Welcome to the April 2022 issue of Weaver’s State and Local Tax Digest. This month’s issue covers new legislation along with a number of fuel tax suspensions. For information or assistance in complying with these requirements,contact us. We are here to help.
LEGISLATIVE ROUNDUP
Alabama Enacts Small Business Tax Relief
The governor of Alabama signed into law H.B. 82, the Small Business Relief and Revitalization Act, which includes a number of tax relief provisions. The bill exempts cancellation of indebtedness income from income tax; extends the due date for the financial institution excise tax and corporate income tax; exempts up to $40,000 of certain business tangible personal property from ad valorem tax beginning in October 2023; allows sales tax licensees the option of a payment of certified funds in lieu of securing a surety bond for licensure; and increases the threshold calculation from $2,500 to $5,000 for the average monthly sales tax liability for estimated payments.
Florida Passes Sales Tax Holiday
The Florida House and Senate passed budget legislation H.B. 7071, which conforms Florida’s tax code with the Internal Revenue Code and provides several weeklong sales tax holidays for school items, disaster supplies, recreational items, skilled trade tools, and children’s books.
Idaho Enacts Changes to Taxation of Multistate Income
The governor of Idaho signed into law H.B. 563, which implements market-based sourcing for sales revenue for the corporate income tax and a single sales factor for the apportionment of income. The bill is effective retroactively to January 1, 2022.
Indiana Enacts Cost Approach for Valuation of Eligible Commercial Property
The governor of Indiana signed into law S.B. 145, which applies the cost approach to valuing commercial property for assessments after December 31, 2022. The law states that estimates of depreciation and obsolescence are not based on data derived from the sales comparison or income capitalization approaches for purposes of the cost approach. The law requires the department of local government finance to establish a standard construction cost per square foot for applying the cost approach. It also allows parties to an appeal to enter into a written agreement to stipulate to the true tax value of the property under appeal.
Mississippi Enacts Grant Income Exemption
The governor of Mississippi signed into law H.B. 1529, which, for state income tax purposes, allows recipients of federal pandemic grants to exclude from gross income those funds received from the federal shuttered venue and restaurant revitalization programs; exclude grants under Mississippi Agricultural Stabilization Act; and to authorize deductions for expenses paid with those funds and funds from the Business Mississippi Grant Program.
New Mexico Enacts Broad Tax Reductions
The governor of New Mexico signed into law H.B. 163, which reduces the state’s gross receipts tax rate from 5.125 percent to 5 percent starting July 1 and to 4.875 percent in 2023. It also eliminates taxation on Social Security and allows senior citizens with adjusted gross incomes of up to $100,000 for individuals or $150,000 for married couples filing joint returns to deduct their Social Security from income taxes. The bill also exempts military retirement pay from income tax; includes a child tax credit; a tax credit for nurses; and a gross receipts tax deduction for feminine hygiene products. Additionally, the bill extends the solar market tax credit and provides a gross receipts tax deduction for certain professional services sold to manufacturers.
New Mexico Enacts Workaround of Federal SALT Cap
The governor of New Mexico signed into law H.B. 102, which allows pass-through entities to pay state income taxes at the entity level and deduct that from their federal income taxes. The pass-through entity tax applies to taxable years beginning on or after January 1, 2022.
New Mexico Extends Technology Tax Credit
The governor of New Mexico signed into law H.B. 67, which extends the state’s technology readiness gross receipts tax credit and repeals the technology readiness gross receipts tax credit fund.
West Virginia Legislature Passes Flow-Through Apportionment Change
The West Virginia legislature passed H.B. 4410, which requires the allocation and apportionment of income for flow-through entities to be the same as that for C corporations for tax years beginning on and after January 1, 2022.
INCOME AND FRANCHISE TAX UPDATES
California FTB Updates FAQs on Pass-Through Entity Tax
The California Franchise Tax Board (FTB) updated its pass-through entity tax webpage and FAQs to reflect changes from the recently passed SB 113, which expands the SALT cap workaround. SB 113 allows the credit for taxes paid by the entity to offset the California tentative minimum tax of 7 percent of taxable income for tax years beginning on or after January 1, 2021. It also allows a partnership to be an eligible partner, shareholder, or member for purposes of a qualified entity. Limited liability companies owned by individuals through a disregarded entity are now eligible for the workaround. The FTB webpage discusses who qualifies, how to make the election, how to pay, the tax calculation, how to claim the tax credit, and what forms to file. The FAQs cover the election and qualifications, what is included in the qualified entity's qualified net income, who gets the credit, what is qualified net income, estimated taxes, nonresident withholding, payments and forms, and credit ordering.
