May 2, 2024 State and Local Tax Weekly for April 12 and 19 Ernst & Young's State and Local Tax Weekly newsletter for April 12 and 19 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 Kentucky enacts revenue bill with IRC conformity update, delay of corporate deferred tax deduction, exemption for qualified data center projects On April 10, 2024 House Bill 8 (HB 8), a revenue bill, became law without Governor Andy Beshear's signature. Tax changes in the bill, among other things, update the state's date of conformity to the Internal Revenue Code (IRC), delay the corporate deferred tax deduction, and create a sales and use tax exemption for qualified data centers. The governor line-item vetoed provisions of HB 8 establishing a tax amnesty program and exempting sales of currency and bullion from sales and use tax. However, during the General Assembly's veto session on April 12, Speaker of the House David Osborne, citing the Kentucky Constitution, ruled "the attempt to veto only portions of HB 8 is of no effect."1 The House took the position that since HB 8 is a revenue bill, the governor did not have the authority veto parts of HB 8 under Section 88 of the Kentucky Constitution, which allows the governor "to disapprove any part or parts of appropriation bills embracing distinct items." Tax provisions in HB 8 make the following changes:
If the House determination that the governor's line-item vetoes are of "no effect" stands, a tax amnesty program will run from Oct. 1, 2024 through Nov. 29, 2024, if the Department is able to procure services needed to implement the program; otherwise, it will run for a two-month period during calendar year 2025. Amnesty generally applies to taxes administered by the Department for tax periods or transactions occurring on or after Oct. 1, 2011, but before Dec. 1, 2023. Amnesty does not apply to ad valorem taxes on real and personal property, motor vehicles and motorboats, and certain penalties for tax periods or transactions occurring on or after Oct. 1, 2011, but prior to Dec. 1, 2023. In addition, sales, use, storage or consumption of currency and bullion will be exempt from sales and use tax. For additional information on the income tax changes in HB 8, see Tax Alert 2024-0813. INCOME/FRANCHISE Georgia: New law (HB 1023) changes the 5.75% corporate income tax rate — which is imposed on domestic and foreign corporations as well as PTEs electing to be subject to the PTET — to the same rate imposed on individuals under Ga. Code Section 48-7-20 for the corresponding tax year. A second bill, HB 1015, reduces the 5.49% individual income tax rate to 5.39%. Both changes apply to tax years beginning on or after Jan. 1, 2024. HB 1015 retains provisions that provide for a 0.10% rate reduction annually, beginning in 2025, until the rate reaches 4.99%. The additional 0.10% reduction, however, is contingent on revenue thresholds being met. A third bill, HB 1021, increases the amount an individual can deducted for dependents to $4,000 (from $3,000) per dependent. This increase applies to tax years beginning on or after Jan. 1, 2024. Ga. Laws 2024, HB 1023, HB 1015 and HB 1021, all three bills were signed by the governor on April 18, 2024.2 Maine: New law (LD 2022) updates the state date of conformity to the IRC to Dec. 31, 2023 (from Dec. 31, 2022). This change applies to tax years beginning on or after Jan. 1, 2023 and to any prior tax year specifically provided by the IRC of 1986 and amendments to the IRC as of Dec. 31, 2023. LD 2022 took effect upon approval. Maine Laws 2024, ch. 619 (LD 2022), signed by the governor on April 12, 2024. Minnesota: New law (HF 3769) retroactively extends by one year the effective date of Minnesota's decoupling from the federal 80% limitation on corporate net operating losses (NOLs) to tax years beginning after Dec. 31, 2023. With the enactment of HF 3769, the limit on Minnesota's NOL deduction retroactively returns to 80% (rather than 70%) of taxable net income for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2024. For tax years beginning after Dec. 31, 2023, the limit on the NOL deduction decreases to 70% of taxable net income. The Minnesota Department of Revenue has updated its 2023 NOL schedule to account for this change. Taxpayers that have filed their 2023 Minnesota income tax return should consider filing an amended return to claim the additional NOL deduction. Minn. Laws 2024, ch. 82 (HF 3769), signed by the governor on April 8, 2024. For more on this development, see Tax Alert 2024-0816. New