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January 23, 2024

State and Local Tax Weekly for January 5 and 12

Ernst & Young's State and Local Tax Weekly newsletter for January 5 and 12 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.


Finalized New York State corporate franchise tax regulations will affect many industries

On Dec. 27, 2023, the New York State (NYS) Department of Taxation and Finance (Department) finalized its Article 9-A corporate franchise tax regulations after a public comment and review period. These regulations implement tax reform measures originally enacted in 2014 and reflect a drafting process that spanned several years with many different drafts/variations. At a high level, the reform measures: merged the corporate franchise and bank taxes; adopted market sourcing, new definitions of business and investment capital and income, and new income tax base exemptions; modified unitary combined reporting; and imposed a new regime for post-apportionment net operating loss (NOL) carryforwards, among other things.

The final regulations are effective Dec. 27, 2023, with retroactive application to tax years beginning on or after Jan. 1, 2015. The Department, however, "may choose not to apply penalties in cases where taxpayers took a position in their tax filings prior to the adoption of the proposed rule in reliance upon prior Article 9-A regulations or prior drafts of the proposed rule."

The final regulations cover a wide range of areas, such as imposition of tax (nexus) and activities protected/unprotected under Public Law (P.L.) 86-272; apportionment; computation of tax; combined unitary reporting; and qualified NYS manufacturers (QNYMs). These and other areas addressed in the final regulations may impact NYS taxpayers in various industries.

A general table of contents of the final regulations is as follows:

  • Part 1 — Imposition of tax (pages 1-39), including corporations that may be subject to tax based upon economic nexus, corporate partner rules and protected/unprotected activities under P.L. 86-272
  • Part 2 — Accounting periods and methods (pages 39-47)
  • Part 3 — Computation of tax (pages 47-171), including rules on investment and business income and capital, with examples; and capital loss, prior NOLs and NOL provisions, with examples
  • Part 4 — Apportionment (pages 172-305), including general and specific rules; rules on receipts from digital products and services, and from other services and other business activities, with examples
  • Part 5 — Credits (pages 305-313), including the investment tax credit, employment incentive tax credit, and security training tax credit
  • Part 6 — Reports (pages 313-341), including general requirements, and combined reporting
  • Part 7 — Payment of tax, declaration and payment of estimated tax, and collection (pages 341-354)
  • Part 8 — Metropolitan Transportation Business Tax Surcharge (pages 354-368), including the Metropolitan Commuter Transportation District Apportionment Percentage rules
  • Part 9 — Special entities (pages 368-404), including QNYMs and contract manufacturers provisions; corporate partner rules with examples; NYS S corporation provisions; and rules for real estate investment trusts and regulated investment companies
  • Part 32 — Combined reports for insurance corporations (pages 404-417)

Tax Alert 2024-0140 provides a high-level discussion of key provisions.1

Governors' Proposals

The following is a summary of recent governors' budget proposals and state-of-the state addresses.

Arizona: On Jan. 8, 2024, Governor Katie Hobbs presented her 2024 State of the State Address. The governor said that the state faces an approximately $850 million shortfall over this and the next fiscal year. To combat this shortfall, the governor said the state "will rein in wasteful spending without sacrificing public safety and public education. We will establish guardrails on unaccountable programs without hurting hard-working families." Hobbs noted that Arizona is attracting high-tech and advanced manufacturing businesses. Tax changes were not mentioned in the State of the State address.

On Jan. 12, 2024 Governor Katie Hobbs presented her FY2025 Executive Budget Proposal. The budget "closes the current budget shortfall". Tax changes were not mentioned in the budget.

