Ernst & Young's State and Local Tax Weekly newsletter for July 12 and July 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

Pennsylvania increases NOL cap, limits data center sales tax exemption, enhances and creates new business tax credits and incentives

On July 11, 2024, Pennsylvania Governor Josh Shapiro signed into law SB 654. Notably, SB 654 gradually increases the net loss (NOL) deduction; clarifies related party interest/intangible expenses and costs add back requirements; clarifies the goodwill deduction under the Bank and Trust Company Shares Tax; limits the application of the sales and use tax exemption for data centers; and amends and creates various tax credits.¹

NOLs: SB 654 gradually increases the NOL deduction from 40% to 80%. For net losses incurred before January 1, 2025, the net loss deduction remains 40% of post-apportionment taxable income. For net losses incurred in tax years beginning after December 31, 2024 the net loss deduction is determined as follows:

Related party intangible interest/intangible expense or cost addback: Applicable to tax years commencing after December 31, 2022, the law amends the annual election for an affiliated entity subject to the corporate net income tax (CNIT) to exclude "intangible expense or cost" and/or related "interest expense or cost" from taxable income to the extent taxpayer adds back those items in determining taxable income.

In instances where a taxpayer adds back intangible expense or cost (e.g., royalties and license fees) and related interest expense or cost, and an affiliated entity subject to the CNIT otherwise includes those items in taxable income, the affiliated entity is permitted to make an annual election with the filing of its original tax return to exclude those items. (The affiliated entity must identify the taxpayer to which the election applies.) The exclusion may not exceed the intangible expense or cost or the interest expense or cost paid, accrued or incurred by the taxpayer.

Bank and trust company shares tax: SB 654 allows an institution a deduction from share value for all goodwill resulting from an acquisition or business combination occurring after June 30, 2001, recorded in the institution's reports of condition pursuant to generally accepted accounting principles. In computing the deduction for U.S. obligations, any goodwill deducted from share value shall be used. These changes apply to the ascertainment of taxable amount of shares after December 31, 2024 and to the report and the payment of the tax due after March 14, 2025.

Computer data center equipment exemption: Purchases or use of computer data center equipment for installation in a certified data center will not qualify for the data center sales and use tax exemption if the equipment is used for proof of work crypto-asset mining. The law defines "proof of work crypto-asset mining" as "the process of performing computations to add a valid block of data to a blockchain, excluding computations required to validate individual transactions, typically in exchange for a reward or fee." This change applies to tax years commencing after December 31, 2025.

Waste grease removal: Retail sales and use of services related to the cleaning or maintenance of a storage trap used by a restaurant to collect grease waste are excluded from sales and use tax effective for transactions occurring after September 30, 2024.

Tax credits and incentive: SB 654 modifies tax credit and incentive provisions as follows:

• Increases the aggregate amount of historic preservation tax credit certificates that may be awarded from $5 million to $20 million
• Increases the amount of coal refuse energy and reclamation tax credit
• Defines terms for purposes of the city revitalization and improvement zones and allows for the designation of additional zones
• Provides, for purposes of the rural jobs and investment tax credit, another $50 million in investor investment in rural growth funds with respect to a newly created "Program Two Tax Credit Authority"
• Increases the total amount of neighborhood assistance tax credits that may be issued from $36 million to $72 million in a fiscal year and increases the maximum amount of the tax credit that a "business firm" may apply against an enumerated tax is increased from 55% to 65% of the total amount contributed to approved programs during the tax year
• Establishes a new 529 savings account matching contribution tax credit, effective for tax years beginning after December 31, 2024, and ending before January 1, 2030
• Establishes a new employer child care contribution tax credit, effective for tax years beginning after December 31, 2024

These credit and incentive changes apply to fiscal years beginning after June 30, 2024, unless otherwise provided.

