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June 27, 2024
2024-1271

State and Local Tax Weekly for June 7 and June 14

Ernst & Young's State and Local Tax Weekly newsletter for June 7 and June 14 is now available. Prepared by Ernst & Young's State and Local Taxation group, this weekly update summarizes important news, cases, and other developments in U.S. state and local taxation.

TOP STORIES

Illinois governor approves income, franchise, sales/use tax changes

Illinois Governor J.B. Pritzker on June 7, 2024 signed the FY 2025 revenue omnibus legislation, HB 4951, which modifies the state's income, franchise and sales/use tax laws and extends the sunset date for certain credits and incentives.1 The following is a summary of these changes.

Financial organization investment and trading activities: For tax years ending on or after Dec. 31, 2024, HB 4951 modifies the method for determining the portion of receipts from investments and trading assets and activities (together, investment and trading income) attributable to Illinois. HB 4951 did not modify the types of investment and trading assets and activities to be included in Illinois taxable income (e.g. investment securities, federal funds, options, etc.).

Under the new method, total receipts from investment and trading income will be multiplied by a fraction consisting of the financial organization's Illinois receipts (as determined using the sourcing provisions specific to financial organizations, excluding the investment and trading income) divided by total gross receipts from all financial organization activities, excluding the investment and trading income.

The result will be included in the financial organization's sales apportionment factor numerator. This new method, essentially, attributes income to Illinois in the same proportion as the financial organization's other Illinois business activities. On this point, consideration should be given to Illinois' long-standing application of the Joyce rule, where each financial organization member within a unitary group will need to apply the new method based on its own activities.

Under existing law, which applies to tax years ending before Dec. 31, 2024, investment and trading income is attributed to the financial organization's fixed place of business where the preponderance of substantive contacts with the assets and activities takes place.

Limitation on net loss deductions (NLDs): HB 4951 places a $500,000 annual cap on the NLD allowed for corporations (other than S corporations) for each tax year ending on or after Dec. 31, 2024 and before Dec. 31, 2027. For purposes of the NLD carryover period, taxpayers will not count any year in which the NLD to be used would have exceeded $500,000. This temporary cap is identical in length to prior caps on NLDs, but more generous due to the higher $500,000 cap. (A $100,000 cap on NLDs applies to tax years ending on or after Dec. 31, 2021 and before Dec. 31, 2024. See Tax Alert 2021-1154.)

Franchise tax exemption increased: The franchise tax of the Business Corporation Act administered by the Secretary of State exempts specific tax amounts based on the year the annual report is due. HB 4951 increases the exemption to $10,000 (from $5,000) for annual reports due on or after Jan. 1, 2025. The current $5,000 exemption remains in place for any annual reports due for the remainder of 2024 (Public Act 103-0008, formerly HB 3817; See Tax Alert 2023-1098).

Leases: HB 4951 extends sales and use tax2 to the retail lease of tangible personal property (other than motor vehicles, watercraft, aircraft and semitrailers), effective for leases in effect, entered into, or renewed on or after Jan. 1, 2025. An exemption applies for (1) a lessee's use of software that was transferred under a license that meets certain requirements and (2) those licenses subject to tax by a home-rule jurisdiction (i.e., licenses taxed under the Personal Property Lease Transaction Tax in Chicago will be exempt).

Revenue from lease transactions is sourced as follows: (1) for leases requiring recurring periodic payments for property delivered to the lessee, each periodic payment is sourced to the primary property location for each period covered by the payment, and (2) for all other leases, the payment is sourced as provided for sales at retail, other than leases. Such leases are also subject to applicable local sales and use taxes.

Vendor discount: HB 4951 caps the vendor discount at $1,000 per month beginning with returns due on or after January 1, 2025.

Other noteworthy law changes: HB 4951 also makes the following changes:

  • Beginning July 1, 2025, the hotel operators' occupation tax will apply to re-renters of hotel rooms. If the re-renter is remote and has no presence in Illinois, it is subject to tax if its cumulative gross receipts from Illinois rentals are $100,000 or more, or it enters into 200 or more separate rental transactions in Illinois.
  • The income tax credit for ex-felons is renamed to the "returning citizens" income tax credit. The maximum credit allowable increases from $1,500 to $7,500 for each returning citizen employed. Qualifying wages for calculating the credit will increase from 5% of qualifying wages to 15% of qualifying wages. The total credit awarded to a taxpayer in any tax year is capped at $1 million. These changes take effect for tax years beginning on or after Jan. 1, 2025.
  • Effective July 1, 2025, payment processors, acquirer banks or card issuers are prohibited from charging merchants an interchange fee for the tax (limited to Illinois sales or excise taxes) or gratuity portion of any electronic payment. A civil penalty of $1,000 per transaction may be imposed for violations.
  • Effective July 1, 2024, the tax rate for the privilege of holding a license to operate sports wagering (i.e., sports betting) changes from a flat 15% rate to graduated rates ranging from 20% to 40% of sports wagering receipts.