California: On Jan. 10, 2024, Governor Gavin Newsom presented his 2024-25 State Budget, which using budget reserves and other tools, would close a projected $37.86 billion shortfall. The governor's proposed budget includes tax changes that would do the following:

  • Conform to federal net operating loss (NOL) rules regarding the 80% limit on using NOLs that have been carried forward (this change would be effective starting in 2024)
  • Conform to the federal charitable conservation easement (this change would be effective starting in 2024)
  • Eliminate the sales and use tax bad debt deduction and refund (this change would be effective starting in Jan. 2025) — by making this change California would "[join] the majority of states in disallowing deductions for non-retailer lenders for sales tax paid on bad debts"
  • Eliminate the following oil and gas subsidies: immediate deduction for intangible drilling costs, percentage depletion rules for fossil fuels, and enhanced oil recovery costs credit (these changes would be effective starting in 2024)

Florida: On Jan. 9, 2024, Governor Ron DeSantis gave his State of the State Address. The governor is seeking to put $16.3 billion in reserves and pay down $455 million in state debt. The governor is also proposing to return $1.1 billion to residents through "sweeping tax cuts" for families, individuals and retirees. Proposals include the continuation of sales tax holidays and permanent tax relief for small businesses. These proposals were discussed in the governor's Focus on Florida's Future budget proposal for FY 2024-25 (presented Dec. 5, 2023).

The governor's tax proposals would:

  • Make permanent the sales tax exemption for over-the-counter pet medications
  • Establish a tax credit for businesses that employ Floridians with "unique" abilities — the credit would equal $1,000 per person and would be claimed against the corporate income tax
  • Continue two back-to-school sales tax holidays (e.g., school supplies, clothing and computers)
  • Continue two disaster preparedness sales tax holidays
  • Continue the three-month Freedom Summer sales tax holiday for outdoor recreation purchases (e.g., camping and fishing supplies, first $500 on sales price of kayaks or canoes, first $200 on sales price of tents, tickets for events, museums and the arts)
  • Continue the seven-day tool time sales tax holiday for equipment and tools for skilled workers
  • Increase the sales tax collection allowance from 2.5% of sales tax collected on a return up to a maximum of $30 to the first $60 of the tax otherwise due — this change is intended to help small businesses
  • Create a one-year exemption on taxes, fees and assessments for homeowners insurance policies

Idaho: On Jan. 8, 2024, Governor Brad Little presented his 2024 State of the State and Budget Address . The governor noted that the state is "on pace to deliver $3.7 billion in tax relief" and that they're not done yet. This year's budget includes up to $150 million in new property tax relief; this is in addition to the property tax relief that has already been implemented. The governor also said that no new taxes would be used to fund known gaps. In addition, the state's rainy-day funds would be bolstered "to the max".

Kansas: On Jan. 8, 2024, Governor Laura Kelly presented her tax cut plan, which would save taxpayers $1 billion over three years and would cut taxes for every Kansan. The governor noted that the proposed flat tax "does relatively little for the middle class." The governor's proposed tax cut plan would: (1) exempt the first $100,000 in state property taxes for all Kansas homeowners; (2) eliminate state taxes on social security income; (3) increase the standard deduction to $5,000 (from $3,500) for single filers, to $7,500 (from $6,000) for head of household and $10,000 (from $8,000) for joint filers; (4) eliminate by April 1, 2024 (instead of waiting until 2025), the sales tax on groceries, diapers and feminine hygiene products; (5) establish a back-to-school sales tax holiday; and (6) double the child and dependent care tax credit.

On Jan. 11, 2024, Governor Kelly announced her Fiscal Year 2025 Budget, which includes the tax cuts that were announced on Jan. 8, 2024. And on Jan. 10, 2024, she gave her 2024 State of the State Address, in which she went over the tax cuts proposed on Jan. 8, 2024 and reiterated that the flat tax should be off the table.

Kentucky: On Jan. 3, 2024, Governor Andy Beshear delivered his State of the Commonwealth Address . He did not mention taxes in this address.

On Dec. 18, 2023, Governor Andy Beshear presented his "Forward, Together " budget proposal. The budget proposal includes a one-year tax credit for residents for tolls they pay to drive over the Louisville/Jefferson County bridges during calendar year 2024. In addition, the governor wants to return 100% of the state coal severance tax revenue to coal-producing counties.