Oregon Amends Pass-Through Entity Tax Provisions
Oregon enacted SB 1524, which provides that any amount that is added back and that meets the conditions for the use of elective rates, may be treated as qualifying income, in a proportion determined by the department by rule, for purposes of the elective pass-through entity tax. This applies to tax years beginning on or after January 1, 2022, and before January 1, 2024. It also directs the Oregon Department of Revenue to require estimated payments for purposes of pass-through entity tax. This applies to estimated payments due on and after June 15, 2022.
Challenges to Maryland Digital Advertising Gross Revenues Tax Partially Dismissed
The U.S. District Court for the District of Maryland partially granted Maryland’s motion to dismiss federal challenges to the state’s digital advertising gross revenues tax. Four trade associations challenged the law on statutory and constitutional grounds, alleging that the tax violates the Internet Tax Freedom Act (ITFA) and the U.S. Constitution’s Commerce Clause and Due Process Clause. The trade associations also alleged that the provision that prohibits passing on the costs of the tax violates the Commerce Clause and the First Amendment. The court ruled that the Tax Injunction Act prohibits the federal challenges to the tax itself because the charge imposed by Maryland is a tax and Maryland law provides a plain, speedy, and efficient remedy for challenges to this tax in Maryland courts. The court also ruled that the Act does not preclude federal challenges to the pass-through prohibition provision of the tax.
Massachusetts Issues Guidance on Pass-Through Entity Tax
The Massachusetts Department of Revenue issued guidance on its elective pass-through entity excise tax. The guidance covers making an election, computing the excise tax, filing and making the payment, and the personal income tax credit for qualified members.
The Minnesota Department of Revenue updated its guidance on the state's pass-through entity tax. The guidance covers qualifying entities, qualifying owners; how to elect the pass-through entity tax, the estimated tax payments and the additional tax charge, the PTE tax credit, and FAQs.
New Jersey Issues Cryptocurrency Tax Guidance
New Jersey issued a technical advice memorandum on convertible virtual currency that said New Jersey conforms for corporation business tax and gross income tax purposes to the federal; tax treatment of convertible virtual currency as detailed in IRS Notice 2014-21, Rev. Rul. 2019-24, and IRS Chief Counsel Memorandum 202114020. New Jersey is the first state to issue guidance on the tax treatment of virtual currencies.
Texas Supreme Court Rules in Favor of Sirius XM in Apportionment Case
The Texas Supreme Court reversed an appeals court decision and ruled in Sirius XM Radio, Inc., v. Hegar, No. 20-0462 that the tax apportionment is based on where the work is performed and not where the customer receives the benefit of the service. The Court ruled that determining a company’s franchise tax through “receipts from . . . each service performed in this state” under Tex. Tax Code § 171.103(a) means “locating the performance of the service at the place where the taxpayer’s personnel or equipment is physically doing useful work for the customer.”
Arizona Property Lease Subject to Taxation Privilege Tax
The Arizona Department of Revenue (DOR) ruled that gross income derived from a property lease was subject to the taxation privilege tax under the commercial lease classification and was subject to the city privilege tax as a speculative builder. The taxpayer argued that a 30-year lease constituted a sale of real property that was excluded from state, county, and city privilege taxes. The DOR determined that the transaction was a lease and was gross income taxable by the state and county. The DOR also ruled that the taxpayer was a speculative builder and was subject to the city privilege tax.
Ohio Board of Tax Appeals Increases Property Value Based on Recent Sale Price
The Ohio Board of Tax Appeals (BTA) accepted an increase in the value of an improved property based on its recent arms-length sale. In accepting the proposed valuation increase, the Ohio BTA reasoned that the sale created a rebuttable presumption of value in the sale price, and the local board of revision did not provide support for its valuation and did not rebut the presumption.
Oklahoma Tax Commission Proposes to Amend Ad Valorem Property Tax Regulations
The Oklahoma Tax Commission proposed an amendment to the ad valorem property tax regulations as part of the implementation of recent legislation. The proposal includes measures to increase the income eligibility ceiling for additional homestead exemption qualification to a gross household income from $20,000 to $25,000; provide that the gross household income for purposes of the exemption should not include any federal stimulus or relief payments related to COVID-19; include custom manufacturers in the five-year ad valorem manufacturing exemption; and provide that a 100 percent disabled veteran owning a residence on leased land owned by a municipality, town, or city qualifies for the statutory homestead exemption from ad valorem taxes.
