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November 3, 2023

State and Local Tax Weekly for October 13 and October 20

Ernst & Young's State and Local Tax Weekly newsletter for October 13 and October 20 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.


IRS releases guidance on transferring clean vehicle credits

The IRS and Treasury Department proposed regulations (REG-113064-23) and Revenue Procedure 2023-33 on how buyers can transfer clean vehicle credits under IRC §§ 30D (clean vehicles) and 25E (previously-owned vehicles) to eligible dealers at the time of purchase. For vehicles purchased on or after Jan. 1, 2024, eligible dealers would receive advance payment of the credits from the IRS and could give the buyers cash or put the credit towards a down payment.

An updated Fact Sheet (FS-2023-22) incorporates this new information. This guidance also adds to earlier information on eligibility requirements for manufacturers and sellers of clean vehicles (Tax Alert 2023-0076); the definition of clean vehicles (Tax Alert 2023-0251); and IRC § 30D requirements around critical minerals and battery components (Tax Alert 2023-0660).

Transfer procedure: Transferring credits is optional on the part of the buyer and the dealer. Transferring the credits at the time of purchase, however, allows buyers to receive the immediate benefit of the credit before filing their tax return. All buyers receiving the credit, even if they transfer the credit at the time of purchase, must use Form 8936, Clean Vehicle Credits, to claim the IRC §§ 25E or 30D credit in the tax year in which the clean vehicle is placed in service.

The proposed regulations and Revenue Procedure 2023-33 give specific procedures for performing the transfers and would add Treas. Reg. §§ 1.25E-3 and 1.30D-5, establishing an advance payment program, which is the only way that dealers may receive a transferred clean vehicle credit.

The election to transfer the credits must be made no later than at the time of sale (when the buyer takes possession of the vehicle) and is irrevocable. The buyer must transfer the entire credit and, in exchange, the dealer must pay the credit to the buyer or treat the credit as a down payment or partial payment.

Advance payment program: Dealers will receive the value of the credits from the IRS through the advance payment program. To participate in this program, dealers must (1) submit additional registration information, (2) be "in dealer tax compliance," (3) retain information on the vehicle transfer election for three years and (4) meet any other requirements.

To receive advanced payments, dealers must, at the time of sale, provide the vehicle's VIN, the seller report and the buyer disclosure information through the IRS Energy Credits Online Portal. Electronic payments will be disbursed to bank accounts, not by paper check. The IRS has indicated that seller reports will be accepted/rejected in real time and anticipates making the deposits within 48 - 72 hours of a successfully submitted time-of-sale report and advance payment request.

The IRS may suspend a dealer's eligibility to participate in the advance payment program if the dealer does not comply with the requirements and subsequently revoke the registration for failure to cure non-compliance.

For additional information on this development, including registration requirements, tax consequences, credit eligibility, and mathematical or clerical errors, see Tax Alert 2023-1723.

Colorado revenue department proposes rules on buyer's claims for refund of sales tax paid

On Nov. 2, 2023, the Colorado Department of Revenue (CO DOR) will hold a public rulemaking hearing on sales tax rules to implement law enacted in 2022 (HB 22-1118), that impose significant new penalties on refund claims for sales and use taxes paid by a purchaser to a vendor. (See Tax Alert 2022-0746.) Initially, the CO DOR had proposed two separate rules, but has since combined Proposed Rule 39-26-703-1 "Protective Refund Claims for Sales or Use Tax Paid to a Seller" into Proposed Rule 39-26-703-2 "Buyer's Claims for Refund of Sales or Use Tax Paid" (hereafter, proposed rule). The proposed rule would prescribe the form for making a refund application for sales or use taxes and the data, information and documentation an applicant must provide, and it would provide guidance on protective refund claims for sales and use tax paid to the seller and the penalty imposed for incomplete refund claims. Applicants would have to comply with the requirements of this rule for refund claims filed after the rule's effective date.

An "applicant" filing the protective refund claim would include both the purchaser who paid the sales tax and any person who prepares the refund claim on behalf of the purchaser. An "applicant" would not include a seller that is claiming a sales tax refund that it will distribute to the purchaser. The proposed rule lists the information an applicant would have to include with their refund claim. Such information includes the purchaser's name, address and federal employer identification number (or social security number, Colorado account number); a description of the purchaser's business activity and the products/services it provides; a complete itemization of all purchases included in the claim; invoices, purchase orders and receipts; and proof of purchase and proof of payment. Applicants also would have to make a good faith effort to obtain the seller's account number. If the refund claim includes purchases made in the conduct of the purchaser's businesses, the applicant would have to separately state their refund claim amounts for state, city, county and special district sales tax paid. Certain claims may require the provision of additional data, information and documentation, including refund claims for machinery used in an enterprise zone or for computer software that is excluded from the definition of tangible personal property. The proposed rule describes how to satisfy the proof of purchase and the proof of payment requirements.

