Welcome to the August 2022 issue of Weaver’s State and Local Tax Digest. In this month’s highlights, Colorado enacts property tax changes, Missouri and Ohio follow other states and enact a pass-through entity (PTE) tax as a workaround to the $10,000 federal cap on state and local tax deductions, and Colorado makes its PTE tax retroactive.
INCOME AND FRANCHISE TAX UPDATES
California Clarifies Treatment of Nonresident Partnership Interest
The California Franchise Tax Board issued a legal ruling on whether a nonresident individual has California-source income attributable to a partnership’s unrealized receivables or inventory as if the partnership had sold those assets. The FTB ruled that for a nonresident individual partner that owns a 49 percent interest in the partnership, and the partnership’s business is carried on wholly within California, all gain or loss associated with the partnership’s IRC Section 751 property is sourced to California. If the partnership conducts business within and without the state, the gain or loss is sourced to California based on the partnership’s California apportionment factors under Regulation section 17951-4(d). Each item of IRC 751 property, not the partnership interest, must be sourced under the sourcing rule appropriate to that item.
California Sets Application Dates for California Competes Income Tax Credits
The California Competes Tax Credit and Grant Program will begin accepting applications for the first window from July 25 to August 15, 2022. The program provides an income tax credit for businesses that want to locate in California or grow within the state. For the 2022-2023 fiscal year, the program has available for allocation $304,727,233 in tax credits and $120,000,000 in grants available. This amount reflects a reduction from last year’s allocated funding for the program. Applications for the California Competes Tax Credit and Grant Program will be accepted online. The program will allocate $85 million in tax credits and $120 million in grants between July 25, 2022 and August 15, 2022; $120 million in tax credits available between January 3, 2023, and January 23, 2023; $99.7 million plus any remaining unallocated amounts from the previous application periods between March 6, 2023, and March 20, 2023.
California Raises Interest Rates on Unpaid Taxes and Corporate Refunds for January 1, 2023
The California Franchise Tax Board raised interest rates on underpaid income taxes and on corporations that receive refunds on overpayments. Interest rates on underpaid personal, corporate, and franchise taxes will increase from 3 percent to 5 percent on January 1, 2023, through June 30, 2023. Interest rates paid to corporations that receive refunds on overpayments will increase from 0 percent to 2 percent on January 1, 2023 through June 30, 2023.
California High Income Tax Measure Qualifies for Ballot
Proposition 30, which increases tax rates by 1.75 percent on personal income of more than $2 million for individuals and married couples, qualified for the California November 2022 ballot. Revenue raised by the tax increase would be allocated to programs for zero-emission vehicle purchases and wildfire prevention and suppression.
Idaho Wealth Tax Measure Qualifies for Ballot
Proposition 1, an initiative to increase corporate tax and income tax rates, qualified for Idaho’s November 2022 ballot. The initiative would increase the tax on income of more than $250,000 for individuals, trusts, and estates, and more than $500,000 for couples filing jointly, to $16,097 plus 10.925 percent of the amount that exceeds $250,000. It would also increase the corporate income tax from 6.5 percent to 8 percent. Both changes would be effective January 1, 2023. Revenue from the taxes increase would fund the Quality Education Fund.
Louisiana Enacts Change to Calculation of Federal Audit Adjustments
Louisiana Gov. John Bel Edwards signed into law S.B. 28, which makes technical corrections to the calculation methodology for distributive shares reported to tiered partners pertaining to state partnership audit adjustments. The technical corrections follow the 2021 tax reform legislation, which addressed how and when some partnerships must report federal tax adjustments to the Louisiana Department of Revenue.
Missouri Enacts SALT Parity and R&D Credit
Missouri enacted H.B. 2400, which includes two significant tax changes. H.B. 2400 includes the SALT Parity Act, which allows a pass-through entity to elect to pay a pass-through entity tax equal to the sum of each member’s income and loss items reduced by a deduction allowed for qualified business income. The taxpayers are then allowed a tax credit in the amount of their share of the tax paid. This applies to tax years beginning on or after January 1, 2023. H.B. 2400 also includes a tax credit equal to 15% of a taxpayer’s “qualified research expenses.” These changes apply to tax years beginning on or after January 1, 2023, and end on December 31, 2028.