SALES AND USE TAX UPDATES
Administrative Court Upholds New York Responsible Person Finding
An administrative court upheld the New York Division of Taxation’s responsible person ruling for a corporation’s sales taxes. The judged reasoned that the taxpayer was the owner and vice president of the corporation; the certificate of authority lists the taxpayer as one of the responsible persons for the corporation; the taxpayer was in charge of and trained the sales force; the taxpayer derived substantial income from the corporation; money was transferred from the corporation to the taxpayer's bank account; and he had authority to sign sales tax forms.
New York Tribunal Rules IT Services to be Taxable Protective and Detective Services
The New York Tax Appeals Tribunal held that information technology-related security services were taxable “protective and detective services.” The Tribunal ruled that “while petitioner may not take overt action to block attempted connections by threat actors at the moment they occur, by configuring their customers’ appliances to determine who is allowed access and maintaining them to ensure they are operational with the most current policies, petitioner is actively protecting and guarding its customers’ networks from threats.” The Tribunal stated that the purpose of these actions are to protect or guard a customer’s network and therefore “such services are taxable protective services.” The Tribunal ruled that the “monitoring services,” the “vulnerability scanning service and targeted threat hunting service,” “incident response service,” and its “resident security operations service” are also taxable protective services. The Tribunal noted that the “information services provided by petitioner to its customers in performing these services are incidental aspects of the protective services and thus represent taxable protective services.”
Ohio Finds Hydraulic Fracturing Equipment Did Not Qualify for Sales Tax Exemption
The Ohio Board of Tax Appeals (BTA), on remand from the Tenth District Court of Appeals, found that certain pieces of equipment purchased and used by the taxpayer in the production of crude oil and natural gas by a hydraulic fracturing process did not qualify for the sales tax exemption under Ohio Rev. Code Ann. § 5739.02(B)(42)(q). The BTA found that the taxpayer did not use the equipment directly for its hydraulic fracturing and no item was a "thing transferred" under the current statute.
Texas Court Finds Loan Packages to be Taxable Data Processing
A Texas Court of Appeals reversed a trial court ruling and held that the purchase of loan packages for lending institution clients was the taxable purchase of data processing services. The taxpayer purchased loan packages that included promissory notes, deeds of trust, and tax disclosures provided by vendors. It argued that the “essence of the transaction” was not data processing but the services of paralegals and mortgage experts. The court reasoned that the firm’s vendors collect and manipulate data, and the “essence of the transaction” was the purchase of taxable data processing services.
Connecticut will suspend its $0.25 per gallon excise tax on gasoline for three months beginning April 1, 2022. The tax will be reinstated effective July 1, 2022. The legislation instructs retailer dealers of gasoline to reduce the per gallon price of fuel in an amount equal to the amount of the tax reduction. The legislation does not include any direction on how the Department of Revenue should implement this fuel tax suspension with respect to tax paid gasoline currently in circulation and whether a retail dealer can obtain a refund of the tax that it is not passing on to consumers. The legislation was signed by Governor Ned Lamont on March 24, 2022.
Florida Approves Fuel Tax Reduction for October 2022
Florida’s recently passed budget legislation H.B. 7071 includes a series of motor fuel tax reductions for October 2022. Florida’s motor fuel tax on gasoline will be reduced by $0.253 per gallon from $0.33425 per gallon to $0.08125 per gallon during October. The following are suspended during October: $0.015 per gallon sales tax; $0.01 per gallon county fuel tax; $0.01 per gallon municipal fuel tax $0.083 per gallon SCETS (State Comprehensive Enhanced Transportation System) tax. The $0.04 per gallon excise tax, $0.01 per gallon optional county ninth cent tax, $0.00125 per gallon inspection fee and local option taxes (up to $0.06 per gallon) will continue to be collected during this time.
Georgia and Maryland Suspends Motor Fuel Taxes Through May 31
The governor of Georgia signed into law H.B. 304, which suspends the state motor fuel excise tax immediately through May 31. In Georgia, sales between licensed distributors are exempt from the excise tax. Absent additional guidance from the State, any tax-paid fuel currently in circulation in Georgia would remain tax paid with the fuel tax suspension applying to fuel that has not yet been distributed in a taxable manner.