The proposed rule also would provide guidance on protective refund claims for sales and use tax paid to the seller and the penalty imposed for incomplete refund claims. Under the general rule, the CO DOR would have the discretion to decide how to process protective refund claims, noting that it would be in the CO DOR and taxpayers "interest … to delay action on protective claims until the pending litigation or other contingency is resolved." The proposed rule would define a "protective claim" as one (1) that is contingent on future events (e.g., resolution of pending litigation, reasonably expected tax law changes), (2) the future event is unlikely to occur until after the time period for claiming a refund has expired such that the validity of the claim cannot be determined at the time the claim is filed, and (3) the CO DOR may immediately allow or disallow the claim upon the resolution of the contingency. The proposed rule would make clear that "[a] refund claim is not a protective claim merely because the claimant labels it as such." Rather, the proposed rule would require a protective claim satisfy all of the following: (1) be in writing and be signed by the claimant; (2) include the claimant's name, address, social security number (for individuals) or federal employer identification number or Colorado account number (for corporations, partnerships and other legal entities); (3) identify and describe the contingencies upon which it depends; (4) clearly alert the CO DOR to the nature of the claim; and (5) identify the specific months for which the refund is sought. A claimant that timely submits a valid protective refund claim would have to perfect their claim by timely submitting any additional data, information and documentation.

After a protective claim has been filed, the CO DOR would determine whether the refund claim is subject to the penalty imposed under C.R.S. §39-26-703(5)(a)(I)(A). This penalty is equal to 5% of the total refund claimed and is imposed on refund claims of $5,000 or more that are found to be materially incomplete (i.e., the claim is missing the required form and substantially all of the required data, information and documentation). Before a penalty is assessed, the CO DOR would have to notify the purchaser or the preparer of the claim of the claim's incompleteness. The purchaser/preparer would have 60 days to provide the missing information or withdraw the refund claim. The CO DOR, upon request and for a reasonable cause shown, would be allowed to provide additional time to submit the missing information.

Additional information on the proposal is available here.


Indiana: The Indiana Department of Revenue issued guidance on the state's new elective pass-through entity tax (PTET), which can be claimed starting in 2022. Topics addressed in the guidance include the following: (1) entities eligible to elect to be subject to the PTET; (2) eligible and ineligible owners; (3) making a PTET election and the election for resident pre-apportionment/post-apportionment treatment; (4) income inclusion for PTET and withholding/composite tax — including the calculation for 2023 and simplified calculation for 2024 and the standard method of calculation for 2024 and later; (5) determination of income for resident owners and nonresident owners; (6) general and special rules for computation of tax; (7) use of tax credits against the PTET; (8) PTE reporting of PTET by the paying or reporting entity; (9) PTE reporting of PTET on an IN K-1; (10) reporting PTET credits on recipients' tax returns; (11) payment of PTET; (12) composite withholding tax with PTET; (13) treatment of PTET for estimated tax purposes; (14) safe harbor provisions for payments made by the deadline; (15) income tax addback for PTET deducted for federal adjusted gross income tax purposes; and (16) special rules related to PTET adjustments. The guidance includes examples reflecting the application of the PTET. The guidance took effect upon publication. Ind. Dept. of Rev., Income Tax Info. Bulletin #72B (Oct. 2023).

