TOP STORIES

Massachusetts establishes a tax amnesty program, updates IRC conformity date for personal income tax

On July 29, 2024, Massachusetts Governor Maura Healey signed the fiscal year (FY) 2025 budget bill, HB 4800, into law. The law's tax-related provisions include a tax amnesty program and an Internal Revenue Code (IRC) update for personal income tax purposes.

Amnesty: HB 4800 authorizes the Massachusetts Commissioner of Revenue to establish a 60-day tax amnesty program to run in FY 25, but end by June 30, 2025. The amnesty program will apply to tax returns due on or before December 31, 2024.

In exchange for participating in the amnesty program and coming into tax compliance, the commissioner will waive most penalties, except for penalties due under Sections 35A, 35D or 35F of Chapter 62C of the General Laws.¹ Penalties will not be waived for any period for which the taxpayer does not properly file the return. Amnesty does not apply to penalties the commissioner does not have the sole authority to waive, such as the fuel taxes administered under the International Fuel Tax Agreement and the local portion of taxes or excise taxes collected for cities, towns or state government authorities.

The commissioner is not authorized to waive interest.

In addition to waiving penalties, the tax commissioner is authorized to determine the scope of the amnesty program, including the tax types, the tax periods covered and the applicable look-back periods, not to exceed four years.

Penalties cannot be waived for taxpayers who are or who have been subject to a tax-related criminal investigation or prosecution, or for taxpayers that have delivered or disclosed a false or fraudulent application, return, document or other statement. Taxpayers filing false or fraudulent documentation are subject to a penalty.

Taxpayers participating in this amnesty program must wait 10 years before participating in another amnesty program.

IRC conformity update: HB 4800 updates the IRC conformity date for individual income tax purposes to January 1, 2024 (from January 1, 2022).

For more on this development, see Tax Alert 2024-1488.

Minnesota tax court's approval of state's use of alternative apportionment method may be of interest to companies including gross receipts from forward-exchange contracts in apportionment formula

The Minnesota Department of Revenue (Department) presented sufficient evidence to support the use of an alternative apportionment method that substituted net income for gross receipts from forward-exchange contracts in a multinational company's sales factor denominator, the Minnesota Tax Court held in E.I. duPont de Nemours and Co. & Subsidiaries.²

Facts: The taxpayer, a multinational science and technology company headquartered in Delaware, operates in approximately 90 countries. Sixty percent of its consolidated net sales were to customers outside the United States (US), which resulted in significant foreign-currency transactions from international sales. For US financial reporting purposes, the taxpayer must report its global earnings in US dollars even though it receives payment for the sale of its goods in foreign currencies.

As a result of its activities, the taxpayer experienced foreign-currency risk in the fluctuation of the reported book value of foreign-denominated receivables or payables between the original transaction date and settlement date. To manage this risk, the taxpayer implemented a policy called the NMA Program, under which its treasury personnel in Delaware bought and sold forward exchange contracts (FECs) to offset the taxpayer's net exposure from transactions in the corresponding foreign-currency pairings. The NMA Program enabled investors to see the taxpayer's true operating performance unaffected by currency fluctuations.

The terms of the FECs were on a gross basis, and the taxpayer included those gross receipts in the denominator of its Minnesota apportionment factor on its 2013-15 corporate returns because none of the activities related to the NMA Program were conducted in the State. The Department found the taxpayer's inclusion of the FEC gross receipts improperly increased the company's worldwide sales and in turn, decreased the share of sales taxable in Minnesota. As a result, the Department assessed the taxpayer based on the application of an alternative apportionment method, which substituted net income in the taxpayer's sales factor denominator in place of the gross receipts. The taxpayer appealed to the Minnesota Tax Court.

Minnesota Tax Court analysis: The court observed that Minn. Stat. 290.20, subd. 1 presumes that the general apportionment methodology prescribed by Minn. Stat. 290.191, subd. 2(a) fairly determines a taxpayer's income from Minnesota activities. The statute, however, also allows taxpayers to petition for, or the Department to require, an alternative method of apportionment if that method fairly reflects income. The court noted that the statutory scheme first requires a rebuttal of the presumption that the prescribed statutory method is correct.