New Jersey Announces Voluntary Transfer Pricing Initiative
The New Jersey Division of Taxation announced its voluntary Transfer Pricing Initiative to help corporate taxpayers expedite the resolution of transfer pricing issues. The initiative applies to all filed corporate income tax returns within the statute of limitations that have intercompany transactions subject to adjustment under the applicable laws. The initiative runs from June 15, 2022, through March 2, 2023. Taxpayers must agree in writing to participate in the initiative by September 15, 2022.
New York Appellate Court Reverses Tribunal in Residency Case
The New York Appellate Division reversed a 2021 New York Tax Appeals Tribunal residency decision on the grounds that the decision did not have a rational basis. In the earlier case, the appeals tribunal held that an individual domiciled in New Jersey who worked primarily in New York City and owned a vacation home in upstate New York that was determined to be a permanent place of abode was not a statutory resident for New York State personal income tax purposes under the facts.
Ohio Implements PTE Tax Workaround
Ohio passed S.B. 246, which implements the state’s pass-through entity tax as a workaround to the $10,000 federal cap on the state and local tax deductions. The law allows pass-through entities to elect to pay an entity level tax of five percent for tax year 2022 and three percent for tax years after 2022. The pass-through entity owners can then claim a refundable credit against their income tax liability.
Pennsylvania Enacts Tax Cuts, Establishes Economic Nexus for Corp. Net Income Tax, and Adopts Market Sourcing for Sales of Intangible Property
Pennsylvania enacted H.B. 1342, which includes corporate and personal tax changes. For corporate taxes, the bill reduces the corporate net income tax (CNIT) rate over nine years from 9.99 percent to 4.99 percent. The bill also implements market-based sourcing for sales of intangible property and establishes economic nexus for purposes of the CNIT for sales of intangible property. For personal income tax, the bill conforms the tax code to IRC Section 179 expense deductions for depreciable business assets. It also conforms to IRC Section 1031 like-kind exchanges.
Texas Comptroller Rules that Selling and Interest Costs Excluded from COGS
The Texas Comptroller of Public Accounts ruled that a Texas homebuilder may not include selling costs and capitalized interest costs in its cost of goods sold (COGS) calculation because they are taxes and related to the real property. The selling costs are expenses paid by the taxpayer when the real property is transferred to the purchaser of the real property and the capitalized interest costs are costs associated with the taxpayer purchasing the land and items used to construct the homes. The selling costs may not be included in COGS because they are not costs associated with taxpayer’s acquisition of a property, but rather costs for the buyers' acquisition of a property that the taxpayer sells. Capitalized interest may not be included in COGS because the statute does not distinguish between types of interest and that interest is specifically excluded from COGS.
Virginia Budget Includes Tax Reform
Virginia Gov. Glenn Youngkin signed into law budget legislation that makes several tax changes. The law increases the standard deduction for tax years 2022 through 2025 from $4,500 to $8,000 for individual taxpayers from $9,000 to $16,000 for married couples filing jointly. It also provides an individual tax rebate of up to $250 for an individual, or $500 for married persons filing for returns filed on or before November 1, 2022. The budget also eliminates the 1.5 percent state tax on groceries and essential personal hygiene products, beginning in 2023, but allows local governments the option for a 1 percent tax. Other provisions include a subtraction for certain military retirement income and an optional refundable earned income tax credit.
West Virginia Adopts Amendments to State Corporate Net Income Tax Rules
The West Virginia State Tax Department adopted amended rules that reflect changes to the state corporate net income tax law that were enacted in 2021. The law changed the three-factor apportionment formula to a single-sales factor formula, eliminated the sales factor “throw-out” rule, and adopted market-based sourcing for some services and intangible property sales. All of these amendments take effect for tax years beginning on or after January 1, 2022.
SALES AND USE TAX UPDATES
Florida Lowers Electronic Filing and Payment Thresholds
Florida enacted S.B. 2514, which lowers the threshold for the electronic tax return filing requirement from $20,000 to $5,000. It also lowers the threshold for the requirement to remit payment electronically from $20,000 to $5,000. These thresholds pertain to the tax paid in the prior state fiscal year.
