November 27, 2024 State and Local Tax Weekly for November 1 and November 8 Ernst & Young's State and Local Tax Weekly newsletter for November 1 and November 8 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 2024 state and local tax ballot measures: an update on what passed and what failed On November 5, 2024, residents across the United States voted on several state and local ballot measures affecting taxes on businesses and individuals. The following is a summary of select 2024 state and local tax ballot measures that passed and failed. Approved ballot measures California Statewide: Proposition 35 permanently authorizes the existing tax on managed healthcare insurance plans, which was set to sunset in 2027. Berkeley: Measure W, effective January 1, 2027, repeals the January 1, 2029 sunset date and makes permanent a 2.5% real property transfer tax on property valued between $1.6 million and less than $1.9 million. The measure also imposes a new 3% rate for properties valued between $1.9 million and less than $3 million and a 3.5% rate for property valued at $3.0 million or greater. Berkeley: Measure Z repeals the January 1, 2027 sunset date and makes permanent the tax on sugary drinks and sweeteners until repealed by voters. Los Angeles: County Measure A repeals 2017 Measure H's 0.25% sales and use tax (currently set to expire in 2027) and replaces it with a 0.5% sales and use tax with no set sunset date. San Francisco: Proposition M (Prop M), effective January 1, 2025, drastically changes San Francisco's business taxes, including the gross receipts tax, the homelessness gross receipts tax, the overpaid executive gross receipts tax and the administrative office tax. Changes made by Prop M include, but are not limited to:
For a more detailed discussion on the changes in Prop. M, see Tax Alert 2024-1825. Santa Cruz: Measure Z establishes a two-cents-per-fluid-ounce excise tax on the wholesale distribution of sugar-sweetened beverages in the City of Santa Cruz, such as soft drinks, sports drinks, slushies, sweetened ice teas and coffees, and energy drinks. Sugar-sweetened beverages do not include milk, all-natural fruit or vegetable juice, baby formula, beverages for medical use or as a meal-replacement, or alcoholic beverages. The tax will be paid by the distributor, not the consumer, and small businesses with less than $500,000 in gross annual revenue are exempt from the tax. Collection of the new tax begins May 1, 2025. Colorado Statewide: Proposition JJ allows the State to keep and spend all tax revenue from sports betting by removing the $29 million fiscal-year estimate that was included in the ballot question approved by voters in 2019. Excess revenue will fund water conservation projects instead of being refunded to casinos. Denver: Ballot Issue 2Q imposes an additional 0.34% local sales and use tax on sales of currently taxable tangible personal property, products and services starting January 1, 2025. Revenue generated from the tax will be used to help "maintain and expand Denver Health and Hospital Authority Services." Georgia HB 808 (Georgia Laws 2024), effective January 1, 2025, increases the property tax exemption for all tangible personal property from $7,500 to $20,000. Under the exemption, all tangible personal property (except motor vehicles, trailers and mobile homes) will be exempt from all ad valorem taxation if the actual fair market value of the total tangible personal property owned by the taxpayer within a county does not exceed $20,000. HR 598 creates the Georgia Tax Court. The Georgia Tax Court will serve as an independent court, vested with the judicial power of the State. Approval of HR 598 also allows HB 1267 (GA Laws 2024) to take effect. HB 1267 repeals the Georgia Tax Tribunal and (1) specifies the make-up, role and jurisdiction of the Georgia Tax Court; (2) authorizes the Tax Court to issue orders and opinions; and (3) outlines the process for filing a petition with the Tax Court. Taxpayers will be able to petition the Georgia Tax Court for relief starting August 1, 2026. HR 1022 authorizes the General Assembly to establish a single, statewide homestead exemption from ad valorem taxes. The statewide exemption uniformly applies to each county, consolidated government, municipality or local school system (collectively, "political subdivision") beginning January 1, 2025. Illinois Voters approved a nonbinding statewide advisory question, indicating support to amend the Illinois Constitution to create an additional 3% tax on income greater than $1,000,000. Missouri Amendment 2 modifies the state constitution to allow the Missouri Gaming Commission to regulate sports wagering (e.g., online sports betting, excursion gambling boats and professional sports betting districts). The amendment allows the imposition of license fees (retail license fee of up to $250,000 and mobile license fee of up to $500,000) and a 10% wagering tax on adjusted gross revenue from sports wagering. The Amendment applies to sports wagers beginning December 1, 2025. Nevada Question 5 exempts child and adult diapers from the state's sales and use tax, the Local School Support Tax Law and certain analogous taxes on retail sales. The exemption takes effect on January 1, 2025. Washington Seattle: Proposition 1 (Ordinance 127053) allows the City of Seattle to levy regular property taxes exceeding the limitation on levies under RCW ch. 84.55.010 for an eight-year period. The proposed increase applies to property taxes levied in 2024 through 2031, which are collected in 2025 through 2032. Wyoming Amendment A creates a separate property class for residential real property, for purposes of property tax assessments. The measure also allows the legislature to create a new subclass of property of owner-occupied primary residence. This separate class of property allows the General Assembly to assign a separate rate for residential property tax assessments. Failed ballot measures Colorado Denver: Ballot Issue 2R would have imposed an additional temporary 0.50% local sales and use tax beginning January 1, 2025 and ending on December 31, 2064. Revenue generated from the tax would have been used to help "expand and preserve affordable housing for low- and middle-income families and individuals … ." North Dakota Initiated Measure 4 would have prohibited all political subdivisions from taxing the assessed value of real or personal property. Oregon Measure 118 (formerly Initiative Petition 2024-17) would have imposed a new 3% minimum tax on corporations with gross sales exceeding $25 million. The new corporate minimum tax would have been in addition to the current minimum tax regime. The measure also would have amended 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 (see Tax Alert 2024-1250). South Dakota Ballot Measure No. 28 would have prohibited the state from collecting sales or use tax on anything sold for human consumption. Washington I-2109 would have repealed the state's capital gains tax, which applies to certain long-term capital assets of individuals with over $250,000 in annual capital gains. I-2117 would have repealed the state's cap-and-invest program, which was enacted in 2021, and prohibited state agencies from imposing a trading program for carbon tax credits. I-2124 would have required employees and self-employed persons to elect to keep coverage under the state's long-term care insurance program. For results on additional state and local ballot measures, see Tax Alert 2024-2072. IRS finalizes regulations on IRC Section 45X advanced manufacturing credit The Treasury and IRS have released final regulations (TD 10010) on the advanced manufacturing production credit that are intended to incentivize the domestic production of solar and wind components, inverters, battery components and applicable critical minerals. The final regulations adopt the proposed regulations with some modifications, mainly concerning inclusion of certain extraction and production costs when calculating the credit (see Tax Alert 2023-2116). The final regulations incorporate the 193 written comments and oral testimony received by the IRS. They are effective December 27, 2024, and apply to eligible components for which production is completed and sales occur after December 31, 2022, and during tax years ending on or after October 28, 2024. For additional information on this development, see Tax Alert 2024-2057. INCOME/FRANCHISE Florida: The Florida Department of Revenue (FL DOR) issued a tax information publication on the state's conformity to the Internal Revenue Code (IRC). While Florida adopts the IRC in effect as of January 1, 2024, the state continues to decouple from certain provisions, including bonus depreciation; qualified improvement property place in service on or after January 1, 2018; business meal expenses; and film, television and live theatrical production expenses. Under Florida law, adjustments to federal taxable income (FTI) for federal credits are not allowed unless specifically provided by statute. Florida law allows a deduction for wages and salaries paid in Florida when the federal deduction for wages and salaries is disallowed under IRC Section 280C(a). The FL DOR noted that Florida law does not allow a deduction for other federal credits. Fla. Dept. of Rev., TIP No. 24C01-02 (Nov. 6, 2024). Illinois: In response