November 15, 2021 State and Local Tax Weekly for November 5 Ernst & Young's State and Local Tax Weekly newsletter for November 5 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 Council on State Taxation (COST) releases EY report on the state and local taxes paid by businesses in fiscal year 2020 In a newly released report, "Total state and local business taxes, State-by-state estimates for FY 2020," prepared in conjunction with the Council on State Taxation (COST) and State Tax Research Institute (STRI), EY's Quantitative Economics and Statistics Group estimates the state and local taxes paid by businesses in fiscal year 2020 (FY20). The state and local business tax estimates reflect tax collections from July 2019 through June 2020. The report includes a number of business taxes in its analysis, such as property, sales and excise taxes businesses paid on input purchases and capital expenditures, gross receipts taxes, corporate income and franchise taxes, business and corporate license taxes and unemployment insurance taxes. Key findings of the report include:
For more on this development, see Tax Alert 2021-2019. Connecticut's tax amnesty program runs through January 31, 2022 The Connecticut Department of Revenue Services (CT DRS) is conducting a tax amnesty program that began Nov. 1, 2021 and ends Jan. 31, 2022. Amnesty applies to tax periods ending on or before Dec. 31, 2020; according to FAQs of the CT DRS, "[t]here is no limit on how far back an applicant may go in reporting back taxes." The CT DRS will waive penalties and 75% of the interest otherwise due and not pursue criminal prosecution for taxpayers that participate and comply with the amnesty program. The amnesty program applies to most taxes administered by the CT DRS, including the following: corporation business tax, sales and use tax, income tax (individual, estate and trust), pass-through entity tax, withholding tax and motor vehicle fuels tax. The amnesty program, however, does not apply to: (1) the Connecticut motor carrier road tax (International Fuel Tax Agreement); (2) administrative fees (e.g., registration, permit renewal) collected by the CT DRS; and (3) taxes not administered by the CT DRS. Taxpayers eligible to participate in the amnesty program include individual and business taxpayers that:
Taxpayers are not eligible to participate in the amnesty program if they:
To participate in the amnesty program, taxpayers must file an online application and, at the same time, electronically submit the full tax and interest due. Taxpayers should not file a tax return or amended return with the amnesty application, as the CT DRS considers the completed and submitted amnesty application to be the return. (Taxpayers may use returns as a "worksheet" in determining how much tax is due; the electronic application will automatically calculate the interest owed.) Taxpayers participating in the amnesty program waive their administrative and judicial rights to appeal the tax liability subject to amnesty. Payments made in connection with the amnesty program will not be refunded or credited to a taxpayer; installment payment plans are not available for the amnesty program. For additional information on this development, see Tax Alert 2021-2047. INCOME/FRANCHISE California: The California Franchise Tax Board (CA FTB) expanded its elective pass-through entity (PTE) tax frequently asked questions (FAQs) to add a new webpage "Help with PTE elective tax" (this is in addition to the webpage "PTE elective tax"). The newly added FAQs address questions related to the following topics: (1) PTE election and qualifications; (2) what is included in a qualified entity's qualified net income; (3) who gets the PTE credit; (4) qualified net income — discusses the PTE tax treatment of sales by a qualified taxpayer of an interest in a qualified entity, a qualified entity's sale of an asset and guaranteed payments to partners; (5) estimated taxes; (6) nonresident withholding; and (7) payments and forms — the CA FTB noted that in November 2021, it will provide a method to make payments. In response to questions regarding disregarded entities, the CA FTB explained that an entity that has a disregarded entity as a partner, shareholder or member can be a qualified entity, but a disregarded entity alone cannot be a qualified entity; a disregarded entity and its owners cannot receive the PTE credit because it is not considered a qualified entity. As for a qualified entity's qualified net income, the CA FTB made clear that "[o]nly consenting partners', members', or shareholders' pro rata or distributive share of income is included in the qualified entity's qualified net income." These comments relate to the CA FTB's webpage "Help with PTE elective tax" last updated on Nov. 3, 2021. New Jersey: The U.S. Supreme Court has been asked to review a New Jersey appellate court ruling upholding the constitutionality of a state statute requiring certain partnerships to pay a $150 per-partner fee (capped at $250,000) when filing information