Nebraska: On Jan. 8, 2024, Governor Jim Pillen called for a 40% reduction in state property taxes in 2024, noting that this reduction "will drive economic growth through workforce and new business development." To pay for the reduction, the governor said that state spending would be reduced by 3% this fiscal year and by 6% in fiscal year 2025. Tax-related proposals would front-load property tax credits instead of requiring taxpayers to claim them and expand the state's tax base. The governor said that "[e]verything is on the table."

New Mexico: On Jan. 4, 2024, Governor Michelle Lujan Grisham presented her FY25 Executive Budget Recommendations . The governor's budget maintains reserves at 34.2% and directs meaningful investments in key areas including economic development. The budget includes $25 million for the local economic development act program and $9.7 million for the job training incentive program. Further, the Legislative Finance Committee (LFC) said that its spending plan "leaves money on the table for additional initiatives and possible tax code reforms." Potential options include changes to the personal income tax bracket and "prioritizing changes made during the 2023 legislative session but vetoed by the governor."

South Dakota: On Jan. 9, 2024, Governor Kristi Noem presented her 2024 State of the State Address . Tax changes were not mentioned in the speech. On Dec. 5, 2023, Governor Noem gave her 2023 Budget Address . Governor Noem is "hopeful" that the legislature will consider making the sales tax holiday, which ran in 2023, permanent. Governor Noem also said that receipts from unclaimed property are now $76 million above estimates. The governor said the state is treating this a one-time revenue.

Utah: On Dec. 5, 2023, Governor Spencer Cox presented his Fiscal Year 2025 Budget , in which he recommended the expansion of the existing child tax credit. The governor also recommended "meaningful investments to enhance pathways to high-quality jobs in critical areas", including $7 million to build out the workforce in the life sciences industry.

Virginia: On Jan. 10, 2024, Governor Glenn Youngkin gave his State of the Commonwealth Address . The governor noted that Virginians are moving away and along with them the taxes they pay that fund Virginia schools and other essential services. The governor said that over the past two years, residents have received $5 billion in tax relief and during the next two years Virginia needs to structurally reform its tax code. This would be done by cutting taxes across the board 12% and paying for almost 80% of this by modernizing our tax code. Tax code modernization includes closing the tech tax loophole — e.g., taxing digital goods (such as software packages, digital downloads, streaming music and videos, cloud storage and other electronic media) and increasing the sales and use tax by 0.9% from 4.3% to 5.2%.

In his "Unleashing Opportunity" Budget (presented Dec. 20, 2023), the governor described his tax reform proposal, which would provide Virginians with an additional $1 billion in tax relief over the biennium. Proposals include reducing income tax rates for all Virginians by 12%; enhancing the earned income tax credit (EITC) so that it is equal to 25% of the federal EITC; modernizing the tax code and diversifying the tax base by closing the big tech tax loophole; increasing the sales and use tax rate; eliminating the personal property tax on vehicles; and providing $100 million to grow high-wage high-tech jobs focusing on biotechnology, life science and pharmaceutical manufacturing industries.


California: In its January 2024 issue of Tax News, the California Franchise Tax Board (FTB) reminded taxpayers that the state has not conformed to the Tax Cuts and Jobs Act's (TCJA) changes to the deduction of research expenses under IRC §174 and, as such, taxpayers may need to make adjustments to their California return to account for difference between federal and state provisions. For federal income tax purposes, taxpayers must capitalize and amortize their research expenses over five years (domestic) or 15 years (foreign) for tax years beginning after Dec. 31, 2021. The TCJA also updated the terminology of IRC §174 costs to "Specified Research or Experimental Expenditures". Because California has not adopted either of these changes, the FTB said that "[t]axpayers may continue to deduct IRC [§]174 research expenses paid or incurred or elect to amortize over a five-year period on their California returns." Cal. FTB, Tax News "Deduction of Section 174 Research Expenses — Nonconformity with IRC" (Jan. 2024).

