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May 16, 2022

State and Local Tax Weekly for May 6

Ernst & Young's State and Local Tax Weekly newsletter for May 6 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.


New York updates draft regulations to identify protected and unprotected internet activities under P.L. 86-272

The New York Department of Taxation and Finance (NY DOTF) recently released updates to Parts 1 through 3 of the Article 9-A Business Corporation Franchise Tax draft regulations (draft regulations)1 identifying which activities conducted over the internet would be protected by P.L. 86-272.2

The NY DOTF's positions on protected and unprotected internet activities largely follow those expressed in the recently revised Statement of Information concerning practices of the MTC and supporting states under P.L. 86-272 (Statement) issued by the Multistate Tax Commission (MTC).3

Comments on the draft regulations are due by June 30, 2022. The NY DOTF said that this is the final update for public comment and that later this year it intends to begin the State Administrative Procedure Act (SAPA) process under New York state (NYS) law to formally propose and adopt these regulations. It is unclear how long it will take for the draft regulations to be finally adopted.4

NY DOTF's position

Section 1-2.10 "Foreign corporations — Public Laws 86-272" of the draft regulations addresses how out-of-state sellers should apply P.L. 86-272 to business activities conducted over the internet. A corporation could be exempt from NYS taxation under the protections of P.L. 86-272 if its internet activities are limited to soliciting orders over the internet in NYS for sales of tangible personal property. These orders must be sent outside NYS for approval or rejection and filled by shipment or delivery for a point outside NYS.

Under the draft regulations, the NY DOTF would view protected business activities for purposes of P.L. 86-272 to include:

  • Providing assistance to customers by posting a static list of frequently asked questions on the corporation's website (Example 6)
  • Placing on customers' computers or other electronic devices "cookies" that gather customer information for uses "entirely ancillary" to soliciting orders for tangible personal property (e.g., remembering items added to a customer's shopping cart during a web session, storing personal information provided by the customer, reminding customers of items they considered on prior visits to the website) (Example 11)
  • Offering only tangible personal property for sale on the corporation's website, with the website allowing customers to search for items, read product descriptions, purchase items and select delivery options (assumes that the corporation does not engage in any NYS business activities not described in the example) (Example 16)

Under the draft regulations, the NY DOTF would view unprotected business activities to include:

  • Regularly providing post-sale assistance to customers through an electronic chat or email that customers initiate by clicking on an icon on the corporation's website (Example 7)
  • Soliciting and receiving online applications for its branded credit card through the corporation's website (Example 8)
  • Placing on the corporation's website an invitation for New York viewers to apply for non-sales positions within the corporation (the website enables viewers to fill out and submit an online application and submit a resume and cover letter) (Example 9)
  • Placing on New York customers' computers or other electronic devices "cookies" that gather customer search information for use in adjusting production schedules and inventory amounts, developing new products or identifying new items to offer for sale (Example 10)
  • Remotely fixing or upgrading New York customers' previously purchased products by transmitting code or other electronic instructions to those products over the internet (Example 12)
  • Offering and selling extended warranty plans through the corporation's website to New York customers who purchase the business's products (Example 13)
  • Contracting with a marketplace facilitator to facilitate the sale of the corporation's products on the marketplace facilitator's online marketplace, where the marketplace facilitator maintains inventory, including that of the corporation, at fulfillment centers in New York (Example 14)
  • Contracting with New York customers to stream videos and music to electronic devices for a fee (Example 15)

For additional information on this development, see Tax Alert 2022-0734.