returns. The appellate court found that the fee does not violate the Dormant Commerce Clause because it defrays the cost of the state's processing and review of partnership and partner returns, which is a "purely intrastate activity." The question presented to the U.S. Supreme Court is "whether a levy that raises revenue for a State's general fund, and that is not restricted to the in-state activities of the levy payor, may be characterized as a locally focused regulatory fee, and thus be imposed without regard to whether it is internally consistent?" Ferrellgas Partners, LP v. N.J. Dir., Div. of Taxn., No. A-3904-18T1 (N.J. Super. Ct., App. Div., Jan. 13, 2021), petition for cert. filed, Dkt. No. 21-641 (U.S. S.Ct. filed Oct. 28, 2021). Ohio: On Oct. 27, 2021, the Ohio General Assembly passed House Bill 228 (2021 OH HB 228), which, if enacted, would streamline certain processes associated with the elective centralized filing system for municipal net profits taxes, which the Ohio Department of Taxation administers. Issues covered by the bill include information sharing, taxpayer elections, annual returns, refunds and collection costs, and deduction for pass-through entity retirement payments. Governor Mike DeWine is expected to sign the legislation in the coming days. The modifications that would be made by 2021 OH HB 228 would apply to municipal net profits tax years beginning on or after Jan. 1, 2022. For more on this development, see Tax Alert 2021-2006. South Carolina: The South Carolina Department of Revenue (SC DOR) issued for public comment a draft revenue ruling on the state's new annual election allowing pass-through entities (PTEs) to pay tax at the entity level. The election, which can be made starting in tax years 2021, allows certain PTEs to report "active trade or business income" directly on their tax return and pay a 3% entity level income tax on such income. The draft guidance provides: (1) an overview of the rate reduction on active trade or business income to an owner; (2) an overview of the statutory provisions establishing the PTE tax; and (3) responses to frequently asked questions (FAQs). The FAQs address entity election questions, entity administrative and compliance questions (including questions on Schedule K-1, estimated tax payment due dates and payment procedures, and nonresident withholding); (3) entity level tax on active trade or business income general entity computation questions (including tax rate, state tax deduction, active trade or business loss treatment, and use of tax credits at the entity level); (4) owner compliance and reporting questions (including owner tax reporting, use of tax credits, South Carolina basis impact, owner election for non-electing entities and treatment of losses when a qualified owner has an interest in both electing and non-electing entities). The ruling includes illustrative examples. Comments on the draft ruling are due by Nov. 16, 2021. S.C. Dept. of Rev., SC Revenue Ruling #21-x Active Trade or Business Income — Annual Election by Pass-Through Entity to Pay Tax at Entity Level (Income Tax) (Draft — Nov. 2, 2021). Wisconsin: The Wisconsin Department of Revenue (WI DOR) announced that its nexus relief for employees temporarily telecommuting from their Wisconsin homes due to the COVID-19 pandemic will expire at the end of the year. During the relief period, which is in place from March 13, 2020 through Dec. 31, 2021, the WI DOR will not consider an out-of-state business to have nexus with the state if its only activity within the state is its employees temporarily telecommuting from their Wisconsin homes instead of working at their employer's business location during the COVID-19 emergency. Wis. Dept. of Rev., Tax Bulletin #215 (Nov. 2021). SALES & USE California: The California Department of Tax and Fee Administration (CDTFA) released a publication on the application of California's state and district sales and use tax on internet sales. Topics addressed include: (1) basic internet sales — discusses when sales or use tax applies, seller's permit requirements, registration requirements, who's responsible for collecting and paying tax on internet sales, internet auction sites, local taxes, district tax collection requirements, shipping and delivery charges; (2) nontaxable sales — discusses common exemptions such as sales for resale, sales of cold food products, and sales delivered outside the state, and sales of electronically transmitted products; (3) online marketplaces and fulfillment centers — discussion of what are marketplaces and fulfillment centers, who is a retailer when a marketplace or fulfillment center is used, registration requirements for retailers with inventory in California including inventory at a third-party fulfillment center, marketplace sellers and consignment sales; (4) additional accounts, licenses and permits applicable to marketplaces, marketplace sellers and fulfillment center for other California fees and taxes — these fees and taxes include the California tire fee, covered