July 26, 2023
State and Local Tax Weekly for July 7 and July 14
Ernst & Young's State and Local Tax Weekly newsletter for July 7 and July 14 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 Jersey Governor signs bill overhauling Corporation Business Tax
On July 3, 2023, New Jersey Governor Phil Murphy signed into law SB 3737 / AB 5323 (the Legislation), which significantly overhauls key aspects of the Corporation Business Tax Act (the CBT Act). The Legislation is the latest of several CBT Act reform bills enacted since the adoption of combined reporting for tax years ending after July 31, 2019.
Key provisions of the Legislation are discussed below.
The Legislation requires taxpayers to compute the IRC § 163(j) interest deduction limitation on a federal consolidated basis, which includes federal consolidated filing affiliates not included in a New Jersey return. If a New Jersey combined group includes affiliates not included in the federal consolidated return, the Legislation requires taxpayers to compute the IRC § 163(j) interest deduction limitation on a New Jersey combined basis.
Retroactively effective for tax years beginning on or after Jan. 1, 2022
The Legislation modified decoupling from the IRC § 174 amortization requirement for research and experimental expenditures by allowing a current year deduction for expenses incurred during the same privilege period for which a New Jersey research and development credit is claimed.
Retroactively effective for tax years ending on or after July 31, 2022
Worldwide filing groups – The Legislation establishes worldwide filing to require inclusion of income from all sources (not limited to US effectively connected income (ECI) or limited by treaty).
Net operating loss (NOL) adjustments in tax years closed for assessment – The New Jersey Director of Taxation (Director) may make adjustments to NOLs in closed years to determine the correct tax liability in tax years still open under the statute of limitations. The Director may go as far back as 10 years to make the NOL adjustments.
Effective for tax years beginning on or after Jan. 1, 2023
Nonresident taxpayers subject to the Gross Income Tax (i.e., individuals and trusts) who own a trade or business or who receive distributive shares from a trade or business (operating as a partnership, limited liability company, or subchapter S corporation) may be required to determine New Jersey source income via the CBT Act (i.e., using a single sales factor with different income sourcing methodologies).
Effective for tax years ending on or after July 31, 2023
Intercompany interest and royalty payments – The Legislation repeals the intercompany interest and royalty expense disallowance provisions.
Dividend-related provisions – The Legislation makes the following changes:
NOL provisions – The Legislation conforms to the 80% limitation on utilization of NOLs under IRC § 172 NOL. It also allows sharing of NOL and prior NOL (PNOL) carryforwards among combined group members, regardless of whether such NOL or PNOL carryforwards were created within a combined filing with the sharing members.
Combined reporting provisions – The Legislation repeals the provision pertaining to water’s edge filing that required members (wherever organized) with New Jersey taxing nexus to be included in the water’s edge combined return. Other changes made by the Legislation include:
Nexus standard – The Legislation adopts the Wayfair nexus standard for CBT purposes (i.e., New Jersey sales that exceed $100,000 or 200 or more separate New Jersey customer transactions).
Administrative – The Legislation makes the following administrative changes:
For more on this development, see Tax Alert 2023-1182. See also, N.J. Div. of Taxn., “Changes to Corporation Business Tax, Gross Income Tax, and Other Requirements from P.L. 2023, c. 96” (July 11, 2023).
Colorado: The Colorado Department of Revenue, in response to recent litigation,1 is proposing to repeal Colo. Regs. 39-22-103(5.3), which clarified that Colorado’s definition of “IRC” incorporates federal changes on a prospective basis only. Specifically, the rule provides that “[the IRC for Colorado tax law purposes] does not, for any taxable year, incorporate federal statutory changes that are enacted after the last day of that taxable year.” In 2022, a Colorado appeals court determined that the rule was contrary to the statute's plain language and noted that the Colorado legislature's Office of Legislative Legal Services had opined that the rule was contrary to the operative statutory language.
