Welcome to the August 2023 issue of Weaver’s State and Local Tax Digest. This month's digest includes new tax legislation in several states with significant changes in California and Louisiana and also including Colorado where the retail delivery fee increased and Rhode Island passed an exemption of personal property tax.
INCOME AND FRANCHISE TAX UPDATES
Alabama Reduces Top Tax Rates
Alabama Gov. Kay Ivey signed into law H.B. 115, which phases in reductions in the top tax rate over five years. The rates are reduced from 5 percent in 2023 to 4.99 percent for 2024, 4.98 percent for 2025, 4.97 percent for 2026, 4.96 percent for 2027, and 4.95 percent in 2028.
Arizona Extends Tax Commission
Arizona Gov. Katie Hobbs signed into law S.B. 1189, which extends the authority of the Municipal Tax Code Commission through June 30, 2027.
California Taxes Incomplete Gift Nongrantor Trusts
California Gov. Gavin Newsom signed into law S.B. 131, which requires income from most incomplete gift nongrantor trust to be taxed as the grantor’s income if the grantor is a California resident. The change applies retroactively to tax years beginning on or after January 1, 2023.
California Extends e-Signature Options
The California Franchise Tax Board (FTB) extended its e-signature options to submit signed paper returns and other documents through October 31, 2023. For paper returns and other documents that normally must be signed with an original signature, the FTB will not require an original signature through October 31, 2023, except for Power of Attorneys.
California Eliminates Certain Employment Tax Credit Requirements for Semiconductor, Lithium Battery, or Electric Airplane Manufactures
California Gov. Gavin Newsom signed into law S.B. 131, which eliminates the employment tax credit requirement that the new employment be located within a designated census tract or economic development area if the qualified taxpayer is engaged in semiconductor manufacturing or semiconductor research and development, lithium production, manufacturing of lithium batteries, or electric airplane manufacturing. This change is effective for tax years beginning on or after January 1, 2023 and before January 1, 2026.
California Excludes Settlement Payments from Taxation
California Gov. Gavin Newsom signed into law S.B. 131, which excludes settlement payments to victims of the 2019 Kincade Fire in Sonoma County and the 2020 Zogg Fire in Tehama and Shasta counties from state income tax. The exclusion is effective for tax years beginning on or after January 1, 2020, and before January 1, 2028.
California Extends Film Tax Credit
California Gov. Gavin Newsom signed into law S.B. 132, which extends the state’s film and television tax credit by five years to 2030 with $330 million in annual funding. The bill also makes the credit refundable and offers several additional revisions to the program.
California Subjects Tax Regulation to Public Comment
California Gov. Gavin Newsom signed into lawA.B. 127, which subjects Office of Tax Appeals regulations to public comment and administrative approval. The bill exempts any final written opinion published by the office from the requirements of the Administrative Procedure Act. The bill authorizes the office to designate any published written opinion as precedential in any matter or proceeding before the office unless overruled, superseded, or otherwise designated nonprecedential by the office. The bill also declares that the designation of an opinion as precedential is not a rulemaking within the meaning of the Administrative Procedure Act.
Connecticut Extends Aerospace Tax Breaks
Connecticut Gov. Ned Lamont signed into law S.B. 1027, which extends the time for an eligible company to use certain aerospace manufacturing project tax breaks earned under certain assistance agreements.
Connecticut Allows Electronic Payments for Municipal Taxes
Connecticut Gov. Ned Lamont signed into law H.B. 6891, which authorizes municipalities to accept electronic payment of taxes, penalties, interest, and fees.
Florida Issues Guidance on State Conformity to IRC
Florida issued its annual update on the state’s corporate income tax conformity to the Internal Revenue Code provisions as in effect on January 1, 2023.
Illinois Establishes Hydrogen Income Tax Credit
Illinois Gov. JB Pritzker signed into law H.B. 2204, which creates an income tax credit for the use of clean hydrogen in the state. The tax credit is equal to $1 per kilogram of eligible zero-carbon hydrogen used by the eligible taxpayer during the immediately preceding year. The program provides $10 million in total tax credits per year in 2026 and 2027.
