June 16, 2023 State and Local Tax Weekly for June 2 and June 9 Ernst & Young's State and Local Tax Weekly newsletter for June 2 and June 9 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 Minnesota omnibus tax legislation includes increased taxes on corporations and individuals, transportation bill includes a new retail delivery fee On May 24, 2023, Minnesota Governor Tim Walz signed the omnibus tax bill, HF 1938, which imposes new taxes on multinational corporations, as well as individuals with net investment income over $1 million. On the same day, the governor also signed the transportation finance and policy bill, HF 2887, which, among other things, establishes a new fee on retail deliveries in the state. These changes are discussed below. IRC conformity: HF 1938 updates Minnesota's IRC conformity date to May 1, 2023 (from Dec. 15, 2022). This IRC conformity change is effective the day after the final enactment of HF 1938, except Minnesota tax law changes that incorporate federal changes are effective retroactively to the date the changes were effective for federal purposes. Dividends received deduction (DRD): For tax years beginning on or before Dec. 31, 2022, Minnesota allows a deduction from taxable net income (i.e., income after allocation and apportionment) for dividends received from domestic and foreign corporations. Corporations that are at least 20% owned by the recipient of the dividend may claim an 80% DRD. Those owning less than 20% may claim a 70% DRD. The legislature considered aligning the ownership thresholds with those in the Tax Cuts and Jobs Act (TCJA), which provides for a 65% and 50% DRD for dividends from at least 20%-owned and less-than-20%-owned corporations, respectively. Instead, HF 1938 reduces the deduction percentages even further to 50% and 40%, respectively. This change is effective for tax years beginning after Dec. 31, 2022. Global intangible low-taxed income (GILTI): Minnesota previously decoupled from the federal treatment of GILTI. Effective for tax years beginning after Dec. 31, 2022, HF 1938 conforms to the federal treatment of GILTI, except Minnesota does not allow an IRC § 250 deduction. GILTI is classified as dividend income for Minnesota purposes and, thus, is subject to the revised Minnesota DRD provisions discussed previously (i.e., a Minnesota DRD will apply to the extent of the relevant ownership thresholds). Corporate net operating losses (NOLs): Effective for tax years beginning after Dec. 31, 2022, HF 1938 decouples from the federal 80% limitation on corporate NOLs, which was enacted under the TCJA, by limiting the NOL deduction for Minnesota purposes to 70% of taxable income in a given year. Pass-through entity tax (PTET): Effective for tax years beginning after Dec. 31, 2022, HF 1938 modifies the PTET base to include a resident owner's unapportioned distributive share of income. HF 1938 makes other changes to the PTET, including modifying the definition of a "qualifying entity", expanding the definition of "qualified owner" to include a disregarded entity that has a qualifying owner as its single owner, sunsetting the PTET when the federal limitation on the state and local tax deduction expires, and allowing a qualifying owner to claim a credit against the PTET imposed on a qualifying entity for a PTET paid to another state. Net investment income tax: Effective for tax year 2024, HF 1938 imposes a new 1% tax on net investment income over $1 million for individuals, estates and trusts. "Net investment income" includes interest, dividends, annuities, royalties and other gains not derived from a trade or business but excludes gains from agricultural land sales. A nonresident's tax liability is based on a ratio of net investment income from Minnesota sources over total net investment income. Retail delivery fee: Effective July 1, 2024, retailers (including out-of-state retailers and marketplace providers) are subject to a $0.50 fee on each transaction that is $100 or more and involves a retail delivery in Minnesota. (The retail delivery fee does not apply to certain retail deliveries.) The fee applies once per transaction, regardless of the number of shipments needed to deliver the purchased items. Retailers can either directly pay the fee or collect it from the purchaser. The law exempts small businesses from having to pay the fee. For purposes of this exemption, a small business is a retailer with retail sales of less than $1 million in the prior calendar year or a marketplace provider that facilitated retail sales of less than $100,000 in the prior calendar year. Small businesses exceeding one of those thresholds must begin collecting and remitting the delivery fee on the first day