Louisiana: New law (HB 631), effective Jan. 1, 2024, repeals the state’s throwback rule. The law also modifies sourcing provisions for sales other than sales of tangible personal property to (1) delete references to “rental, lease or license” for sales of immovable property; (2) delete the provision for the rental, lease or license of tangible personal property if and to the extent the property is located in Louisiana; and (3) in case of a sale or exchange on intangible property, delete the reference to lease or license of such property. Further, starting in 2024, the law repeals a requirement that sales of intangible property otherwise not described in present law be excluded from the numerator and denominator of the sales factor. La. Laws 2023, Act 430 (HB 631), signed by the governor on June 27, 2023.
Louisiana: New law (HB 618) amends the credit for resident individuals for taxes paid to another state to repeal the provision that allowed the credit only if the other state provided a similar credit for Louisiana income taxes paid on income derived from Louisiana sources. The law also makes clear that the credit for the elective pass-through entity tax paid to another state is in lieu of and not in addition to the credit for taxes paid to another state. This change applies to tax years beginning on or after Jan. 1, 2023. La. Laws 2023, Act 413 (HB 618), signed by the governor on June 15, 2023.
Louisiana: New law (SB 9) amends the definition of “domestic corporation” to exempt from the corporate franchise tax limited liability companies (LLCs) that file as real estate investment trusts for federal income tax purposes if 100% of the LLC’s shares of common stock are owned by a tax-exempt organization. The exemption is available to LLCs that met these requirements on or before July 1, 2023. This exemption applies to franchise tax periods beginning on and after Jan. 1, 2024. La. Laws 2023, Act 432 (SB 9), signed by the governor on June 27, 2023.
Louisiana: New law (HB 428) extends the flow-through entity income exclusion for individuals to partnerships, estates and trusts. Applicable for tax periods beginning on or after Jan. 1, 2023, a partnership, estate or trust in computing its taxable income shall exclude net income or loss received from an entity of which the partnership, estate or trust is a shareholder, partner or member if the entity properly filed a Louisiana corporate income tax return that included the net income or loss. The exclusion is not allowed for any amount attributable to income that will not bear tax due under La. R.S. 47:287.732.2. A partnership, estate or trust has 60 days to report an adjustment to its federal income tax return due to S corporation or partnership income or losses for which the partnership exclusion was used; the report must disclose the nature and amounts of the adjustments. Paying the tax due or consenting to immediate assessment constitutes an acceptance of the federal adjustment. The law also allows for the prospective termination of an election by an S corporation and other flow-through entities to be taxed in the same manner as a C corporation. An application for prospective termination of the election is effective for the subsequent tax year upon (1) the shareholders, partners or members holding more than one-half of the ownership interest in the entity consenting to the application for prospective termination and (2) the entity timely submitting such application by November 1 for calendar year taxpayers or 60 days before the close of the tax year for fiscal year filers. La. Laws 2023, Act 450 (HB 428), signed by the governor on June 27, 2023.
New Hampshire: New law (HB 2) moves forward the repeal of the interest and dividends tax from 2027 to 2025. As revised, the rate is reduced to 4% (from 5%) for tax periods ending on or after Dec. 31, 2023, and further reduced to 3% for tax periods ending on or after Dec. 31, 2024, with a full phase-out by 2025. N.H. Laws 2023, ch. 79 (HB 2), signed by the governor June 20, 2023.
Philadelphia, PA: The Philadelphia Department of Revenue (Department) said that it will conform to the federal income tax treatment of research and experimental (R&E) expenses paid/incurred in tax years beginning after Dec. 31, 2021. Starting in 2022, IRC § 174, as amended by the TCJA, requires certain R&E expenses be capitalized and amortized over five years for domestic research or 15 years for foreign research. Conformity to IRC § 174 applies to Philadelphia Business Income and Receipts Tax (BIRT) Method II purposes. The Department said that for administrative ease, it will allow BIRT Method II taxpayers to use the new federal capitalization and amortization rules for Net Profits Tax (NPT) purposes. If the accounting method used by BIRT Method I taxpayers allows R&E expenditures to be expensed in the same year they are spent, the Department will allow these expenses to be fully deducted for BIRT Method I and NPT purposes. Philadelphia Dept. of Rev., “Philadelphia guidance on business tax treatment of amendments to IRC Section 174” (June 22, 2023).