to a ruling request of a combined unitary group, the Illinois Department of Revenue (IL DOR) said that based on the facts presented, under 35 ILCS Section 5/304(a) the group's sales of certain tangible personal property (hereafter "products") that are shipped to a third-party distributor warehouse in Illinois terminate in, and are sourced to, Illinois, regardless of whether the distributor later distributes and ships the product outside Illinois. These sales, the IL DOR, explained are included in the Illinois' sales factor numerator. Sales of the group's products that are shipped to a distributor's warehouse located outside Illinois terminate outside of, and are not sales in, Illinois, even if the distributor subsequently moves the goods to locations in Illinois. Ill. Dept. of Rev., IT 24-0008-GIL (Sept. 17, 2024). Massachusetts: The Massachusetts Department of Revenue (MA DOR) issued for public comment proposed amendments to 830 CMR 62.5A.1: Non-Resident Income Tax, specifically the rules for non-resident members of pass-through entities (PTEs) on how to allocate and apportion income to Massachusetts. Proposed amendments incorporate the statutory change that effective for tax years beginning on or after January 1, 2025, adopts a single sales factor apportionment formula, unless otherwise required by Mass. G.L. c. 63, Section 38. Proposed amendments add new examples applying the single sales factor apportionment formula. Lastly, the proposed amendments would repeal 830 CMR 62.5A.1(6)(e) — the special apportionment rules for gain on the sale of an ownership interest in a partnership that holds real property in Massachusetts. The MA DOR scheduled a public hearing on the proposed regulation for December 16, 2024; interested parties also may submit written comments to the MA DOR. Mass. Dept. of Rev., Proposed regulation 830 CMR 62.5A.1: Non-Resident Income Tax (issued Nov. 13, 2024). SALES & USE Alabama: The Alabama Department of Revenue (AL DOR) adopted amendments to Rule 810-6-5-.29 "Oxygen and Durable Medical Equipment," to incorporate statutory changes that starting September 1, 2024, require health care provides claiming a sales and use tax emption for durable medical equipment and medical supplies to obtain and maintain an exemption certificate from the AL DOR before purchasing such equipment and supplies. The health care provider must 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. The amended rule, which was adopted on October 18, 2024, takes effect on December 15, 2024. Ala. Admin. Monthly, Rule 810-6-5-.29 (Vol. XLIII, Issue No. 1, Oct. 31, 2024). Georgia: The Georgia Department of Revenue (GA DOR) issued for public comment proposed new Rule 560-12-2.118 "Digital Products, and Codes," to provide guidance on the application of the state's sales and use tax on sales or uses of certain digital products, digital goods, digital codes (collectively, "digital goods") and internet access services. Starting January 1, 2024, the state's sales and use tax is imposed on retail purchases/sales of specified digital goods to end users, if (1) the end user receives the right to permanently use such goods and (2) the transaction is not conditioned upon continued payment by the end user. The proposed rule would provide that a seller confers the right of permanent use to the end user if they allow the end user to download and retain the product. The proposed rule also would impose tax on an entire transaction that contains both non-fungible tokes (NFTs) and taxable specified digital products, other digital goods or digital codes. Tax applies regardless of whether possession of the digital good is maintained by the seller or a third party. The proposed rule would address the following topics: (1) how to source receipts from sales of digital products and codes; (2) exemptions and exclusions that apply to internet access services, certain sales of prewritten computer software that is transferred electronically or delivered by load and leave, software as a service, and certain subscriptions for which the end user does not receive the right of permanent use of a digital good; (3) when a sale of a digital good is a sale for resale; and (4) when tax applies to a withdrawal of digital goods from inventory. The proposed rule also defines key terms, including "specified digital products" (e.g., audio, visual, books, code), "other digital products" (e.g., artwork, magazines, newspapers, photos, video games), "end user," "prewritten computer software," "software as a service," "subscription," and "transferred electronically." The GA DOR has scheduled a hearing on the proposed regulation for December 19, 2024; written comments