Massachusetts: The Massachusetts Department of Revenue (MA DOR) issued FAQs on the 4% surtax imposed on taxable income over $1 million starting in tax year 2023. (The threshold will be adjusted annually for inflation.) The surtax is imposed on ch. 62 taxpayers, including individuals, trusts, estates and unincorporated associations.1 For purposes of determining the surtax, taxable income is the sum of a taxpayer's Part A,2 Part B3 and Part C4 taxable income for the year; in adding up the sums of Parts A, B and C, only positive taxable income amounts are added together (negative amounts are treated as zero). The MA DOR further explained that a tax item from Parts A, B or C can be used to reduce taxable income in another part to the same extent it is otherwise permitted under the relevant statute; however, in determining the surtax, once taxable income in each part is determined a negative amount in one part cannot be used to reduce taxable income in another part. In determining the application of the surtax, income from the sale of a personal residence is included as well as income from an installment sale to the extent such income is included in Massachusetts income. The MA DOR's FAQs provide guidance on how to report the surtax on the 2023 tax return, and an image of the draft Schedule 4% Surtax that taxpayers may use to determine their taxable income. Returns and payments must be filed/made electronically. The MA DOR said a pass-through entity cannot elect to pay a 9% pass-through entity excise to take into account the 4% surtax because the PTE tax is imposed at a statutory rate of 5%. The FAQs also (1) include special rules for nonresident composite filers — the surtax cannot be reported on a composite return; (2) provide guidance on impact of the surtax on personal income tax withholding and estimated payments, extensions and penalties; (3) include special rules for withholding and estimated tax penalties for tax year 2023; and (4) discuss the impact of the surtax on the calculation of the other jurisdiction credit. Regarding the other jurisdiction credit, the MA DOR noted that instructions and applicable worksheets will be available soon. Mass. Dept. of Taxn., FAQs "4% Surtax on Taxable Income Over $1,000,000" (Oct. 11, 2023).

New Jersey: In response to recently enacted corporation business tax (CBT) reform, the New Jersey Division of Taxation (Division) has issued guidance on the following: (1) the state's conformity to IRC §1502, regarding federal consolidated return rules, for combined returns — TB-103(R) (revised Oct. 13, 2023); (2) income reporting and accounting methods of non-U.S. corporate members of a combined group — TB-101(R) (revised Oct. 13, 2023); (3) net operating losses (NOLs) and combined groups — TB-95(R) (revised Oct. 11, 2023); (4) general information on the NOL regime for tax years ending on and after July 31, 2019 — TB-94(R) (revised Oct. 11, 2023); (5) changes to the dividend exclusion and the historic ordering of NOLs, the dividend exclusion, and the international banking facility deduction — TB-111 (issued Oct. 11, 2023); and (6) gross income tax allocation and uniformity with corporation business tax sourcing for receipts business income — TB-112 (issued Oct. 11, 2023). Additional information the CBT reform is available here.

Pennsylvania: The Pennsylvania Department of Revenue (PA DOR) issued revised guidance on the application of the net loss deduction limitation under IRC §§ 381 and 382 in computing the Pennsylvania Corporate Net Income Tax (CNIT). The PA DOR explained that IRC §382(d)(3) incorporates disallowed interest under IRC §163(j) within the term "pre-change loss". Because of this, the PA DOR added a discussion on IRC §163(j) interest expense limitation carryforwards to address the impact on the amount of net loss deductible for CNIT purposes for the tax periods beginning after the initial period affected by the TCJA's changes to IRC §163(j). (The TCJA changes to IRC §163(j) apply to tax years beginning on or after Jan. 1, 2018.) The guidance provides a detailed discussion on the appropriate application of IRC § 382 and the amount of the IRC §163(j) carryforward interest that can be deducted. PA DOR, Corporation Tax Bulletin 2008-03 (updated Oct. 11, 2023).

Pennsylvania: The Pennsylvania Department of Revenue (PA DOR) issued updated guidance on the Pennsylvania Corporate Net Income Tax (CNIT) treatment of IRC §163(j) to provide additional information to taxpayers filing a federal consolidated return. In the original guidance, the PA DOR said that it only expected Pennsylvania corporate taxpayers that file federal consolidated returns to limit its Pennsylvania separate company interest expense deduction for the same tax period in which the federal consolidated group it is part of reports an IRC §163(j) interest expense limitation on the group's consolidated federal Form 1120. In the updated guidance, the PA DOR states, that for tax years 2019 and later, it "interprets this position to mean that so long as the federal consolidated group … is not subject to any limitation on the deduction of its current year interest expenses under [IRC §163(j)], the Pennsylvania corporate taxpayer is not going to be subject to an interest expense limitation for CNIT purposes, even if it is not able to fully deduct in that tax year all of the previously calculated federal interest expense deduction limitation carried forward from earlier periods on its current year federal consolidated return." Thus, taxpayers with an IRC §163(j) limitation for an earlier period and that participate in a current year federal consolidated return with no IRC §163(j) interest expense limitation on current year interest expenses, can fully deduct on their CNIT return current year separate company interest expenses as well as prior year interest expense limitation carryforwards. The PA DOR said that while it did not expect exceptions to this policy to be common, it noted that exceptions could arise where the current year limitation on the deduction of a carryforward amount of previously denied interest expense is limited by code section other than IRC §163(j), such as IRC §382, or the current/former year limitation is determined at the partnership level. In addition, the PA DOR said that carried forward related party interest addback would have to be added back for CNIT purposes in the same year as the remaining federal interest expenses are deducted on the taxpayer's federal pro-forma Form 1120. PA DOR, Corporation Tax Bulletin 2019-03 (updated Oct. 12, 2023).