The court indicated that the party (in this case the Department) seeking to use an alternative method need not show that the general statutory method resulted in a distortion, but that it did not "fairly reflect" net income allocable to Minnesota. If the presumption is rebutted, then substantial evidence must be presented to show that the proposed alternative method fairly reflects income.

In analyzing whether the Department met its burden of rebutting the presumption that the general statutory method fairly reflected income, the court first observed that the FEC transactions did not occur independently of transactions with customers but served a supportive risk-management function. The court rejected the taxpayer's contention that the FEC transactions arose in the ordinary course of its business and the Minnesota statutory scheme did not require gross receipts to arise from a taxpayer's "core business." The court noted that both the Department's and taxpayer's expert witnesses³ agreed that the FEC transactions' purpose was to manage foreign-currency risk, not serve as a stand-alone profit center for the taxpayer. While the FEC transactions were a regular, recurring, and integral part of the taxpayer's business, the court said, they differed qualitatively from its other for-profit sales.

The court then considered whether the taxpayer's inclusion of gross receipts from FEC transactions resulted in a "quantitative distortion" of income. The court found persuasive the Department's expert testimony that the inclusion of gross receipts affected apportionment by increasing the taxpayer's everywhere sales more than threefold. Because the FEC transactions did not serve an independent profit-oriented purpose, the inclusion of FEC gross receipts quantitatively distorted the taxpayer's total sales, net income, and apportionment. The court thus concluded that including gross receipts from FEC transactions in the apportionment factor denominator did not fairly reflect the taxpayer's income allocable to Minnesota.

After concluding the Department met its burden of showing that the statutory formula did not fairly reflect income, the court analyzed the Department's proposed alternative method. The court agreed with the Department that using net income from FEC transactions in the denominator maintained a relationship between the FEC transactions and the apportionment factor without "overwhelming" the factor with the gross FEC activity. As such, the court determined that the alternative method fairly reflected the taxpayer's Minnesota net income.

For more on this development, see Tax Alert 2024-1452.

INCOME/FRANCHISE

District of Columbia: Approved bill (B25-0784) modifies the District of Columbia's combined reporting provisions by moving from the Joyce to Finnigan apportionment method for tax years beginning after December 31, 2025 — i.e., all District of Columbia-sourced receipts of combined group members are includable in the receipts factor numerator, regardless of whether the member has nexus with the District of Columbia. Provisions of the bill also repeal D.C. Code Section 47-1817.07a, which imposed a 3% income tax rate on capital gains from the sale or exchange of an investment in a Qualified High Technology Company. B25-0784 (A25-0550), enacted without the mayor's signature on July 26, 2024. Before becoming final law, B25-0784 will be sent to Congress for a mandatory 30 in-session day review period. These same changes were enacted via an emergency bill, B25-0875 (A25-0506), on July 15, 2024. As an emergency bill, B25-0875 is effective for 90 days and it will expire on October 13, 2024.

District of Columbia: Approved bill (B25-0784) requires individuals, trusts and estates to include certain interest on non-District of Columbia obligations in the computation of District gross income. Specifically, for tax years beginning after December 31, 2024, interest on obligations of a state or any political subdivision are included in the computation of District gross income, while interest on obligations of the District or bonds issued by DC Water, the Washington Metropolitan Area Transit Authority, and the District's Housing Finance Agency are not included in the computation. For tax years ending before January 1, 2025, interest on the obligations of the District, a state, a US territory or any political subdivision thereof, is not included in the computation of District gross income. B25-0784 (A25-0550), enacted without the mayor's signature on July 26, 2024. Before becoming final law, B25-0784 will be sent to Congress for a mandatory 30 in-session day review period. These same changes were enacted via an emergency bill, B25-0875 (A25-0506), on July 15, 2024. As an emergency bill, B25-0875 expires on October 13, 2024.