Illinois: The Illinois Department of Revenue (IL DOR) has proposed new rule 86 Ill. Adm. Code 100.7034 "Investment Partnership Withholding" and amendments to 86 Ill. Adm. Code 100.9730 "Investment Partnerships", to implement statutory changes to the definition of "investment partnership" in Pub. Act 103-0009. The new proposed regulation, 86 Ill. Adm. Code 100.7034, would provide a general rule requiring a taxpayer that is an investment partnership and a member of one or more other partnerships with income allocable or apportionable to Illinois to withhold from each nonresident partner an amount calculated as described in 86 Ill. Adm. Code 100. 7034(c), with some exemptions from this requirement. This rule, which would apply for tax years ending on and after Dec. 31, 2023, also includes provisions on: (1) the withholding tax rate; (2) the time period for filing a return and paying withheld tax; (3) the credit for taxes withheld; (4) the pass-through entity election; and (5) claiming a refund of overpaid taxes. The proposal includes illustrative examples. Proposed amendments to 86 Ill. Adm. Code 100.9730 would add definitions of "investment partnership" that apply for tax years ending before Dec. 31, 2023 and that apply for tax years ending on and after Dec. 31, 2023. In addition, for tax years ending on and after Dec. 31, 2023: (1) a partnership interest that, in the hands of a partnership, would qualify as a security within the meaning of 15 U.S.C. 77b(a)(1); (2) the list of items that are not a "qualified investment securities" would be expanded to include securities subject to the dealer accounting rules in IRC § 475; and (3) gross income would not include income from partnerships that operating at a federal taxable loss. Comments on the proposals can be submitted in writing to the IL DOR within 45 days after publication of this notice. Ill. Dept. of Rev., Proposed Rules 86 Ill. Adm. Code 100 (Ill. Reg., Vol. 45, Issue 50 (Dec. 15, 2023)).

New Jersey: The New Jersey Division of Taxation issued guidance on the state's research and development (R&D) tax credit, explaining certain aspects of research performed in the state and related issued for Corporate Business Tax (CBT) and Gross Income Tax (GIT) purposes. Under the CBT there is an R&D credit and a deduction for qualified research expenditures and payments (if applicable). Only the deduction for qualified research expenditures and payments is provided for under the GIT and the pass-through business alternative income tax (BAIT). The guidance describes the amount of the CBT R&D credit available to taxpayers; substantiation requirements; the impact of electing to take the federal orphan drug credit instead of the federal R&D credit; New Jersey R&D credit carryovers; New Jersey R&D credits of combined group members; situations in which the location of the research expenditure is hard to quantify (e.g., research is conducted inside and outside of the state); the amount of credit available to corporate partners, S corporations, Qualified Subchapter S Subsidiaries, disregarded entities and corporate owners; and the statute of limitations for claiming the New Jersey R&D credit. Guidance also is provided for deducting research expenditures and research payments for CBT, GIT and BAIT purposes. N.J. Div. of Taxn., TB-114 "The New Jersey Research and Development Tax Credit" (Dec. 22, 2023).

New York: The New York Department of Taxation and Finance (NY DOTF) adjusted the deriving receipts from activity in New York State and in the Metropolitan Commuter Transportation District (MCTD) thresholds for purposes of imposing the Article 9-A franchise tax and the MTA surcharge. Under New York law, the Commissioner of the NY DOTF (Commissioner) is required to adjust these thresholds if the Consumer Price Index (CPI) changed by 10% or more since the date the threshold was last adjusted by the Commissioner. The Commissioner has determined that the CPI has changed by 10% since the last adjustment. Thus, the new deriving receipts thresholds have been increased to $1,283,000 for tax years beginning on or after Jan. 1, 2024 and before Jan. 1, 2025 (from $1,138,000 for tax years beginning on or after Jan. 1, 2022 and before Jan. 1, 2024). Further, for tax years beginning on or after Jan. 1, 2024 and before Jan. 1, 2025, in determining whether the deriving receipts threshold is met for a unitary group, only receipts from corporations conducting a unitary business that meet ownership requirements in N.Y. Tax Law §201-C, with at least $12,000 in New York receipts (franchise tax) and at least $12,000 in MCTD receipts (MTA surcharge), are aggregated. For tax years 2015–2021 this threshold was $10,000, and for 2022–2023 this threshold was $11,000. N.Y. Dept. of Taxn. and Fin., "2024 Article 9-A deriving receipts thresholds" (Dec. 29, 2023).