The governor of Maryland signed into law SB1010/HB1486, which suspends the state’s excise taxes imposed on gasoline, diesel and aviation fuel immediately through April 16, 2022. The legislation provides that retailers of motor fuel holding previously tax-paid fuel may apply for a refund of the tax on that fuel.
Fifth Circuit Court of Appeals Determines Butane is Not an Alternative Fuel
The Fifth Circuit Court of Appeals upheld the decision of the District Court for the Southern District of Texas in Vitol Inc. v. United States of America, (No. 20-20237, March 23, 2022) that butane is not an alternative fuel, but rather is a taxable fuel. As a result, blends of butane and gasoline would not be eligible for the alternative fuel mixture credit.
Federal Oil Spill Tax Imposed on Exports Found Unconstitutional
The Fifth Circuit Court of Appeals upheld the decision of the District Court for the Southern District of Texas in Trafigura Trading, LLC v. U.S (5th Cir. No. 21-20127 (March 24, 2022)) and found the federal oil spill tax unconstitutional when imposed on exports of crude oil from the United States.
Court of Federal Claims Holds that Butane is Not an Alternative Fuel
The Court of Federal Claims denied an excise tax refund and held in Philadelphia Energy Solutions Refining and Marketing, LLC v. United States, No. 19-510 T (Fed. Cl. Mar. 25, 2022) that because both gasoline and butane are taxable fuels under IRC § 6426(e) a blend of gasoline and butane is not an alternative fuel that qualifies for the alternative fuel mixture credit.
FUELS TAX RATES UPDATES
Indiana Sets April Gas Tax Rate
Indiana's gasoline use tax rate for April 2022 has been set at $0.219 per gallon. This tax is adjusted monthly and announced in Departmental Notice #2.
Massachusetts Issues Q2, 2022 Fuel Tax Rates
Massachusetts has published it’s Q2, 2022 fuel tax rates:
Gasoline
$0.24 per gallon (unchanged from Q1)
Diesel
$0.24 per gallon (unchanged from Q1)
LPG
$0.286 per gallon (increase from $0.212 per gallon in Q1)
Aviation Gasoline
$0.308 per gallon (increase from $0.281 per gallon in Q1)
Jet Fuel
$0.114 per gallon (increase from $0.0097 per gallon in Q1)
Michigan Prepaid Sales Tax Rates for April 2022
Effective April 2022, the prepaid sales tax on gasoline will be $0.176 per gallon and on diesel will be $0.202 per gallon. These rates remain in effect through April. The rates currently in effect for March 2022 are $0.165 per gallon for gasoline and $0.185 per gallon for diesel. New rates for May will be published mid-April.
New Jersey Q2 Tax Rates for Petroleum Products Unchanged from Q1
The New Jersey Department of Revenue left petroleum products gross receipts tax rates for Q2, 2022 unchanged from Q1, 2022. The rates are 31.9 cents per gallon for gasoline and LPG; 35.9 cents per gallon for diesel; 12.4 cents per gallon for fuel oil; 4 cents per gallon for aviation fuel; and 7 percent of gross receipts for all other petroleum products.
Ohio Petroleum Activity Tax Rates for Q2, 2022
The Ohio Department of Transportation has published the average wholesale price of fuel to be used when determining the gross receipts of a supplier subject to the Petroleum Activity Tax (PAT) for the period April 1, 2021 – June 30, 2021. The PAT rate is $0.0065.
PAT Rate for Q2, 2022 (April 1 – June 30)
Average Wholesale Price
PAT Rate
Gasoline
$2.262 per gallon
$0.014703 per gallon
Diesel
$2.420 per gallon
$0.01573 per gallon
Propane
$1.310 per gallon
$0.008515 per gallon
Vermont Posts MFTIA and MFTA Rates
Vermont has posted its MFTIA and MFTA rates for the second quarter of 2022. The MFTA will increase to $0.061 per gallon while the MFTA remains unchanged at $0.134 per gallon.
Suppliers and Distributors of Motor Fuel: Key License Renewal Dates
As a reminder to suppliers and distributors of motor fuel: many states issue licenses that must be renewed periodically rather than being effective for a continuous period until canceled.
Energy Webinar: State and Local Tax Considerations for Upstream and Midstream Operations
Is your energy company paying too much in sales taxes? Are there taxes you should be paying that you don’t know about? Which purchases may be exempt from sales taxes?