January 4, 2024 State and Local Tax Weekly for December 15 and 22 Ernst & Young's State and Local Tax Weekly newsletter for December 15 and 22 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 California Superior Court finds FTB's P.L. 86-272 TAM and Publication to be "invalid underground regulations" A California Superior Court (court) has found California Technical Advice Memorandum 2022-01 (TAM 2022-01) and revised Publication 1050 — in which the California Franchise Tax Board (FTB) discussed the application of P.L. 86-2721 to activities conducted over the internet — to be "invalid 'underground regulations'" in violation of the California Administrative Procedure Act (APA).2 The San Francisco Superior Court, in granting American Catalog Mailers Association's Motion for Summary Adjudication, rendered TAM 2022-01 and revised Publication 1050 void, saying both were regulations within the meaning of the California APA but neither was adopted in compliance with the APA's requirements. Background: In 2022, the FTB issued TAM 2022-01 (the TAM) and revised Publication 1050 (Pub. 1050) to address how out-of-state sellers should apply P.L. 86-272 to common fact patterns as a result of technological advancements (i.e., activities conducted over the internet and telecommuting). The FTB's positions on protected and unprotected internet activities largely followed those expressed by the Multistate Tax Commission (MTC) in the revised Statement of Information concerning practices of the MTC and supporting states under P.L. 86-272 (Statement) without specifically adopting or referencing the Statement. In the TAM, the FTB listed three internet activities it viewed as protected business activities for purposes of P.L. 86-272 and nine internet activities it viewed as unprotected. (See Tax Alert 2022-0281.) Although the TAM did not state an effective date, the FTB applied it retroactively. American Catalog Mailers Association (ACMA) filed a complaint for declaratory relief in August 2022 and later moved for summary adjudication seeking to have the TAM and Pub. 1050 declared invalid as contrary to P.L. 86-272 and the U.S. Constitution. In response to the motion, the FTB conceded that the TAM and Pub. 1050 "were not enacted as regulations in compliance with the APA … " The FTB argued that the court could not resolve a facial challenge to the constitutionality of the guidance without first determining whether the TAM and Pub. 1050 were "invalid underground regulations." The FTB "acknowledged that if the TAM and [Pub.] 1050 constituted regulations within the meaning of the APA, they would be void." In August 2023, the court denied ACMA's motion, finding that ACMA failed "to show that the TAM and Publication 1050 are facially invalid in their entirety." The court also found TAM 2022-01 and [Pub.] 1050 are generally applicable rules subject to the APA, but nevertheless denied ACMA's motion because it was not brought on those grounds. In the instant motion, ACMA sought to have the TAM and Pub. 1050 declared "invalid underground regulations." TAM and Publication qualify as regulations under the APA: In granting ACMA's motion, the court held the TAM and Pub. 1050 are invalid underground regulations,3 as they are "generally applicable and describe the manner in which the FTB will apply P.L. 86-272 to out-of-state businesses engaged in interstate commerce over the internet." The court said the APA defines the term regulation very broadly to include "every rule, regulation, order, or standard of general application or the amendment, supplement, or revision of any rule, regulation, order, or standard adopted by any state agency to implement, interpret, or make specific the law enforced or administered by it, or govern its procedure." Citing the California Supreme Court ruling in Tidewater,4 the court explained that a regulation subject to the APA has the following identifying characteristics: (1) the agency intends its rule to apply generally, not to a specific case, and (2) the rule must implement, interpret, or make specific the law enforced or administered by the agency. The court reasoned that the TAM outlined various fact patterns that apply to out-of-state businesses that make sales to California customers and have no other activity in California, while Pub. 1050 provides a general rule for when a business's interaction with customers via its website or app constitutes engaging in business activity with a California customer. The guidance, the court concluded, "articulates general rules that declare how a certain class of cases will be decided." Further, the court noted the FTB did not dispute that the TAM and Pub. 1050 interpret its application of P.L. 86-272 to out-of-state business. The TAM's stated purpose, the court said, is to determine the internet-related fact patterns to which the protections of P.L. 86-272 apply, while Pub. 1050's purpose is to notify taxpayers "as to how the state will apply the statute" and of the FTB's intent to apply Pub. 1050 uniformly. Moreover, the court noted that the FTB in its own declarants