California: New law (AB 1097) temporarily amends the definition of "qualified purchaser" by removing the condition that the person receives at least $100,000 in gross receipts from business operations per calendar year and replaces it with the condition that the person makes more than $10,000 in purchases subject to use tax per calendar year if the use tax imposed on those purchases has not otherwise been paid to a retailer engaged in business in California or to a retailer authorized to collect the tax. This change is effective until Jan. 1, 2029, when it repealed. On Jan. 1, 2029, the definition of "qualified purchaser" reverts back to the definition before the temporary change. AB 1097 takes effect Jan. 1, 2024. Cal. Laws 2023, ch. 355 (AB 1097), signed by the governor on Oct. 7, 2023.

California: New law (AB 543) extends through Jan. 1, 2029 (from Jan. 1, 2024) the sales and use tax exemption for the sale of fuel and petroleum products to a water common carrier for immediate shipment outside California for consumption in the conduct of its business as a common carrier after the first out-of-sate destination. AB 543 took immediate effect. Cal. Laws 2023, ch. 442 (AB 543), signed by the governor on Oct. 8, 2023.

California: New law (AB 1203 ) temporarily exempts from sales and use tax gross receipts from the sale of breast pumps, breast pump collection and storage supplies, breast pump kits, and breast pads. The law defines "breast pumps", "breast pump collection and storage supplies", and "breast pump kits". This temporary exemption applies to sales made on or after April 1, 2024 and before April 1, 2029. Cal. Laws 2023, ch. 833 (AB 1203), signed by the governor on Oct. 13, 2023.

California: New law (AB 314) extends the sales and use tax exemption for new, used or remanufactured trucks or new or remanufactured trailers or semitrailers for use in interstate or out-of-state commerce through Jan. 1, 2029 (from Jan. 1, 2024). In addition, the exemption is expanded to used trailers or semitrailers through the same date. The exemption applies to such trucks and trailers purchased for use without California and is delivered to the purchaser within California, and the purchaser drives or moves the vehicle to any point outside California within 30 or 75 days of the date of the delivery of the vehicle to the purchaser. The purchaser or purchaser's agent must furnish to the manufacturer, remanufacturer or dealer written evidence of an out-of-state license and registration for the vehicle. AB 314 took immediate effect. Cal. Laws 2023, ch. 427 (AB 314), signed by the governor on Oct. 8, 2023.

Nevada: In the October 2023 issue of Nevada Tax Notes, the Nevada Department of Taxation said that Nevada sales tax applies to credit card or charge card processing fees included on a sales receipts or invoice of a taxable sale. The fee, however, is not taxable when the sale is not otherwise subject to sales tax. Nev. Dept. of Taxn., Nevada Tax Notes (Issue No. 197, Oct. 2023).


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 Jan. 22 to 24, 2024, with phase II running from Jan. 25 to 29, 2024. The approval date for these applications is Feb. 26, 2024. For recurring and relocating television series, the application period runs from Feb. 26 to 28, 2024, with phase II running from Feb. 29 to March 4, 2024. For new and pilot television series and miniseries, the application period runs from March 4 to 6, 2024, with phase II running from March 7 to 11, 2024. The approval date for the applications for these television series is April 8, 2024. Additional information on the credit program is available here.

Illinois: The Illinois Department of Commerce and Economic Opportunity (Department) has proposed for public comment new rules (14 Ill. Adm. Code 120) that would implement the Manufacturing Illinois Chips for Real Opportunity (MICRO) Act, which provides incentives for in-state semiconductor and microchip production. The proposed rules would (1) define key terms; (2) describe eligibility determinations; (3) provide guidance on submitting an application to have a project considered for designation as a MICRO project and the information that must be included in the application such as a hiring plan, jobs impact, planned capital improvements; (4) discuss the Department's process for reviewing the application and notification of the denial or approval of the application; (5) explain the tax credits available to taxpayers and the determination of the amount and term of the credits; (6) describe the tax credit agreement the Department and taxpayers enters into; (7) explain the process for a taxpayer to be eligible for a certification of verification; (8) noncompliance with the agreement and recapture and reallocation of recaptured amounts; and (9) describe the utility tax exemption. Comments on the proposed rules are due Nov. 27, 2023. Full text of the proposed rules was published in 2023 Ill. Register, Vol. 47, Issue 41 (Oct. 13, 2023).