Philadelphia, PA: The Philadelphia Department of Revenue announced that starting July 1, 2023, the net income portion of the business income and receipts tax (BIRT) is reduced to 5.81% (from 5.99%). In addition, the rates of net profits tax, wage tax, and earnings tax on residents is reduced to 3.75% (from 3.79%). The net profits tax, wage tax, and earnings tax rates applicable to nonresidents remains 3.44%. Philadelphia Dept. of Rev., News Release "Philly’s business income, wage tax rates drop again" (June 26, 2023).
SALES & USE
Colorado: New law (HB 23-1017) makes improvements to the electronic sales and use tax simplification system. The law provides that by or before Jan. 1, 2025, the Colorado Department of Revenue (CO DOR) must modify the electronic sales and use tax simplification system: (1) to populate a local account number of all returns and summary reports, if the retailer filing the return has a number and provides the number in the system; (2) by developing a simplified user interface for filing returns as an alternative to the current spreadsheet method; (3) to provide retailers with a bulk testing option for address files; and (4) to include a column for describing “other deductions”, filtering options for local taxing jurisdictions to sort retailers, local account numbers on a detail tab for retailers, and a tab for retailer’s filing history and payment. The CO DOR is prohibited from imposing a convenience fee or other type of charge for payment through the system (except a charge for paying by credit card). In addition, the CO DOR must solicit and consider feedback from interested parties, including local taxing jurisdictions, members of the business community and retailers, on potential enhancements to the system. Colo. Laws 2023, ch. 365 (HB 23-1017), signed by the governor on June 5, 2023.
Louisiana: New law (HB 558) moves the management and supervision of the uniform electronic local return and remittance system to from the Louisiana Department of Revenue (Department) to the Louisiana Uniform Local Sales Tax Board (Board). The Board is required to build a single remittance system that will allow a taxpayer to remit state and local sales and use tax through a single transaction. The Department will continue to operate its electronic local return and remittance system until the Board certifies that the new system is available for use by taxpayers; such system must be available to use by taxpayers by Jan. 1, 2026. The law also provides that the local sales and use tax, interest or penalty rates cannot be changed unless the change has an effective date of the first of January, of April, of July or of October and the Board and the Uniform Electronic Local Return and Remittance Advisory Committee must be notified 60 days in advance. For purposes of this provision, a tax rate change includes changes: (1) due to the levy of a new tax; (2) for an existing tax; (3) due to an annexation or other boundary modification by the taxing authority; (4) due to the execution or expiration of a cooperative endeavor agreement to which the taxing authority is a party; or (5) due to implementation, amendment or repeal of an optional sales tax emption or exclusion. HB 558 takes effect on Jan. 1, 2024. La. Laws 2023, Act 375 (HB 558), signed by the governor on June 14, 2023.
Louisiana: New law (SB 227) provides a sales and use tax exemption for digital art, which is defined as “digitally created content including … video, or song to which ownership can be proven through use of blockchain or another similar mechanism.” The definition of “works of art” is expanded to include “digital art”. The exemption applies to tax periods beginning on or after July 1, 2023. La. Laws 2023, Act 396 (SB 227), signed by the governor on June 15, 2023.