Georgia Extends Exemption for Computer Equipment Sale or Lease
Georgia enacted H.B. 1291, which extends the exemption for the sale or lease of computer equipment to be incorporated into facilities of high-technology companies from June 30, 2023 to December 31, 2023. The law also increases the exemption threshold from $15 million to $18 million for the sale or lease of computer equipment.
Hawaii Extends Excise Tax to Peer-to-Peer Car Sharing
Hawaii enacted H.B. 1971, which provides that peer-to-peer car-sharing will be subject to general excise tax and the rental motor vehicle surcharge tax. The peer-to-peer car-sharing program is responsible for collecting and remitting any taxes and surcharges to the department of taxation. The bill also requires persons engaging or continuing in a peer-to-peer car-sharing program to register with the department of taxation.
Iowa Provides Information on Sales and Use Tax Permit, Filing, and Payment Changes
The Iowa Department of Revenue released information on recent legislative changes to sales and use tax permits, return filing, and payment changes, which took effect July 1, 2022. Senate File 2367 made three key changes: Sales and use taxes will be combined into one permit and filed using one return; taxpayers that collect more than $1,200 will file monthly and taxpayers that collect less than $1,200 will file annually; deposit payments are no longer required.
Iowa Expands Aircraft Repair and Maintenance Exemption
Iowa enacted S.B. 2370, which expands the sales and use tax exemption for aircraft repair and maintenance to include aircraft that are not used in scheduled or nonscheduled interstate Federal Aviation Administration certified air carrier operations. The law became effective June 30, 2022.
Louisiana Enacts Changes to Local Tax Collection
Louisiana enacted S.B. 235, which broadens the authority of the Louisiana Sales and Use Tax Commission for Remote Sellers to collect and audit “non-remote” state and local sales tax upon the execution of a contract with Louisiana local taxing authorities. The state also enacted S.B. 95, which requires the Louisiana Uniform Local Sales Tax Board to implement and coordinate a Louisiana multi-parish audit program for local sales and use taxes. Additionally, S.B. 244 requires uniform reporting by local sales tax collectors that are compensated based on cost of collection.
Louisiana Enacts Multi-Parish Audit Program
Louisiana enacted S.B. 95, which creates the multi-parish audit program for local sales tax. The legislation also provides for the operations of the program, including reporting requirements to legislative committees. The law became effective July 1, 2022.
Tennessee Expands Exemptions for Computer Software Services
Tennessee enacted H.B. 2378, which exempts from sales and use tax the fabrication, installation, and repair of computer software by a person for the person’s own use and consumption. The exemption also applies to the person’s agent or direct employee. It also exempts from sales tax the access and use of software that remains in the possession of the dealer who provides the software or in the possession of a third party on behalf of such dealer. This applies where the access and use of the software is solely by a person or the person’s agent or direct employee for the exclusive purpose of fabricating other software that is both owned by that person and for that person's own use and consumption.
Virginia Removes AST Payment Requirements
Virginia’s budget legislation removes the requirement that certain dealers make an accelerated sales tax payment.
PROPERTY TAX UPDATES
Colorado Enacts Property Tax Changes for Certain Agricultural Facilities
On May 20, 2022, Colorado Gov. Jared Polis signed H.B. 22-1301, which changes the property tax treatment of controlled environmental agricultural (CEA) facilities, effective January 1, 2023. The law defines a “CEA facility” as a nonresidential structure and related equipment combining engineering, horticultural science, and computerized management techniques to optimize hydroponics, plant quality, and food production efficiency from the land’s water for human or livestock consumption. It also amends the definition of “agricultural and livestock products” to include crops grown in a CEA facility and establishes that a CEA facility is assessed like all other agricultural property using the cost, market, and income approaches. The bill also exempts from property tax agricultural equipment used in any CEA facility.
Colorado Enacts Law Extending Contaminated Land Income Tax Credit
On June 7, 2022, Colorado Gov. Jared Polis signed H.B. 1392, which extends state tax incentives on the use of real property to promote community development, and extends the contaminated land state income tax credit and property tax exemption for affordable housing projects and making an appropriation. The law extends the property exemptions for certain low-income housing projects to 30 years from 15 years; extends the income tax credit for any approved environmental remediation of contaminated property by two years to January 1, 2025; increases the annual total cap on tax credits to $5 million from $3 million for calendar year 2022 and after; and allows a taxpayer whose credit is tied to the remediation of a site in a rural community to claim the credit equivalent to 50 percent of the first $750,000 spent on remediation and 40 percent of the next $750,000 spent.