Colorado: On May 18, 2022, the Colorado Department of Revenue (CO DOR) will conduct a stakeholder workgroup meeting to discuss new and revised income tax rules on foreign source income (Colo. Rule 39-22-303(10)) and the corporate income tax subtraction for Section 78 dividends (Colo. Rule 39-22-304(3)(j)). According to the CO DOR, the purpose of the amendments to the foreign source income rule is to provide guidance on: (1) the definition of foreign source income, (2) the calculation of such income considered in allocating and apportioning a C corporation's net income, and (3) reporting changes to the amounts. As described by the CO DOR, amendments would explain the application of the foreign source income exclusion to C corporations that have elected to claim the foreign taxes paid or accrued as a federal deduction, specific types of foreign source income that may be eligible for exclusion, coordinate the foreign source income exclusion with various provision of state law and specify that foreign taxes considered in calculating the foreign source income exclusion are subject to the limits on federal foreign tax credits under IRC §904, among other changes and clarifications. The purpose of the corporate subtraction for the Section 78 dividends rule is to clarify the subtraction from federal income of amounts treated as Section 78 dividends proscribed by C.R.S. §39-22-304(3)(j). This subtraction is only available to C corporations and not to individuals, estates or trusts. The draft rule makes clear that the subtraction is: (1) limited to the amount treated as a dividend and included in a C corporation's federal taxable income (FTI) under IRC §78, and (2) not allowed for any part of the amount treated as a Section 78 dividend that is deducted in calculating FTI. A deduction would not be allowed for any amount of a Section 78 dividend that is attributable to global intangible low-taxed income under IRC §§951A and 960(d), and deducted under IRC §250(a)(1)(B)(ii) in the calculation of FTI. Click here for information on how to participate in the workgroup meeting.

Florida: New law (2022 FL HB 7071) updates Florida's corporate income tax law's date of conformity to the IRC to Jan. 1, 2022 (from Jan. 1, 2021). This change is retroactively effective to Jan. 1, 2022. Fla. Laws 2022, ch. 2022-97 (2022 FL HB 7071), signed by the governor on May 6, 2022. See also, Fla. Dept. of Rev., TIP No. 22C01-03 "Florida Corporate Income Tax Adoption of 2022 IRC" (May 9, 2022).

Georgia: New law (2022 GA HB 1058), effective Jan. 1, 2023, allows affiliated corporations that file a federal consolidated income tax return to make an irrevocable election to file a Georgia consolidated return instead of separate returns. Prior to enactment of this legislative change, each member of a federal consolidated group was required to file a separate Georgia corporate income tax return unless the Georgia Department of Revenue (GA DOR) preapproved or requested the filing of a Georgia consolidated return. The election to file a Georgia consolidated return is made on an originally filed return, including extensions, and it is binding on all members of the group for five years. At the end of this period this taxpayer can re-elect to file a Georgia consolidated return. For allocation and apportionment purposes, each member of a Georgia affiliated group is considered a separate taxpayer. The taxable loss of a Georgia affiliated group member is deductible against the taxable income of any other member of such group "only if and to the extent such loss is apportioned and allocated to Georgia". The separate taxable income or loss of each Georgia affiliated group member is included in the Georgia consolidated taxable income or loss to the extent it is separately apportioned or allocated to Georgia. The GA DOR cannot "compel" a taxpayer to file a Georgia consolidated return if the taxpayer does not make such an election. A Georgia affiliated group that was filing a Georgia consolidated return under prior law can terminate its election or continue to file a consolidated return under prior criteria. Ga. Laws 2022, Act 824 (2022 GA HB 1058), signed by the governor on May 5, 2022.

Georgia: New law (2022 GA HB 1320) updates Georgia's income tax law's date of conformity to the IRC to Jan. 1, 2022 (from March 11, 2021), however, all provisions in the federal Infrastructure Investment and Jobs Act (P.L. 117-58) that change or affect in any manner IRC §118 (contributions of capital) will be treated as if they were in effect. These changes apply to tax years beginning on or after Jan. 1, 2021. Ga. Laws. 2022, Act 774 (2022 GA HB 1320), signed by the governor on May 2, 2022.