of the calendar month occurring no later than 60 days after the threshold is exceeded. For more on these developments, see Tax Alerts 2023-0961 (omnibus tax bill) and 2023-0962 (retail delivery fee). Nebraska adopts elective pass-through entity tax and phases-in income tax rate reductions On May 31, 2023, Nebraska Governor Jim Pillen signed LB 754, which enacts an elective pass-through entity tax (PTET), including provisions for retroactive elections and phased-in reductions to individual and corporate income tax rates. The legislation took effect upon the Governor's signature. Elective PTET: LB 754 allows a partnership or a small business corporation to make an annual, irrevocable election to pay taxes at the entity level. LB 754 defines partnership to include any entity treated as a partnership for federal income tax purposes, but excludes publicly traded partnerships. The election can be made retroactively to tax years beginning on or after Jan. 1, 2018. Partnerships may make retroactive elections for tax years beginning on or after Jan. 1, 2018, but before Jan. 1, 2023. Those elections must be made before Dec. 31, 2025. The Nebraska Department of Revenue (NE DOR) will prescribe the form and manner for the retroactive election, which may not include any changes to past returns other than those directly related to the election. If a partnership files a retroactive election, the deadline for filing a claim for credit or refund is extended for affected partners to the later of the existing statute of limitations or Jan. 31, 2026. The NE DOR will have one year from the date the partnership files its return to review and make a proposed deficiency determination. For tax years beginning on or after Jan. 1, 2023, partnerships must make the election on or before the due date, including extensions, for filing the applicable income tax return. The election must be made on a form and in the manner prescribed by the NE DOR. The highest individual income tax rate in effect for the tax period will apply to the electing partnership's net income apportioned or allocated to Nebraska. If the tax results in a net operating loss (NOL), LB 754 will not allow the electing partnership to carry forward the NOL to succeeding tax years. Partners may claim a refundable credit based on their distributive share of tax paid by the partnership. An electing partnership will be subject to Nebraska's corporate income tax estimated payment requirements, but those requirements will not apply for tax years beginning before Jan. 1, 2024. If a partner in an electing partnership is itself a partnership, its partners may claim the refundable credit or the credit may be applied against the partner's tax, interest and penalties. Any excess credit will be treated as an overpayment and may be refunded or applied to the following tax year. If the upper-tier partnership elects to be taxed at the entity level, that partnership may claim a credit for entity tax paid by the lower-tier pass-through entity. The upper-tier electing partnership must distribute the pro-rata share of credits to its partners by all tiers of electing partnerships. Partners in an electing partnership will be required to file a Nebraska income tax return to report their distributive share of income from the partnership and must add back Nebraska tax deducted by the partnership for federal income tax purposes. Nonresident individual partners in an electing partnership will not be required to file an individual income tax return if the only Nebraska-source income is from the electing partnership. If the partner's income is from one or more electing partnerships, the individual's income tax liability would be satisfied by the refundable credit discussed previously. Resident credit: LB 754 amends Nebraska's resident credit to allow a resident individual, trust or estate a credit for elective entity-level taxes paid to other states or the District of Columbia, if the other jurisdiction's PTET is similar to Nebraska's PTET. Amended returns: LB 754 allows a partnership to elect to file an amended Nebraska income tax return and pay all Nebraska income tax, penalties and interest associated with the amended return at the top individual tax rate as if the partnership were an individual. Partners are not required to file amended Nebraska income tax returns. The partners' basis and other tax attributes, arising from their interest in the partnership, are determined as if the election had not been made and in a similar manner as set forth for federal income tax purposes. Individual income tax rate reductions and exemption for certain retirement income: LB 754 phases in a reduction of Nebraska's individual income tax rates and bracket structure, going from four brackets to three, over four years, starting in 2024. The rate and bracket reductions will proceed as follows:
The rates for brackets one and two will remain at 2.46% and 3.51%, respectively. Corporate income tax rate reductions: LB 754 also phases in similar changes to Nebraska's corporate income tax rate structure, moving from a two-bracket structure to a flat rate. For tax years beginning on or after Jan. 1, 2024, the corporate income tax rate will be 5.58% on the first $100,000 of corporate income and 5.84% above $100,000. A reduced flat rate is then phased in as follows: (1) 5.20% for taxable year beginning on or after Jan. 1, 2025; (2) 4.55% for taxable year beginning on or after Jan. 1, 2026; and (3) 3.99% for taxable year beginning on or after Jan. 1, 2027. For additional information on this development, see Tax Alert 2023-0991. INCOME/FRANCHISE Florida: New law (HB 7063) updates the state's conformity date to the Internal Revenue Code to Jan. 1, 2023 (from Jan. 1, 2022). This change took effect upon becoming law and applies retroactively to Jan. 1, 2023. Fla. Laws 2023, ch. 157 (HB 7063), signed by the governor May 25, 2023. Hawaii: New law (HB 1100) updates the states date of conformity to the Internal Revenue Code to Dec. 31, 2022. This change applies to tax years beginning after Dec. 31, 2022. Haw. Laws 2023, Act 56 (HB 1100), signed by the governor on June 5, 2023. Hawaii: New law (SB 1437) establishes provisions allowing certain pass-through entities (PTEs) to elect to pay income tax at the entity level (PTET). Starting in 2023 a partnership, S corporation or LLC treated as such may make an irrevocable election to be taxed at the entity level. The PTET election is made annually on the form and in the manner prescribed by the Director of Taxation. The election form must be signed by: (1) each member of the PTE who is a member at the time the election is filed; or (2) any officer, manager or member of the PTE who is authorized to make the election. The election is binding on all partners, shareholders and members of the electing PTE. The tax imposed on an electing PTE is the sum of all member's distributive shares and guaranteed payments of Hawaii taxable income multiplied by the highest Hawaii individual income tax rate, except that the sum excludes distributive shares and guaranteed payments of corporate members and corporate members are not subject to the PTET. If the income reflects a net loss for the electing PTE, the net loss can be carried forward until it is exhausted provided that the PTE elects to be subject to the PTET. A nonresident member of an electing PTE does not have to file a Hawaii income tax return if the member's only source of Hawaii income is from an electing PTE that files and pays the PTET. Electing PTEs must annually report to each member, the member's pro rata share of PTET. Members whose distributive share or guaranteed payments of Hawaii taxable income are subject to the PTET are entitled to a credit equal to the member's share of PTET paid. Excess amount of credit is not refundable to the member. Further, members claiming a credit are not entitled to deduct from Hawaii taxable income the amount of Hawaii income tax paid by the member on its distributive share or guaranteed payment of income from the electing PTET. Resident and part-year resident members of electing PTEs are entitled to a credit for their pro rata share of tax paid to another state or District of Columbia, on income of any partnership or S corporation of which the person is a member if the other tax is substantially similar to Hawaii's PTET. Excess amount of credit is not refundable and cannot be carried forward. The law takes effect Jan. 1, 2024 and applies to tax years beginning after Dec. 31, 2022. Haw. Laws 2023, Act 50 (SB 1437), signed by the governor on June 1, 2023. Iowa: New law (SF 565) modifies provisions on bonus depreciation. In 2018, Iowa enacted SF 2417, which made several future income tax changes contingent on certain revenue targets, or "triggers," being met for Iowa's fiscal year ending June 30, 2022. Conforming Iowa's law to federal bonus depreciation was one of the provisions subject to a triggering event. Until the triggering event, Iowa corporate and individual income taxpayers were required to make an adjustment when they took the additional first-year depreciation allowance in computing federal taxable income under IRC §168(k). The "trigger" in the 2018 law went into effect on Jan. 1, 2023. Accordingly, SF 565 repeals the required revenue trigger, conforms Iowa's law to federal bonus depreciation and allows increased expensing under IRC §179 for assets placed in service on