Pennsylvania: The Pennsylvania Department of Revenue issued a bulletin to provide guidance on its "interpretation of key terms and concepts necessary to properly apply the statutory rule for sourcing sales" affected by legislative changes enacted in 2022 (Act 53),2 i.e., sales of other than (1) sales of tangible personal property3 and (2) sales of services.4 The guidance includes definitions for the following terms/phrases: "fair market value"; "located in this state"; "motor vehicle"; "regularly lends funds"; "transportation property"; and "unaffiliated entity". The guidance also discusses, and includes examples of, the sourcing rules for other sales, including gross receipts received: (1) from the lease or license of intangible property; (2) from the sale of intangible property; (3) from the sale, redemption, maturity or exchange of securities; (4) by a corporation that regularly lends funds to unaffiliated entities or to individuals from interest, fees and penalties imposed in connection with loans secured by real property; (5) by a corporation that regularly lends funds to unaffiliated entities or to individuals from interest, fees and penalties imposed in connection with loans related to the sale of tangible personal property; (6) by a corporation that regularly lends funds to unaffiliated entities or to individuals from interest, fees and penalties imposed in connection with loans not described in (4) or (5) if the borrower is located in this State; and (7) from interest, fees and penalties in the nature of interest from credit card receivables and gross receipts from fees charged to cardholders if the billing address of the cardholder is in this State. The guidance describes when gross receipts from interest, not otherwise described in this paragraph, is included in the numerator of the sales factor if the lender's commercial domicile is in the State and when gross receipts from intangible property, not otherwise described, is excluded from the numerator and the denominator of the sales factor. Lastly, the guidance notes that taxpayers can petition for the use of an alternative apportionment formula if the apportionment provisions described in the guidance do not fairly represent the taxpayer's business activities in the state. Pa. Dept. of Rev., Corporation Tax Bulletin 2024-01 "Sourcing Sales Other Than Tangible Personal Property and Services" (Jan. 5, 2024).


Multistate: The EY Sales and Use Tax Quarterly Update provides a summary of the major legislative, administrative and judicial sales and use tax developments. Highlights of this edition, available via Tax Alert 2024-0113, include a review of the most recent developments involving nexus, tax base and exemptions, technology, and compliance and controversy.

Colorado: On Jan. 2, 2024, the Colorado Department of Revenue (CO DOR) adopted sales tax rule, Rule 39-26-703-2 "Buyer's Claims for Refund of Sales or Use Tax Paid" (hereafter, final rule) 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.) The final rule prescribes the form for making a refund application for sales or use taxes and the data, information and documentation an applicant must provide, and it provides guidance on protective refund claims for sales and use tax paid to the seller and the penalty imposed for incomplete refund claims. Applicants must comply with the requirements of this rule for refund claims filed after the rule's effective date.

An "applicant" filing the protective refund claim must include both the purchaser who paid the sales or use tax for which the refund claim is filed and any person who prepares the refund claim on behalf of the purchaser. An "applicant" does not include a seller that is claiming a sales tax refund that it will distribute to the purchaser. The final rule lists the information an applicant must 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 must make a good faith effort to obtain the seller's Colorado account number or federal employer identification number for the seller of every item and transaction included in the refund claim. If the refund claim includes purchases made in the conduct of the purchaser's businesses, the applicant must separately state their refund claim amounts for state, city, county and special district sales and use tax paid. The number of invoices that must be included with the refund claim depends on the number of separate invoices included in the claim. Certain refund 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 final rule describes how to satisfy the proof of purchase and the proof of payment requirements. Applicants can also request permission to submit alternate forms of documentation.