Louisiana: New law (HB 629) expands the local sales and use tax exemption for certain prescription drugs to include drugs administered by topical system in medical clinics (in addition to being administered by infusion or injection in medical clinics). The law also expands the lists of conditions for which drugs must be prescribed in order to qualify for the exemption to include neuropathic pain and wet and dry age-related macular degeneration. These changes took effect on July 1, 2023. La. Laws 2023, Act 382 (HB 629), signed by the governor on June 14, 2023.
Louisiana: New law (HB 127) exempts from state excise and sales and use tax the furnishing of alcoholic beverages, products subject to the state tobacco tax and other items at no charge as samples in a business-to-business exchange at, or in conjunction with, conferences, conventions, expositions, trade shows, professional or trade association events, business or professional meetings, corporate events, or exhibitions of any kind held in Louisiana. For purposes of this exemption, a “business-to-business exchange” is defined as “the distribution by a business of free samples in a limited quantity with nominal value to another business as part of a genuine effort to sell or market the product being sampled to that business.” This exemption ends on Aug. 1, 2033. La. Laws 2023, Act 297 (HB 127), signed by the governor on June 13, 2023.
Washington: The Washington Department of Revenue issued guidance explaining when retail sales tax applies to charges for the repair of goods damaged in transit to in-state customers. The guidance also clarifies the sales and use tax and business and occupation (B&O) tax consequences when the sale of repair work is performed for the shipper, carrier or owner of the damaged goods. The repair work is a “sale at retail” when it is performed for a shipper, carrier or owner that is not in the business of selling the goods being repaired at retail to consumers. If retail sales tax is not collected by the seller (repairer), then use tax applies to the purchaser’s use of the repair work. Charges for repair services on goods damaged in transit are not subject to retail sales tax if the owner of the goods is in the business of selling such goods at retail to consumers and provides the seller (repairer) with a reseller permit, certifying that the goods are for resale in the regular course of the owner’s business. Repair services provided to the owner of damaged goods by a seller (repairer) that is in the business of selling the damaged goods at retail to consumers, are subject to the B&O tax under the wholesaling classification. Wash. Dept. of Rev., Excise Tax Advisory ETA 3128.2023 (June 13, 2023).
Washington: New law (HB 1431) clarifies that sales and use tax does not apply to food, drink or meals furnished to tenants of senior living communities as part of their rental or residency agreement for which no separate charge is made. The law takes effect on July 23, 2023. Wash. Laws 2023, ch. 416 (HB 1431), signed by the governor on May 11, 2023. Note: the value of such food, drink and meals remains subject to the business and occupation tax under the Service and Other Activities classification. See, Wash. Dept. of Rev., “Special Notice – Intended guidance: Senior living communities” (July 13, 2023).
Wisconsin: New law (AB 245) allows Milwaukee to impose a 2% sales tax and also allows Milwaukee County to impose an additional 0.4% sales tax (current county rate is 0.5%). These rates could become effective as early as Jan. 1, 2024, if approved by a two-thirds vote of the City of Milwaukee Common Council and the Milwaukee County Board of Supervisors. Wis. Laws 2023, AB 245, signed by the governor on June 20, 2023. For more on this development, see Tax Alert 2023-1149.
Federal: The IRS has released proposed rules (REG-101610-23) on transferring renewable energy credits. The Inflation Reduction Act added IRC § 6418, which allows an eligible tax-exempt taxpayer to transfer all or a portion of an eligible credit to an unrelated transferee taxpayer for cash. The provisions were effective Jan. 1, 2023, but many taxpayers have been waiting for more details on how to implement the provisions, which the proposed regulations provide. For more on this development, see Tax Alert 2023-1103.
Federal: The IRS has released proposed rules (REG-101607-23) on the direct-pay election of applicable energy credits under IRC § 6417. The Inflation Reduction Act added IRC § 6417, which allows eligible tax-exempt taxpayers to make a direct-pay election for certain energy credits so they can get payments from the government instead of tax credits. The proposed rules give details on implementing this direct-pay election. For more on this development, see Tax Alert 2023-1102.