Florida Issues Information Bulletin on Tax Abatement for Building Collapse
On June 1, 2022, the Florida Department of Revenue issued an informational bulletin on the abatement of ad valorem taxes and non-ad valorem assessments following the destruction caused by a sudden collapse of a multistory residential building with at least 50 dwelling units. The Florida legislature provided the property tax relief, which applies retroactively to January 1, 2021, and is in effect until December 31, 2023. Eligibility for the abatement must be determined by the property appraiser if the condition of the residential improvement must have been such that on January 1 of the year immediately preceding the collapse, the residential improvement had no value due to a latent defect of the property not readily discernable by inspection.
New Hampshire Reduces Interest Rate for Property Tax Abatements
On June 7, 2022, New Hampshire Gov. Chris Sununu signed into law S.B. 317, which reduced the interest rate for abatements of paid property taxes from 6 percent per annum to 4 percent per annum from the date the taxes were paid to the date of refund. The rate applies when the selectmen, the board of tax and land appeals, or the superior court grant an abatement of taxes. The law applies to tax periods beginning on and after April 1, 2022.
New Mexico Updates Guidance for New Manufacturing Deduction
New Mexico updated its guidance on the deductions for sales to manufacturers in New Mexico under Section 7-9-46 NMSA 1978. Legislation passed in 2021 provided an additional deduction under Section 7-9-46(C) for the sale or lease of qualified equipment to a person engaged in the business of manufacturing. The change also made the deductions under 7-9-46(B) and 7-9-46(C) available to a manufacturing service provider.
The Oklahoma State Legislature enacted H.B. 2046 over the governor’s veto to authorize the creation of Higher Education Funding Districts for property tax purposes. It applies the millage levied by a higher education funding district to the net assessed value of all taxable property in the district in the same manner as the millage imposed by other ad valorem taxing jurisdictions. It also requires the county treasurer to include the tax due resulting from the millage in the same manner as the millage imposed by other ad valorem taxing jurisdictions. It also authorizes the funding districts to issue tax-exempt bonds.
UNCLAIMED PROPERTY UPDATES
Delaware Enacts Unclaimed Property Law
Delaware enacted S.B. 281, which allows the state to issue audit notices when the property holder fails to complete the compliance review, lengthens record retention requirements, and changes the state notification requirements to allow the state to liquidate unclaimed securities before sending notice.
FUELS AND EXCISE TAX UPDATES
Illinois Implements Changes to Sales of Dyed Diesel Fuel
Illinoisissuedinformation on its recently amended Motor Fuel Tax Law, which provides that a sale of dyed diesel fuel for non-highway purposes must be made by a licensed distributor or supplier and made directly to the end user of that dyed diesel fuel to be tax-exempt. For sales to an end-user, the fuel must be delivered from a vehicle designed for the specific purpose of such sales and delivered directly into either a stationary bulk storage tank labeled for dyed diesel or; into the fuel supply tanks of off-highway vehicles not required to be registered for highway use; or dispensed from a dyed diesel dispensing facility that has withdrawal facilities that are not readily accessible to and are not capable of dispensing dyed diesel fuel into the fuel supply tank of a motor vehicle.
Iowa Provides Information on Fuel Tax Deduction for Blended Fuel Sales
The Iowa Department of Revenue released information on recent legislation that creates a fuel tax deduction for blended fuel sales. The recently passed House File 2128 created a new deduction for gasoline or diesel fuel withdrawn from a terminal by a licensee to be blended with a biofuel after it is withdrawn from the terminal when the tax rate on the gasoline or diesel fuel exceeds the tax rate that would be due on the biofuel-blended fuel. The law became effective July 1, 2022.
FUELS TAX RATES UPDATES
State Fuel Tax Rate Changes – July 1
A number of states have announced motor fuel tax rate changes effective July 1, 2022.
Connecticut’s excise tax on dieselwill increaseto $0.492 per gallon. Connecticut also issued anoticeon the conversion factors for motor vehicle fuels in gaseous form.