York: An industry trade association for catalog, online, direct mail and other remote-selling merchants and their suppliers has filed a lawsuit in the New York Supreme Court for Albany County, seeking to have New York's recently adopt regulations concerning P.L. 86-272 and its application to activities conducted over the internet (20 N.Y.C.R.R Section 102.10)3 declared invalid under the Supremacy Clause for "directly conflict[ing] with the controlling federal statute … ." Alternatively, if the regulation is not declared invalid in whole or in part, the trade association is seeking to have the regulation declared invalid to the extent the New York Department of Taxation and Finance applies it to any time period before the date of the regulation's publication. American Catalog Mailers Association v. N.Y. Dept. of Taxn. And Finance, complaint filed with the N.Y. S.Ct., Albany Cnty. (filed April 5, 2024). Ohio: The Ohio Department of Taxation (OH DOT) issued guidance on the net operating loss (NOLs) deduction for municipal net profit (MNP) tax purposes for tax years 2023 and after. The OH DOT noted that while this guidance may be relevant for all MNP taxpayers, it applies to taxpayers that made an election to have the state administer the MNP tax under Ohio Rev. Code Section 718.80. Previously enacted legislation allows taxpayers to claim an NOL deduction with a five-year carryforward period in municipalities that levy an income tax. This deduction was phased-in over five years, from 2018 through 2022, and during this period the deduction was subject to a 50% limitation. Starting in 2023, taxpayers can use 100% of the remaining unexpired NOL deductions to reduce their municipal taxable income to zero. The OH DOT noted that taxpayers who have pre-2017 NOLs with carry forward periods longer than five years, may be able to use those NOLs to offset municipal taxable income. Ohio Dept. of Taxn., Information Bulletin: MNP 2024-02 "Update on Net Operating Loss Deductions" (April 2024). SALES & USE Arizona: New law (HB 2382) requires the Arizona Department of Revenue (AZ DOR), on or before Jan. 1, 2026, to establish a certification process for third-party providers offering sourcing services to taxpayers for transactions involving tangible personal property. Certified third-party services providers (CSP) must meet all the requirements established by the AZ DOR, and the AZ DOR, among other things, must adopt rules to administer the certification process and list CSPs on its website. Taxpayers that use a CSP for sourcing sales of tangible personal property will not be liable for failing to pay the correct amount of tax due because of a sourcing error. Rather, the CSP will be liable for the amount of tax not paid due to the sourcing error, unless the error was caused by the CSP receiving incorrect information from the AZ DOR. HB 2382 takes effect 91 days after the end of the legislative session. Ariz. Laws 2024, ch. 142 (HB 2382), signed by the governor on April 10, 2024. Florida: The Florida Department of Revenue (FL DOR) announced that effective July 1, 2024, the sales and use tax rate on the total rent changes for renting, leasing, letting or granting a license to use real property (i.e., the commercial rentals) is reduced to 2.0% (from 4.5%). The FL DOR said the tax is due at the rate in effect during the period the tenant occupies or is entitled to occupy the real property. Thus, the 4.5% rate will apply to rental charges paid on or after June 1, 2024 for rental periods of Dec. 1, 2023 through May 31, 2024, and the 2.0% rate will apply to rental payments made before June 1, 2024 that entitle the tenant to occupy the real property on or after June 1, 2024. The reduced rate on commercial rentals does not apply to transient rentals or parking/docking/storage spaces for vehicles, boats or aircraft. Fla. Dept. of Rev., TIP No. 24A01-02 (April 8, 2024). Massachusetts: The Massachusetts Department of Revenue (MA DOR) adopted 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 adopted regulation defines key terms, provides a general rule, describes the advancement payment requirements, explains who is not subject to the advance payment requirements, describes the penalties that may be imposed for failure to pay the full amount required by the due date of the advance payment as well as recordkeeping requirements. The adopted regulation includes examples. The MA DOR adopted 830 CMR 62C.16B.1 on April 12, 2024. Massachusetts: The Massachusetts Department of Revenue (MA