The final rule also provides guidance on filing 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 has the discretion to decide how to process protective refund claims, noting that it is in the CO DOR and taxpayers "interest … to delay action on protective claims until the pending litigation or other contingency is resolved." The final rule defines 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 final rule makes clear that "[a] refund claim is not a protective claim merely because the claimant labels it as such." Rather, the final rule requires 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 will have to perfect their claim by timely submitting any additional data, information and documentation.

After a protective claim has been filed, the CO DOR then determines 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 must notify the purchaser or the preparer of the claim of the claim's incompleteness. The purchaser/preparer has 60 days to provide the missing information or withdraw the refund claim. The CO DOR, upon request and for a reasonable cause shown, can provide additional time to submit the missing information. The final rule takes effect March 1, 2024 and it will be published in the Colorado Register on Feb. 10, 2024.

Florida: The Florida Department of Revenue (FL DOR) issued guidance on when a merchant is responsible for remitting sales and use tax when it uses a third-party delivery network company. If the third-party delivery network company does not elect to collect tax on behalf of the merchant, the merchant is responsible for collecting, reporting and remitting tax. The FL DOR suggested that to avoid sales tax compliance issues, local merchants that use third-party delivery network companies should review the terms of their agreements regarding sales tax collection and remittance responsibilities and the effective date of any changes related to those responsibilities. Fla. Dept. of Rev., Tax Information Publication No. 23A01-24 (Dec. 15, 2023).

Michigan: The Michigan Department of Treasury issued guidance on sales and use tax sourcing rules for sales of purchases made from outside Michigan. The guidance describes: (1) general sourcing rules for sales of tangible personal property; (2) general sourcing rules for rentals and leases; (3) sourcing rules for rentals and leases of motor vehicles, trailers, semitrailers and aircraft; and (4) sourcing rules for other types of transactions. Mich. Dept. of Treas., RAB 2023-26 "Sales and Use Tax Sourcing" (Dec. 26, 2023).

Ohio: The Ohio Department of Taxation (OH DOT) determined that when a customer who purchased a new or used Electric Vehicles (EVs) or Fuel Cell Vehicles (FCVs) elects to transfer the federal Clean Vehicle Tax Credit to a motor vehicle dealer and the sale is reported to the IRS, the credit is included in the taxable price of the new and used vehicles for sales and use tax purposes. The OH DOT explained that since the seller is reimbursed for the credit by the IRS, which constitutes consideration received from a third party, the credit does not reduce the price of the vehicle being purchased. Ohio Dept. of Taxn., ST 2023-02 "IRS Clean Vehicle Tax Credit" (Dec. 18, 2023).

Texas: The Texas Comptroller of Public Accounts (Comptroller) has adopted amendments to local sales and use tax regulation, 34 TAC §3.334 , to add a new "general standard" provision regarding the location where an order is received. As amended, the location an order is received by or on behalf of a seller (collectively "by the seller") is the physical location of a seller or third party such as an established outlet, office location or automated order receipt system operated by the seller where an order is initially received by the seller and not where the order may be subsequently accepted, completed or fulfilled. An order is received when the seller receives all of the information from the purchaser necessary to determine whether the order can be accepted. The location of where the product is shipped cannot be used to determine the location where the seller receives the order. The final rule takes effect on Jan. 9, 2024. (49 TexReg 52, Jan 5, 2024).


