (HB 5376) would establish an elective pass-through entity (PTE) tax. The PTE tax is intended to enable Michigan taxpayers who own interests in PTE's (including partnerships, S corporations and LLCs treated as either) to deduct, for federal income tax purposes, state and local taxes exceeding the annual $10,000 deduction limitation imposed by IRC § 164(b)(6), consistent with IRS Notice 2020-75. If enacted, the elective PTE tax would be retroactively effective to Jan. 1, 2021. The bill was approved by the House on Oct. 14, 2021 and is currently being considered by the Senate. Similar legislation has twice been vetoed by the current and prior Michigan governors.
SALES & USE
Illinois: The Illinois Department of Revenue (IL DOR) issued an updated compliance alert on the obligation of marketplace facilitators to collect and remit the Metropolitan Pier and Exposition Authority (MPEA) food and beverage tax for sales made over a marketplace. The updated alert clarifies that beginning Oct. 1, 2021, a marketplace facilitator must remit this tax if it meets the tax remittance threshold and makes sales on behalf of a restaurant or other food and beverage establishment located within MPEA boundaries. Marketplace facilitators that collect the MPEA must certify to the establishments located within the MPEA that they are responsible for collecting and remitting the MPEA tax and all other required state and local retailers' occupation taxes. The IL DOR noted that destination of the food delivery does not affect the MPEA. The MPEA, which was created by the Illinois General Assembly in 1989, appears to operate the McCormick Place convention district and the Navy Pier and its geographic boundaries extend over a large section of central and south Chicago. Ill. Dept. of Rev., Compliance Alert - CA-2021-02-A (Oct. 15, 2021) (superseded CA-2021-02).
Illinois: The Illinois Department of Revenue issued an updated compliance alert on the obligation of remote retailers, marketplace sellers and marketplace facilitators to collect Chicago Home Rule Municipal Soft Drink Retailers' Occupation Tax (Chicago soft drink tax), Prepaid Wireless E911 Surcharge and Illinois Telecommunications Access Corporation Assessment. The update clarified that effective Oct. 1, 2021 marketplace facilitators that meet the tax remittance threshold are liable for the Chicago soft drink tax on all canned and bottled soft drinks sold through the marketplace to purchasers in Chicago. Ill. Dept. of Rev., Compliance Alert - CA-2021-01-A (Oct. 15, 2021) (superseded CA-2021-01).
Iowa: The Iowa Department of Revenue (IA DOR) issued guidance on the sales tax collection obligations of marketplace facilitators in regard to special events. The IA DOR explained that consignment stores, auctions and other sponsors of special events where retail sales occur may be marketplace facilitators, including trade shows, flea markets, farmers markets, craft fairs and other similar events. The IA DOR said such an entity is likely a marketplace facilitator, required to obtain a sales tax permit and collect and remit tax from an event, if it (or an affiliate) provides infrastructure or support for retail sales and collects the sales price or other compensation for retail sales made through the entity's marketplace. Infrastructure or support for retail sales includes any of the following activities: listing a product or service for sale on a marketplace it owns, operates or controls; communicating offer or acceptance of a retail sales a marketplace it owns, operates or controls; providing customer service, fulfillment or storage services; setting prices for products or services available on its marketplaces; or branding sales as its own. Collecting the sales price or other compensation for retail sales made through one's marketplace, includes any of the following activities: directly collecting the sales price; providing payment processing services; receiving consideration from the facilitation of retail sales; collecting payment from a purchaser and transmitting it to a marketplace seller through a third-party payment processor; or providing virtual currency used to purchase property or services. Iowa Dept. of Rev., "Marketplace Facilitators — Special Event Sponsors" (Oct. 13, 2021).
Maryland: The Comptroller of Maryland (Comptroller) issued updated guidance providing a list of tangible personal property, services and digital products and digital codes subject to Maryland's sales and use tax. The guidance also addresses special situations that affect whether a sale is taxable, including sales made during a tax holiday, exempt charitable/nonprofit sales, government (federal, state and local) sales, fundraisers and property used in film production. The Comptroller noted that the list is not "complete" but may be used as a guide in determining the taxability of a sale of tangible personal property or services. Md. Compt. of Treas., "List of Tangible Personal Property and Services Subject to Sales and Use Tax" (updated Oct. 1, 2021).
Texas: The Texas Comptroller of Public Accounts determined that for purposes of the optional single local use tax rate for remote sellers, the estimated average rate of local sales and use taxes imposed in Texas during the preceding state fiscal year ending Aug. 2021 is 1.75%. This rate will be in effect for the period from Jan. 1, 2022 to Dec. 31, 2022. Tex. Comp. of Pub. Accts., Texas Register "In Addition" (46 TexReg Oct. 22, 2021).
Alabama: The Alabama Department of Revenue adopted amendments to its historic rehabilitation tax credit rule (Ala. Admin Code, Rule 810-3-137-.02). Amendments to the rule provide that when a tax credit is transferred, if the tax owned by the transferee is less than the tax credit, the transferee can claim a refund for the difference. The amendment also repeals the provision in Ala. Admin Code, Rule 810-3-137-.02(5) that transferred credits are nonrefundable and cannot be carried forward. The amended rule took effect Oct. 15, 2021.