or after Jan. 1, 2023. Iowa Laws 2023, SF 565, signed by the governor on June 1, 2023. Missouri: The Missouri Department of Revenue adopted rule 12 CSR 10-2.436 "SALT Parity Act Implementation" to provide guidance on how a partnership or S corporation can elect to be an affected business entity subject to the pass-through entity tax as well as filing requirements and estimated tax and withholding obligations of an affected business entity. Starting with tax years ending on or after Dec. 31, 2022, a partnership or S corporation can elect to be an affected business entity for the tax year. The election is made annually on the entity's affected business entity tax return (Form MO-PTE). For the election to be effective, the partnership or S corporation must have designated a person as an affected business entity representative for that tax year by the time the partnership or S corporation attempts to make the election. Form MO-PTE must include the signature of either: (1) each member of the electing entity that is a member at the time the affected business entity tax return is filed; or (2) an officer, manager or member of the electing entity who is authorized to make the election and attests to having such authority. The deadline for making the election is the filing deadline for Form MO-PTE; an election cannot be made after the deadline, including approved extensions. Once the election is made, it cannot be revoked for the tax year. The rule explains how to designate a person as an affected business entity representative and describes the qualifications necessary to be such representative. Lastly, the rule (1) makes clear that an election to be an affected business entity does not relieve a partnership or S corporation of its withholding obligations; (2) sets forth the due date of the affected business entity tax, including when an extension is granted; and (3) describes how to compute the tax credit granted to members of an affected business entity. Mo. Dept. of Rev., 12 CSR 10-2.436 (Mo. Regis., Vol. 48, No. 10, May 15, 2023) (the rule was adopted as proposed, without any changes). Missouri: In response to a ruling request, the Missouri Department of Revenue (MO DOR) said that resident shareholders of a Missouri S corporations are eligible for the Mo. Rev. Stat. §143.081.3(2) tax credit for their shares of Missouri income tax imposed on the S corporation's income originating in other states without an income tax. The credit, however, is not allowed for amounts paid toward the Texas Franchise Tax as it is considered an income tax for purposes of the credit. In addition, the credit is allowed when the S corporation ships products to another state that has an income tax, but the state is prohibited from taxing the income when the S corporation qualifies for protection under P.L. 86-272. Mo. Dept. of Rev., LR 8234 (March 30, 2023). Montana: New law (SB 554) adopts an elective pass-through entity (PTE) tax intended to comply with IRS Notice 2020-75. The law is effective for tax years beginning after Dec. 31, 2022. Montana law requires a PTE to file an informational return and withhold on a nonresident owner's distributive shares of Montana-sourced income. Nonresident owners then receive a refundable credit on the individual income tax return. A PTE also may pay a composite tax, which relieves nonresident owners from filing an individual income tax return, provided the PTE income is the nonresident owner's sole source of Montana income. SB 554 allows a PTE to make an annual election to pay tax at the entity level at the highest marginal rate applicable to the tax year (6.75% for tax year 2023, reduced to 5.9% in 2024). The PTE must make the election by the due date of its return on a form to be prescribed by the Montana Department of Revenue. The PTE also must designate a representative who is authorized to make the election; the actions of this representative are binding on all PTE owners. The tax base is the distributive share of all owners' income allocated or apportioned to Montana under MCA 13-30-3302, as if the PTE were a C corporation. The PTE, however, may substitute the income allocated or apportioned under MCA 13-30-3302 with the resident owners' entire distributive share of income computed under MCA 15-30-2101. The electing PTE must make quarterly estimated payments and is subject to underpayment interest and penalties. The PTE tax is added back into federal adjusted gross income on the owners' individual income tax returns. The electing PTE owners will then receive a refundable credit for the tax paid by the electing PTE. SB 554 does not prevent a resident owner from claiming a credit for taxes paid to other states as provided in MCA 