For additional information on this development and other tax bills that have been approved by the General Assembly for the governor's consideration, see Tax Alert 2024-1178.

INCOME/FRANCHISE

Connecticut: New law (HB 5524) extends the net operating loss (NOL) carry forward period from 20 years to 30 years, applicable to NOLs incurred in income years beginning on or after Jan. 1, 2025. The law also provides a 30-year deduction related to the state's previous enactment of combined reporting. Starting in 2026, an eligible combined group shall deduct from the combined group's net income an amount equal to one-thirtieth of the amount necessary to offset the increase in the valuation allowance against NOLs and tax credits in Connecticut that resulted from the enactment of combined reporting provisions under Conn. Gen. Stat. Sections 12-218e (concerning "Combined group's net income. Apportionment percentage. Net operating loss. Carryover. Additional tax base. Nexus combined base tax") and 12-218f (concerning "Combined group determined on world-wide basis, affiliated group basis or water's-edge basis. Tax havens") (hereafter, combined reporting provisions). The computation of the valuation allowance increase is based on the change in the valuation allowance reported on the combined group's financial statement for income years beginning on or after Jan. 1, 2016, but before Jan. 1, 2017. A combined group is eligible for the deduction when it is claiming the net deferred tax liability and assets deduction and it did not include in the computation of the deduction the impact of any valuation allowance arising from the enactment of combined reporting. A combined group is entitled to the deduction if the combined reporting provisions resulted in an aggregate decrease in the amount of NOLs or tax credits the members of the combined group may realize and a valuation allowance was reported in accordance with generally accepted accounting principles. Excess deduction may be carried forward until fully utilized. A combined group intending to claim this deduction has until July 1, 2025 to file a statement specifying the total amount of the deduction to be claimed with the revenue commissioner. Conn. Laws 2024, Pub. Act 24-151 (HB 5524), signed by the governor on June 6, 2024.

Massachusetts: The Massachusetts Department of Revenue issued an information release describing certain tax provision in ch. 50 (Mass. Laws 2023), including the state's adoption of single sales factor apportionment for business corporations and financial institutions and financial institution apportionment of investment and trading income, both effective for tax years beginning on or after Jan. 1, 2025. The information release explains the decrease to the individual income tax rate imposed on short term capital gains from 12% to 8.5%, effective for tax years beginning on or after Jan. 1, 2023, the increase to the annual cap on low-income housing tax credits and the housing development incentive program, and changes to the apprenticeship tax credit. The information release also describes changes affecting individual taxpayers, such as the child and family tax credit and changes to joint filing requirements. Mass. Dept. of Rev., TIR 24-4: Provisions in the 2023 Tax Relief Legislation (May 30, 2024).

Pennsylvania: The Pennsylvania Department of Revenue (PA DOR) has proposed a new rule, 61 Pa. Code, Section 153.24a, to explain the approach for determining whether corporate income is treated as apportionable business income or allocable nonbusiness income. The proposed rule would provide a definition of "business income," and "nonbusiness income" would be income that does not meet that definition of business income. The proposed rule would describe the transactional test and the functional test for determining whether income is business or nonbusiness income. Under the transactional test income arising from an activity or transaction in the regular course of a taxpayer's trade or business would be treated as business income. Under the functional test business income would include income from tangible and intangible property if either the acquisition, management or disposition of the property constitutes an integral part of the taxpayer's regular trade or business. Property held solely for investment purposes would not constitute an integral part of the trade or business. The proposed rule also would make clear that the functional test equally applies to all types of property (e.g., real, tangible, intangible, personal) and it would provide guidance on whether certain items of property is business or nonbusiness income, such as income arising from a liquidation, intangible income from the disposition or other use of property withdrawn from use in the taxpayer's trade or business, and income derived from isolated sales, leases, assignment, licenses and other infrequently occurring dispositions, transfers or transactions involving property. The proposed rule would outline the unitary business concept and would provide that income not meeting either the transactional or functional tests may still constitute apportionable unitary business income under the U.S. Constitution. In addition, the proposed rule would set forth when taxpayers must (1) notify the PA DOR of a change in classification of an item previously reported to Pennsylvania as either business or nonbusiness income, and (2) disclose variations in the classification of an item as business or nonbusiness income across jurisdictions and the rationale for the different treatment. In the rulemaking preamble, the PA DOR said that a majority of the rule is the same as the Multistate Tax Commission's Model General Allocation and Apportionment Regulations and that it proposed this rule "due to legislative changes and the further development of the Unitary Business Principle of the U.S. Constitution in case law." The proposed rule would take effect upon publication as final in the Pennsylvania Bulletin. Pa. Dept. of Rev., Proposed rule, 61 Pa. Code, Section 153.24a, (Pa. Bulletin, Vol. 54 Issue 21, May 25, 2024).