Georgia
Georgia’saverage retail pricesfor the prepaid local tax on fuel for the period July 1, 2022 through December 31, 2022 are as follows:
Gasoline
$3.000
Diesel
$3.000
Aviation Gasoline
$3.000
LNG
$2.596
Special Fuel (CNG)
$3.000
Illinois
Illinois has set itsprepaid sales tax rates for motor fuel for the period July 1, 2022 – December 31, 2022 as follows:
Biodiesel (1% - 10%)
$0.23 per gallon
Gasoline, gasohol, other motors fuels
$0.23 per gallon
Indiana
Indiana set itsgasoline use taxfor the month of July 2022 at $0.291 per gallon.
Massachusetts
Massachusetts set itsfuel tax ratesfor the period July 1, 2022 – September 30, 2022 as follows:
Gasoline
$0.24 per gallon
Diesel
$0.24 per gallon
LPG
$0.285 per gallon
Jet Fuel
$0.139 per gallon
Aviation Gasoline
$0.329 per gallon
Michigan
The Michiganprepaid sales taxon fuel for the month of July 2022 is as follows:
Gasoline
$0.235 per gallon
Diesel
$0.28 per gallon
Montana
Montana’sfuel tax on gasolineincreased to $0.325 per gallon and the fuel tax on diesel will be increased to $0.2955 per gallon. These rates will increase again in 2023.
Nebraska
Nebraska’s fuel tax rates for July 1, 2022 – December 31, 2022 have been set as follows:
Gasoline, Gasohol, Diesel, Ethanol and Compressed Fuels
$0.248 per gallon
Aviation Gasoline
$0.05 per gallon
Jet Fuel
$0.03 per gallon
New Jersey
New Jersey’s petroleum productsgross receipts taxrates for the period July 1, 2022 through September 30, 2022 are as follows:
Gasoline and LPG
$0.319 per gallon
Diesel
$0.359 per gallon
Fuel Oil
$0.124 per gallon
Aviation Fuel
$0.04 per gallon
Other fuels
7% of gross receipts
Ohio
The Ohio Department of Transportationpublishedthe 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 July 1, 2022 – September 30, 2022. The PAT rate is $0.0065.
PAT Rate for Q, 2022 (July 1 - September 30)
.
Average Wholesale Price
PAT Rate
Gasoline
$2.523 per gallon
$0.0163995 per gallon
Diesel
$2.925 per gallon
$0.0190125 per gallon
Propane
$1.371 per gallon
$0.0089115 per gallon
The PAT is adjusted quarterly. The Q3 rates show a marginal increase for gasoline and a more significant increase for diesel and propane.
Virginia
Virginia’s fuel tax rates for the period July 1, 2022 – June 30, 2023 are as follows:
Gasoline
$0.28 per gallon
Diesel
$0.289 per gallon
Blended Fuels (Gasoline)
$0.28 per gallon
Blended Fuels (Diesel)
$0.289 per gallon
Aviation Fuels
$0.05 per gallon
Alternative Fuels
$0.28 per GGE
Storage Tank Fee
$0.6 per gallon
Vermont
Vermont’s Motor Fuel Transportation Infrastructure Assessment (MFTIA) for July 1, 2022 - September 30, 2022 has been set at $0.0795 per gallon. The Motor Fuel Tax Assessment (MFTA) for July 1, 2022 – September 30, 2022 has been set at $0.1591 per gallon.
Colorado Imposes New Retail Delivery Fee as of July 1, 2022
Colorado has implemented a new “retail delivery fee,” which is a tax of $0.27 per delivery of a taxable product. The fee, effective July 1, 2022, will be imposed on the buyer but will require retail sellers and marketplace facilitators to collect and remit the tax by filing a separate return.
Modifications to Superfund List Could Change Tax Liability
The reinstated Superfund tax, effective July 1, 2022, decreased the weight or value tests required for a chemical to be taxable from 50 percent to 20 percent. This decrease could bring a number of modifications to the list, and taxpayers must be aware of any resulting tax changes.
This week on the Motor Fuels Tax Minute, we discuss federal motor fuels tax payments and how best to apply tax credits when submitting your semi-monthly deposits.