Illinois: The Illinois Department of Revenue (IL DOR) issued guidance on recent changes to the net loss deduction (NLD) limitation — i.e., increasing the NLD cap to $500,000 for tax years ending on or after December 31, 2024 and before December 31, 2027. (A NLD cap of $100,000 applies to tax years ending on or after December 31, 2021 and before December 31, 2024.) The IL DOR said that due to this change, "certain taxpayers may have an increase in their current tax year liabilities and may be subject to increased late-payment penalties." Accordingly, affected taxpayers may need to begin making estimated tax payments or recalculate and modify their estimated tax payments. The IL DOR explained that if the Illinois Income Tax Act is amended during the tax year and it does not include specific underpayment of estimated tax penalty relief, then the late-payment penalty for underpayment of estimated tax will not apply for late payments of estimated tax due before the amendment becomes law if the taxpayer used the annualized income installment method to calculate and pay estimated tax installments. The guidance includes examples. Ill. Dept. of Rev., Informational Bulletin FY 2025-01 (July 2024).

Illinois: The Illinois Department of Revenue (IL DOR) has adopted new rule 86 Ill. Adm. Code 100.7034 "Investment Partnership Withholding" and amendments to 86 Ill. Adm. Code 100.9730 "Investment Partnerships," to implement statutory changes to the definition of "investment partnership" in Pub. Act 103-0009. The new regulation, 86 Ill. Adm. Code 100.7034, provides a general rule requiring a taxpayer that is an investment partnership and a member of one or more other partnerships with income allocable or apportionable to Illinois to withhold from each nonresident partner an amount calculated as described in 86 Ill. Adm. Code 100. 7034(c), with some exemptions from this requirement. The regulation, which applies for tax years ending on and after December 31, 2023, also includes provisions on: (1) the withholding tax rate; (2) the period for filing a return and paying withheld tax; (3) the credit for taxes withheld; (4) the pass-through entity election; and (5) the process for claiming a refund of overpaid taxes. The new regulation includes illustrative examples. Adopted amendments to 86 Ill. Adm. Code 100.9730 add definitions of "investment partnership" that (1) apply for tax years ending before December 31, 2023 and (2) apply for tax years ending on and after December 31, 2023. In addition, for tax years ending on and after December 31, 2023: (1) the definition of "qualifying investment securities" is expanded to include a partnership interest that, in the hands of a partnership, would qualify as a security within the meaning of 15 U.S.C. 77b(a)(1); (2) the list of items that are not a "qualified investment securities" is expanded to include securities subject to the dealer accounting rules in IRC Section 475; and (3) gross income does not include income from partnerships that are operating at a federal taxable loss. The new and amended regulations took effect on July 11, 2024. Ill. Dept. of Rev., Adopted New and Amended Rules 86 Ill. Adm. Code 100 (Ill. Reg., Vol. 48, Issue 30, July 26, 2024).

Missouri: On July 30, 2024, Missouri Governor Mike Parson announced that revenue thresholds were met, causing the reduction of the top individual income tax rate under law enacted in 2022 (SB 3 and SB 5). The rate will be reduced from 4.8% to 4.7%, effective January 1, 2025. Mo. Gov., Press Release "Governor Parson Announces Historic Fifth Income Tax Cut During His Administration" (July 30, 2024).

New Hampshire: New law (HB 1525) extends for business profits tax (BPT) and business enterprise tax (BET) purposes the date by which the New Hampshire Department of Revenue Administration (DRA) must issue automatic refunds for BPT and BET credit carryovers greater than 250% of their tax liability. Under current law, the DRA must issue automatic refunds of BPT and BET credit carryovers greater than 500% of their tax liability. For tax periods ending on or after December 31, 2029 (from December 31, 2025), a credit will be allowed in an amount up to 250% of the total tax liability for the tax period, with the remainder of the overpayment being refunded. The amount of the credit is reduced to an amount up to 100%, for tax periods ending on or after December 31, 2031, with overpayments being refunded. HB 1525 took effect on July 1, 2024. N.H. Laws 2024, ch. 245 (HB 1525), signed by the governor on July 19, 2024.

Nebraska: On July 29, 2024, Nebraska's legislature introduced LB 40, which would require worldwide combined reporting for corporate income tax for tax years beginning on or after January 1, 2026. For more on this development, see Tax Alert 2024-1472.