15-30-2302. Mont. Laws 2023, ch. 702 (SB 554), signed by the governor May 19, 2023. For more on this development, see Tax Alert 2023-0926. Montana: New law (SB 246) repeals Montana's provisions that required affiliates incorporated in so-called tax havens to be included in the water's edge group for corporate income tax purposes. This change took immediate effect, and it applies retroactively to tax years beginning after Dec. 31, 2022. Mont. Laws 2023, ch. 750 (SB 246), signed by the governor on May 22, 2023. Oklahoma: New law (HB 1039), effective for tax years beginning after 2023, repeals the franchise tax imposed on corporations, foreign corporations, associations, joint-stock companies and business trusts. Oka. Laws 2023 First Special Session, HB 1039, became law without the governor's signature on June 2, 2023. SALES & USE Florida: New law (HB 7063) adds permanent and temporary sales and use tax exemptions for various products, establishes sales tax holidays, reduces the sale tax on commercial rent and freezes the rate of the local communications services tax. The law creates permanent sales and use tax exemptions for sales of the following: (1) enumerated baby and toddler products (e.g., cribs, playpens/yards, strollers, safety gates and locks, wipes, bottles, diapers, changing tables, clothing and shoes); (2) diapers and incontinence products; (3) oral hygiene products; (4) firearm safety devices; (5) small private investigative agency services; (6) machinery and equipment primarily used in the production, storage, transportation, compression or blending of renewable natural gas; and (7) materials used to construct or repair certain agricultural fencing used for cattle. Effective from July 1, 2023 through June 30, 2024, the law exempts from sales tax retail sales of certain noncommercial use Energy Star appliances and retail sales of gas ranges and cooktops — these exemptions apply from July 1, 2023 through June 30, 2024. The law also establishes sales tax holidays for "back-to-school" (July 24, 2023 — Aug. 6, 2023 and Jan. 1, 2024 — Jan. 14, 2024), disaster preparedness (Aug. 26, 2023 — Sept. 8, 2023), Freedom Summer, which is for specified recreation items and activities (May 29, 2023 — Sept. 4, 2023), and skilled worker "tool time" (Sept. 2, 2023 — Sept. 8, 2023). Effective Dec. 1, 2023, the law reduces the sales tax on commercial rent to 4.5% (from 5.5%). The law also freezes the rate of the local communications services tax by prohibiting: (1) the rate of a local communications services tax in effect on Jan. 1, 2023 from being increased before Jan. 1, 2026 and (2) an increase to the discretionary sales surtax levied under Fla. Stat. §212.055 on or after Jan. 1, 2023 from being added to the local communications services tax before Jan. 1, 2026. These changes take effect July 1, 2023, unless specified otherwise. Fla. Laws 2023, ch. 157 (HB 7063), signed by the governor May 25, 2023. Louisiana: New law (HB 171) modifies economic nexus provisions for remote retailers and marketplace facilitators by repealing the 200 hundred separate sales transaction threshold. Thus, nexus will be established if a person's gross revenue from sales delivered into the state exceed $100,000 from sales of tangible personal property, electronically transferred products or services. This change takes effect Aug. 1, 2023. La. Laws 2023, Act No. 15 (HB 171), signed by the governor on May 30, 2023. Louisiana: New law (HB 256) provides that when the sales tax payment deadline to a local collector falls on a state or federal holiday on which banks are closed, the local tax collector must extend the payment deadline until the next business day on which banks are open. Penalties and interest will not accrue during this extension period if the return and payment are received by the extended due date. HB 256 took effect upon the governor's signature. La. Laws 2023, Act No. 21 (HB 256), signed by the governor on May 30, 2023. Oklahoma: New law (HB 2335), effective Nov. 1, 2023, modifies the definition of "product" as it relates to marketplace facilitators provisions to specifically exclude any hotel or motel that contains more than 12 rooms for occupancy in the regular course of business conducted by the hotel or motel. According to the bill's fiscal analysis "any marketplace facilitator or referrer meeting statutory sales requirements and facilitating sales of lodging on behalf of third party sellers at a hotel/motel with more than 12 rooms would not be required to either file an election with the [Oklahoma Tax Commission] to collect and remit applicable state and local taxes or comply with related notice and reporting requirements." Okla. Laws 2023, HB 2335, signed