Vermont: New law (HB 546) updates Vermont's conformity to federal law to the Internal Revenue Code as in effect on Dec. 31, 2023 (from Dec. 31, 2022). This change took retroactive effect on Jan. 1, 2024 and applies to tax years beginning on and after Jan. 1, 2023. Vt. Laws 2024, Act 144 (HB 546), signed by the governor on June 3, 2024.

SALES & USE

Hawaii: New law (SB 1035) exempts from general excise tax payments received by a hospital, infirmary, medical clinic, health care facility, pharmacy or medical/dental service provider for health-care related goods or services under Medicare, Medicaid and TRICARE programs. For purposes of the exemption, qualifying health-care related services can be performed by a physician's assistant, nurse or other employee under the medical or dental practitioner's direction. The exemption takes effect Jan. 1, 2026. Haw. Laws 2024, Act 47 (SB 1035), signed by the governor on June 3, 2024.

Illinois: The Illinois Department of Revenue (IL DOR) issued a compliance alert to highlight that some retailers and servicepersons are incorrectly reporting their receipts from sales of tangible personal property that is paid for by Medicare Administrative Contractors (MACs) as tax-exempt sales. The IL DOR explained that because MACs are private entities that contract with the federal government to process Medicare Part A and Part B claims, their payments to the retailer or serviceperson for tangible personal property to Medicare beneficiaries are not exempt from sales tax. These transactions, the IL DOR, noted are not sales made directly to the federal government. The compliance alert describes (1) when sales and leases made by the federal government are exempt from Illinois state and local taxation, and (2) how to properly document sales to tax-exempt entities, retailers and servicepersons. The IL DOR said that retailers and servicepersons should review their sales and filing records and correct incorrect filings. Failure to properly collect and report tax due may result in the imposition of penalties and interest. To further compliance, the IL DOR is offering a limited voluntary compliance initiative for registered taxpayers that conduct a self-audit of this issue for reporting periods July 2022 to June 2024 for monthly and quarterly filers and for 2022 and 2023 for calendar year annual filers. The IL DOR said that taxpayers who accurately self-audit for such reporting periods "will be relieved of liability related to the subject of this [Compliance] Alert for period prior to July 2022." Participating taxpayers that have unreported receipts need to file amended returns before Sept. 16, 2024 in order to have applicable late penalties abated. Ill. Dept. of Rev., Compliance Alert — Sales Made to Medicare Administrative Contractors (June 2024).

Kansas: New law (HB 2098) makes various changes to the state's sales and use tax law. Among the changes, the law, effective Jan. 1, 2025, modifies the definition of "sales or selling price" to exclude coupons issued by a manufacturer, supplier or distributor of a product that entitle the purchaser to a reduction in sales price and are allowed by the seller who is reimbursed by the manufacturer, supplier or distributor. The law amends the definition of "food and food ingredients" to make clear that the term includes bottled water, candy, dietary supplements, food sold through vending machines and soft drinks, and it adds definitions of each of these items. The law also creates through July 1, 2029, sales and use tax exemptions for purchases of: (1) equipment, machinery, software, ancillary components, appurtenances, accessories or other infrastructure for use in the provision of communications services (i.e., internet access services, telecommunications services, and/or video services); and (2) services purchased by providers in the provision of communications services used in the repair, maintenance or installation in such communication services. Kan. Laws 2024, HB 2098, enacted over governor's veto on April 30, 2024. See also, Kan. Dept. of Rev., Notice 24-05 "Changes to Sales Tax Definitions of Selling Price Coupons" (June 11, 2024).