Oregon: On August 1, 2024, the Oregon Secretary of State announced that Initiative Petition 2024-17 (IP-17; Measure Number 118), has qualified from the November 5, 2024 General Election ballot. If approved by a majority of voters, starting in 2025, IP-17 would impose a new 3% minimum tax on corporations with gross sales exceeding $25 million. The new corporate minimum tax would be in addition to the current minimum tax regime. Like the current minimum tax regime, Oregon sales would have the same meaning as the sales factor numerator under the state's corporate income tax apportionment provisions, including applicable special industry apportionment. No credits or deductions could be taken against this new minimum tax. The potential ballot measure would also amend treatment of S corporations under the minimum tax regime, removing the current $150 minimum tax limitation for S corporations with Oregon sales exceeding $25 million. For additional information on this development, see Tax Alert 2024-1250.

Rhode Island: Governor Dan McKee signed legislation (SB 3152/HB 7927) into law on June 24, 2024, that makes several tax changes related to the taxation of banking institutions. Notably, the law (1) allows banking institutions to elect to use a single receipts factor apportionment formula, (2) provides for the use of an alternative apportionment method in certain situations, and (3) requires the study of combined reporting for banking institutions. The "goal" of this legislation "is to create a more level playing field with Massachusetts … " Governor Dan McKee said when the bill was introduced. For additional information on this development, see Tax Alert 2024-1484.

SALES & USE

Multistate: The EY Sales and Use Tax Quarterly Update provides a summary of the major legislative, administrative and judicial sales and use tax developments. Highlights of this edition, attached below, include a review of the most recent developments involving nexus, tax base and exemptions, technology, and compliance and controversy. The full update is available via Tax Alert 2024-1392.

Alabama: The Alabama Department of Revenue issued a notice to explain that under recently enacted legislation (Act 2024-391), health care providers claiming a sales and use tax emption for durable medical equipment and medical supplies, starting September 1, 2024, will have to obtain and maintain an exemption certificate from the Alabama Department of Revenue before purchasing such equipment and supplies. The health care provider will need to provide the exemption certificate to the seller at the time of purchase. For purchases made on or after September 1, 2024, the purchase will be subject to tax if the exemption certificate is not provider to the seller at the time of purchase. Ala. Dept. of Rev., Notice "Amendments to Durable Medical Equipment Exemption" (Aug. 1, 2024).

California: The San Diego City Council passed a municipal ballot measure that if approved by voters this November would allow the city to impose a one-cent sales and use tax, which would increase the city's sales and use tax rate to 8.75% (from 7.75%). Revenue raised from the one-cent sales and use tax would go toward public infrastructure and core service needs of city residents. San Diego City Council, Ordinance No. 21840 (O-2025-2, final Council passage on July 29, 2024).

District of Columbia: Approved bill (B25-0784 ) increases the District's current 6.0% sales and use tax rate to 6.5% beginning on October 1, 2025 and to 7.0% beginning on October 1, 2026. B25-0784 (A25-0550), enacted without the mayor's signature on July 26, 2024. Before becoming final law, B25-0784 will be sent to Congress for a mandatory 30 in-session day review period. These same changes were enacted via an emergency bill, B25-0875 (A25-0506), on July 15, 2024. As an emergency bill, B25-0875 is effective for 90 days and it will expire on October 13, 2024.

Mississippi: New law (HB 1855) provides a sales and use tax exemption for sales, leases or other retail transfers of fixed-wing aircraft to, or for use by, certified common carriers for the transport of persons or property in interstate, intrastate or foreign commerce. An exemption is also provided for engines, accessories and spare parts for such aircraft. HB 1855 took effect from and after its passage. Miss. Laws 2024, HB 1855, signed by the governor on April 25, 2024.

Nevada: The Nevada Department of Taxation (DOT) explained that when a surcharge is added to the sale of taxable tangible personal property, the surcharge is subject to tax as a service necessary to complete a sale or an expense of the seller. The DOT said examples of surcharges include, but are not limited to, credit card processing fees, fuel surcharges, regulatory recovery fees, bottle service charges, and large party charges. Nev. Dept. of Taxn., Nevada Tax Notes (Issue No. 200 July 2024).