by the governor on May 19, 2023. Tennessee: New law (SB 469/HB 125) exempts from sales tax retail sales of trailers that are removed for registration and use in another state within three calendar days of purchase. Use of a trailer in Tennessee after the purchase but before removal from the state does not constitute a taxable use. This change takes effect July 1, 2023. Tenn. Laws 2023, ch. 449 (SB 469/HB 125), signed by the governor on May 17, 2023. Texas: New law (SB 65) exempts transactions for academic transcripts from sales tax by excluding the furnishing of academic transcripts from the definition of "information services" for sales and use tax purposes. This exemption takes effect Oct. 1, 2023. Tex. Laws 2023, SB 65, signed by the governor on May 23, 2023. BUSINESS INCENTIVES Federal: The IRS has released additional guidance (Notice 2023-44) on the IRC § 48C(e) program to allocate $10 billion in credits for investments in eligible qualifying advanced energy projects, of which at least $4 billion will be for projects located in energy communities census tracts. Notice 2023-44 clarifies and modifies Notice 2023-18 (see Tax Alert 2023-0308) by giving detailed information on the process for submitting concept papers and program applications, as well as the criteria the IRS and DOE will consider in allocating credits. In addition, Notice 2023-44 gives information on "energy communities census tracts" and includes a complete list of eligible census tracts in Appendix C, as well as a link to an updated mapping tool. For more on this development, see Tax Alert 2023-1012. Florida: New law (HB 7063) increases the annual cap on the Voluntary Cleanup Tax Credit (i.e., Brownfields Tax Credit) program to $35 million per year (up from $10 million), beginning in fiscal year 2023—2024. The law also establishes tax credits that can be claimed against the corporate income tax for developers and homebuilders that purchase qualifying residential graywater systems for use in the state. The credit, which can be claimed in tax years beginning on or after Jan. 1, 2024, equals 50% of the cost of each system purchased during the tax year and is limited to $4,200 per system; a developer/homebuilder cannot receive more than $2 million in total credit per tax year. Unused credit can be carried forward for up to two years. Fla. Laws 2023, ch. 157 (HB 7063), signed by the governor May 25, 2023. PROPERTY TAX Texas: New law (SB 2289) would provide an exemption from ad valorem tax for equipment or inventory held by a manufacturer of medical or biomedical products. The law defines "medical or biomedical property" and "medical or biomedical manufacturing facility". The exemption will become effective starting Jan. 1, 2024, only if a proposed constitutional amendment (SJR 87) authorizing the legislature to provide such an exemption is approved during the upcoming general election on Nov. 7, 2023. Tex. Laws 2023, SB 2289, signed by the governor on June 2, 2023. SJR 87 was approved by the General Assembly on May 19, 2023. COMPLIANCE & REPORTING Iowa: New law (SF 565) requires taxpayers to use the same filing status for Iowa individual income tax purposes that they use for federal income tax purposes, effective for tax years beginning on or after Jan. 1, 2023. The law also modifies pass-through entity (PTE) composite returns requirements, to exclude from this requirement PTEs that are either a financial institution or the sole owner of one or more financial institutions subject to the Iowa Financial Institution Franchise Tax. This exclusion is effective for tax years beginning on or after Jan. 1, 2023. Iowa Laws 2023, SF 565, signed by the governor on June 1, 2023. CONTROVERSY Iowa: New law (SF 565) amends Iowa Code 422.25 to authorize the Iowa Director of Revenue (Director) to estimate the tax due for a taxpayer who fails to file a required return, or files a false or fraudulent return, based on information the Director can obtain. The Iowa Department of Revenue (Department) would then be required to issue a notice of assessment to the taxpayer. SF 565 creates procedures the Department must follow if a taxpayer files a return, or fails to file a return, within three years of the assessment date. Further, current law authorizes the Director to compromise and settle doubtful claims for taxes and refunds. SF 565 defines a "settlement" to include any compromise or abatement of tax, penalties, and interest and authorizes the Director to settle any taxes, penalties, and interest in cases of doubtful liability, doubtful collectability, or economic hardship, or to promote effective tax administration. Settlements are discretionary, and a taxpayer has no right to a settlement. A