California: The California Film Commission (Commission) has announced application deadlines for the next film and TV tax credit program. For independent and non-independent feature films, the next application period runs from July 31 to Aug. 2, 2023, with phase II running from Aug. 3 to 7, 2023. The approval date for these applications is Sept. 4, 2023. For recurring and relocating television series, the application period runs from Sept. 5 to 7, 2023, with phase II running from Sept. 8 to 12, 2023. The approval date for these applications is Oct. 9, 2023. Additional information on the credit program is available here.
Colorado: New law (HB23-1275) modifies Colorado’s film production tax credit by expanding the types of expenses eligible for a rebate of up to 20% of certain filmmaking expenses. Specifically, the definition of “qualified local expenditure” is expanded to include a production company’s payments of up to $1 million in annual payments to a personal service corporation (PSC) to pay wages or salaries of an employee-owner of the PSC who participates in the production activity. In order for the wages or salaries paid to the PSC to be considered a local expenditure, the production company must file an information return regarding such payments. Payments exceeding $1 million are excluded. In general, a production company will not be required to deduct and withhold from payments for services to a PSC or an employee-owner of a PSC if the production company’s information return allows taxpayer identification number verification through the IRS’s taxpayer identification number matching program. In certain instances, however, the production company will be required to deduction and withhold state income tax. These changes apply to income tax years beginning on or after Jan. 1, 2023. Colo. Laws 2023, ch. 289 (HB23-1275), signed by the governor on June 1, 2023.
Indiana: New law (HB 1106) establishes the Mine Reclamation Tax Credit, which allows eligible taxpayers to claim a credit against their income tax, insurance premiums tax or financial institutions tax liability in the tax year the taxpayer makes a qualified investment in the development of property located within a mine reclamation site.2 The amount of credit may not exceed the lesser of (1) the qualified investment made by the taxpayer during the tax year multiplied by 30% or (2) $5 million. A taxpayer can assign any part of the credit to a lessee of the mine reclamation site. Excess credit can be carried forward for up to 10 years. Excess credit cannot be carried back or refunded. Taxpayers that propose to make qualified investments at a mine reclamation site may apply to the Indiana economic development corporation (IEDC) to enter into an agreement for the tax credit. A taxpayers will not be entitled to claim the credit if the IEDC determines that the taxpayer has substantially reduced or ceased its operations in Indiana so that it could relocate to a mine reclamation site. The aggregate amount of the credit is capped at $25 million for the period beginning Jan. 1, 2023 through Dec. 31, 2027. These provisions are retroactively effective to Jan. 1, 2023. Ind. Laws 2023, PL 214 (HB 1106), signed by the governor on May 4, 2023.
Maine: New law (LD 1313) modifies the credit for major business headquarters expansions to change the definition of “employee based in the State” to mean “employees that perform more than 50% of employee-related activities from the employer at a location in this State.” (Changed from “at the headquarters in the State.”) The law also adds that the additional new, full-time employees must have been hired (jobs added) on or after Jan. 1, 2018. LB 1313 is retroactively applicable to Jan. 1, 2021. Maine Laws 2023 (1st Spec. Sess.), ch. 157 (LD 1313), signed by the governor on June 12, 2023.