Kansas: The Kansas Department of Revenue (KS DOR) issued guidance on the sales and use tax exemption for manufacturer's cash rebates for the purchase of motor vehicles (e.g., passenger vehicles, trucks, motorcycles and motorhomes). When the cash rebate is shown on the bill of sale, the KS DOR said it will presume that it was paid directly from the manufacturer to the retailer and that it is exempt from sales tax. If the rebate is not shown on the bill of sale, the KS DOR will presume that it was not paid directly from the manufacturer to the retailer and that it is not exempt from sales tax. Rebates for the following remain taxable: trailers and non-highway vehicles, motorized bicycles, all-terrain vehicles, work-site vehicles, trailers or any other vehicle that is not self-propelled or not licensed for highway use. Lastly, the KS DOR explained that additional manufacturer's rebates for tangible personal property attached to a vehicle (e.g., running boards, brush guards, trailer hitches) are exempt from tax if shown on the bill of sale for the original purchases and paid directly to the dealer, and subject to tax when they are not so shown or if paid directly to the purchaser. Kan. Dept. of Rev., Notice 24-01 "Sales and Compensating Use Tax Exemption on Manufacturer Cash rebates for the Purchase of a Motor Vehicle" (June 5, 2024).

Louisiana: In response to a ruling request, the Louisiana Department of Revenue (LA DOR) explained a peer-to-peer sharing platform's tax collection and remittance obligations for shared vehicles leased and rented through its platform. The LA DOR said that the platform company through its operation, maintenance and facilitation of a peer-to-peer vehicle sharing program, which connects shared vehicle owners with share vehicle drivers, mees the definition of a dealer. As such, the platform company is responsible for collecting and remitting state and local sales tax on vehicle lease and rental transactions facilitated on its platform. The LA DOR noted that this type of business is statutorily excluded from the definition of a marketplace facilitator and, therefore, is ineligible to file or remit tax to the Louisiana Sales and Use Tax Commission for Remote Sellers. Rather, state tax is required to be electronically remitted and paid to the LA DOR, and local tax must be remitted to the proper local sales tax collector. La. Dept. of Rev., Revenue Ruling No. 23-001 (May 20, 2024).

Louisiana: New law (SB 268) creates a temporary sales and use tax rebate for the purchase of machinery, equipment and other items used in the lithium recovery process, applicable to purchases made on or after July 1, 2024. Specifically, the rebate is available to companies evaluating, developing or engaged in production from a qualified lithium recovery project. The rebate is the amount of state sales tax actually paid by such company on equipment, machinery, materials, improvements and other items purchased and used in the state for the development, production, operation, storage, processing or transportation of lithium/lithium refined products in connection with a qualified lithium recovery project. The law lists examples of items that would qualify for the rebate, it defines the term "qualified lithium recovery project," and describes the applicant process for claiming the rebate. The Louisiana Department of Revenue may promulgate rules to implement these provisions, including rules for recapturing a rebate when an applicant is later found to be ineligible for it. The total amount of rebate that can be awarded over the life of the program is capped at $100,000. The rebate program ends on Dec. 31, 2025. La. Laws 2024, Act No. 327 (SB 268), signed by the governor on May 28, 2024.

Oklahoma: New law (HB 1600) creates a temporary sales and use tax exemption for sales of machinery and equipment used for commercial mining of digital assets in a colocation facility. For purposes of the exemption, machinery and equipment includes servers and computers, racks, power distribution units, cabling, switchgear, transformers, substations, software, network equipment and electricity used in the mining process. The law defines "digital assets" as "a type of virtual currency that utilizes blockchain technology and that: (1) can be digitally traded between users, or (2) can be converted or exchanged for legal tender." The law also defines "blockchain technology," "colocation facility," "commercial mining of digital assets," "load reduction agreement," and "mine or mining." The exemption applies beginning Nov. 1, 2024 and ends on Dec. 31, 2029. HB 1600 takes effect on Nov. 1, 2024. Okla. Laws 2024, HB 1600, signed by the governor on June 14, 2024.