confirmed the TAM and [Pub.] 1050 (1) are generally applicable and (2) interpret its application of P.L. 86-272 to out-of-state businesses. Additionally, the court rejected the FTB's argument that the TAM and Pub. 1050 do not constitute a "regulation" because they are not a binding rule, finding that a generally applicable rule does not need to be formal or "binding" on the agency or public. Because the TAM and Pub. 1050 constitute regulations that were not adopted in compliance with APA requirements, they are void. For more information on this development, see Tax Alert 2023-2109. New Mexico tax department adopts rules clarifying when receipts from digital advertising services are taxable On Dec. 19, 2023, the New Mexico Taxation and Revenue Department (NM TRD) adopted final rules clarifying when receipts from digital advertising services are taxable.5 The final rules also clarify the sourcing for those receipts and modify the definition of "engaging in business". The new and amended rules took effect Dec. 19, 2023. Specifically, new rule, NMAC § 3.2.213.13 "Receipts of a Digital Platform that Displays Digital Advertising," clarify when receipts from digital advertising services are taxable under the Gross Receipts and Compensating Tax Act. Adopted amendments to NMAC § 3.1.4.13 "General Rules for Determining Reporting Location" and NMAC § 3.2.1.12 "Engaging in Business" (1) detail which receipts from those services are taxable and which are deductible, (2) clarify the sourcing rules for receipts from digital advertising services and (3) clarify what "engaging in business" means for taxpayers that only have an economic nexus with the state. Taxation of digital advertising services receipts: NMAC § 3.2.213.13 clarifies that the gross receipts tax applies to receipts of digital platform providers if (1) the digital platform can be accessed or viewed in New Mexico, and (2) the providers display digital advertising services from the sale of those services to advertisers within and outside New Mexico. The rule defines key terms, including the following:
Amendments to NMAC § 3.1.4.13(C) add an example for determining the proper reporting location for gross receipts from digital advertising services and the related deduction. Under the example, a company provides digital advertising services to a customer. The digital advertisement can be viewed in New Mexico, and is intended to be viewed only in New Mexico, via the company's digital platform. Under this fact pattern, the NM TRD determined that the product of the digital advertising services is delivered to the locations of all persons in New Mexico that can view or access the advertising. Under NMAC § 3.1.4.13(C)(5)(e),6 the reporting location of the gross receipts from this digital advertising service and the related deduction from this service is "the location from which the product of the digital advertising service was transmitted to the purchaser." Engaging in business: Adopted amendments to NMAC § 3.2.1.12 clarify the term "engaging in business" for taxpayers that only have an economic nexus with the state. Under the amended rule, a taxpayer that only has an economic nexus with the state may close its gross receipts tax account following any calendar year in which it no longer meets the economic nexus threshold. In addition, the amended rule subjects an unidentified taxpayer (i.e., a person who has not registered or been otherwise identified) to the provisions of the Tax Administration Act. For more on this development, see Tax Alert 2023-2121. INCOME/FRANCHISE Federal: The Treasury Department (Treasury) released a notice (Notice 2023-80; Notice) with guidance on the interaction of the foreign tax credit (FTC) rules and dual consolidated loss rules with top-up taxes imposed via an Income Inclusion Rule or a Qualified Domestic Minimum Top-Up Tax under the OECD's Global Anti-Base Erosion Model Rules (GloBE Rules). Treasury also announced its intent to issue proposed regulations that will align with this new guidance. The Notice also extends, through tax years "ending before the date that a notice or other guidance withdrawing or modifying the temporary relief is issued (or any later date specified in such notice or other guidance)," the temporary relief from the application of regulations under IRC §§ 901 and 903, which identify foreign taxes for which taxpayers may claim a credit (FTC Creditability Regulations) described in Notice 2023-55. For additional information on this development, see Tax Alert 2023-9010. Federal: In Notice 2024-10 (the Notice), the IRS provides interim guidance clarifying certain provisions of the corporate alternative minimum tax (CAMT), which was enacted as part of the Inflation Reduction Act of 2022. The Notice addresses the impact of certain distributions from a controlled foreign corporation (Covered CFC Distributions) in a taxpayer's applicable financial statement income (AFSI), with guidance that should significantly reduce the potential for the duplication of items in the taxpayer's AFSI. In addition, the Notice modifies