are due by 10:00 am on that date. Ga. Dept. of Rev., Notice Number SUT-2024-01 (issued Nov. 1, 2024). Washington: The Washington Department of Revenue (WA DOR) issued for public comment a draft Excise Tax Advisory (ETA) on the application of multiple points of use (MPU) sales tax exemption (MPU exemption) to sales of software maintenance agreements (SMA).1 The draft ETA covers SMA that involve bundled transactions. Generally, a SMA is one between a software vendor and a customer that requires the vendor to provide technical support and updates for an existing software product, including software upgrades and fixes and support services related to prewritten software. Per the draft ETA, retail sales tax generally would apply when a single nonitemized price is charged for the sale of an SMA that provides both retail-taxable and -nontaxable products, unless the charge for the taxable products is a de minimis part of the SMA. (This type of SMA is referred to as a mixed element SMA.) SMAs that only provide retail-nontaxable products would not be subject to retail sales tax. If the taxable and nontaxable elements are separately stated on binding sales or other sales-related documents made available to the customer within an SMA, then each activity would be "taxed according to the nature of the activity." The draft ETA describes the application of the MPU exemption, noting that purchases of products eligible for the MPU exemption include digital goods, prewritten computer software, remotely accessed prewritten computer software, digital automated services, and digital codes. The draft ETA explains (1) when a mixed element SMA that qualifies as a bundled transaction and is otherwise subject to retail sales tax would be eligible for the MPU exemption and (2) how to apportion and pay use tax for qualified MPU transactions (with specific guidance when there is one MPU-eligible product and multiple MPU-eligible products). The WA DOR would have the authority to authorize or require the use of an alternative apportionment method that fairly reflects the proportion of in-state to out-of-state use by the taxpayer. The draft ETA includes illustrative examples and describes documentation requirements. The draft ETA specifically states that it is for discussion purposes only and that "[u]nder no circumstances is this draft ETA to be used to determine tax liability or eligibility for a tax deduction, exemption, or credit." A virtual public meeting on the draft ETA will be held on December 4, 2024, with comments due by December 11, 2024. Wash. Dept. of Rev., Draft ETA 3XXX.20XX (released Oct. 2024). PROPERTY TAX Michigan: The Michigan State Tax Commission (Commission) issued interim guidance on valuing and assessing battery energy storage systems. The Commission explained that it will not complete its evaluation of recommended procedures for valuing such storage systems before assessors finalize their 2025 assessment roll. Guidance regarding the treatment of personal property associated with these storage systems applies only to systems that are typical utility scale battery energy storage systems. For the 2025 assessment year, the Commission said that battery energy storage systems are reported, classified for equalization purposes, and assessed as industrial personal property. Such systems will be valued using Table (Section) E on the Personal Property Statement, Treasury Form 632 (L-4175); the Commission found this table "most closely reflects current battery energy storage data analysis." The Commission further stated that for purposes of this guidance, the following are treated as part of the battery energy storage system: cells, environmental equipment, power conversion system inverters and MV transformers. The Commission describe the valuation and assessment for miscellaneous personal property that is located on the site but not an integral part of the battery management system as well as structures and land improvements located on the real property parcel. The Commission also explains, for equalization purposes, the classification of real property used in association with the battery energy storage system. If such storage system is located on exempt real property, the assessor must consider an assessment under MCL 211.181, et seq. Lastly, the Commission noted that it will annually review the interim guidance until it has multiple years of verifiable data it can use "to consider the establishment of a specific battery energy storage valuation table." Mich. St. Tax Comm'n, "Interim Guidance Regarding Valuation and Assessment of Battery Energy Storage Systems" (Oct. 22, 2024). New Hampshire: New law (HB 202) establishes a