DOR) adopted amendments to regulation 830 CMR 64H.1.9: Remote Retailers and Marketplace Facilitators. The adopted amendments expand 830 CMR 64H.1.9(4), the marketplace facilitator exception provisions, to exclude a person that facilitates: (1) the sale of marijuana or marijuana products on behalf of marijuana retailers, and (2) rentals of motor vehicles to the extent the facilitator's marketplace sellers themselves are registered to collect and remit sales and use tax. A person that facilitates rentals of motor vehicle and is subject to the marketplace facilitator rules is required, to the extent that the person is the marketplace facilitator with respect to such sellers, to collect and remit all applicable vehicular rental transaction contract surcharges. Adopted amendments to 830 CMR 64H.1.9(7) amend filing and payment deadlines for tax periods ending on or after April 1, 2021. As of that period, vendors are required to file a return and pay tax due for each calendar month on or before the 30th day of the following calendar month (from the 20th day of the following calendar month). Vendors also may be subject to the advance payment rules under 830 CMR 62C.16B.1. The MA DOR adopted the amendments to 830 CMR 64H.1.9 on April 12, 2024. Virginia: New law (HB 25/SB 116) reestablishes the sales and use tax exemption holidays for certain energy and water efficient qualified products with a sales price of $2,500 or less; school supplies with a sales price of $20 or less; clothing and footwear with a sales price of $100 or less; portable generators with a sales price of $1,000 or less; and certain hurricane preparedness equipment with a sales price of $60 or less. The annual three-day sales and use tax holiday will be held beginning on the first Friday in August and end at 11:59 p.m. the following Sunday. The Virginia Department of Taxation is required to provide guidance on the sales tax holiday annually by July 15. These provisions are effective July 1, 2025 through July 1, 2030. Va. Laws 2024, ch. 628 (HB 25) and ch. 663 (SB 116), both bills signed by the governor on April 8, 2024. BUSINESS INCENTIVES Georgia: New law (HB 1339) increases the aggregate amount of tax credits available for contributions to rural hospital organizations to $100 million (from $75 million), and it increases the amount of credit available to an individual who is a member of a limited liability company, a shareholder of an S corporation or a partner in a partnership to $25,000 (from $10,000). This change takes effect and applies to tax years beginning on or after Jan. 1, 2025. Ga. Laws 2024, Act 384 (HB 1339), signed by the governor on April 19, 2024. Virginia: New law (HB 1518) modifies the state's Research and Development Expenses Tax Credit (R&D credit) and the Major Research and Development Expense Tax Credit (major R&D credit). Effective for tax years beginning on and after Jan. 1, 2023, the annual aggregate amount of R&D credit available is increased to $15.77 million (from $7.77 million), while the annual aggregate amount of major R&D credit available is reduced to $16 million (from $24 million). In addition, effective for tax years beginning on and after Jan. 1, 2023, but before Jan. 1, 2025, a step-rate structure applies to the major R&D credit. Under this structure, a credit equal to 10% of the first $1 million, and 5% in excess of $1 million, of the difference between (i) any Virginia qualified R&D expense paid or incurred by the taxpayer during the tax year and (ii) 50% of the average Virginia qualified R&D expense paid or incurred by the taxpayer for the three tax years immediately preceding the tax year for which the credit is being determined. Also effective for tax years beginning on and after Jan. 1, 2023, but before Jan. 1, 2025, the aggregate amount of the major R&D credit allowed to each taxpayer is capped at $300,000 for the tax year (the cap is increased to $400,000 if the research was conducted in conjunction with a Virginia public or private institution of higher education). HB 1518 takes effect July 1, 2024. Va. Laws 2024, ch. 661 (HB 1518), signed by the governor on April 8, 2024. Virginia: New law (HB 61) extends the ability of the governor, upon recommendation of the Director of the Department of Housing and Community Development, to extend the number of times an enterprise zone designation can be renewed. For zones designated on or after July 1, 2005, the zone may be renewed for up to four five-year renewal periods (up from three renewals). Zones designated before