and clarifies previously issued guidance in Notice 2023-64 for determining the applicable financial statement for an affiliated group of corporations filing a consolidated tax return. For additional information on this development, see Tax Alert 2023-2105. Multistate: The State Income Tax quarterly for the fourth quarter of 2023 is now available. This quarterly provides a summary of the significant legislative, administrative and judicial actions that affected US state and local income/franchise and other business taxes for the period Oct. 1, 2023 through Dec. 22, 2023. These developments are compiled from the EY Indirect/State Tax Weekly and Indirect/State Tax Alerts issued during that period. Editor's note, the New York regulation discussed in the Developments to Watch section, was submitted for publication as final in the Dec. 27, 2023 New York register (see Breaking Tax News 2023-9014). Full text of the quarterly is available via Tax Alert 2023-2119. Montana: The Montana Department of Revenue issued guidance on the state's new pass-through entity tax (PTET). Topics addressed by the guidance include: (1) making the PTET election; (2) calculating the PTET — Montana source income, resident election and nonrefundable income tax credits; (3) paying the PTET — estimated taxes and flow-through payments; (4) refunds, overpayments, penalties and interest; (5) reporting the PTET on Form PTE — Form PTE preparation chart, Schedule K-1, and flow-through payments schedule; (6) PTET reporting for owners — Montana adjustments to income, refundable tax credit, owner estimated taxes and tax credit for income tax paid to another state. An appendix to the guidance includes PTE preparation charts. Mont. Dept. of Rev., Montana Pub. 4 "Pass-Through Entity Tax Guide" (Nov. 2023). Nebraska: The Nebraska Department of Revenue issued updated frequently asked questions on the state's pass-through entity tax (PTET). Topics addressed in the FAQs include: (1) entities eligible to make a PTET election; (2) making an election for tax years after 2022 (as well as for tax years 2018-2022); (3) making the PTET payment; (4) calculating the PTET; (5) PTE losses; (6) change in entity ownership or the entity; (7) partner and shareholder PTET credits; (8) withholding and estimated payment treatment and PTET credit; and (9) general filing questions. Neb. Dept. of Rev., PTET FAQs (updated Dec. 8, 2023). Pennsylvania: New law (SB 815) conforms to the federal grantor trust rules for Pennsylvania personal income tax purposes. Beginning on or after Jan. 1, 2025, certain enumerated classes of income received by a resident or nonresident trust from Pennsylvania sources are taxable to the grantor of the trust or another person to the extent the grantor/other person is treated as the trust's owner under IRC §§ 671 through 679, whether or not such income is distributed or distributable to the trust's beneficiaries or accumulated. Trust taxability provisions do not apply to the extent the grantor/other person is taxable on the income of the trust under the aforementioned grantor trust change. The law also amends the corporate net income tax (CNIT) manufacturing, innovation and reinvestment deduction, by changing the eligibility requirements. To qualify for the deduction, a taxpayer must show a private capital investment exceeding $50 million (from $60 million) for the creation of new or refurbished manufacturing capacity within the applicable time-period (changed from three years of a designated start date). The calculation of eligible expenses for a qualified manufacturing innovation and reinvestment deduction must include payments made in advance of a project's start date if the payments are for the purchase of, or partial payment for, new equipment for the project that exceeds $1 million in value. For a private capital investment of $150 million or less, the project must be completed within three years of the project's start date. If the investment is more than $150 million and less than $250 million, the project must be completed within five years of the project's start date and within seven years of the project start date, the taxpayer must complete an application attesting that the project has been completed and the eligibility requirements have been met. If the investment is more than $250 million and less than $350 million, the project must be completed within seven years of the project's start date and within nine years of the project start date, the taxpayer must complete an application attesting that the project has been completed and the eligibility requirements have been met. For an investment is more than $350 million, the project's completion date will be determined by the department. The maximum allowable deduction for a project with a private capital investment exceeding $50 million (from $100 million) equals 25% of the private capital investment used in the creation of new or refurbished manufacturing capacity. A taxpayer can use the deduction in an amount not to exceed 5% of the private capital investment used in the creation of the new