INCOME/FRANCHISE

Minnesota: The Minnesota Supreme Court (Court) recently affirmed the authority of the Minnesota Department of Revenue (Department) to adjust a taxpayer's federal adjusted gross income (FAGI) in determining the correct amount of state income tax owed. In so holding, the Court reaffirmed its prior holding in Specktor v. Comm'r. of Rev., 308 N.W.2d 806 (Minn. 1981), which upheld the Department's authority to adjust a taxpayer's reported income derived from FAGI. The Court also found the Department's imposition of the frivolous-return penalty does not violate the US or Minnesota constitutions. The imposition of the penalty did not violate the Due Process Clause because the Department warned the taxpayer that the penalty would apply if the taxpayer continued to file frivolous returns. The Court also held that the penalty did not violate the Excessive Fines Clause because it was proportional to the gravity of the offense it is designed to punish. Wendell v. Comm'r. of Rev., Case No. A23-1259 (Minn. S. Ct. June 5, 2024). For more on this development, see Tax Alert 2024-1410.

Missouri: New law (HB 1912) modifies the elective pass-through entity tax (PTET) to provide an opt-out election for nonresident members of a pass-through entity that makes an election to be subject to the PTET (i.e., an "affected business entity"). The affected business entity, in computing the PTET, must subtract the opt-out members' allocable income and deduction items, and consider the effect of any opt-out election on such member's share of deductions, credits and any other relevant items. If a member does not make a timely opt-out election for a tax year, that member is not preclude from timely filing an opt-out election in future years. Members that opt-out must agree to: (1) file a return based on Missouri nonresident adjusted gross income and timely pay tax due with respect to the income of the affected business entity; and (2) be subject to personal jurisdiction in Missouri with respect to the income of the affected business entity. In addition, the law expands the PTET credit to a fiduciary of an estate or trust that is a member of the affected business entity. Under prior law, an affected business entity's sum of separately and nonseparately computed income and deduction items was decreased by the Federal business income deduction under IRC Section 199A. The law modifies this provision by replacing the Federal business income deduction with the Missouri State business income deduction. For purposes of the PTET, the law amends the definition of "partnership" to specifically exclude a publicly traded partnership. Lastly, the law modifies the tax credit for income tax paid to another state for S corporation shareholders to provide that the credit is equal to Missouri individual income tax imposed on such shareholder's share of the S corporation's income derived from sources in another state and which is subject to Missouri income tax but is not subject to income tax in the other jurisdiction. HB 1912 takes effect on August 28, 2024. Mo. Laws 2024, HB 1912, signed by the governor on July 12, 2024.

Missouri: New law (SB 872) expands the income tax deduction for 100% of federal grant money received for the express purpose of expanding broadband internet access to areas of Missouri deemed to be lacking such access, to include state or local grant money received for the same purpose. This change applies to all tax years beginning on or after January 1, 2022. Mo. Laws 2024, SB 872, signed by the governor on July 9, 2024.

North Carolina: New law (HB 228), effective for tax years beginning on or after January 1, 2023, repeals provisions that allowed a taxed S corporation or taxed partnership (hereafter "taxed entity"), and not the fiduciaries and beneficiaries of estates and trusts who are shareholders/partners of the taxed entity, to claim the credit for taxes paid to another state or country on income taxed to the taxed entity. Effective for tax years beginning on or after January 1, 2023, the law, for individual income tax purposes, adds definitions for "income attributable to this State" and "income not attributable to the State" with respect to partnerships and S corporations. N.C. Laws 2024, SL 2024-28 (HB 228), signed by the governor on July 1, 2024.