Oregon: The Oregon Business Development Department approved temporary administrative rules 123-401-0010 through -0050 regarding the research and development tax credit for semiconductors. To claim the credit for tax year 2024, Rule 123-401-0010 requires eligible taxpayers submit a one-time registration form by Dec. 1, 2023, followed by an annual application, to obtain certification from the Department for claiming the credit for 2024 and subsequent tax years. Taxpayers that do not register are not eligible to apply for certification and are prohibited from claiming a credit for tax year 2024. The rules provide guidance on making the initial one-time registration, with Rule 123-401-0040 describing the registration process and information required to be included with the registration form. As described in Rule 123-401-0030, to be eligible to register for the credit, a taxpayer must (1) be a qualified semiconductor company, (2) incur qualified research expenses or basic research payments, and (3) be subject to personal income tax or corporate excise tax. Rule 123-401-0050 states that registration materials are exempt from public disclosure and, therefore, will be treated as confidential. The temporary rules are effective Oct. 6, 2023 through April 2, 2024.


California: New law (SB 419) extends the property tax exemption for qualified property used in space flight through Jan. 1, 2029 (from Jan. 1, 2024). "Qualified property" includes (1) tangible personal property that has space flight capacity, such as an orbital space facility, space propulsion system, space vehicle, launch vehicle, satellite or space station of any kind, and any component thereof; and (2) fuel of a quality that is not adaptable for use in ordinary motor vehicles, but is produced, sold and used exclusively for space flight. SB 419 took immediate effect. Cal. Laws 2023, ch. 713 (SB 419), signed by the governor on Oct. 10, 2023.

Louisiana: On Oct. 14, 2023, Louisiana voters approved a Constitutional amendment (CA No. 4 (Act 48, 2023 — HB 46)) that prohibits a nonprofit organization from being eligible for the ad valorem tax exemption for residential property if said property (1) is in a state of disrepair and manifests conditions that endanger the health or safety of the public, and (2) the property owner habitually neglects the property's maintenance as evidenced by three or more sustained code enforcement violations issued for the property in the prior 12 months. This prohibition is effective for tax years beginning on or after Jan. 1, 2024.


California: The California Franchise Tax Board (FTB) announced that it will follow the additional federal extension for taxpayers affected by the winter storms. On Oct. 16, 2023 the IRS announced that it was further extending the deadline for affected California taxpayers to file their federal return and pay tax due to Nov. 16, 2023 (from Oct. 16, 2023). Later that same day, the FTB confirmed that California also extended the filing and payment deadlines for eligible businesses and individuals to Nov. 16, 2023.


Multistate: EY's Employment Tax Advisory Services group has developed a monthly publication summarizing the latest employment tax and other payroll developments in US federal, state and local payroll and human resources matters. This publication also provides our insights to improve US employment tax and payroll compliance. The September 2023 issue is available via Tax Alert 2023-1680.

Colorado: New law (HB 12-1006), effective for tax year 2023, requires employers provide a written annual notice to their employees about available federal and state tax credits, including: the Colorado earned income tax credit, the federal earned income tax credit, the Colorado child tax credit, the federal child tax credit, and any other information required in regulations issued by the Colorado Department of Revenue. This annual notice must be provided to employees at the same time as the state Form W-2, which is due on or before January 31 for the previous tax year. For more on this development, see Tax Alert 2023-1737.

Kentucky: The City of Elizabethtown, Kentucky announced that under Ordinance No. 13-2023, and effective Jan. 1, 2024, its Occupational License Tax (OLT) will increase from 1.35% to 1.95% of taxable wages. Employers are required to withhold the Elizabethtown OLT from taxable wages paid to resident and nonresident employees providing services within the Elizabethtown city limits. For the purposes of the OLT, taxable wages are defined as any form of remuneration that is subject to federal income tax, adjusted by adding the following: (1) amounts contributed by an employee to any retirement, profit sharing or deferred compensation plan; and (2) amounts contributed by an employee on a pretax basis to any welfare benefit, fringe benefit or other benefit plan, including, but not limited to arrangements under IRC §§ 125 and 132. For more on this development, see Tax Alert 2023-1729.