or refurbished manufacturing capacity in any one year. The maximum allowed deduction of 37.5% for private capital investment exceeding $60 million but less than $100 million only applies to applications made before Jan. 1, 2024. This change applies to tax years beginning after Dec. 31, 2023. Pa. Laws 2023, Act. No. 64 (SB 815), signed by the governor on Dec. 14, 2023. Tennessee: In response to a ruling request, the Tennessee Department of Revenue (TN DOR) said the taxpayer, which wholly owns a single-member limited liability company (SMLLC) disregarded for both federal income and Tennessee franchise and excise tax purposes and which would be the surviving entity following a merger with the SMLLC, may use tax credits generated by the SMLLC's capital investment and job creation at its Tennessee facility, against future franchise and excise tax liabilities following the merger. Tennessee law provides that when there is a merger, consolidation and like transaction, no tax credit incurred by a predecessor taxpayer is allowed as a credit on the successor taxpayer's tax return, and a credit carryforward can only be taken by the taxpayer that generated it. In this case, the TN DOR found the taxpayer is not a successor entity to the SMLLC because the taxpayer is the corporate single member of the SMLLC. Thus, the activities of the SMLLC are considered the activities of the taxpayer for Tennessee franchise and excise tax purpose. Since the SMLLC was disregarded into the taxpayer when it applied for and generated the credits, the credits are recognized as being generated by the taxpayer and, as such, the taxpayer can continue to use the credits after the merger. Tenn. Dept. of Rev., Letter Ruling #23-09 (Nov. 3, 2023). Texas: The Texas Comptroller of Public Accounts explained that the Texas franchise "margin" tax exemption — i.e., the no tax due threshold — increases to $2.47 million (from $1 million), starting with reports originally due on or after Jan. 1, 2024.7 Beginning with that period, taxable entities whose annualized total revenue does not exceed the no tax due threshold, will no longer be required to file a "no tax due" report (Form 05-163).8 Nevertheless, such taxpayers still have to file Form 05-102 "Public Information Report" or Form 05-167 "Ownership Information Report". Regarding the combined group report, it must include all taxable entities in the group, even those whose annualized total revenue, on a separate entity basis, does not exceed the no tax due threshold. If the combined group's annualized total revenue does not exceed the no tax due threshold, the group will no longer have to file a no tax due report, an affiliate schedule or a common owner information report for the report year. Each member of the combined group that is organized in, or has nexus with, Texas, will have to file a Form 05-102 "Public Information Report" or Form 05-167 "Ownership Information Report". Tex. Comp. of Pub. Accts., STAR # 202312004L (Dec. 1, 2023). SALES & USE Iowa: The Iowa Department of Revenue reminded taxpayers that the sales and use tax exemption for purchases of computers and computer peripherals used to process or storing data or information by an insurance company, financial institution or commercial enterprise ends on Dec. 31, 2023. Thus, starting Jan. 1, 2024, purchases of such items by these businesses are subject to Iowa sales and use tax. Iowa Dept. of Rev., "Sales and Use Tax Exemption for Purchases of Computers and Computer Peripherals by Certain Entities Ends on December 31, 2023" (Dec. 14, 2023). Massachusetts: On Jan. 18, 2024, the Massachusetts Department of Revenue (MA DOR) will hold a public hearing on proposed regulation 830 CMR 62C.16B.1 "Advance Payments of Sales and Use Tax and Room Occupancy Excise". Advanced payments for sales and use tax liabilities under M.G.L. c. 64H and M.G.L. c. 64I, including marijuana retail taxes, the room occupancy excise tax under M.G.L. c. 64G, and the local sales tax on meals under M.G.L. c. 64L are required for tax periods ending after April 1, 2021. The proposed regulation defines key terms, provides a general rule and addresses the following topics: (1) advance payment requirement, (2) taxpayers not subject to advance payment requirements, (3) penalties, (4) examples, and (5) recordkeeping requirements. Interested parties may email written comments to the MA DOR at RulesandRegs@dor.state.ma.us. Mass. Dept. of Rev., 830 CMR 62C.16B.1: Advance Payments of Sales and Use Tax and Room Occupancy Excise (Proposed Regulation) (proposed Dec. 19, 2023). Tennessee: In response to a ruling request, the Tennessee Department of Revenue (TN DOR) said that costs incurred to provide custom functions in a new software system are subject to the state's sales and use tax as computer software, but other elements of the project are not subject to tax. Items not subject to tax include project planning and data migration services, configuration, and training and support services — the TN DOR said these are not enumerated taxable services — and function support. The TN DOR further