Nebraska: New law (LB 92) establishes tax credits for semiconductor manufacturing. The intent of the Legislature is that the application of a taxpayer that is Nebraska-based covered entity as defined in 15 U.S.C. 4651 under the federal CHIPS Act (PL 116-283) be approved upon receipts if certain criteria is met, including that the taxpayer’s application meets the federal eligibility requirements of the CHIPS Act. Within 30 days of receipt and approval of an application, the director will issue the taxpayer a written agreement that contains total incentives, refunds and credits earned through the ImagiNE Nebraska Act that equal 25% of the taxpayer’s investment in qualified property for the fabrication, assembly, testing, advanced packaging or production of semiconductors or technologies with extensive microelectronic content. Taxpayers cannot carryforward earned but unused incentives past the performance period. The law also allows a Nebraska-based covered entity to use earned incentives or credits under the ImagiNE Nebraska Act to: (1) get a refund from Nebraska equal to the amount that the taxpayer demonstrates it paid after the date of the complete application to repay the principal or interest on revenue bonds issued by an inland port authority; (2) provide financial assistance to public and private sector initiatives intended to improve the state’s ability to attract microelectronic-based enterprises; (3) provide financial assistance to community colleges working with the private sector and other in-state colleges and technical schools to support education expansion and the development of curricula to meet the needs of the domestic semiconductor workforce in Nebraska as set forth in Section 9902(a)(2)(B) of the CHIPS Act; and (4) other eligible use allowed under the ImagiNE Nebraska Act. Neb. Law 2023, LB 92, signed by the governor on June 6, 2023.
Rhode Island: New law (HB 5200 Sub. A) creates a low-income housing tax credit program that can be claimed against various taxes include the corporation and individual income taxes, public service corporation tax, bank tax, and insurance company tax. The credit will be available to eligible taxpayers in five equal annual increments. Excess credit can be carried forward for up to four years. Upon the request of a taxpayer, and subject to annual appropriation, the state will redeem this credit, in whole or in part, for 90% of the credit’s value. Unused credit can be transferred, sold or assigned to taxpayers eligible for the low-income housing tax credit. The total amount of credits available annually is capped at $30 million. The new credit provisions took effect upon passage and sunset after June 30, 2028. The law also extends through Dec. 31, 2024 (from Dec. 31, 2023), the sunset dates of the Rebuild Rhode Island tax credit, the Rhode Island Tax Increment Financing program, Tax Stabilization Incentive, among other programs. R.I. Laws 2023, HB 5200 Sub. A, signed by the governor on June 16, 2023.
Montana: New law (SB 530) provides a property tax abatement for manufacturing machinery, fixtures and equipment installed and placed in service after Dec. 31, 2022. Such property is exempt or partially exempt from tax for a five-year period starting from the later of the date it was placed in service or the effective date of this Act. After that period, the amount of the exemption allowed is phased out at a rate of 20% of the amount allowed by the governing body a year. Property will be assessed at 100% of its taxable value after a 10-year period. Taxpayers claiming this exemption/abatement must maintain adequate books and records demonstrating the investment the owner made when installing and placing the property into service in Montana. A taxpayer must submit an application for this exemption/abatement and a project plan to the governing body and receive approval. The governing body, with 120 days of receiving the application, will issue a decision regarding whether to allow the abatement at 100%, 90% or 80%; if the governing body fails to timely issue a decision, the application is considered approved in an amount equal to 100%. The law changes apply to property tax years beginning after Dec. 31, 2023. Mont. Laws 2023, ch. 695 (SB 530), signed by the governor on May 19, 2023.
Rhode Island: New law (HB 5200 Sub. A) establishes a statewide exemption from tangible property tax. Specifically, the law requires a city, town or fire district to provide a $50,000 exemption from tangible property tax to tangible property taxpayers on the aggregate amount of all ratable, tangible personal property not otherwise exempt from tax. (Ratable, tangible personal property valued above $50,000 remains subject to tax.) The exemption applies to the assessment date of Dec. 31, 2023 and for each assessment date thereafter. Individual personal exemptions granted to such taxpayers at the time of this provision’s effective date will be applied to the assessed values before applying the statewide exemption, while existing exemption that are uniformly applied to all such taxpayers will be disregarded. The exemption does not apply to public service corporation tangible property taxed under R.I. Gen. Laws §44-13-13 or renewable energy resources and associated equipment taxed under R.I. Gen. Laws §44-5-3(c). The law also caps the tax rate for the class of property that include tangible personal property for any city, town or fire district at the rate in effect for the assessment date of Dec. 31, 2022. For assessment dates on and after Dec. 31, 2023, however, any city, town or fire district can tax all other classes of property or property for which no classification has been enacted, at a rate different from the rate for tangible personal property. Lastly, for assessment dates on or after Dec. 31, 2023, the law disregards the tangible property tax rates for purposes of complying with limitations on the extent the effective tax rate of one class of property can exceed that of another or the requirement that the same percentage rate change be applied across property classifications. These changes took effect upon passage. R.I. Laws 2023, HB 5200 Sub. A, signed by the governor on June 16, 2023.