Illinois: Proposed amendments to 86 Ill. Admin. Code Rule 100.3200 "Taxability in Other State", for allocation and apportionment purposes, would "remove the stipulation regarding treaties with foreign countries in determining whether a taxpayer is subject to tax." The current rule, which would apply to tax years beginning before Jan. 1, 2021, provides that a taxpayer is not considered taxable in another country if the taxpayer's activities are exempt from tax as a result of a treaty. Effective for tax years beginning on or after Jan. 1, 2021, the proposed amendment would provide that "if jurisdiction is otherwise present, that foreign country or political subdivision is not considered as being without jurisdiction by reason of the provisions of a treaty between that foreign country or political subdivision and the United States." In the rulemaking notice, the Illinois Department of Revenue said the state's current provision "is unique" and "contrary to the Multistate Tax Commission model rule provision." Comments on the proposed amendments to the rule are due no later than 45 days after publication of the Notice of Proposed Amendment. Ill. Dept. of Rev., Proposed amendments Rule 100.3200 (Ill. Reg., Issue 16 page 5856, April 15, 2022).

Kentucky: New law (2022 KY HB 659) repeals certain provisions of 2022 Ky. Acts, ch. 212 (2022 KY HB 8) (enacted April 13, 2022) that decoupled Kentucky's income tax law from the federal income tax treatment of restaurant revitalization grants as provided in the American Rescue Plan Act of 2021 (P.L. 117-2). 2022 Ky. Laws, Acts ch. 238 (2022 KY HB 659), signed by the governor on April 25, 2022.


Colorado: New law (2022 CO HB 22-1024) expands the sales and use tax exemption for construction and building materials used for the building of public works, requiring Home Rule cities to exempt sales of such materials to contractors and subcontracts for use in the construction, alteration or repair of public schools. This provision will take effect on the day following the end of the 90-day period after final adjournment of the General Assembly. If, however, a referendum petition is filed against this law, these provisions will not take effect unless approved by residents during the November 2022 general election. 2022 CO Laws, HB 22-1024, signed by the governor on April 18, 2022.

Connecticut: A platform company's sales of on-demand digital learning plans and courses that can be streamed on computers or mobile devices, generally are not subject to sales and use tax as digital goods but may be taxable as job-related training, computer training or software training. Such sales are not taxed as digital goods because the true object of the online learning is the provision of nontaxable services related to education and not to provide the user with a digital good in the form of an electronically accessed audio-visual product. Conn. Dept. of Rev. Serv., Ruling No. 2022-2 Sales and Use Tax - Digital Goods - Training Services (April 21, 2022).

Florida: New law (2022 FL HB 7071) creates a sales and use tax exemption for machinery and equipment used in green hydrogen production and expands the exemption for items used in agriculture production; provides temporary sales and use tax exemptions for certain goods; and creates various sales and use tax holidays. The green hydrogen production exemption applies to purchases of machinery and equipment: (1) primarily used in the production, storage, transportation, compression, or blending of green hydrogen/blending of ammonia derived from green hydrogen if the ammonia will be converted back to green hydrogen before its use or sale; and (2) that are necessary to produce electrical energy resulting from a reaction of green hydrogen and oxygen in a fuel cell. The exemption for machinery and equipment used in the production of electrical or steam energy is expanded to hydrogen used in a specific manner. The exemption for items used in agriculture production is expanded to include hog wire and barbed wire fencing (including gates and materials used to construct or repair such fencing) that is used on land classified as agricultural land. The law also exempts from sales and use tax admissions to certain events, including any FIFA World Cup matches, the Daytona 500 and Formula One Grand Prix races. This exemption also applies to qualifying matches and races held within a certain time period prior to any such event. Temporary sales and use tax exemptions are also provided for the following (with the applicable dates indicated in parentheses): (1) a two-year exemption for impact-resistant windows, doors and garage doors5 (July 1, 2022 through June 30, 2024); (2) one-year exemptions for baby and children clothing6 (July 1, 2022 through June 30, 2023), and Energy STAR appliances7 (July 1, 2022 through June 30, 2023); and (3) a three-month exemption for children's books8 (May 14, 2022 through Aug. 14, 2022). In addition, multiple sales tax holidays will be held during 2022 for back-to-school shopping9 (July 25, 2022 through Aug. 7, 2022), disaster preparedness supplies10 (May 28, 2022 through June 10, 2022), tools and equipment used in skilled trades11 (Sept. 3, 2022 through Sept. 9, 2022), and certain recreation items and activities12 (July 1, 2022 through July 7, 2022). Lastly, the new law reduces the sales tax rate imposed on retail sales of new mobile homes to 3% (from 6%). Unless otherwise provided, these changes take effect on July 1, 2022. Fla. Laws 2022, ch. 2022-97 (2022 FL HB 7071), signed by the governor on May 6, 2022.