electronic waste recycling (eWaste) fee, lead-acid battery fee and lumber products assessment; and (5) additional information — this section provides links to various CDTFA tax regulations, publications, online industry guides and other additional CDTFA information. Cal. Dept. of Tax and Fee Admin., Publication 109 "Internet Sales" (Oct. 2021). Kansas: The Kansas Department of Revenue (KS DOR) issued guidance on the application of the state's sales and use tax to marketplace facilitators and remote sellers following enactment of KS SB 50 in 2021. Marketplace facilitators located in Kansas will register for, collect and remit Kansas retailers' sales tax, while those located outside the state will register for, collect and remit Kansas retailers' compensating use tax. The location of the marketplace seller selling through a marketplace facilitator's platform does not affect the type of tax collected. Marketplace facilitators meeting the $100,000 "cumulative gross receipts" threshold are required to collect and remit tax starting July 1, 2021. Only taxable sales are included in determining whether the threshold has been met. For purposes of calculating the threshold "cumulative gross receipts" includes both the marketplace facilitator's sales of its own property and services and sales facilitated on its platform. The KS DOR provides guidance on the requirement for marketplace facilitators to collect and remit tax when the calendar year sales are above the threshold in the initial year and in subsequent years or if the calendar year sales fall below the threshold in subsequent years. The KS DOR can waive the obligation of a marketplace facilitator to collect and remit tax when substantially all of its marketplace sellers already collect and remit applicable taxes. The guidance also addresses the responsibilities of marketplace facilitators and marketplace sellers to collect and remit prepaid wireless 911 fees. In regard to remote sellers, the KS DOR provides guidance on collecting and remitting tax when the calendar year sales are above the threshold in the initial year and in subsequent years or if in subsequent years the calendar year sales fall below the threshold. Guidance is also provided on registration requirements for marketplace facilitators, marketplace sellers and remote sellers (including remote sellers maintaining registration with the KS DOR when registration was made under KS DOR Notice 19-04 — the KS DOR's prior guidance to remote sellers on collecting and remitting sales and use tax). Kan. Dept. of Rev., Notice 21-14 "Marketplace Facilitators Products" (Nov. 1, 2021) and Notice 21-17 "Remote Sellers" (Nov. 1, 2021). See also, Kan. Dept. of Rev. Notice 21-23 "Click-Through Nexus Eliminated" (Nov. 1, 2021). North Carolina: In response to a ruling request, the North Carolina Department of Revenue (NC DOR) determined that a company's leases of buried dark fiber optic cable (which, according to the company, will remain in the ground and if damaged, or needs to be moved, will be abandoned in place), is not subject to the state's sales and use tax because it becomes a permanent fixture on land and, therefore, is real property. Under North Carolina law, leases of real property are not subject to sales and use tax. N.C. Dept. of Rev., Private Letter Ruling 2021–0025 "Lease of Buried Fiber Optic Cable" (Sept. 29, 2021). Puerto Rico: In Informative Bulletin (IB) 21-08, the Puerto Rico Treasury Department announced the release of new Form AS 2915.1, "Sales and Use Tax and Tax on Imports Monthly Return" (New SUT Monthly Return), which replaces both Form AS 2915.1D, "Tax on Imports on Monthly Return," and Form AS 2915.1, "Sales and Use Tax Monthly Return." Therefore, for the return corresponding to Oct. 2021, merchants must file the New SUT Monthly Return on or before Nov. 22, 2021. For additional information on this development, see Tax Alert 2021-2009. BUSINESS INCENTIVES Federal: In a Notice of Allocation Availability, the U.S. Department of Treasury's Community Development Financial Institutions Fund (CDFI Fund) announced an allocation of $5 billion for the calendar-year 2021 round of the New Market Tax Credit (NMTC) program. There are several changes to the NMTC program for 2021, including: (1) requiring taxpayers that received allocations in prior rounds to comply with revised Qualified Equity Investment (QEI) requirements by March 21, 2022; (2) changing the definition of "controlling entity" for 2021 applicants that did not receive allocations under prior NMTC program rounds 2013 to 2020; and (3) updating the allocation application and guidance. The 2021 deadlines are: (1) Community Development Entity (CDE) certification application: Nov. 18, 2021; (2) NMTC application registration: Dec. 6, 2021; (3) NMTC allocation application: Jan. 13, 2022; and (4) QEI issuance and Qualified Low-Income Community Investment (QLICI) requirements for prior allocatees: March 21, 2022. For additional information on this development, see Tax Alert 2021-2044. COMPLIANCE & REPORTING