Ohio: A California couple has appealed an Ohio Department of Taxation (Department) denial² of their refund claim for income tax paid on capital gains from the sale of 25% of their interest in a company that conducts business in Ohio. On their 2018 joint Ohio nonresident income tax return, the taxpayers apportioned capital gains from the sale of 25% of their interest in a skincare product company. Subsequently, they filed a refund claim asserting the gain was allocable nonbusiness income. The Department granted a refund on the rate differential after determining the gain qualified for Ohio's business income deduction and the corresponding 3% flat rate on business income, but denied a full refund after concluding the gain was subject to apportionment under Ohio Rev. Code 5747.212. The Department's determination effectively overrode the Ohio Revised Code's normal sourcing of capital gains (i.e., to a nonresident's state of domicile) and required apportionment of the gain based on a three-year average of the investee entity's apportionment factors if the investor owned a 20%-or-greater interest in the entity during the current and two preceding tax years. The taxpayers appealed the denial of their refund claim to the Department's Office of Appeals, arguing that Ohio Rev. Code 5747.212 is unconstitutional as applied to them, citing the Ohio Supreme Court's (court) decision in Corrigan.³ The Department noted, however, that the court held the statute was unconstitutional as applied to the taxpayer in Corrigan but not on its face. In Corrigan, the taxpayer was an investor who was not involved in the active company management. In this case, however, both taxpayers were members of the board, and one of them founded the company, developed its products, acted as a company spokesperson, and is featured prominently on the company's website. The Department further observed that the taxpayers reported the income they received from the company as nonpassive income on their federal income tax return. The Department concluded the income was subject to apportionment under Ohio Rev. Code 5747.01(B)'s definition of "business income," which was modified in 2022 by HB 515, to clarify the conditions under which income from the sale of an ownership interest in a business, such as a partnership or limited liability company, would qualify as business income for individual income tax purposes. HB 515 was remedial in nature and applied retroactively to codify two conditions under which the sale of an ownership interest in a business will be considered business income: (1) the transaction is treated as an asset sale for federal income tax purposes, and (2) the seller materially participates (as described in Treas. Reg. Section 1.469-5T) in the activities of the business during the tax year in which the sale occurs or during any of the five preceding tax years. The taxpayers had acknowledged that they spent enough time with the business to be considered materially participating. For additional information on this development, see Tax Alert 2024-1424.

South Carolina: New law (SB 5100) accelerates the individual income tax rate reduction. Specifically, SB 5100, the 2024-25 state budget bill, retroactively to January 1, 2024, reduces the top marginal personal income tax rate to 6.2% (from 6.4%) with graduated decreases of 0.1% until the top tax rate reaches 6.0%. Future reductions, however, depend on whether general fund revenues are projected to increase by at least 5% in the fiscal year that begins during the tax year. S.C. Laws 2024, SB 5100, signed by the governor on July 3, 2024, with certain items vetoed. See Tax Alert Tax 2024-1390.

West Virginia: On July 11, 2024, Governor Jim Justice announced that because the revenue collections surpassed the rate of inflation, the personal income tax rates will be reduced by an additional 4%, effective January 1, 2025. Current individual income tax rates rate range between 2.36% and 5.12%. W.V. Gov., Press Release "Gov. Justice announces 4 percent personal income tax cut trigger, marching West Virginia closer to eliminating tax" (July 11, 2024).

SALES & USE

Alabama: The Alabama Department of Revenue adopted amendments to Ala. Rule 810-6-1-.196 "Withdrawals From Inventory" "to provide better clarity to taxpayers relating to taxable transactions for withdrawals from inventory." Generally, withdrawals of tangible personal property from inventory are taxable under the sales tax statute, unless specifically exempted. Tax on the withdrawn property (1) is paid by the person withdrawing the property, (2) is measured based on the price paid for the property by the person making the withdrawal, and (3) is due at the time and place the property is withdrawn from inventory. Tax is due on the withdrawal regardless of where such property is used or consumed. The rule lists exemptions and exceptions to the general rule. Exemptions include a gift from a manufacturer of property withdrawn from inventory, and property that has been previously withdrawn from inventory for which tax was paid due to the prior withdrawal. The amended rule was adopted on June 28, 2024 and takes effect on August 12, 2024.

Arizona: New law (HB 2909) changes the date by which the Arizona Department of Revenue (AZ DOR) must establish a certification process for third-party providers offering sourcing services to taxpayers for transactions involving tangible personal property to January 1, 2028 (from January 1, 2026). The law extends through December 31, 2026 (from June 30, 2024) the transaction privilege and use tax exemption for a certified healthy forest enterprise's purchase of qualifying equipment used for harvesting or processing qualifying forest products. Ariz. Laws 2024, ch. 221 (HB 2909), signed by the governor on June 18, 2024.

Illinois: New law (SB 3476) exempts from Illinois Use Tax Act, Service Use Tax Act, Service Occupation Tax, and the Retailers' Occupation Tax Act, home-delivered meals provided to Medicare or Medicaid recipients when payment is made by an intermediary (e.g., Medicare administrative contractor, managed care organization, Medicare advantage organization) under a government contract. This exemption took effect on July 1, 2024. Ill. Laws 2024, Pub. Act 103-0643 (SB 3476), signed by the governor on July 1, 2024.