Tennessee: New law (SB 1140/HB 886) directs the Tennessee Advisory Commission on Intergovernmental Relations to study the collection and remittance of state and local taxes, including sales and use taxes collected at the point of sale. The study must include (1) the cost for businesses to collect and remit state and local taxes; (2) the cost to the state for reasonable remuneration for compensating vendors for tax collection as compared to other states; and (3) the cost to businesses for the payment of credit card fees on the tax portion of the transactions (e.g., interchange fees and other fees associated with payment processing) and the cost to businesses for handling cash. The report and any recommendations, including proposed legislation, is due to the chairs of the House and Senate Finance, Ways and Means committees and the General Assembly Legislative Librarian, by Jan. 31, 2025. Tenn. Laws 2024, ch. 1013 (SB 1140/HB 886), signed by the governor on May 28, 2024.

Vermont: New law (HB 546) extends the sales tax exemption for advanced wood boilers through July 1, 2027 (from July 1, 2024). Effective Jan. 1, 2025, the definition of "casual sale" is amended to specifically exclude all-terrain vehicles (certain aircraft, snowmobiles, motorboats and vessels were already excluded from the definition). Vt. Laws 2024, Act 144 (HB 546), signed by the governor on June 3, 2024.

BUSINESS INCENTIVES

Federal: In final regulations (TD 9995), the IRS clarified the requirements for new and used clean vehicle tax credits under IRC Sections 30D and 25E. The final regulations adopt the proposed regulations for the most part but modify the requirements for determining whether the battery components and applicable critical minerals contained in a vehicle battery are foreign-entity-of-concern (FEOC) compliant. They also extend the time to comply with the new rule until Jan. 1, 2027. The Treasury and IRS received over 180 comments in response to the proposed regulations and a public hearing was held on Jan. 31, 2024. For additional information on this development, see Tax Alert 2024-1142.

Alabama: New law (HB 441) modifies the Growing Alabama Act, the Innovating Alabama Act, the Alabama Jobs Act and Innovate Alabama to provide for the use of the federal definition of low-income communities under the federal New Markets Tax Credit program as defined on Jan. 1, 2015, or otherwise provided thereafter, for eligible projects receiving credits under these Alabama programs. HB 441 took effect on June 1, 2024. Ala. Laws 2024, Act 441 (HB 441), signed by the governor on May 17, 2024).

Alabama: New law (SB 231) conditions an employers' eligibility for economic development incentives (e.g., state and local provided grants, loans and tax credits, except grants provided under the Alabama Broadband Accessibility fund) upon the employer refraining from certain activities related to employee representation by a labor organization. Under the law, an employer will not be eligible to receive an economic development incentive for a project if they do any of the following: (1) voluntarily grant recognition rights for the employee based only on signed labor organization authorization cards if the bargaining representative can be selected via a secret ballot election; (2) voluntarily discloses an employee's personal contact information to a labor organization or a third party acting on the organization's behalf, without the employee's prior written consent; or (3) require a subcontract to engage in activities prohibited under (1) or (2). Employers that engage is such prohibited activity may be required to repay all economic development received over the life of the project. The prohibited activities do not apply to an employer or subcontractor that does directly receive the economic development incentive. Further, these provisions do not apply agreements between the state/county/municipality and an employer executed before Jan. 1, 2025. These provisions also do not apply to any employer with a collective bargaining unit where an employer, as of May 13, 2024 (the effective date of this law), has entered into such an agreement with a labor organization or a secret ballot election has already occurred under federal law. SB 231 took effect immediately. Ala. Laws 2024, Act 340 (SB 231), signed by the governor on May 13, 2024.

Alabama: New law (HB 358) creates an employer tax credit for certain expenses related to childcare, a childcare provider tax credit and a nonprofit childcare grant. Eligible employers may apply to the Alabama Department of Revenue (AL DOR) for the employer tax credit in tax years beginning on or after Jan. 1, 2025 and ending Dec. 31, 2027. The employer tax credit is 75% of the eligible expenses incurred by the employer (the credit is increased to 100% if the employer is a small business). For purposes of this credit, an employer's eligible expenses include expenses incurred by the employer for: (1) the construction, renovation, expansion or repair of a childcare facility or to purchase equipment for such facility, or for its maintenance and operation; (2) payments made to childcare facilities or employees for the provision of childcare at such facilities for the employees' children; or (3) payments made to childcare facilities to reserve service for employees' children. The employer tax credit can be applied against applicable taxes, including income taxes, for the year in which the expenses are incurred; the credit is capped at $600,000 per year for each employer. The aggregate amount of credit available is $15 million in 2025, $17.5 million in 2026 and $20 million in 2027. Employers claiming the credit will need to maintain documents necessary to substantiate the amount of expenses they incurred. For tax years 2025 through 2027, childcare provides may apply to the AL DOR for a childcare facility tax credit, which is capped at $25,000 per year per facility. Both the employer tax credit and the facility tax credit will be awarded based on the order in which they are requested. These credits cannot be assigned or transferred to other taxpayers. The amount of credit that exceeds the applicable taxes can be refunded; such excess cannot be carried forward. HB 358 takes effect on Jan. 1, 2025. Ala. Laws 2024, Act 303 (HB 358), signed by the governor on May 9, 2024.