South Carolina: In response to a recent South Carolina Supreme Court ruling that the sales and use tax exemption for durable medical equipment⁴ (DME) is unconstitutional because it discriminated against interstate commerce by exempting in-state, but not out-of-state, providers of DME from sales tax, the South Carolina Department of Revenue (SC DOR) informed sellers of DME that after June 26, 2024, they must collect and remit sales tax on instate sales of DME. The SC DOR noted that the Court's ruling "has no effect on federal law" and that any laws regarding DME paid in full or part by Medicaid or Medicare on behalf of their beneficiaries remains effective. Accordingly, sellers of DME to Medicaid or Medicare beneficiaries must remit sales tax on the portion of the transaction that may be taxed under S.C. Code Ann. Section 12-36-110(j).⁵ This information letter applies to all open periods. S.C. Dept. of Rev., SC Information Letter #24-10 (July 24, 2024).

BUSINESS INCENTIVES

Federal: The IRS released three frequently asked questions (FS-2024-25) addressing how disregarded entities should apply for the registration necessary for claiming the IRC Section 45Z clean fuel production credit. The three FAQs released July 10, 2024, clarify which entities must apply for registration: (1) each business unit that has, or must have, a separate employer identification number (EIN) and produces clean fuel is treated as a separate person for registration purposes and must separately apply for registration using Form 637; (2) a disregarded entity that produces clean fuel is not treated as such for purposes of registering for the IRC Section 45Z credit and must separately apply for registration using Form 637; and (3) the owner of a disregarded entity that is registered for the IRC Section 45Z credit under Notice 2024-49 may claim the credit using the registration number of the disregarded entity, even if the owner is not registered. For additional information on this development, see Tax Alert 2024-1404.

Colorado: New law (SB 24-126) enhances the conservation easement income tax credit. The aggregate amount of credit available is capped at $50 million (from $45 million) in each tax year from 2025 through 2031. For conservation easements donated on or after January 1, 2021 but before January 1, 2027, the value of the credit is 90% of the value of the donated easements. Starting in 2027, the value of the credit is reduced to 80% of the value of the donated easement. The value of the credit cannot exceed $5 million per donation. Credits will be issued in increments of no more than $1.5 million per year; credits for easements donated in a prior year are eligible for tax credit certificates in subsequent years in order of application. If the conservation easement is donated by a joint tenancy in common, partnership, S corporation or other similar entity (collectively, "entity"), the credit is allocated to the entity's owners, partners, members or shareholders (collectively, "owners"). For years beginning before 2027, the total aggregate amount allocated to such owners cannot exceed $5 million and the aggregate amount of the refund and credit claimed by such owners cannot exceed $50,000 for the income year. For tax years beginning on or after January 1, 2027, the aggregate amount of the refund and credit claimed by such owners is increased to $200,000 for the income year. The law allows the credit to be transferred to a taxpayer subject to the insurance premiums tax. In addition, the law allows the Division of Conservation to issue multiple tax credit certificates for a single conservation easement, and it requires the Division to prioritize tax credit applications in the order they are received. Incomplete application will not be prioritized in the review process. SB 24-126 takes effect on August 7, 2024. Colo. Laws 2024, ch. 211 (SB 24-126), signed by the governor on May 20, 2024.

Colorado: New law (HB 24-1358) extends the film incentive tax credit through income tax years beginning before January 1, 2032 (from January 1, 2025). The credit is available to a production company making at least $100,000 in actual qualified local expenditures and employing a workforce for any in-state production activity made up of at least 50% Colorado residents. The credit will be an amount not to exceed 22% (from 20%) of the actual qualified local expenditures. To claim a credit, a production company must apply to the Office of Economic Development and International Trade (Office) for a tax credit reservation. The Office will notify a production company of the credit reservation and the amount reserved. Before claiming the credit, however, the production company must satisfy all specified requirements imposed by the Office for issuance of a tax credit certificate. The production company must complete all production activities in Colorado by December 31, 2031. The Office may rescind the tax credit reservation for a production company that fails to comply with the requirements for this credit. HB 24-1358 takes effect on August 7, 2024. Colo. Laws 2024, ch. 260 (HB 24-1358), signed by the governor on May 30, 2024.