Federal: Proposed regulations (REG-117631-23) on the IRC §45V clean hydrogen production credit give taxpayers guidance on the requirements they must fulfill to claim the credit, which is based on the amount of lifecycle greenhouse gases emitted during the hydrogen production process and whether the taxpayer meets the prevailing wage and apprenticeship requirements. The proposed regulations provide guidance on how taxpayers can: (1) determine lifecycle greenhouse gas (GHG) emissions rates resulting from the hydrogen production process; (2) petition for provisional emissions rates; (3) verify production and sale or use of clean hydrogen; (4) modify or retrofit existing qualified clean hydrogen production facilities; (5) use electricity from certain renewable or zero-emissions sources to produce qualified clean hydrogen; and (6) elect to treat part of a specified clean hydrogen production facility as property eligible for the energy credit. The Department of Energy also released a white paper on assessing lifecycle GHG emissions in regards to the IRC § 45V credit. Comments on the proposed regulations are due by Feb. 26, 2024. A hearing is scheduled for March 25, 2024, and requests to speak and outlines of topics to be discussed must be received by March 4, 2024. Taxpayers may rely on the proposed regulations for tax years beginning after Dec. 31, 2022, and before the date the final regulations are published in the Federal Register, if they follow the proposed regulations in their entirety and in a consistent manner. For more information on this development see Tax Alert 2024-0131.


Oregon: The Oregon Department of Revenue adopted Ore. Admin. R. 150-307-0032 regarding the recalculation of maximum-assessed value for partially assessed-value exemptions. Under section one of the rule, and for purposes of ORS 307.032(1)(a)(A), when there is a partial exemption of assessed value, the value of the partial exemption is the dollar amount of assessed value exempted. Section two of the rule provides that in the case of a partial exemption of assessed value, the assessed value of the property equals the lesser of: (a) the real market value of the property reduced by the statutory dollar amount of the partial exemption; (b) the maximum assessed value of the property as calculated under ORS 307.032(1)(a) and section one of this rule; or (c) the assessed value of the property as though not eligible for partial exemption reduced by the statutory dollar amount of the partial exemption. This rule applies to properties that first become eligible for this partial exemption on or after Jan. 1, 2024. Ore. Permanent Admin. Order, REV 22-2023, filed with the Ore. Sec. of State on Dec. 21, 2023.


Maryland: The Maryland Comptroller adopted new regulation COMAR 03.01.05 "Private Letter Rulings" (PLR) to provide guidance on submitting a petition for a PLR that is binding on the Comptroller as to the petitioner. The final regulation defines key terms, including "authorized representative",5 "petitioner", and "private letter ruling". A PLR is binding on the Comptroller for seven years from the date it was issued, unless void, modified or revoked. While the PLR is not be binding on the petitioner, a petitioner's failure to follow it could be considered in determining the imposition of penalties and interest. The PLR also can be used as evidence of a petitioner's knowledge or intent in a subsequent proceeding and the Comptroller is allowed to use information submitted in a petition for a PLR for subsequent audit purposes. The final regulation describes the process for submitting a petition for a PLR and the information that must be included in the petition; the Comptroller can request additional information. A petition for a PLR can be withdrawn by the petitioner and be denied by the Comptroller. The final regulation describes the process for issuance and publication of a PLR. Published PLRs can be relied upon by the public as general guidance. PLRs will be redacted or anonymized before being published. PLRs can be voided, modified, revoked, renewed or left to expire; the final regulation explains how such action will impact the application and effectiveness of the PLR. The final regulation took effect Jan. 8, 2024. (Md. Register , Vol. 50, Issue 26, Dec. 29, 2023.) (The final regulation was adopted as proposed in the Md. Register , Vol. 50, Issue 22, Nov. 3, 2023.)


Multistate: The December 2023 issue of EY's Employment Tax Advisory Services Group's Payroll Month in Review, which summarizes the latest employment tax and other payroll developments and provides our insights to improve US employment tax and payroll compliance, is now available. It is available via Tax Alert 2024-0110.