Alabama: The Alabama Department of Revenue (AL DOR) issued additional guidance on the pass-through entity (PTE) tax, which allows certain PTEs to elect to pay Alabama income tax at the entity level. PTEs making this election must submit Form PTE-E through the My Alabama Taxes (MAT). The AL DOR expects Form PTE-E to go live in January 2022. Electing PTEs will have to be registered to use MAT. The AL DOR said that Form PTE-E will be due before the 15th day of the third month following the close of the tax year for which the PTE elects to be taxed at the entity level. The guidance lists information the PTE will need when signing up for the MAT. Additional information on Alabama's PTE level tax is available here. Ala. Dept. of Rev., Notice: Alabama Electing Pass-Through Entity Tax Act Guidance (Oct. 19, 2021). PAYROLL & EMPLOYMENT TAX Federal: The U.S. Department of Labor (USDOL) released an updated Federal Unemployment Tax Act (FUTA) credit reduction estimate for calendar year 2021 (reported on the 2021 IRS Form 940) which continues to show that the Virgin Islands is the only jurisdiction with the potential of a FUTA credit reduction for 2021, assuming it continues to have an unpaid federal unemployment insurance (UI) loan balance on Nov. 10, 2021. On Oct. 28, 2021, Treasury Direct showed that the Virgin Islands had a UI loan balance of $95,663,394.51. Other jurisdictions that began accepting federal UI loans in 2020 and that fail to repay their loan balances by Nov. 10, 2022, run the risk of a FUTA credit reduction of 0.3% for calendar year 2022 (reported on the 2022 IRS Form 940). For more on this development, see Tax Alert 2021-1997. New York: The New York Workers' Compensation Board announced that the employee contribution rate for Paid Family Leave (PFL) insurance will remain at 0.511% for 2022 up to the current statewide average weekly wage (SAWW) of $1,594.57, capped at the maximum contribution of $423.71. The PFL employee contribution rate is unchanged from 2021; however, the SAWW is increased from $1,450.17 and the annual maximum contribution is increased from $385.34. Note that under N.Y. Dept. of Tax. and Fin. Important Notice No. N-17-12 New York State's New Paid Family Leave Program, employee PFL contributions must be deducted on an after-tax basis. Pretax contributions are not allowed. Employers can choose to pay all or a portion of the employee's PFL contribution; however, employer PFL contributions are not required. For additional information on this development, see Tax Alert 2021-1998. UPCOMING WEBCASTS Thursday, Dec. 2, 2021. Domestic tax quarterly webcast series: A focus on state tax matters (1:00 pm EST). For our fourth quarterly webcast in 2021, panelists from Ernst & Young LLP's Quantitative Economics & Statistics and Indirect Tax practices will highlight the results of the latest EY study prepared for the Council On State Taxation (COST) on state business tax burdens, provide a state fiscal update and discuss tax policy issues that will be top of mind in 2022. Panelists will discuss state and local tax policy developments from 2021 and look ahead to those anticipated in 2022. In looking back, panelists will highlight the most important developments in 2021 that affected state income, sales-and-use and payroll taxes, as well as those that affected federal and state business credits and incentives. As panelists look ahead to the upcoming year, they will highlight trends likely to carry over from 2021 into the new year, identify emerging developments that deserve every tax practitioner's attention, and note the potential disruptions on the horizon. Register. Tuesday, Dec. 7, 2021. Webcast: 2021 employment tax year in review (3:30 pm EST). In meeting their 2021 year-end employment reporting requirements, employers will need to address the unique challenges created by temporary federal and state COVID-19 provisions while also following other necessary procedures for closing the tax year. In this information-packed webcast, EY's employment tax and benefits professionals will discuss the following common areas of year-end employment tax concern: (1) 2022 federal and state rates and limits; (2) temporary COVID-19 federal employment tax provisions, including the scope and limitations of the federal employee retention tax credit; (3) taxation of domestic partner and paid family and medical leave insurance benefits; (4) IRS Forms W-2/1099-NEC reporting changes; (5) state developments including teleworker income tax relief; (6) state unemployment insurance and the federal unemployment insurance credit reduction; (7) year-end reconciliation and required employee notices; and (8) preparing the year-end payroll checklist. Register. Because the matters covered herein are complicated, State and Local Tax Weekly should not be regarded as offering a complete explanation and should not be used for making decisions. Any decision concerning matters covered herein should be reviewed with a qualified tax advisor. | ||||
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