Louisiana: New law (HB 827) provides a rebate for state and local sales and use tax paid on purchases of eligible data center equipment by an approved data center facility and for sales tax paid on expenditures for the development, acquisition, construction, lease, refurbishment, expansion and renovation of a qualified data center (e.g., construction and building material costs, site characterization and assessment, engineering, design, and labor and installation services). To be certified as an approved data center facility, the facility operator must provide a sworn attestation that the project will create at least 50 new direct, permanent jobs in Louisiana and that it intends to spend at least $200 million in new capital investment in the state on or after July 1, 2024 and before July 1, 2029. An approved data center facility must enter into an agreement with the Louisiana Department of Economic Development (Department); the agreement should provide for an initial 20-year term of rebate eligibility, with the ability of the Department to renew the agreement for an additional 10 years. For renewal purpose, the Department may include additional conditions it deems appropriate. The rebate, which will be paid annually, applies to qualified purchases made on or after July 1, 2024. The law defines what is and is not "data center equipment," among other key terms. La. Laws 2024, Act No. 730 (HB 827), signed by the governor on June 19, 2024.

Missouri: New law (SB 872) creates a state and local sales tax exemption for utilities, equipment and materials used to generate and transmit electricity. Specifically, the exemption applies to "electrical energy and gas, whether natural, artificial, or propane; water, coal, and energy sources; chemicals, machinery, equipment, parts, and materials used or consumed in connection with or to facilitate the generation, transmission, distribution, sale, or furnishing of electricity for light, heat, or power; and any conduits, ducts, or other devices, materials, apparatus, or property for containing, holding, or carrying conductors used or to be used for the transmission of electricity for light, heat, or power service to consumers." Public utilities that realize savings from this exemption must provide the public service commission information on the amount of savings it realized and they must include a statement that such savings will be passed through to its rate revenue requirement determined in its next general rate proceeding. SB 872 takes effect August 28, 2024. Mo. Laws 2024, SB 872, signed by the governor on July 9, 2024.

Missouri: New law (SB 1388) creates a state and local sales and use tax exemption for purchases of tangible personal property, building materials, equipment, fixtures, manufactured goods, machinery and parts for purposes of constructing all or a portion of a nuclear security enterprise (as defined in 50 U.S.C. Section 2501) in a city with more than 400,000 inhabitants and located in more than one county. This exemption expires on August 28, 2034. SB 1388 takes effect on August 28, 2024. Mo. Laws 2024, SB 1388, signed by the governor on July 8, 2024.

North Carolina: New law (HB 228) modifies sales and use tax nexus provisions for remote sales by removing the 200 or more separate transactions thresholds. Under the revised provisions a retailer/marketplace facilitator will have nexus with North Carolina if they make gross sales in excess of $100,000 from remote sales/marketplace-facilitated sales sourced to North Carolina. A person that holds a certificate of registration with the North Carolina Department of Revenue and is solely engaged in business in the state due to the 200 or more separate transactions threshold may close their registration certificate. Such taxpayers must file returns and remit tax for periods ending before the later of July 1, 2024 or the date they cancel their registration certificate. The law also updates the reference date to the Streamlined Sakes and Use Tax Agreement as of November 7, 2023 (from December 22, 2022). This change is effective July 1, 2024. N.C. Laws 2024, SL 2024-28 (HB 228), signed by the governor on July 1, 2024. See also, N.C. Dept. of Rev., Directive SD-24-1 (July 1, 2024).

Vermont: The Vermont Department of Taxes (Department) posted to its website information on the taxability of prewritten computer software. Due to a recently enacted law change, as of July 1, 2024, all sales of prewritten computer software are subject to sales and use tax, including "software purchased on storage media, downloaded to a computer system, or accessed remotely via the internet." The Department said that prewritten computer software includes "programs for office work such as spreadsheet editor, word processing, or software that creates electronic documents[;] accounting software[;] video games[; and] web browsers." Prewritten computer software does not include customized software. If prewritten software is sold with custom software, it remains taxable prewritten software; however, reasonable, separately stated charges on an invoice or other statement of price for a modification or enhancement does not constitute prewritten computer software and is exempt from tax. The Department's webpage includes a chart, listing items and whether they are taxable or nontaxable. Vt. Dept. of Taxes, "Prewritten Computer Software" webpage (updated July 2024).