New Jersey: New law (S.3432/A. 4558) establishes the "Next New Jersey Program Act" for investment in artificial intelligence (AI) and expands the New Jersey Economic Recovery Act to allow the award of tax credits to eligible AI businesses for capital investments in qualified business facilities. Beginning in fiscal year 2025, $500 million will be made available for projects awarded tax credits under the Next New Jersey Program Act. A qualified AI business includes a business (or a division thereof) that is primarily engaged in the AI industry or large-scale AI data center industry. Primarily engaged means at least 50% of the business's employees are engaged in AI-related activities⁶ or at least 50% of its revenue is from AI-related activities, or both. (Note, a business's use of AI applications to further its own operations will not be considered in making the primarily engaged determination.) Among the requirements to qualify for the credit, an AI business must invest at least $100 million at the qualified business facility and create at least 100 new full-time jobs in New Jersey. A business is not eligible to receive this credit if it is awarded certain tax credits under the Emerge Program Act for the same capital investment and employees that qualify the business for that credit. Applications for the credit are due before March 1, 2029. Unused credits can be carried forward for 10 successive tax periods. Credits awarded under this incentives program are subject to recapture if the business is not in compliance with the requirements of a project agreement for the duration of the program's commitment period. The credit may be sold or assigned in an amount not less than $25,000. A business awarded tax credits under the program for the duration of the commitment period must file an annual report indicating that it maintains the number of new full-time jobs, and salaries specified in the project agreement. The law defines key terms, including "AI data center," "artificial intelligence or AI," "eligible business," "capital investment," "full-time job," "full-time employee," "technology startup company," "qualified business facility" and "project agreement." S.3432/A.4558 took effect immediately. N.J. Laws 2024, ch. 49 (S.3432/A. 4558), signed by the governor on July 25, 2024.

PROPERTY TAX

District of Columbia: Approved bill (B25-0784 ) increases the property tax rate on residential real property and imposes a special real property tax rate on residential property with a taxable assessed value over $2.5 million. Starting in 2025, the property tax rate is $0.85 of each $100 of taxable assessed value. A special real property tax rate equal to $1.00 of each $100 of taxable assessed value applies to the portion of taxable assessed value over $2.5 million. The mayor will adjust these rates annually, starting in 2026. B25-0784 (A25-0550), enacted without the mayor's signature on July 26, 2024. Before becoming final law, B25-0784 will be sent to Congress for a mandatory 30 in-session day review period. These same changes were enacted via an emergency bill, B25-0875 (A25-0506), on July 15, 2024. As an emergency bill, B25-0875 expires on October 13, 2024.

Oregon: New law (HB 4111) modifies the property tax exemption for farm machinery and equipment to provide that such machinery and equipment is "used or held for use primarily" from "used primarily" in various farming activities (as defined by the statute). The same edit is made to the exemption for machinery and equipment that is "used or held for use primarily" in various farming related activities. The law specifically states that the property tax exemption does not apply to land or buildings. These changes apply to property tax years beginning on or after July 1, 2025. HB 4111 took effect on June 6, 2024. Ore. Laws 2024, ch. 83 (HB 4111), signed by the governor on April 4, 2024.

Seattle, Washington: On July 10, 2024, Seattle Mayor approved Ordinance 127053, a proposition, which if approved by voters on November 5, 2024, will allow the city for an eight-year period to levy regular property taxes in excess of the limitation on levies under RCW ch. 84.55.010. The additional revenue will help fund transportation projects. The proposed increased regular property taxes would apply to property taxes levied in 2024 through 2031, which would be collected in 2025 through 2032. The current increase — the Levy to Move Seattle — expires at the end of 2024.

PAYROLL & EMPLOYMENT TAX

Arkansas: The Arkansas Department of Finance and Administration (DFA) announced that it has released updated state income tax withholding tables and a computer formula that employers are required to implement immediately. 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%. This is the third time in the last 15 months that legislation has been enacted to lower the state's personal income tax rate. For additional information on this development, see Tax Alert 2024-1466.