method to equalize market value for purposes of calculating property tax abatements. Effective April 1, 2025, the market value of property for which an abatement has been granted under NH RSA 76:16, 76:16-a or 76:17, will be equalized by multiplying the property's market value by the previous tax year's median ratio as determined by the Department of Revenue Administration under NH RSA 21-J:3. The law provides for 100% equalization of the market value of the property in any tax year for which the municipality conducts a full reassessment in accordance with RSA 75:1 or 75:8-a. Also, effective April 1, 2025, the annual equalization ratio will not apply to the valuation of telecommunications poles and conduits. N.H. Laws 2024, ch. 210 (HB 202), signed by the governor on July 19, 2024. CONTROVERSY North Carolina: New law (HB 149) provides various tax relief to those affected by Hurricane Helene. The law will consider the election of a partnership or an S corporation to be subject to the pass-through entity tax for tax year 2023 as timely if it is made on an annual return due after September 25, 2024 and before May 1, 2025, provided that the return is filed by May 1, 2025. The law also requires the Secretary of Revenue to waive the accrual of interest from September 25, 2024 through May 1, 2025, on underpayment of franchise, corporate income and individual income taxes. Interest imposed on the underpayment of state, local and transit sales and use tax as well as withholding taxes, are waived for a limited period, depending on whether the return is filed monthly or quarterly. N.C. Laws 2024, SL 2024-51 (HB 149), signed by the governor on Oct. 10, 2024. The North Carolina Department of Revenue has posted various information on Hurricane Helene tax-related relief on its website. Oregon: On November 1, 2024, the Oregon Department of Revenue (OR DOR) replaced its "Tax Information and Power of Attorney for Representation Form" with two new authorizations forms and instructions — OR-AUTH-REP (Authorization to Represent) and OR-AUTH-INFO (Authorization to Receive Tax Information). In response to questions, the OR DOR said that it will accept the old form until January 1, 2025 and that "any previous authorizations remain valid until the customer revokes in writing." New form — OR-AUTH-REP authorizes an individual that meets certain criteria to represent a taxpayer before the OR DOR, while new form OR-AUTH-INFO allows the taxpayer to designate any person, firm, organization or agency to receive the taxpayer's confidential tax information. PAYROLL & EMPLOYMENT TAX Connecticut: Governor Ned Lamont signed into law HB 5005, which incrementally expands the number of employers subject to the state's paid sick leave requirement and extends the benefit to virtually all private-sector employees starting in 2025. For additional information on this development, see Tax Alert 2024-1997. MISCELLANEOUS TAX Wisconsin: The Wisconsin Department of Revenue issued a publication on the new electric vehicle (EV) charging tax, which is imposed starting January 1, 2025. The tax is imposed at a rate of three cents per kilowatt-hour on the electricity delivered or placed by (1) a Level 3 charger of an EV charting station into the battery or other energy storage device of EV, and (2) a Level 1 or 2 charger installed on or after March 22, 2024, of an EV charging station into battery or other energy storage device of an EV. The tax does not apply to an EV charger located at a residence or installed at a Level 1 or 2 charger installed before March 22, 2024. The publication explains: (1) who must register; (2) how to register; (3) due dates for filing and paying the tax; (4) imposition of penalties and interest; (5) recordkeeping requirements, (6) when state agencies and local governmental units may own, operate, or lease an EV charging station containing a Level 1, Level 2 or Level 3 charger; and (7) applicable sales tax exemptions. The publication defines key terms, including Level 1, Level 2 and Level 3 charger and EV charging station. Wis. Dept. of Rev., Electric Vehicle Charging Tax Information — Publication 305 (Oct. 2024). GLOBAL TRADE Federal: The Republican candidate, Donald Trump, has secured the electoral votes needed to become the 47th President of the United States (US). Trump will officially take office on January 20, 2025. The implications of the US presidential election for global trade and tariffs are now at the forefront of economic discussions around the world. The US plays a pivotal role in shaping international trade dynamics and the outcome of this election is set to have a significant impact on trade policies, global partnerships, tariff