settlement is final, except in cases of fraud or mutual mistake, or the written settlement agreement states that it is not final. Iowa Laws 2023, SF 565, signed by the governor on June 1, 2023. New Jersey: The New Jersey Tax Court recently held, in Gill v. Dir., Div. of Taxation,1 that an individual was not liable as a responsible person for unremitted gross income taxes because the New Jersey Division of Taxation did not notify him of the liability within the three-year statute of limitations. He was liable as the responsible person, however, for unremitted sales and use taxes, as the Division was not required to notify him of that liability under the four-year statute of limitations. For additional information on this development, see Tax Alert 2023-0993. PAYROLL & EMPLOYMENT TAX Multistate: EY's Employment Tax Advisory Services group's "Month in Review" publication summarizes the latest employment tax and other payroll developments in an easy-to-read format. Developments in US federal, state and local payroll and human resources matters are highlighted, as are our insights to improve US employment tax and payroll compliance. The full newsletter is available via Tax Alert 2023-0960. Arkansas: On March 6, 2023, Arkansas Governor Sarah Huckabee Sanders approved HB 1430, which makes numerous changes to the state's unemployment insurance (SUI) law as summarized: (1) new employer rate -effective Jan. 1, 2024, the new employer SUI tax rate is reduced from 2.9% to 1.9%; (2) stabilization rate - beginning in fiscal year 2024, the SUI tax stabilization rate is reduced from 0.2% to 0.125%; (3) penalty rate - effective Jan. 1, 2024, the penalty rate for failure to make timely SUI tax payments is reduced from 14% to 10%; (4) taxable wage base - effective Jan. 1, 2024, the SUI taxable wage base will be $7,000 if the unemployment trust fund balance is more than $600 million as of June 30 of the most recently completed state fiscal year; and (5) unemployment insurance benefits - for initial claims filed on or after Jan. 1, 2024, the maximum potential benefits of an insured worker in a benefit year is the lesser of 12 times (16 times under prior law) the employee's weekly benefit amount or one-third of the employee's wages for insured work in the base period. For more on this development, see Tax Alert 2023-0916. California: On Sept. 27, 2022, California Governor Gavin Newsom signed into law SB 1162, which requires, as of Jan. 1, 2023, pay data reporting for the calendar year by the second Wednesday of May 2023 (May 10, 2023) and each second Wednesday of May thereafter by private employers with 100 or more employees. Under prior law, the report was due by March 31 of each year and was submitted only if the employer was required to file an annual Employer Information Report (EEO-1). For more on this development, see Tax Alert 2023-0853. Idaho: The Idaho State Tax Commission (Commission) has published revised 2023 tables for the percentage method and wage bracket method used for wages paid on or after May 15, 2023. The revised 2023 withholding tables reflect the change from a graduated tax rate to a flat tax of 5.8% on income over $2,500 ($5,000 for married filing jointly), which applies retroactive to Jan. 1, 2023 under HB 1 enacted earlier this year. For more on this development, see Tax Alert 2023-0907. Indiana: On May 4, 2023, Indiana Governor Eric Holcomb approved SB 419, which, effective Jan. 1, 2024, exempts from Indiana adjusted gross income compensation received by nonresident employees (other than professional athletes and public figures) for services they provide within Indiana for 30 days or less during the calendar year. The exemption applies only if employees were not Indiana residents at any time during the calendar year. If employment within Indiana exceeds 30 days in the calendar year, all compensation is included in Indiana adjusted gross income, including compensation for the first 30 days of employment. For additional information on this development, see Tax Alert 2023-0871. Montana: On May 18, 2023, Montana Governor Greg Gianforte approved HB 447, which, effective Jan. 1, 2024, exempts from Montana source income compensation received by nonresident employees (with the exceptions) for services they provide within Montana for 30 days or less during the calendar year. The exemption applies only if employees performed employment duties in more than one state during the calendar year. If employment within Montana exceeds 30 days in the calendar year, all compensation is included in Montana source income, including compensation for the first 30 days of employment. For more on this development, see Tax Alert 2023-0919. North Dakota: On April 