BUSINESS INCENTIVES

Federal: The IRS released the 2024 inflation adjustment factor and reference prices for calculating the IRC Section 45 production tax credit (PTC) for qualified energy resources. The PTC originally allowed taxpayers to claim a credit equal to $1.5 cents (adjusted annually for inflation) per kilowatt hour of renewable electricity produced at a qualified facility. The inflation adjustment factor for calendar-year 2024 is 1.9499. The 2024 reference price for facilities producing electricity from wind is 3.15 cents per kilowatt hour; because this price does not exceed the 8 cents multiplied by the inflation adjustment factor in IRC Section 45(b)(1), the phaseout of the credit under IRC Section 45(b)(1) does not apply for calendar 2024. Reference prices for facilities producing electricity from closed-loop biomass, open-loop biomass, geothermal energy, municipal solid waste, qualified hydropower production, and marine and hydrokinetic renewable energy have not been determined for 2024. For additional information on this development, see Tax Alert 2024-1358.

Colorado: New law (HB24-1325) establishes tax credits for investments in fixed assets to create a hub for a shared quantum facility. This credit is allowed for income tax years beginning on or after January 1, 2025 but before January 1, 2033. A qualified applicant can claim the credit in the amount specified on an issued credit certificate. The law includes specific provision for qualified applicants that are a consortium. Applicants have until December 31, 2025 to apply for a tax credit reservation; this application deadline could be extended if the federal government has not announced the grant recipient by June 30, 2025. The aggregate amount of all fixed asset investment tax credit reservations that may be issued is limited to $44 million. A qualified applicant cannot use an issued tax credit certificate before 2026 but will need to use it before the last income tax year that begins before January 1, 2033. The law provides for the disallowance and recapture of credits if certain conditions are met. HB 24-1325 also creates a quantum business loan loss reserve income tax credit, which is available for tax years beginning on or after January 1, 2026 but before January 1, 2046. The credit can offset losses incurred in connection with one or more registered loan loss certificates issued. Neither of these tax credits will be allowed unless a Colorado-based entity receives a multimillion-dollar federal grant from the Economic Development Administration for the Regional Technology and Innovation Program or comparable federal grant program. Colo. Laws 2024, ch. 273 (HB24-1325), signed by the governor on May 28, 2024.

Colorado: New law (HB24-1116) extends the credit for environmental remediation of contaminated land through January 1, 2030 (from January 1, 2025). Colo. Laws 2024, ch. 382 (HB24-1325), signed by the governor on June 4, 2024.

Hawaii: New law (SB 2497) modifies the state's research activities tax credit provisions and extends the credit through December 31, 2029 (from December 31, 2024). For purposes of the credit all references to the IRC Sections 41 and 280C(c) are operative. The law repeals the provision that made references to the base amount in IRC Section 41 inapplicable to the state's research activities tax credit and that allowed credit for all qualified research expenses to be taken without regard to the previous years' expenses. The law amends the definition of "qualified high technology business" to mean "a small business that conducts more than [50%] of its activities in qualified research in the State and is registered to do business in the State." A small business is a company with no more than 500 employees. SB 2497 took effect upon approval and applies to tax years beginning after December 31, 2023. Haw. Laws 2024, Act 139 (SB 2497), signed by the governor on July 1, 2024.

New Jersey: New law (SB 3303 / AB 4046) provides an amended accommodation to certain grant and credit recipients with a 60% full-time employee in-office presence requirement to provide that the requirement will be met if the business recipient has a 40% in-office presence and makes a payment equal to 20% of the tax credit it receives for the tax period to the municipal affordable housing trust fund in the municipality in which the qualified business facility is located. SB 3303/AB 4046 also provides the Economic Development Authority with the discretion to extend the life of issued credit/grant tax certificates. This change took effect April 1, 2024. N.J. Laws 2024, ch. 40 (SB 3303/AB 4046), signed by the governor on July 10, 2024.