Michigan: The Michigan Department of Treasury (MI DOT) issued revised guidance on the application of the state's sales and use tax to food for human consumption. Under Michigan law, food and food ingredients are exempt from sales and use tax, except for prepared food, which is subject to tax. The guidance defines the terms "food and food ingredients" and "prepared food", describes what the terms do and do not include, and provides examples of each. The guidance also address the taxability of the following food items: (1) items sold at concessions; (2) bottled water; (3) ice; (4) bakery items; (5) food bars (e.g., soup and salad bars); (6) delicatessens; (7) sandwiches; (8) frozen food; (9) prepackaged food items sold by carryout restaurants; (10) food sold and heated in convenience stores; (11) sealed containers of beverages; (12) popcorn and nuts; (13) food sold through vending machines; and (14) miscellaneous — federal food stamp program. Mich. Dept. of Treas., RAB 2022-4 "Sales and Use Tax — Food For Human Consumption" (March 31, 2022) (replaces MI DOT RAB 2009-8).

Oklahoma: New law (2022 OK SB 72), effective Nov. 1, 2022, repeals the Oklahoma Research and Development Incentives Act (68 Okla. Stat. §§ 54001 through 54005), which provides a sales and use tax exemption for qualified purchases to a qualified purchaser that is primarily engaged in computer services and data processing or research and development. A separate enacted bill, 2022 OK SB 410, limits the period during which such qualified purchases are eligible for sales and use tax refunds. To be eligible for a refund a qualified purchase must be made before July 1, 2022 and the refund request must be submitted to the Oklahoma Tax Commission by July 1, 2022. According to the fiscal analysis for 2022 OK SB 410, this exemption is being repealed because "it is 'unnecessary due to the availability of more generous and easier to use incentives.'" 2022 OK SB 72 and 2022 OK SB 410, each signed by the governor on May 2, 2022.

Texas: The Texas Comptroller of Public Accounts issued guidance on the types of services that are treated as data processing services subject to the state's sales and use tax, listing examples of taxable and nontaxable services. The guidance also addresses: (1) collecting tax when both taxable and nontaxable services are provided by the business or the taxable service represents 5% or less of the overall contract price; (2) when customers have locations inside and outside of Texas; (3) the use of a resale certificate; and (4) when services are provided to governmental agencies or nonprofit organizations. Tex. Comp. of Pub. Accts., Pub. #94-127 "Data Processing Services are Taxable" STAR System # 202203001L (March 18, 2022).


Alabama: A resolution approved by the Governor (2022 AL SJR 117) creates a joint legislative study commission to consider the renewal of certain economic development incentives. The commission will study the economic impact of the Alabama Jobs Act; the Growing Alabama Act; and other economic development incentives that are not actively being used, are ineffective in their current use, or are otherwise identified by the commission. The commission also will undertake a cost-benefit analysis of the impact of the Education Trust Fund. The commission's written recommendations on whether to reauthorize the economic development incentives, as well as proposed legislation, are due to the Governor and Legislature before Jan. 31, 2023. Ala. Laws 2022, Acts 368 (SJR 117), approved by the Governor on April 13, 2022.