COMPLIANCE & REPORTING
Rhode Island: The Rhode Island Division of Taxation (RI DOT) issued additional guidance on the state's treatment of Paycheck Protection Program (PPP) loan forgiveness for 2020. State law forgives $250,000 of loan forgiveness and requires taxpayers to include amounts exceeding $250,000 in their Rhode Island taxable income. The RI DOT has developed a new form — Form RI-PPP — for taxpayers to use in computing tax due for 2020. The RI DOT will begin mailing the form and instructions out on Nov. 1, 2021 (only the form for entities will be mailed, individuals will need to go online to obtain the form). The return is due Dec. 15, 2021. Taxpayers can include a check for the amount due when they file the return, but by statute, they have until March 31, 2022 to make payment. The guidance includes examples of calculating the tax. R.I. Div. of Taxn., ADV 2021-39 "Further guidance on tax treatment of PPP loan forgiveness amount" (Oct. 20, 2021).
PAYROLL & EMPLOYMENT TAX
District of Columbia: The District of Columbia has extended through Nov. 5, 2021 the COVID-19 emergency provisions for paid sick leave under D.C. Code §32-531.02a and for family leave under D.C. Code §32-501. Under a temporary expansion of the DC Accrued Sick and Safe Leave Act (ASSLA), which is effective for the period from April 10, 2020 through November 5, 2021, DC employers (other than healthcare providers) with between 50 and 499 employees must provide full-time employees who have worked for the employer for at least 15 days with up to 80 hours of emergency paid leave. Part-time employees are entitled to the usual number of hours they work in a two-week period. Emergency paid sick leave must be paid at the employee's regular rate of pay. If the employee does not have a regular rate of pay, the pay rate is determined by dividing the employee's total gross earnings, including all tips, commissions or other earnings for the most recent two-week period the employee worked by the number of hours the employee worked during that two-week period. For additional information on this development, see Tax Alert 2021-1944.
Nevada: The Nevada Employment Security Division announced that, effective Jan. 1, 2022, the state unemployment insurance (SUI) taxable wage base will increase to $36,600, up from $33,400. The SUI taxable wage base is calculated each year at 66 2/3% of the average annual wage paid to Nevada workers. Further, the US Treasury website shows that as of Oct. 7, 2021, Nevada repaid its federal unemployment (UI) loan in full, avoiding the need to assess employers for federal interest on the federal UI loan through an additional surcharge. For additional information on these and other Nevada employment tax developments, see Tax Alert 2021-1899.
New Jersey: The New Jersey Department of Labor and Workforce Development released its proposed annual regulatory update to reflect an increase to the calendar year 2022 state unemployment insurance (SUI), temporary disability insurance (TDI) and family leave insurance (FLI) taxable wage bases. Specifically, (1) the 2022 employer/employee SUI taxable wage base will increase to $39,800, up from $36,200 for calendar year 2021; (2) the 2022 TDI/FLI taxable wage base will increase to $151,900, up from $138,200 for 2021; and (3) the 2022 TDI/FLI rate information has not yet been published (once released the information will be posted here). For additional information on this development, see Tax Alert 2021-1909.
Rhode Island: The Rhode Island Division of Taxation (RI DOT) issued an updated notice on the change to the state's real estate conveyance tax (RECT) enacted under R.I. Laws 2021, ch. 162 (2021 RI HB 6122 Sub. A). Currently, the RECT equals $2.30 for each $500.00 (or fractional part thereof) paid for the purchase of real estate located in Rhode Island or the interest in an acquired real estate company (i.e., an entity which owns Rhode Island real estate and satisfies certain other property ownership conditions). Effective Jan. 1, 2022, an additional $2.30 tax is imposed for each $500.00 (or fractional part thereof) paid in excess of $800,000 for the purchase of real property or an interest in an acquired real estate company. The RI DOT's guidance provides examples of when the additional RECT applies and information about the exemption from the RECT. The RECT exemption is available when the transfer of real estate is among owners, members or partners in a real estate company with respect to an affordable housing development, if specific conditions are met. R.I. Div. of Taxn., Notice 2021-04 "To Real Estate Owners, Buyers, Agents, And Others: Notice About Changes In Real Estate Conveyance Tax" (revised Oct. 20, 2021).
Wednesday, Nov. 3, 2021. The indirect tax technology journey. Now. Next. Beyond (1:00-2:00 pm ET). Join our EY team of tax technology professionals for the third in a series of six webcasts focused on the evolving tax technology landscape. During these 60-minute webcasts, EY panelists 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 H.R. 3684, which was originally passed by the House on July 1, 2021, was amended and passed by the Senate on Aug. 10, 2021 and returned to the House.
2 H.R. 5376, which is currently being considered by the House, was introduced on Sept. 27, 2021.