PROPERTY TAX

Oklahoma: New law (SB 1438) allows a company primarily in the business of renting heavy equipment to assess a 1.25% recovery fee on consumer rentals of heavy equipment property located in Oklahoma. (The fee should be a separate line item of the rental invoice.) The business may retain the fee to pay personal property tax levied by all taxing jurisdictions on the rented heavy equipment property located in the state. The law specifically provides that this fee is not subject to state or local sales tax and that the fee cannot be imposed on such equipment rented by a governmental or tribal entity. Businesses collecting the fee must file by February 15 an annual report with Oklahoma Tax Commission, stating the amount of fee collected and the amount of personal property tax paid in the prior year. If the amount of fee collected exceeds the amount of personal property tax paid, the excess must be paid to the county treasurers; the business cannot retain excess collections. SB 1438 takes effect on November 1, 2024. Okla. Laws 2024, SB 1438, enacted over the governor's veto on May 30, 2024.

COMPLIANCE & REPORTING

Rhode Island: New law (HB 7087 Sub A) exempts out-of-state businesses that conduct operations within Rhode Island for purposes of performing work or services on critical infrastructure damaged, destroyed or lost due to a declared state disaster or emergency and qualifying out-of-state employees from certain state and local taxes and certain filing requirements. The exemption applies to state and local telecommunications business licensing or registration requirements and state and local taxes or fees, including unemployment insurance, state or local occupational telecommunications technician licensing fees and use tax on equipment temporarily brought into the state for use during the disaster period. In addition, out-of-state employees will not be considered to have established residency or a presence in the state that would require the person or their employer to file and pay income taxes or be subject to withholding. Out-of-state businesses and out-of-state employees nevertheless still must pay transaction taxes and fees, such as fuel taxes, sales and use taxes, hotel taxes, car rental taxes or fees, unless otherwise provided. Out-of-state businesses and out-of-state employees that remain in the state after the disaster period will become subject to the state's standard for establishing presence, residency or doing business in the state and will become responsible for any business or employee tax. HB 7087 took effect upon passage. R.I. Laws 2024, ch. 215 (HB 7087 Sub A), signed by the governor on June 24, 2024.

CONTROVERSY

Federal: In Loper Bright Enterprises v. Raimondo, No. 22-451 (June 28, 2024), a majority of the US Supreme Court (Court) overturned the 40-year precedent in Chevron U.S.A. Inc v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), which had been a mainstay precedent instructing courts to defer to the decisions of federal agencies when a statute is ambiguous. In place of the so-called Chevron deference, the majority opinion in Loper Bright held that courts must exercise their independent judgment when interpreting statutory language. For more on this development, see Tax Alert 2024-1432.

California: New law (AB 3287) makes permanent provisions that authorize the Franchise Tax Board (FTB) to implement an alternative communication method. Under the alternative method, the FTB may notify a taxpayer via the preferred electronic communication method designated by the taxpayer that a notice, statement bill or other communication is available for viewing in the taxpayer's folder on the FTB's website. The alternative communication method also allows taxpayers to file a protest, notification and other communication to the FTB in a secure manner. Cal. Laws 2024, ch. 122 (AB 3287), signed by the governor on July 15, 2024.

PAYROLL & EMPLOYMENT TAX

Multistate: The June 2024 issue of Payroll Month in Review is now available. This issue summarizes the latest developments in US federal, state and local payroll and human resources matters. A copy of the June issue is available via Tax Alert 2024-1352.

Arkansas: On June 19, 2024, Arkansas Governor Sarah Huckabee Sanders signed into law SB 1 which, retroactive to January 1, 2024, lowers the state's personal income tax rate from 4.4% to 3.9%. The Arkansas Department of Finance and Administration projects that individual taxpayers will save $384 million in 2025 and $256 million in 2026. Effective retroactive to January 1, 2024, the supplemental rate of withholding on bonuses and other irregular wage payments is reduced from 4.4% to 3.9%. For additional information on this development, see Tax Alert 2024-1256.

MISCELLANEOUS TAX

Hawaii: New law (SB 2974) establishes a business revitalization task force to identify ways "to improve Hawaii's economic competitiveness and business climate, including the mitigation of regulatory and tax burdens." The task force is directed to develop and recommend legislation that will increase Hawaii's economic competitiveness and to make recommendations for improving governmental operations and reduce costs. The task force must submit its report no later than 20 days before the convening of the 2026 regular legislative session; the task force may submit all or part of its recommendations to the legislature before it submits its report. The task force is dissolved on June 30, 2026. SB 2974 took effect on July 1, 2024. Haw. Laws 2024, Act 142 (SB 2974), signed by the governor on July 1, 2024.