explained that since the parties intended for the optional customization provision to be severable from the rest of the contract, the other services provided under the contract are not subject to sales and use tax. The TN DOR also rejected the taxpayer's suggestion that it could allocate a percentage of the taxable customization elements to the location of its out-of-state employees. Tenn. Dept. of Rev., Letter Ruling #23-10 (Nov. 17, 2023). BUSINESS INCENTIVES Federal: In proposed regulations (REG-107423-23), the Treasury Department and IRS outlined the rules for claiming an IRC § 45X advanced manufacturing production credit, which was created by the Inflation Reduction Act. The credit is intended to incentivize the domestic production of solar and wind components, inverters, battery components and applicable critical minerals. The proposed regulations mostly conform to IRC § 45x and: (1) specify which activities would qualify as producing eligible components; (2) clarify the rules on vertically integrated manufacturing and sales between related parties; (3) clarify procedures for electing to treat related-party sales the same as sales to an unrelated party; (4) establish rules on eligible components produced under contract manufacturing arrangements; (5) provide rules for calculating the credit and the recordkeeping and reporting requirements for eligible components and applicable critical minerals. The proposed regulations would apply to eligible components for which production is completed and sales occur after Dec. 31, 2022, and during tax years ending on or after the date the final regulations are published in the Federal Register. For additional information on this development, see Tax Alert 2023-2116. Federal: In proposed regulations (REG-118492-23) (Proposed Regulations), the IRS and Treasury offer further guidance on how to determine whether clean vehicles comply with the critical mineral and battery component requirements to qualify for the IRC § 30D credit. The Proposed Regulations also contain guidance for qualified manufacturers on how to determine whether the critical minerals contained in a clean vehicle battery were extracted, processed or recycled by a foreign entities of concern (FEOC) or whether the battery components were manufactured or assembled by an FEOC. For additional information on this development, see Tax Alert 2023-2073. PROPERTY TAX Illinois: New law (SB 1988) amends the property tax law for counties with three million or more inhabitants to provide that when the county assessor makes a revision and the revision is not made on complaint of the property owner, then the county assessor will continue to accept appeals from taxpayers for a period of not less than 30 business days from the later of the date the assessment notice is mailed or is published on the assessor's website. This change takes effect June 1, 2024. Ill. Laws 2023, Pub. Act 103-0583 (SB 1988), signed by the governor on Dec. 8, 2023. Wisconsin: The Wisconsin Department of Revenue released its 2024 property assessment manual, "which serves as the guide for uniform property assessment throughout the State." Topics covered in the manual include: (1) an overview of property tax; (2) assessor certification; (3) staffing recommendations; (4) the assessment cycle and dates governing assessment; (5) public relations in the assessment office; (6) statutory revaluation and reassessment; (7) assessment roll and parcel information; (8) data collection and reporting; (9) real property valuation; (10) assessment/sales ratio analysis; (11) computer-assisted assessment; (12) residential property valuation; (13) commercial and agricultural valuations; (14) undeveloped land; (15) real property assessment — special; (16) manufacturing and utility assessment; (17) personal property; (18) property tax exemptions; (19) board of review and assessment appeals; (20) legal decisions and attorney general opinions; and (21) state prescribed forms. Wis. Dept. of Rev., "2024 Wisconsin Property Assessment Manual" (R. Dec. 2023). CONTROVERSY Philadelphia, PA: The Philadelphia Department of Revenue (DOR) issued a news release on the city's voluntary disclosure program (VDP). The VDP is open to businesses and individuals with missed tax liabilities to voluntarily self-report their unfulfilled tax obligations to become compliant. The lookback period for the VDP is six years and participating taxpayers must pay the full amount of tax due and interest within 60 days of the bill date. Taxes that can be disclosed under the VDP include the Business Income & Receipts Tax, Net Profits Tax, School Income Tax, Wage Tax, Earnings Tax, and Use and Occupancy Tax. Taxpayers that have been contacted by the DOR, Law Department or City-authorized collection agency regarding unpaid taxes are not eligible to participate in the VDP. In exchange for participating and complying with the terms of the VDP, the DOR (1) will not audit or bill the taxpayer for taxes disclosed for any years before the six-year disclosure period and (2) will waive any penalties accrued