Minnesota: The Duluth City Council announced that because Minnesota's statewide Earned Sick and Safe Time (ESST) law went into effect January 1, 2024, it has repealed its local ESST ordinance. For additional information on this development, see Tax Alert 2024-1327.

New York: The New York Waterfront Commission (NWC) announced that the payroll assessment rate for July 1, 2024 to June 30, 2025, is 1.6% and is applicable to quarterly assessments due October 15, 2024; January 15, 2025; April 15, 2025; and July 15, 2025. The maximum payroll assessment allowed under the law is 2.0%. The Waterfront payroll assessment is paid by employers based on gross payroll payments to longshore workers, hiring agents, pier superintendents and security officers. For additional information on this development, see Tax Alert 2024-1401.

South Carolina: On July 3, 2024, Governor Henry McMaster approved H. 5100, which retroactive to January 1, 2024, lowers the top marginal personal income tax rate from 6.4% to 6.2% with graduated decreases over the next four years until the top tax rate reaches 6.0%. The tax cut is part of the 2024-25 state budget. This is the third consecutive year that legislation was enacted to lower the state's top marginal personal income tax rate. In 2022, S. 1087 lowered the top marginal personal income tax rate from 7% to 6.5% retroactive to January 1, 2022. In 2023, H. 4300 further decreased the top marginal personal tax rate to 6.4% effective January 1, 2024, with gradual decreases over the next five years until the top tax rate reaches 6.0%. For additional information on this development, see Tax Alert 2024-1390.

Virginia: Governor Glenn Younkin vetoed SB 373, which effective January 1, 2026, would have established a state paid family and medical leave (PFML) insurance program to be administered by the Virginia Employment Commission (VEC). Under the program, the PFML contribution cost, as determined by the VEC, would have been shared equally between employers and employees. For additional information on this development, see Tax Alert 2024-1438.

MISCELLANEOUS TAX

New Hampshire: New law (HB 1191) creates a meals and rooms tax exemption for meals consumed at or provided by a restaurant, café or other food service establishment that are redeemed through the Bureau of Elderly and Adult Services restaurant voucher program. This exemption took effect July 1, 2024. N.H. Laws 2024, ch. 190 (HB 1191), signed by the governor on July 12, 2024.

Pennsylvania: New law (SB 656) amends the definition of "alternative fuel dealer-user" to include a person that provides an electric vehicle (EV) charging station for public use, regardless of whether compensated for such use. It does not include a person that provides an EV charging station used exclusively to charge EVs or plug-in hybrid EVs at a private residence or to the owner or registrant of an EV or plug-in hybrid EV subject to an EV road user charge. The law requires an alternative fuel dealer-user to report and pay the alternative fuel tax on electricity delivered through an EV charging station it provides to the owner or registrant of an EV or plug-in hybrid EV that is subject to the EV road user charge. Nothing in the law prohibits the alternative fuel dealer-user from passing onto the owner or registrant any costs associated with reporting and paying this tax. The law also imposes an annual EV road user charge on owners or registrants of EVs and plug-in hybrid EVs with a gross vehicle weight of not more than 14,000 pounds. The user charge is concurrent with paying the vehicle registration fee (e.g., new or temporary vehicle registration or renewal of vehicle registration). In 2025 the user charge is $200 and is increased to $250 in 2026. Starting in 2027 and each year thereafter, the user charge will be fixed by the Department of Transportation based on the prior year and adjusted to reflect the change in the consumer price index; the amount of the user charge will be published in the Pennsylvania Bulletin by the preceding December 15. The law modifies the definitions of "electric vehicle" and "hybrid electric vehicle" and adds definitions of "electric vehicle charging station" and "plug-in hybrid electric vehicle." These provisions take effect January 1, 2025. Pa. Laws 2024, Act No. 85 (SB 656), signed by the governor on July 17, 2024. (Note: this item has been updated to revise a sentence regarding passing on costs associated with reporting and paying the tax.) 