July 1, 2005 may be renewed for up to two five-year renewal periods (up from one renewal). HB 61 takes effect July 1, 2024. Va. Laws 2024, ch. 631 (HB 61), signed by the governor on April 8, 2024. PROPERTY TAX Maine: New law (LD 2027) clarifies that facilities storing spent nuclear fuel and radioactive waste classified by the U.S. Nuclear Regulatory Commission as greater-than-Class C waste are not air pollution control facilities for purposes of the property tax exemption. The law also make clear that these facilities are not eligible for a property tax exemption under the Business Equipment Tax Exemption program or the property tax reimbursement under the Business Equipment Tax Reimbursement program. LD 2027 took immediate effect and applies retroactively to property tax years beginning on or after April 1, 2022. Maine Laws 2024, ch. 588 (LD 2027), signed by the governor on April 2, 2024. West Virginia: New law (HB 4850) removes the sunset date regarding the valuation of property producing oil, natural gas and natural gas liquids. Otherwise, the provision would not have applied to any assessments made on after July 1, 2025. W.V. Laws 2024, ch. 257 (HB 4850), signed by the governor on March 27, 2024. West Virginia: New law (HB 4971) for ad valorem property tax purposes provides that for assessments made assessments made on or after July 1, 2025 until July 1, 2035, the value of silicon and silicon carbide manufacturing equipment is its salvage value, being no more than 5% of its fair market value. The law defines "silicon and silicon carbide manufacturing equipment". The Tax Commissioner has the authority to make inquiries and procure information necessary to establish the salvage valuation for such property. W.V. Laws 2024, ch. 259 (HB 4971), signed by the governor on March 27, 2024. CONTROVERSY Arizona: New law (HB 2875) provides that an electronic payments is deemed to have been made at the date and time the taxpayer successfully authorizes the electronic funds transfer from the taxpayer's bank to the Arizona Department of Revenue (AZ DOR). This transfer is evidenced by an electronic payment confirmation issued by any of the following: (1) the AZ DOR, (2) the taxpayer's financial institution, or (3) a vender certified by the AZ DOR. The AZ DOR through Dec. 31, 2024, has the authority to abate penalties related to the timeliness of an electronic payment if the taxpayer provides reasonable evidence from its bank or the AZ DOR of the successful and timely authorization of the electronic transfer. HB 2875 takes effect 91 days after the end of the legislative session. Ariz. Laws 2024, ch. 44 (HB 2875), signed by the governor on March 29, 2024. Maine: New law (LD 1337) requires the Maine Department of Administrative and Financial Services, Bureau of Revenue Services, to provide a report on the state's corporate income tax to the Congressional joint standing committee that has jurisdiction over tax matters. The report must include the following information:
This requirement begins on Jan. 1, 2025 and biennially thereafter. Maine Laws 2024, ch. 627 (LD 1337), became law without the governor's signature on April 16, 2024. PAYROLL & EMPLOYMENT TAX Multistate: EY's Employment Tax Advisory Services latest month in review publication is now available via Tax Alert 2024-0763. The publication summarizes the latest US federal, state and local employment tax and other payroll developments. Pennsylvania: Effective retroactive to Jan 1, 2023, Pennsylvania Act 34 excludes up to $5,000 per year of benefits under an IRC Section 129 dependent care assistance program from Pennsylvania state income tax and withholding. Because the law was enacted in late December 2023, the Pennsylvania Department of Revenue provided instructions for correcting Box 16 of the 2023 Pennsylvania Form W-2. (See Tax Alert 2024-0586.) The dependent care assistance exclusion also applies to most local payroll taxes. Under Section 501 of the Local Tax Enabling Act, taxable wages for purposes of the local Earned Income Tax and Local Services Tax are those wages subject to Pennsylvania state income tax. All Pennsylvania localities are governed by the Local Tax Enabling Act except for Philadelphia, which is governed by the Sterling Act. Under Philadelphia's regulations, dependent care assistance benefits continue to be subject to its Wage Tax. For more on this development, see Tax Alert 2024-0795. MISCELLANEOUS TAX Federal: The IRS and Treasury released proposed regulations (REG-118499-23) on how covered