Multistate: To assist you in reviewing your state and US territory income tax withholding rates for 2024, the chart in Tax Alert 2024-0112 contains hyperlinks to the most recent (1) income tax withholding formulas/tables published by the states and US territories; (2) information concerning their respective highest income tax withholding rates (based on their percentage method of withholding) or flat tax withholding rates; and (3) their supplemental withholding rates, if applicable.

Pennsylvania: In affirming the lower court ruling, the Pennsylvania Supreme Court (Court) held that the trial court did not err if finding at an individual resident of Philadelphia, who during the tax years at issue worked in Wilmington, Delaware, was not allowed a credit against the Philadelphia Wage Tax (PWT) for the portion of withheld Delaware Income Tax not credited against her Pennsylvania Personal Income Tax (PIT). Pennsylvania allowed the individual a full credit for the Delaware Tax to offset her PIT. The Philadelphia Department of Revenue (DOR), however, only allowed a full credit for the Wilmington Earned Income Tax to offset the PWT. The individual argued that the DOR's refusal to apply the remainder of the Delaware Tax as a credit against the PWT resulted in double taxation in violation of the Commerce Clause. In ruling the PWT does not violate the commerce clause, the Court found that the PWT was enacted and operates as a purely local tax as it was enacted by the City and is collected by the City's revenue department for the benefit of the City and its residents. Thus, the Court treated the PWT and PIT as discrete taxes in considering whether the Philadelphia's tax scheme — the tax and corresponding credit system — discriminates against interstate commerce. Ultimately, the Court found that the PWT and the City's corresponding credit systems satisfy the Complete Auto6 test, namely that it is fairly apportioned and it does not discriminate against interstate commerce.7 The Court, in accordance with Wynne,8 found the PWT is internally consistent because if all local taxing jurisdiction imposed a similar tax scheme both in-state and out-of-state taxpayers would yield the same tax obligations; the Court noted that excess tax paid by the taxpayer is a result of Delaware's higher income tax rate. The Court also determined that the tax is externally consistent as the City's provision of municipal benefits and services to its residents provides sufficient economic justification for imposition of the PWT. The Court further found that the PWT is not discriminatory since Philadelphia taxes all of its residents' income at the same rate and permits a full credit for similar out-of-state local taxes paid to other jurisdictions. Accordingly, the PWT does not violate the dormant commerce clause. Zilka v. Tax Review Bd. City of Philadelphia , No. 20 EAP 2022 and 21 EAP 2022 (Pa. S.Ct. Nov. 22, 2023).

MISCELLANEOUS TAX Ohio: Changes to Ohio's Commercial Activity Tax (CAT), which were summarized in Tax Alert 2023-1218, took effect on Jan. 1, 2024. Tax Alert 2024-0128 serves as a reminder of those changes, as well as other administrative changes that took effect in 2024. For instance, starting in calendar-year 2024, the exclusion from the CAT increases to $3 million (from $1 million). For calendar-year 2025 and forward, the exclusion increases again to $6 million. Also effective for tax periods beginning on or after Jan. 1, 2024, the CAT annual minimum tax is eliminated, and after the filing of 2023 annual CAT returns, which are due on May 10, 2024, CAT annual filings will be eliminated. Only quarterly filings will be allowed.

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.

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1 Additional provisions that impact other taxpayer circumstances may not be covered here. Our NYS tax practitioners are available to discuss these regulations.

2 Sales other than sales of tangible personal property or services are sourced under 72 P.S. §7401(3)2.(a)(17).

3 Sales of tangible personal property are sourced under 72 P.S. §7401(3)2.(a)(16).

4 Sales of services are sourced under 72 P.S. §7401(3)2.(a)(16.1).

5 An "authorized representative" is defined as "an attorney, agent, or person designated by a petitioner to represent the petitioner in a petition for a private letter ruling."

6 Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977).

7 The other two prongs of the Complete Auto test — tax is applied to an activity with a substantial nexus to the taxing state and fairly related to the services provided by the state — were not challenged.

8 Comptroller of Treasury of Md. v. Wynne, 575 U.S. 542 (2015).