Illinois Excludes Internet Streaming from Local Franchise Fees
Illinois Gov. JB Pritzker signed into law H.B. 3808, which provides that “gross revenues” do include any revenues received from video programming accessed via a service that enables users to access content, information, electronic mail, or other services offered over the Internet, including Internet streaming content.
Illinois Enacts Pass-Through Credit Law
For taxable years ending on or after December 31, 2023, under S.B. 2047, taxpayers that earned a credit against income tax and are partnerships or S corporations can pass through the credit to the partners and shareholders in accordance with the determination of income or distributive share of income, or as agreed by partners or shareholders.
Louisiana Repeals Corporate Tax “Throw-out” Rule
Louisiana Gov. Jon Bel Edwards signed into law H.B. 631, which repeals the state’s “throw-out rule” that requires companies to exclude from its sourcing calculation receipts from sales made into states where the company is not taxable. The law also removes the exclusion of sales of intangible property in calculating the sales factor.
Louisiana Exempts Certain Real Estate Investment Trusts from Corporate Franchise Tax
Louisiana Gov. John Bel Edwards signed into law S.B. 9, which exempts certain real estate investment trusts from the state's corporate franchise tax. The exemption applies when all of the company’s shares of common stock are owned by a tax-exempt organization.
Louisiana Extends Restrictions on Credit for Taxes Paid in another State
Louisiana Gov. Jon Bel Edwards signed into law H.B. 618, which removes the expiration date of the availability of credits for net income taxes paid in another state. The law also removes the reciprocity requirement to take a credit for taxes paid to another state.
Louisiana Establishes Gun Safety Tax Credit
Louisiana Gov. Jon Bel Edwards signed into law H.B. 247, which implements a nonrefundable income tax credit of up to $500 for the purchase of gun safety devices.
Louisiana Requires Local Tax Compliance for Film Production Tax Credit
Louisiana Gov. Jon Bell Edwards signed into law H.B. 562, which requires certification of local, state and federal tax compliance to qualify for the state’s Motion Picture Production Tax Credit.
Louisiana Establishes Income Tax Credit for Recycling Oyster Shells
Louisiana Gov. John Bel Edwards signed into law H.B. 255, which provides restaurants a refundable tax credit against corporate or personal income tax for the donation and recycling of oyster shells. The credit is $1 for every 50 pounds of oyster shell and is limited to $2,000 per claimant per year and $100,000 in total credits per calendar year. The tax credit applies to tax years beginning on or after January 1, 2024 through December 31, 2028.
Louisiana Establishes Insurance Tax Credit for “Retaliatory” Taxes
Louisiana Gov. Jon Bel Edwards signed into law H.B. 513, which establishes an insurance premium tax credit for retaliatory taxes paid by certain domestic insurers. Taxes are considered retaliatory when an out-of-state insurance company’s domicile state imposes higher taxes on an insurer that is domiciled in the domestic state.
Louisiana Expands Flow-Through Entity Income Exclusion
Louisiana Gov. Jon Bel Edwards signed into law H.B. 428, which extends to estates, trusts, and partnerships the flow-through entity income exclusion allowed to individuals. The law is applicable for tax periods beginning on or after January 1, 2023.
Maine Imposes New Payroll Tax
Maine Gov. Janet Mills signed into law L.D. 1964, which imposes a new 1 percent payroll tax to fund paid medical and family medical leave. The tax will be paid evenly by both the employer and employee.
Michigan Supreme Court Holds that State Can Count Asset Sale in Tax Base
The Michigan Supreme Court reversed a lower court and held that the sale of assets by a petroleum services company may be included in the income tax base apportionment calculation by Michigan's tax department.
Michigan Appeal Court Denies Refund to U.S. Steel Corp.
The Michigan Court of Appeals affirmed a Court of Claims decision denying U.S. Steel Corporation its claim for additional interest on a $4.5 million refund of state corporate income tax. The court ruled that interest does not begin to accrue until the taxpayer makes an affirmative claim for a refund in writing. The company argued that the state Treasury had notice of its refund claim in 2018, when the company added a subsidiary to its unitary business group. The court, however, ruled that the interest only started to accrue in 2020 after the company filed a written request for an informal conference seeking a refund.