Alabama: New law (HB 346) creates the Alabama Workforce Housing Tax Credit Act under which the Alabama Housing Finance Authority upon approving a federal low-income housing tax credit for a qualified project may award an Alabama workforce housing tax credit to the owner of the qualified project. The amount of the credit is based on the amount necessary for the financial feasibility of a qualified project but it cannot exceed $2 million. The Authority will notify owners of the amount of credit awarded for each year of the project's credit period. Award of the credit is contingent upon issuance of an eligibility certificate. Excess credit is not refundable, but it can be carried forward for up to five years. If any portion of the federal low-income housing credit taken on a qualified project is required to be recaptured or otherwise disallowed during the credit period, the taxpayer claiming the credit will likewise be required to recapture a portion of the state credit. HB 346 takes effect on Oct. 1, 2024. Ala. Laws 2024, Act 302 (HB 346), signed by the governor on May 9, 2024).

Connecticut: New law (HB 5524) modifies the JobsCT program. Generally, to qualify for the rebate, a qualified business must employ at least 25 new full-time equivalents (FTEs) in Connecticut, but the number of FTEs is reduced to 15 if at least one FTE is an individual with an intellectual disability. The law expands the application of the reduced 15-FTE threshold to when at least three of the new FTEs are individuals who reside in a concentrated poverty census tract. This change took immediate effect. The law also modifies the historic homes rehabilitation tax credits to restore the ability to claim the credit against various taxes including, but not limited to, the Corporation Business Tax (ch. 208), the Insurance Companies and Health Care Centers Taxes (ch. 207), and the Unrelated Business Income of Nonprofit Corporations Tax (ch. 208a). This change takes effect July 1, 2024, and applies to tax and income years beginning on or after Jan. 1, 2024. Conn. Laws 2024, Pub. Act 24-151 (HB 5524), signed by the governor on June 6, 2024.

Vermont: New law (HB 546) extends the machinery and equipment tax credit, which can be claimed against a qualified taxpayer's Vermont income tax liability, through Dec. 31, 2030 (from Dec. 31, 2026). Vt. Laws 2024, Act 144 (HB 546), signed by the governor on June 3, 2024.

PROPERTY TAX

Vermont: New law (HB 657) repeals the telephone personal property tax under 32 V.S.A. Section 8521 on July 1, 2025. The final monthly installment payment for this tax, which is levied on the net book value of the taxpayer's personal property as of Dec. 31, 2024, is due by July 25, 2025. Starting in fiscal year 2025, the law provides that the Division of Property Valuation and Review of the Department of Taxes and all communications service providers with taxable communications property in Vermont will be subject to the inventory and valuation provisions in 32 V.S.A. Section 4452. The law further provides that communication property will be set in the grand list as real estate. Communications property owned by a nonmunicipal communications service provider will be taxed at the appraisal value defined in 32 V.S.A. Section 3481. The term "communications property" is defined as "tangible personal property used to enable the real-time, two-way, electromagnetic transmission of information, such as audio, video, and data, that is so fitted and attached as to be part of a local, state, national, or international communications network, as well as facilities that are part of a cable television system … " By May 1 each year, the property division will provide listers in each municipality with the valuation of all taxable communications property located in the municipality. Communications service provider have until March 31 each year to submit to the property division a sworn inventory of all its taxable communications property in each municipality. Listers will use the valuations provide to them to determine and fix the valuations of communications property for property tax purposes. The communications property tax provisions take effect on July 1, 2025 and apply to grand lists lodged on or after April 1, 2025. Vt. Laws 2024, Act 145 (HB 657), signed by the governor on June 3, 2024.