Arizona: New law (2022 AZ SB 1093) provides for additional reductions to the assessed valuation percentage on all class one properties (i.e., commercial and industrial properties including those owned by mining companies, telecommunication companies, utilities, pipelines and oil and gas production, among other properties). The rate for 2022 is 17.5% and will be reduced by 0.5% each year until it reaches 15% in 2027. (The reductions to 15.5% in 2026 and 15% in 2027 were added by 2022 AZ SB 1093.) Ariz. Laws 2022, ch. 171 (2022 AZ SB 1093), signed by the governor on April 22, 2022.

Florida: New law (2022 FL HB 7071) modifies the assessment method that applies to agricultural land used for the production of aquaculture products. The modified assessment methodology first applies to the 2023 ad valorem tax roll and to assessment made on or after Jan. 1, 2023. The law also provides for various property tax relief for resident individuals. Fla. Laws 2022, ch. 2022-97 (HB 7071), signed by the governor on May 6, 2022.


Pennsylvania: New law (2022 PA HB 2058) aligns the filing deadline of a final local earned income tax and net profits tax returns with the filing deadline for filing a final state personal income tax return. This change took effect immediately and applies to a final return first due after April 19, 2022. Pa. Laws 2022, Act 17 (2022 PA HB 2058), signed by the governor on April 19, 2022.


Illinois: Under Ill. PA 102-0036 (2021 IL SB 1847), enacted in 2021, the Illinois Equal Pay Act of 2003 (EPA) was amended to require that employers (except public employers) with more than 100 employees report certain payroll information to the Illinois Department of Labor (IDOL) as part of the EPA registration/certification process. According to the IDOL's announcement, the new requirement will take effect March 24, 2022. For additional information on this development see Tax Alert 2022-0643.

Maryland: On April 9, 2022, the Maryland legislature enacted 2022 Md. Laws ch. 48 (2021 MD SB 275) to establish a family and medical leave insurance program (Time to Care Act of 2022), overriding Governor Larry Hogan's veto. Effective Oct. 1, 2023, employers with 15 or more employees must participate in the program, which is funded by contributions to be paid by employers and employees up to the Social Security wage base. On or before June 1, 2023, the Maryland Department of Labor will determine, through studies, the proportion of tax to be paid by employers and employees ranging from 25% to 75% of the tax for either party. For additional information on this development see Tax Alert 2022-0686.

Minnesota: The Minnesota Department of Revenue has updated its guidance on the state income tax withholding and reporting requirements for disability payments made by a third-party insurance provider (third-party sick pay). Third-party sick pay includes amounts employees receive for absences due to injury, sickness or disability and includes benefits for both short-term and long-term disability that are generally a percentage of the employee's regular wages. For more on this development see Tax Alert 2022-0708.

South Carolina: The South Carolina Department of Revenue announced that the temporary relief from the assertion of nexus and income tax withholding relief for employees working from home temporarily within and outside of the state due to the COVID-19 emergency will expire effective June 30, 2022. S.C. Dept. of Rev., Revenue Ruling #22-3 Employer Wage Withholding Requirements (Income Tax) (April 21, 2022). For more on this development, see Tax Alert 2022-0617.


Florida: New law (2022 FL HB 7071) provides for temporary motor fuels tax relief during the period from Oct. 1, 2022 through Oct. 31, 2022. During this period both the County Fuel Tax and the Municipal Fuel Tax rates are reduced by 1 cent per gallon, the State Comprehensive Enhanced Transportation System Tax rate is reduced by 8.3 cents per gallon, and the Fuel Sales Tax rate is reduced by 15 cents per gallon. Fla. Laws 2022, ch. 2022-97 (2022 FL HB 7071), signed by the governor on May 6, 2022.


International — EU: On April 6, 2022, an adjustment to the European Union (EU) Value-Added Tax (VAT) Directive was published in the Official Journal. For more on this development see Tax Alert 2022-0674.

International — Peru: On March 26, 2022, Peru's President enacted Legislative Decree 1540, amending the VAT Law and Tax Code to make it easier for taxpayers to claim VAT paid on imports as input VAT and for the Peruvian tax authority to open a sales-and-income registry on behalf of taxpayers. For additional information on this development see Tax Alert 2022-0635.