Ohio: The Ohio Department of Taxation (Department) has issued updated percentage method, optional computer method and withholding tables for use with wages paid on and after Nov. 1, 2023. The updates reflect legislation enacted this year that lowered personal income tax rates retroactive to Jan. 1, 2023. For additional information on this development, see Tax Alert 2023-1675.


Washington: The Washington Department of Revenue (WA DOR) issued an interim guidance on the calculation of the Washington capital gains excise tax credit for taxes paid in another taxing jurisdiction. The Washington capital gains excise tax is a 7% tax imposed on an individual's sale or exchange of long-term capital assets. Individuals whose long-term capital gain is subject to tax in Washington and other taxing jurisdictions may qualify for a credit against the Washington capital gains excise tax for income or excise taxes the taxpayer paid in another jurisdiction on capital gains derived from capital assets that are in another jurisdiction and the other jurisdiction also taxed the long-term capital gain from that asset. The credit may not exceed the total amount of Washington capital gains excise tax due; unused credit cannot be carried back or forward. The guidance describes how to calculate the credit and provides illustrative examples. The interim guidance is effective until the WA DOR issues final guidance or cancels it. Wash. Dept. of Rev., "Interim statement regarding the capital gains excise tax and calculation of credit for taxes paid to another taxing jurisdiction" (Oct. 11, 2023). Additional information on the Washington capital gains excise tax is available here .

Washington: The Washington Department of Revenue (WA DOR) issued an interim guidance prescribing the methodology for determining Washington capital gain from Section 1256 contracts for purposes of the Washington capital gains excise tax. The WA DOR deems Section 1256 contracts that are treated as sold at the close of the taxable year under 26 U.S.C. §1256(a) as sold for Washington capital gains excise tax purposes. Thus, long term capital gains and losses from such sales are included in the calculation of the individual's adjusted capital gain and Washington capital gain to the extent such gain or loss is included in the individual's federal net long-term capital gain. The interim guidance provides illustrative examples. The interim guidance is effective until the WA DOR issues final guidance or cancels it. Wash. Dept. of Rev., "Interim statement regarding the capital gains excise tax and Section 1256 contracts" (Oct. 11, 2023). Additional information on the Washington capital gains excise tax is available here.


International — Dominican Republic: On Oct. 3, 2023, the Dominican Tax Authority issued General Norm (GN) number 06-2023 (GN 06-23), which appoints payment processing companies, payment aggregators and electronic payment companies as withholding and collection agents of the Value Added Tax (VAT) on credit card and other electronic transactions. In addition, it establishes criteria for the VAT exemption for financial services offered by these companies and expands the scope of GN 04-04 on the Tax on the issuance of checks and payments by electronic transfers. This GN also introduces certain changes to the formats for sending information related to transactions and withholdings, a task that payment processing companies, payment aggregators and electronic payment entities must perform at the end of each week. For additional information on this development, see Tax Alert 2023-1689.

International — Rwanda: The Government of Rwanda gazetted the Value Added Tax Law No 049/2023 (VAT Law 2023) on Sept. 14, 2023. The VAT Law 2023 repealed the VAT Law No 37/2012 that was gazetted in December 2012 and all prior legal provisions that were contrary to the VAT Law 2023. The primary objective for enacting the VAT Law 2023 is to align its provisions with the Income Tax Law (ITL 2022), which was enacted on Oct. 28, 2022 in tandem with the new developments within the Kigali International Financial Center initiative, and the Tax Procedure Law (TPL 2023), which was enacted on March 31, 2023 with an aim of enhancing tax compliance and expanding the tax base in Rwanda. The new VAT legislation encompasses a comprehensive approach to enhance taxpayer awareness of their duties, provide additional clarity to current provisions, advocate for a reduction in carbon emissions, reinforce previously ungazetted provisions and broaden the tax base by introducing incentives for end consumers. Tax Alert 2023-1709 highlights the key provisions under the gazettement of VAT Law of 2023.

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 The MA DOR explained that the surtax applies to taxpayers meeting the $1 million threshold who are required to file: (1) Form 1 (residents), (2) Form 1-NR/PY (nonresidents and part-year residents), (3) Form 2 (trusts and estates), (4) Form M-990T-62 (exempt trusts and unincorporated associations), or (5) Form 3M (clubs and other organizations not engaged in business for profit).

2 Part A income consists of short-term capital gains, long-term gains on collectibles and interest and dividends other than Massachusetts bank interest.

3 Part B income consists of all other taxable income not included in Part A or Part C.

4 Part C income consists of long-term capital gains.