within the disclosure period. Phil. Dept. of Rev., Press Release "Unmet tax obligations? Here's how to become compliant" (Dec. 5, 2023). PAYROLL & EMPLOYMENT TAX Multistate: Six jurisdictions (California, Hawaii, New Jersey, New York, Puerto Rico and Rhode Island) operate state disability insurance (SDI) programs. Another 17 jurisdictions (California, Connecticut, Colorado, Delaware, District of Columbia, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, New York, Oregon, Rhode Island, Vermont and Washington) now have, or soon will have, paid family and medical leave (PFML) insurance programs. Washington is currently the only jurisdiction with a long-term care (LTC) insurance program. Depending on the jurisdiction, the employee may pay all contributions to the SDI, PFML or LTC program through wage withholding, or the employer and the employee may share the cost of the insurance coverage. Most states allow employers to use a private insurance company or self-insured plan in lieu of paying into the state insurance fund(s). Tax Alert 2023-2103 shows the state SDI, PFML and LTC rates and taxable wage limits for 2024 based on information currently available. Multistate: EY's Employment Tax Advisory Services group's November 2023 issue of Payroll Month in Review, which summarizes the latest employment tax and other payroll developments, is now available. 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 newsletter is available via Tax Alert 2023-2024. Multistate: State unemployment insurance (SUI) trust funds are largely financed by employer contributions (in Alaska, New Jersey and Pennsylvania employees also make contributions). States are required to maintain a SUI taxable wage base of no less than the limit set under the Federal Unemployment Tax Act (FUTA). The 2024 FUTA wage limit of $7,000 has remained unchanged since 1983, despite increases in the federal minimum wage and annual cost-of-living adjustments over the last 41 years. Some states are conservative in their approach to maintaining adequate SUI trust fund reserves. Consequently, the SUI wage base is flexible in those states, meaning it is indexed to the average wage or varies based on the trust fund balance. According to the US Department of Labor (US DOL), 26 jurisdictions had a flexible wage base in 2022 (the US DOL expects the 2023 information will be available by the end of December 2023). For more on this development see Tax Alert 2023-2106. New York: In Matter of Zelinsky, an Administrative Law Judge (ALJ) for the New York Division of Tax Appeals ruled that a nonresident's wages from his New York employer earned while he worked remotely during the COVID-19 pandemic were properly allocated to New York State (NYS) under the state's "convenience of the employer" rule. The ALJ also found the taxpayer had a virtual presence in NYS when hosting classes and meeting with students using a web conferencing platform. For more information on this development, see Tax Alert 2023-2041. 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. ——————————————— ENDNOTES 1 P.L. 86-272 is a federal law prohibiting states from imposing state income tax on out-of-state sellers whose in-state activities do not exceed soliciting orders of tangible personal property. 2 American Catalog Mailers Association v. Franchise Tax Board, Case No. CGC-22-601363 (Cal. Superior Ct., San Francisco Cnty., Dec. 13, 2023). 3 As a procedural matter, the court rejected the FTB's argument that ACMA's motion was "improper" because it was not entitled to file multiple summary judgment motions raising the same issue, finding the issues in the two motions differed — determination of whether the TAM and Pub. 1050 are invalid regulations (second motion) or facially unconstitutional (first motion). 4 Tidewater Marine Western, Inc. v. Bradshaw, 14 Cal.4th 557 (Cal. S.Ct. 1996). 5 N.M. Register, Vol. XXXIV, Issue 24 (Dec. 19, 2023). 6 This method applies when one of the four other methods for determining the reporting locations for gross receipts and related deduction under NMAC § 3.1.4.13(C)(5)(a) through (d), does not apply. Under NMAC § 3.1.4.13(C)(5)(e), "the reporting location of gross receipts and related deductions is the location from which the property or product of the service was shipped or transmitted to the purchaser." 7 The increase to the franchise tax exemption was enacted as part of SB 3 (Tex. Laws 2023 (Second Spec. Sess.)). SB 3, however, included a provision that made the increase taking effect contingent upon voters approving a constitutional amendment (Proposition 4 (HJR 2)) that would allow the property tax relief provided in SB 2 (Tex. Laws 2023 (Second Spec. Sess.)). On Nov. 7, 2023, voters approved the property tax relief. Accordingly, the increase of the franchise tax exemption will take effect. 8 SB 3 also prohibits the Texas Comptroller of Public Accounts from requiring an information report be filed by a taxable entity that does not owe any tax because of application of the franchise tax exemption. | ||||
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