Thursday, June 2, 2022. Domestic tax quarterly webcast series: A focus on state tax matters (1 pm to 2.30 pm EDT). For our second quarterly webcast of 2022, our panel will discuss important state tax policy developments, as well as international tax policy developments that could affect state and local taxes. Topics to be addressed include: (1) the potential US state and local tax implications of the OECD Model Rules for new global minimum taxes under Pillar Two of the BEPS 2.0 project; (2) an update on new and recently amended state pass-through-entity-level tax laws, which were enacted as a workaround to the federal income tax law's limitation on the deduction for state and local taxes, and related administrative guidance; (3) the latest administrative and judicial developments on Maryland's novel digital advertising tax and key sales tax updates; (4) an update on state fiscal conditions and their potential impact on state tax policy; (5) highlights of recent state and local tax legislative and administrative developments from the past quarter. Register.

Thursday, June 9, 2022. The indirect tax technology journey: Now. Next. Beyond. (1 pm to 2 pm EDT). Join our EY team of tax technology professionals for the fifth in a series of webcasts focused on the evolving technology landscape. During this 60-minute webcast, the final one in this series, our EY panel 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. This webcast will focus on leading practices for global indirect tax technology selection and implementation. Because technology is a vital component for every business looking to build a resilient, future-ready tax function, these webcasts are relevant across all sectors and to businesses of every size. 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 This Alert is limited to New York State's (NYS) treatment of internet activities and P.L.-86-272. At the same time as the issuance of the draft regulations, the NY DOTF released "final updates" to Parts 5-10 of other draft regulations which are not discussed in this Alert. This summer, the NY DOTF also intends to release before starting the formal New York State Administrative Procedure Act (NYS SAPA) process, these other draft regulations which will address apportionment, the sourcing of revenues from other services and other business activities and the treatment of digital products/services. Additional information on the draft regulations, as well as other draft regulations related to NYS's corporate franchise tax reform, is available on the NY DOTF's proposed regulations website.

2 P.L. 86-272 is a federal law that prohibits states from imposing state income tax on out-of-state sellers who's in-state activities generally are limited to soliciting orders of tangible personal property from customers located in the state.

3 This, the fourth revision of the Statement, was adopted by the MTC on August 4, 2021.

4 For a discussion of the NYS SAPA process, see D. Schmutter, K. Ryan, S. Cohen, M. Musano, "New York State Draft Regulations: Now, Next and Beyond", Tax Notes State (Nov. 9, 2020).

5 See Fla. Dept. of Rev., TIP #22A01-07 "Sales Tax Exemption Period on Impact-Resistant Doors, Garage Doors and Windows" (May 6, 2022).

6 See Fla. Dept. of Rev., TIP #22A01-06 "Sales Tax Exemption Period on Children's Diapers and Baby and Toddler Clothing, Apparel, and Shoes" (May 6, 2022).

7 See Fla. Dept. of Rev., TIP #22A01-05 "Sales Tax Exemption Period on New ENERGY STAR Appliances" (May 6, 2022).

8 See Fla. Dept. of Rev., TIP #22A01-02 "2022 Sales Tax Exemption Period on Children's Books" (May 6, 2022).

9 See Fla. Dept. of Rev., TIP #22A01-08 "2022 Back-to-School Sales Tax Holiday) (May 5, 2022).

10 See Fla. Dept. of Rev., TIP #22A01-03 "2022 Disaster Preparedness Sale Tax Holiday" (May 6, 2022).

11 See Fla. Dept. of Rev., TIP #22A01-09 "2022 Sales Tax Holiday for Tools Commonly Used by Skilled Trade Workers" (May 6, 2022).

12 See Fla. Dept. of Rev., TIP #22A01-04 "Freedom Week Sales Tax Holiday on Specific Admissions and Outdoor Activity Supplies" (May 6, 2022).