GLOBAL TRADE

International: This edition of Trade Talking Points provides updates on EU tariffs on Chinese-origin electric vehicle batteries; an EU-Australia understanding on critical minerals; US-Kenyan bilateral relations; recent meetings of the Indo-Pacific Economic Framework Ministers and G7 Leaders; a new OECD report on trade in services; and US supply chain resilience. For more on this development, see Tax Alert 2024-1397.

International — Argentina: Through General Resolution No. 5,525, published in the Official Gazette on July 16, 2024, the Federal Tax Administration ("AFIP" in Spanish) has established the operational aspects for implementing the Exceptional Regularization Regime of Tax, Customs and Social Security Obligations for tax, customs and social security obligations due through March 31, 2024, established in Title I of Law No. 27,743 (Tax Package). For additional background, see EY Global Tax Alert, "Argentina enacts Bases Law and Tax Package," dated 8 July 2024. For additional information on this development, see Tax Alert 2024-1434.

International — Dubai: On June 12, 2024, Dubai Customs issued Customs Policy No. (58/2024) on the Voluntary Disclosure System (VDS) to encourage disclosures by importers and exporters in Dubai. The policy is a significant development for the trading community in Dubai as it outlines a structured approach to voluntarily disclose customs violations, designed to encourage compliance and transparency while providing a framework for rectifying past errors. For more on this development, see Tax Alert 2024-1436.

International — Mexico: On July 10, 2024, the Biden Administration reached an agreement with Mexican President Manuel Lopez Obrador to implement additional trade measures to prevent the circumvention of current United States (US) punitive tariffs imposed on steel and aluminum imports under Section 232 of the Trade Expansion Act of 1962 (Section 232). While steel and aluminum products of Mexico were previously exempt from the 25% and 10% Section 232 punitive duties, respectively, along with steel and aluminum imports from Argentina, Australia, Brazil, Canada and South Korea, the Presidential Proclamation introduces a requirement that, to be exempt from the existing tariffs, steel from Mexico must be melted and poured in the US, Canada or Mexico, and aluminum from Mexico must not be smelt or cast in China, Russia, Belarus or Iran. The Section 232 tariffs for Mexican steel and aluminum products take effect immediately on or after 12:01 a.m. EST on July 10, 2024. Importantly, the Proclamation provides that the same Section 232 tariffs would apply to steel and aluminum articles admitted to US Foreign Trade Zones under "privileged foreign status" and entered for consumption. For more on this development, see Tax Alert 2024-1377.

International — Saudi Arabia: On July 15, 2024, Saudi Arabia's Finance Minister and Chairman of the Zakat, Tax and Customs Authority issued Minister of Finance Resolution No. (1-88-1446) (Resolution), amending the customs duty rates applicable to certain goods, for the purpose of protecting and encouraging national industries and transactions involving local agricultural products. The Resolution was published in the Official Gazette and the amendments entered into force on July 16, 2024. For additional information on this development, see Tax Alert 2024-1439.

VALUE ADDED TAX

International — Argentina: The Federal Administration of Public Revenues has extended until December 31, 2024 the suspension of the "exclusion certificates" in relation to the additional withholding regimes for Income and Value Added Tax applicable to the definitive import of certain goods. As a result of the latest extension, until December 31, 2024 Customs Authorities will continue to apply the reverse withholding regimes when formalizing the import clearances, even if the taxpayer has the corresponding "exclusion certificates." For additional information on this development, see Tax Alert 2024-1338.

International — Finland: Following recent increases in value-added tax (VAT) rates, the Finnish government has decided to reform the Finnish VAT rates as well as the insurance premium tax (IPT) rate. The first of the reforms will take place within two months. The Government's proposal for increasing the general VAT and IPT rates to 25.5% was adopted on June 28, 2024 and the new rates will become effective from September 1, 2024. For additional information on this development, see Tax Alert 2024-1340.

International — Thailand: As the public awaits proposed a consultation draft of changes to the Thai Revenue Code imposing certain taxes on the import of low-value goods (LVGs), Thai Customs has announced temporary measures that make nearly all goods imported into Thailand subject to import duty and value-added tax, regardless of their value. The temporary measures are effective from July 5, 2024 through end of the calendar year. For additional information on this development, see Tax Alert 2024-1423. 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.