27, 2023, North Dakota Governor Doug Burgum signed into law HB 1158, which retroactive to Jan. 1, 2023, lowers the state's personal income tax rates by collapsing the tax brackets from five to three with tax rates of 0%, 1.95% and 2.5%. Under prior law, the highest tax rate was 2.9%. Under the current withholding guidelines, the supplemental rate of withholding for irregular payments, such as bonuses, is 1.84%. It is assumed that this rate will be reduced once the North Dakota withholding tables and formula are updated to reflect the tax cuts under HB 1158. For more on this development, see Tax Alert 2023-0849. Utah: The Utah State Tax Commission has updated Publication 14, Withholding Tax Guide to reflect a reduction in the income tax withholding rate from 4.85% to 4.65%. The revised withholding rate is effective for wages paid on and after June 1, 2023. For more on this development, see Tax Alert 2023-0861. MISCELLANEOUS TAX Florida: New law (HB 7063) delays until Jan. 1, 2026 the imposition of the natural gas fuel tax. Thus, starting in 2026 the following taxes will be imposed on natural gas fuel: (1) a 4 cent excise tax on each motor fuel equivalent gallon of natural gas fuel; (2) an additional 1 cent tax on each motor fuel equivalent gallon of natural gas fuel (designated the "ninth-cent fuel tax"); (3) an additional 1 cent tax on each motor fuel equivalent gallon of natural gas fuel by each county (designated the "local option fuel tax"); (4) an additional tax on each motor fuel equivalent gallon of natural gas fuel (designated the "State Comprehensive Enhanced Transportation System Tax"); and (5) an additional tax on each motor fuel equivalent gallon of natural gas fuel for the privilege of selling natural gas fuel. (The Florida Department of Revenue will annually determine the rates of the additional taxes that do not have a fixed rate.) Fla. Laws 2023, ch. 157 (HB 7063), signed by the governor May 25, 2023. VALUE ADDED TAX International — Bulgaria: The Court of Justice of the European Union (CJEU) issued an important decision opening the door to the possibility of obtaining a refund of value-added tax (VAT) paid due to adjustment of the input VAT deduction when goods that have lost their usefulness are scrapped. For more on this development see Tax Alert 2023-0890. International — Egypt: On March 22, 2023, the Egyptian Ministry of Finance (MoF) issued Ministerial Decree No. 160 of 2023 introducing, in an appendix, guidelines for digital services and other remote services provided by nonresidents (Guidelines) to customers based in Egypt. On the same day, the Egyptian Tax Authority (ETA) also published the Guidelines on its website. Specifically, the Guidelines govern remote services (electronic and digital services) rendered by nonresident service providers to customers based in Egypt (through various platforms, including websites, social media stores and applications) and determine the value-added tax (VAT) liability for nonresident service providers, whether the customer is a business or a consumer. For more on this development, see Tax Alert 2023-0848. International — Italy: The Italian Tax Authorities (ITA) have published a ruling response (n. 314/2023) addressing the value-added tax (VAT) relevance of supplies between an Italian branch or head office (HO) and a United Kingdom (UK) branch or HO of the same entity, where the UK establishment is a member of a UK VAT group. For more on this development, see Tax Alert 2023-0905. UPCOMING WEBCASTS Tuesday, June 27, 2023. State and local tax issues impacting the real estate industry (1 pm ET). As the real estate industry continues to address today's challenges — rising interest rates, the potential for a recession, lackluster deal flow and the lingering impacts of COVID-19 — the focus has turned to saving cash and reaffirming balance sheets in anticipation of future growth and positive returns. This webcast will address some of the current trends that clients are thinking about, or should be thinking about, as we navigate through 2023 and beyond. The following topics will be discussed: (1) current trends in real property tax values and assessments in today's climate, (2) noteworthy employee retention credit considerations, (3) updates on elective state pass-through entity taxes, (4) deal flow and some state tax considerations, and (5) major tax proposals in state budget legislation and other recent state and local tax (SALT) legislative activity affecting the real estate sector. 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 Gill v. Dir., Div. of Taxation, Dkt. No. 004035—2021 (N.J. Tax Ct. May 1, 2023). | |||||||||||||||
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