corporations would have to report and pay the new excise tax on stock repurchases. The proposed regulations confirm that taxpayers would not be required to report or pay the IRC Section 4501 excise tax on stock repurchases on any tax return filed before the final regulations are published in the Federal Register. The stock repurchase excise tax, which was enacted by the Inflation Reduction Act, imposes a 1% surcharge on certain corporate stock buybacks occurring after Dec. 31, 2022. The proposed regulations are good news for covered corporations because they confirm that the excise tax would not have to be paid until the regulations are published. For additional information on this development, see Tax Alert 2024-0785. Michigan: New law (HB 5048) modifies the accommodations tax provisions for local governments. The law allows a county board of commissioners in a county that has a population of less than 600,000 and that has a city with a population of not less than 40,000 to impose tax at a rate up to 8% if the increase is approved by a majority of voters. Otherwise, the tax rate is limited to a rate of not more than 5% of the total charge for accommodations. Further, if voter approved, a local governing body in a county with a population of more than 600,000 and less than 775,000 may enact an ordinance to levy, assess and collect an excise tax from those engaged in a business of providing rooms for dwelling, lodging or sleeping purposes (except hospitals and nursing homes) to transient guest. The excise tax cannot be more than a rate of 2% of the total charge for accommodations. An excise tax imposed by a local unit of government is in addition to any excise tax levied by a county and any tax imposed by a county are in addition to any excise tax levied by a local unit government. Mich. Laws 2024, Pub. Act 35 (HB 5048), signed by the governor on April 2, 2024. North Carolina: The North Carolina Department of Revenue (NC DOR) issued a notice on the new excise tax on interactive sports wagering operators. The tax applies to gross wagering revenue received on or after Jan. 8, 2024. The NC DOR will administer the tax with regard to the following: (1) registering and bonding interactive sports wagering operators; (2) reporting and payment of the tax; (3) distribution of the tax proceeds; and (4) auditing interactive sports wagering operators or its service providers related to sports wagering activities. The NC DOR also explained the duties of the interactive sports wagering operators and possible revocation of the license or denial of a license renewal for non-compliance with the tax. N.C. Dept. of Rev., Important Notice: Excise Tax on Interactive Sports Wagering Operators (April 12, 2024). Nebraska: New law (LB 1074) prohibits a county treasurer, county official or political subdivision from accepting a central bank digital currency as a method of cash payment of any tax, levy, excise, duty custom, toll, interest, penalty, fine, license, fee or assessment of whatever kind or nature. The law defines central bank digital currency as a "digital medium of exchange, token, or monetary unit of account issued by the United States Federal Reserve System or any analogous federal agency that is made directly available to the consumer by such federal entities." Central bank digital currency includes "digital medium of exchange, token, or monetary unity of account so issued that is processed or validated directly by such federal entities." This change becomes operative three months after the legislature adjourns — i.e., July 18, 2024. Neb. Laws 2024, LB 1074, signed by the governor on April 17, 2024. VALUE ADDED TAX International — France: French Tax Authorities recently published a ruling on the value-added tax (VAT) treatment applicable to non-fungible tokens (NFTs), concluding that NFTs are not subject to any specific VAT scheme and that general VAT rules apply. Where an NFT is used as a certificate of ownership for tangible or intangible property, a transaction involving the transfer of the NFT does not relate to the token itself, but to the good or service it represents. Therefore, it is necessary to examine each situation on a case-by-case basis and apply the ordinary VAT rules that would have been implemented if the goods or services had been delivered or supplied without the use of an NFT. For additional information on this development, see Tax Alert 2024-0769. 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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