Illinois: The Illinois Department of Revenue issued guidance to re-renters of hotel rooms, who as of July 1, 2024 are subject to the state's Hotel Operators' Occupation Tax. A re-renter of hotel rooms is a person who is not employed by a hotel operator but who through third-party arrangements collects or processes the hotel guest's payment for a room and either has the authority to grant control of, access to, or occupancy of a hotel room in Illinois to a hotel guest or facilitate the booking of a hotel room located in Illinois. Such person is not considered a "re-renter" if they operate under a shared hotel brand with the operator. A re-renter of hotel rooms also does not include hosting platforms for short-term rentals of occupied dwellings. Re-renters of hotel rooms must register for and collect the Illinois Hotel Operators' Occupation Tax. The guidance describes the process for reporting receipts when the hotel operator and re-renter rent the same hotel room. Ill. Dept. of Rev., Informational Bulletin FY 2024-29 "Hotel Operators' Occupation Tax Updates for Operators and Re-Renters of Hotel Rooms" (June 2024).

Louisiana: New law (HB 418) reduces the rates of the severance tax on oil and gas produced from wells with inactive or orphan well status. The rate on production from an oil or gas well after the well's having been inactive for two or more years or having 30 days or less of production during the past two years are subject to a severance tax rate equal to 25% (from 50%) of the standard severance tax rate for a period of 10 years if the production begins before October 1, 2028. For orphan wells that have been designated as such for longer than 60 months the severance tax rate is 12.5% (from 25%) of the standard severance tax rate for a period of 10 years if the production begins before October 1, 2028. If production begins on or after October 1, 2028, the percentages revert to 50% of the standard rate (inactive) and 25% of the standard rate (orphan wells), respectively. Certain conditions must be met to qualify for the reduce severance tax rates for inactive or orphan wells. HB 418 takes effect on October 1, 2024. La. Laws 2024, Act 695 (HB 418), signed by the governor on June 19, 2024.

Missouri: New law (SB 872) modifies the definition of "video service" under the "2007 Video Services Providers Act" to mean "the provision of video programming by a video service provider provided through wireline facilities located in at least in part in the public right-of-way without regard to delivery technology, including internet protocol technology whether provided as part of a tier, on demand, or on a per-channel basis." The law specifically provides that "video service" does not include video programming accessed through a service that enable users to access content, information, e-mail or other services offered over the internet, such as streaming content. SB 872 takes effect August 28, 2024. Mo. Laws 2024, SB 872, signed by the governor on July 9, 2024.

VALUE ADDED TAX

International — Canada: The Canada Border Services Agency (CBSA) published its semi-annual update of its trade compliance verification priorities list in July 2024. The list is designed to update the importing community on ongoing verification priorities and set the stage for new priorities for the upcoming calendar year. The CBSA continues to focus on tariff classification as a priority audit area, introducing one new product category to the list of tariff classification priorities. In this update, the CBSA also identifies new compliance priorities. For more on this development, see Tax Alert 2024-1408.

International — Ethiopia: The Ministry of Finance (MOF) has issued a new directive No. 1006/2024 with list of exempt goods in addition to the lists on VAT Proclamation No.285/2002 (as amended) and VAT regulation No.79/1995. The new directive also excluded all goods and services that have previously been exempt through various directives issued or decisions made by the MOF. Such goods will now be subject to VAT at the standard rate of 15%. For more information on this development, see Tax Alert 2024-1317.

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 SB 654 includes personal income tax exclusions and deductions; these changes are not discussed in this summary.

² Garry A. Rayant & Kathy A. Fields, Final Determination - Refund Claim No. 0044350439 (Ohio Dept. of Taxn. March 28, 2024), appeal filed, Appeal Number 477 (Ohio Bd. Tax App. filed on May 24, 2024).

³ Corrigan v. Testa, 149 Ohio St.3d 18 (Ohio 2016). In Corrigan, the court held that applying Ohio Rev. Code 5747.212 to a nonresident's capital gain from his sale of ownership interests in a limited liability company that was doing business in Ohio violated the Due Process Clause. See Tax Alert 2016-0859.