Minnesota Tax Court Rules that Market Research Exceeds Public Law 86-272 Protections
The Minnesota Tax Court held in Uline, Inc. v. Comm'r. of Revenue that Public Law 86-272 did not protect an internet-based distribution company that engaged in opposition research by salespeople. Public Law 86-272 prohibits income taxes on out-of-state businesses that engage only in the solicitation of sales. However, the gathering of information from Minnesota customers about competitor products and sales terms that salespeople provided to non-sales personnel exceeded this protection.
Minnesota Updates PTET Guidance
The Minnesota Department of Revenue updated guidance on the state’s annual election for the pass-through entity (PTE) tax. The PTE tax allows an entity to pay a tax on behalf of their partners, members, or shareholders. The tax election is available for entity’s tax years beginning after December 31, 2020, and before December 31, 2025.
Missouri Reinstates Film Tax Credits
Missouri Gov. Mike Parson signed into law S.B. 94, which reinstates a tax credit for film and media production expenses. For tax years beginning on or after January 1, 2023, the act authorizes a tax credit equal to 20 percent of qualifying expenses associated with the production of a qualified motion media production project. The bill also includes additional credits for meeting certain production requirements.
New Hampshire Budget Eliminates Interest and Dividend Tax
New Hampshire Gov. Chris Sununu signed into law H.B. 1, budget legislation that includes a provision to eliminate the state’s tax on interest and dividend income tax as of December 31, 2024.
New Hampshire Expedites Repeal of Interest and Dividend Tax
New Hampshire Gov. Chris Sununu signed into law H.B. 2, which moves the date of repeal of the interest and dividends tax from 2027 to 2025. Under the law, the rate is reduced from 5 percent to 4 percent for 2024, to 3 percent for 2025, and phased out by the end of 2025.
New Hampshire Expands Deductions against Business Profits Tax
New Hampshire Gov. Chris Sununu signed into law S.B. 189, which ends conformity with IRC Section 163(j) by changing the definition of gross business profits in determining additions and deductions allowed under the business profits tax. The additions and deductions are equivalent to items disallowed by Section 163(j).
New Jersey Reforms Corporate Taxation
New Jersey Gov. Phil Murphy signed into law S.B. 3737/A.B. 5323, an overhaul of the state’s corporate business tax. The changes include a reduction in the state’s taxation of foreign income by increasing the global intangible low-tax income (GILTI) exclusion on profits of overseas companies from 50 percent to 95 percent. The law also imposes an economic threshold test to tax out-of-state businesses of more than 200 transactions or more than $100,000 in sales in New Jersey.
New Jersey Implements Remote Work Bill
New Jersey Gov. Phil Murphy signed into law A.B. 4694, which establishes a “convenience of the employer test” for residents of states that impose a similar test. The test provides that an employee who is not a resident of New Jersey and performs work for a New Jersey company, and that work is not required to be performed outside of New Jersey, and whose state of residence imposes an income or wage tax that requires employee compensation to be sourced to an employer’s location if the nonresident renders the personal services from an out-of-state location for the convenience of the nonresident employee and not due to the necessity of the employer, that same sourcing rule will apply to that income of the non-resident.
Ohio Implements Personal and Business Tax Cuts
Ohio Gov. Mike DeWine signed into law H.B. 33, budget legislation that implements a two-year phase-in of income tax cuts. The state will reduce the number of brackets from four to two with marginal rates of 2.75 percent for incomes over $26,050 and 3.5 percent for incomes over $100,000. The law also revises the Commercial Activity Tax (CAT) and exempt all taxable gross receipts of $3 million or less beginning in 2024 and $6 million or less beginning in 2025. It also allows residents to use the resident tax credit for pass-through entity taxes paid to other states.