structures and the overall economic landscape, both domestically and abroad. For additional information on this development, see Tax Alert 2024-2048. VALUE ADDED TAX International — EU: On November 5, 2024, the Economic and Financial Affairs Council (ECOFIN) of the European Union (EU) met to discuss changes to the EU Value Added Tax (VAT) rules as part of the VAT in the digital age (ViDA) initiative. ECOFIN adopted all three pillars of the proposal, following the adoption of compromises to the original proposals made to satisfy all 27 Member States. For additional information on this development, see Tax Alert 2024-2021. International — Norway: A Norwegian Court of Appeals decision from June 2024 in favor of a nonresident online fashion company in a case challenging the Norwegian Tax Authority has become final, as the Norwegian Supreme Court declined to consider an appeal. The company is now granted a simplified value-added tax (VAT) registration (referred to as a VOEC registration) for business-to-consumer sales of small consignments, also involving customs duties relief on clothes. The case considered the validity of the Norwegian Tax Authority's decision to reject the company's application for simplified registration for VAT. A VOEC registration involves not only simplified reporting and import procedures, but also customs duties relief on clothes and other textiles valued at less than 3,000 Norwegian krone (NOK 3,000) per item. For additional information on this development, see Tax Alert 2024-2032. International — Vietnam: In October 2024, the Vietnamese Government submitted to the National Assembly for appraisal a draft amended law (draft Law) on value-added tax (VAT). Among other things, the draft Law proposes significant changes to VAT applicable to the revenue of these foreign suppliers. Since July 1, 2020, Vietnam has implemented taxation, including VAT and corporate income tax (CIT), on revenue of foreign suppliers conducting e-commerce or digital platform-based business without a permanent establishment in Vietnam. For more on this development, see Tax Alert 2024-2017. International — UAE: On October 24, 2024, the United Arab Emirates (UAE's) Ministry of Finance (MoF) launched the UAE e-invoicing portal, providing key information on the new digital requirements for businesses in the UAE. Based on the portal, the MoF's "UAE eInvoicing Programme" broadly outlines how the UAE e-invoicing system (System) would operate and provides valuable insights via an FAQs section. The MoF is expected to soon release the e-invoicing technical requirements and data dictionary that detail the System's functionality. For additional information on this development, see Tax Alert 2024-2044. UPCOMING WEBCASTS December 4, 2024. Domestic tax quarterly webcast series: A focus on state tax matters (1 pm ET). With the current fiscal environment, states are looking to increase tax revenue without creating new taxes. This leaves those tasked with managing their business' sales-and-use-tax function with a critical endeavor — properly characterizing what is being sold. For our final quarterly webcast in 2024, members of EY's Sales and Use Tax Practice will discuss how changing state policies can shift this characterization. They will also cover sales-and-use-tax audit trends and leading practices around this critical determination. In this webcast, we will also complete our four-part series on the use of artificial intelligence (AI) in state and local taxation. Part IV will focus on potential applications of generative AI in the tax profession, particularly leveraging agents and digital teams. We will round out the webcast with a state and local tax policy discussion. Topics to be discussed include an update on the current state of the states, trends from 2024 state legislative sessions and the policy considerations going into the 2025 legislative sessions. Register. December 10, 2024. 2024 employment tax year in review (2 pm ET). In this webcast, our employment tax professionals will discuss the following payroll year-end topics: (1) 2024 and 2025 federal and state tax rates and limits, (2) disaster relief for employees, (3) state payroll and employment tax developments, (4) top employer challenges for 2024, and (5) highlights from our 2024 payroll year-end checklist. Register. 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. ——————————————— 1 This ETA would not apply to transactions to which RCW 82.04.050(8)(b) applies — i.e., services provided exclusively in connection with the seller's sale of digital goods, digital codes or digital automated services. | ||||
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