COMPLIANCE & REPORTING

Maryland: New law (SB 677 and HB 455) requires certain tax returns be filed electronically. Unless an exception applies, the following returns must be filed electronically for periods beginning after Dec. 31, 2026: (1) corporate income tax returns, (2) income tax withholding returns, (3) income tax returns filed by pass-through entities, (4) sales and use tax returns, (5) digital advertising gross revenues tax returns, (6) admissions and amusement tax returns, (7) alcoholic beverage tax returns, (8) tobacco tax returns, (9) motor fuel tax returns, (10) tire recycling fee returns, and (11) Bay restoration fee returns. Individual will be required to file their income tax returns electronically for tax years beginning after Dec. 29, 2029. Md. Laws 2024, ch. 730 (SB 677) ch. 729 (HB 455), both bills were signed by the governor on May 16, 2024.

PAYROLL & EMPLOYMENT TAX

Iowa: Due to changes in Iowa tax law (see Tax Alert 2022-0545), the Iowa Department of Revenue (DOR) instructed employers to encourage their employees to provide an updated 2024 IA W-4, Employee Withholding Allowance Certificate. For employees who have not submitted a 2024 IA W-4, the DOR instructed employers to use $40 as the total allowance amount and $0 additional withholding when computing Iowa income tax withholding for wages paid in calendar year 2024. For more on this development, see Tax Alert 2024-1101.

Utah: The Appeals Division of the Utah State Tax Commission (Commission) held that the 2019 wages of an employee working outside of the state for a Utah employer was Utah-source income and subject to the state's personal income tax. The Commission concluded that all wages paid by the employer in 2019 were sourced to Utah for state income tax purposes because the taxpayer's employer had: (1) sourced all of his 2019 wages to Utah, (2) withheld Utah state income tax from those wages, (3) paid that withholding to Utah, and (4) not submitted a letter explaining why the income should not be sourced to Utah. (Utah State Tax Commission Initial Hearing Order Appeal #22-2043). For more on this development, see Tax Alert 2024-1171.

MISCELLANEOUS TAX

Connecticut: New law (HB 5524) allows the tax commissioner to reexamine the insurance premiums tax return and reassess such tax. The law also requires a newly licensed insurance company that is organized under the law of another state or foreign jurisdiction to pay not later than 90 days after the effective date of its initial business license a tax on the net direct premiums they received in the five prior calendar years from policies written on property or risks located in Connecticut. These changes took effect from passage. Conn. Laws 2024, Pub. Act 24-151 (HB 5524), signed by the governor on June 6, 2024.

Connecticut: New law (HB 5524) establishes a working group that will examine existing Connecticut tax expenditures (as defined in Conn. Stat. Section 12-7b) with the aim of simplifying the state's tax code as well "identify[ing] expenditures that are redundant, obsolete, duplicative or inconsistent in language or policy." The group's report is due to the General Assembly's joint standing committee by Jan. 1, 2025; the report must include the group's findings and recommendations. Conn. Laws 2024, Pub. Act 24-151 (HB 5524), signed by the governor on June 6, 2024.

Vermont: New law (HB 546) extends certain fuel taxes that support the state's low-income home weatherization program. Specifically, the following taxes are extended through June 30, 2029 (from June 30, 2024): (1) the $0.02 per gallon tax on retail sales of heating oil, propane, kerosene and other dyed diesel fuel delivered in Vermont; (2) the gross receipts tax of 0.75% on the retail sale of natural gas and coal; and (3) the gross receipts tax of 0.5% on the retail sale of electricity. Vt. Laws 2024, Act 144 (HB 546), signed by the governor on June 3, 2024.

Vermont: New law (HB 657) repeals the alternative telephone gross revenues tax under 32 V.S.A. Section 8522 on Jan. 1, 2026. The final quarterly payment of this tax is due by Jan. 25, 2026. Taxpayers that paid the alternative telephone gross revenues tax before its repeal will become subject to Vermont's income tax beginning with the taxpayer's first income year starting on or after Jan. 1, 2025. Alternative tax will not be due for any period included in the taxpayer's income tax filing for tax years starting in 2025. Effective July 1, 2025, the monthly rate of the universal service charge is changed from 2% of retail telecommunications service to $0.72 for each retail access line in service; a 2.4% universal service charge is imposed on prepaid wireless telecommunications service. Vt. Laws 2024, Act 145 (HB 657), signed by the governor on June 3, 2024.

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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Endnotes

1 This Tax Alert does not discuss property tax changes in HB 4951.

2 Specifically, the Use Tax, the Service Use Tax, the Service Occupation Tax and the ROT.