Washington: New law (HB 1756), beginning with tax levied for collection in calendar year 2025, exempts from the state property tax levy all qualified personal property owned by an eligible taxpayer and used for the generation of renewable energy. In lieu of the state property tax levy, taxpayers granted a personal property tax exemption under the new law are subject to a production excise tax. The production excise tax applies to the privilege of using qualified renewable energy generating systems as an electric power source in Washington, and the amount of the tax varies based on technology (i.e., solar energy, wind energy and energy storage) and elected term (i.e., an exemption period of 10 years or 15 years). Wash. Laws 2023, ch. 427 (HB 1756), signed by the governor on May 11, 2023. For more on this development, see Tax Alert 2023-1244.
Wisconsin: New law (AB 245) repeals the tangible personal property tax, effective for property tax assessments as of Jan. 1, 2024. Prior to the repeal, Wisconsin imposes property tax on both real estate and on business tangible personal property, such as machinery and equipment, furniture and fixtures, and tools and other equipment. Wis. Laws 2023, AB 245, signed by the governor on June 20, 2023. For more on this development, see Tax Alert 2023-1149.
California: The California Franchise Tax Board (FTB) issued a bulletin informing taxpayers that effective July 1, 2023, it has made permanent the option to submit statute of limitation waivers with electronic signatures using its approved signing process. Previously, the FTB had allowed this option temporarily through June 30, 2023. Cal. FTB, Public Service Bulletin: E-Signatures for SOL Waivers (June 27, 2023).
California: The California Franchise Tax Board (FTB) extended through Oct. 31, 2023 (from June 30, 2023), its temporary e-Signature options for taxpayers or their representatives to submit signed paper returns and other documents, except for Power of Attorneys (POAs). Two acceptable alternative signature measures for paper returns are: (Method 1) an attached document that must be included with the filed return that provides a copy of the original signature – the attached document should identify what the document signature is for (e.g., Corp XX, 2021 Form 100) and state "Refer to the attachment for a copy of the original signature" on the signature line; or (Method 2) a paper return with a faxed signature on the signature page. For all other documents, except POAs, that normally require an original signature, documents with photographed or digital copies of required signatures will be accepted. Cal. FTB, Public Service Bulletin: Temporary Signature Options Extended (June 27, 2023).
PAYROLL & EMPLOYMENT TAX
Arkansas: The Arkansas Department of Finance and Administration has issued revised income tax withholding instructions reflecting the reduction in the top marginal tax rate enacted under SB 549 earlier this year. For more on this development, see Tax Alert 2023-1070.
California: Under SB 951, enacted in 2022 and effective Jan. 1, 2024, the contribution limit (wage cap) applicable to California’s state disability insurance (SDI) tax is removed, resulting in SDI tax on all taxable wages. California SDI taxes are paid by employees. For 2023, the contribution rate is 0.9% on annual wages up to $153,164 for a maximum contribution of $1,378.48. For additional information on this development, see Tax Alert 2023-1134.
Maryland: New law (SB 828) delays the start date of the state's paid family and medical leave insurance (FMLI) program and makes other changes to the program's requirements. Maryland's FMLI program was originally enacted in 2022 under the Time to Care Act (SB 275) and participation is mandatory for employers with one or more employees. Md. Laws 2023, SB 828, enacted on May 1, 2023. For more on this development, see Tax Alert 2023-1029.
Minnesota: On May 24, 2023, Minnesota Governor Tim Waltz signed into law the Omnibus Jobs Act (SF 3035), which includes provisions that, effective Jan. 1, 2024, require that employers with one or more employees provide their employees with earned sick and safe leave (ESSL) of one hour for every 30 hours worked up to 48 hours per year. Minnesota's ESSL law is one of the most comprehensive in the United States, addressing, among other things, the ESSL rights of rehired employees and employees transferred from a predecessor employer to a successor employer. For more on this development, see Tax Alert 2023-1088.
Nevada: The Nevada Department of Taxation (Department) announced that because the state's Modified Business Tax (MBT) collected in the previous fiscal year exceeded the forecasted amount by 4%, the MBT rates will decrease proportionately, effective July 1, 2023. MBT rates effective July 1, 2023: (1) General business - the MBT rate is 1.17% (previously 1.378%) of gross wages after deducting employee health benefits paid by the employer; the first $50,000 of gross wages is not taxable; (2) Financial institutions and mining - the MBT rate is 1.554% (previously 1.853%) of gross wages after deducting employee health care benefits paid by the employer; there is no $50,000 exemption. For more on this development, see Tax Alert 2023-1142.
Rhode Island: New law (HB 5200 Sub. A) repeals the litter control tax, effective Jan. 1, 2024. Prior to the repeal of this tax, sales tax permit holders that sold food and/or beverages were required to annually apply for a litter control participation permit for each place of business in Rhode Island; the amount of the applicable fee for each class of the permit depended on a retailer’s gross receipts. R.I. Laws 2023, HB 5200 Sub. A, signed by the governor on June 16, 2023.
Rhode Island: New law (HB 5200 Sub. A) allows utility companies that sell electricity and natural gas to electric and gas utility customers during the months of December 2023 through March 2024 to apply for a rebate payment in the amount of the public service corporation tax due that would be charged to its customers during this period. To be eligible for the rebate, during this period the utility company must pay the public service corporation tax in accordance with R.I. Gen. Laws §44-13-4 and not charge its electric and gas utility customers the tax due or paid but reflect the amount of tax along with an offsetting credit on each customer’s bill. The utility company must apply for the rebate by May 31, 2024. These rebates are not subject to offset and will not be considered gross earnings for purposes of the tax. These provisions took effect upon passage. R.I. Laws 2023, HB 5200 Sub. A, signed by the governor on June 16, 2023.
International – Costa Rica: On June 15, 2023, the Government of Costa Rica published in the Official Gazette the Executive Decree No. 44051-H, which contains the Regulations to the General Customs Law (Regulations). The Regulations establish: (1) new procedures applicable to the Auxiliaries of the Customs Public Function; (2) provisions for Temporary Custom Warehouses, Special Custom Agents, and Authorized Economic Operator (AEO); (3) dispositions regarding customs criteria requested through advanced rulings and technical consultations that can be filed by interested parties; and (4) provisions regarding the new regimes and procedures introduced in the General Customs Law, such as self-rectification of returns, deferred and fractioned payment, among others. For additional information on this development, see Tax Alert 2023-1089.
VALUE ADDED TAX
International – Denmark: The Danish rules regarding payment of additional value-added tax (VAT) in connection with subsequent corrections of VAT returns will be changed significantly as of July 1, 2023. The new rules were adopted more than a year ago, but the date of entry into force has not been announced until now. As the new rules enter into force from July 1, 2023, it is important that taxpayers act swiftly if they need to make corrections to past VAT returns, particularly if additional VAT will be payable to the Danish tax authorities. For more on this development, see Tax Alert 2023-1062.
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 See Tax Alert 2022-1769.
2 The law defines “mine reclamation site” as “land that has been mined using surface mining methods or underground mining methods, specifically and primarily for the removal of coal, and land contiguous to such previously mined land.”