Oregon Enacts R&D Tax Credit for Semiconductor Manufacturers
Oregon Gov. Tina Kotek signed into law H.B. 2009, which establishes refundable income and corporate excise tax credits for semiconductor research activities. The maximum credit amount is $4 million per taxpayer. The credit is determined largely in accordance with the IRC Section 41 tax credit.
Oregon Allows Tax Court to Take Local Income Tax Appeals
Oregon Gov. Tina Kotek signed into law H.B. 2576, which gives the Oregon Tax Court exclusive jurisdiction over issues arising under local income taxes.
Oregon Extends Pass-Through Entity Tax Credit
Oregon Gov. Tina Kotek signed into law H.B. 2083, which extends the sunset dates for the pass-through business alternative income tax and the related personal income tax credits from tax years beginning on or after January 1, 2024 to January 1, 2026.
Oregon Implements Estate Tax Exclusion for Farm, Forestry, and Fishing Businesses
Oregon Gov. Tina Kotek signed into law S.B. 498, which allows an exclusion from estate tax of up to $15 million for inherited farm, forestry, or fishing businesses.
Vermont Conforms Income and Estate Tax to Federal Law
Vermont Gov. Phil Scott signed into law H.B. 471, which conforms the state’s income tax and estate tax law to federal law in effect as of December 31, 2022 for tax years beginning on and after January 1, 2022. It also includes clarifications to the sales and use tax for alcoholic beverages.
Vermont Legislature Approves Payroll Tax
The Vermont legislature overrode Gov. Phil Scott’s veto of H.B. 217 to implement a payroll tax to fund the expansion of a child care program.
West Virginia Issues Final Rules on Pass-Through Entity Tax
The West Virginia Tax Division issued finalized rules intended to implement new state law that permits some pass-through entities to make an annual election to pay an entity-level state income tax.
Wisconsin Budget Increases R&D Credit
Wisconsin Gov. Tony Evers signed into law S.B. 70, a two-year budget that increases the refundable portion of the state’s research and development credit from 15 percent to 25 percent.
The Multistate Tax Commission (MTC) Issues Draft Proposed Rule on Taxation of Investment Partnerships
The Multistate Tax Commission (MTC) issued a draft proposed model rule on the sourcing of investment partnership income by nonresident partners. The model rule maintains that a nonresident partner’s distributive share of income is apportioned at the partnership level based on the partnership’s business activities in the state. The draft was posted for discussion and to provide greater certainty in certain fact-specific situations.
SALES AND USE TAX UPDATES
Arizona Repeals Local Transaction Privilege Taxes on Residential Property Rentals
Arizona Gov. Katie Hobbs signed into law S.B. 1131, which prohibits local taxes and fees on residential property rentals. The ban takes effect on January 1, 2025. Specifically, the Transaction Privilege Tax has been repealed and no longer due by landlords of real property rented or leased in a town, city, or other taxing jurisdiction that levies a transaction privilege tax on the business of renting or leasing real property for residential purposes.
Colorado Retail Delivery Fee Increases July 1, 2023
The Colorado Retail Delivery Fee increased from 27 cents to 28 cents, effective July 1, 2023.
Colorado Gov. Jared Polis signed into law H.B. 1017, which makes improvements to the electronic sales and use tax simplification system (SUTS). The law requires the Department of Revenue to: (1) populate a local account number of all returns and summary reports, if the retailer filing the return has a number and provides the number in SUTS; (2) develop a simplified user interface for filing returns as an alternative to the current spreadsheet method; (3) provide retailers with a bulk testing option for address files; and (4) include additional use taxes, additional information about deductions, filtering options, and certain tabs.
Fifth Circuit Affirms Federal Courts Lack Jurisdiction in Louisiana Sales Tax Challenge
The U.S. Court of Appeals for the Fifth Circuit affirmed a district court ruling that the federal court lacked jurisdiction in an online seller’s constitutional challenge to Louisiana’s sales and use tax system. The court held that the federal Tax Injunction Act divests the court of jurisdiction because Louisiana law permits challenges to Louisiana tax laws to be heard in the state Board of Tax Appeals and in state court.
Louisiana Changes Sales Tax Remittance Oversight
Louisiana Gov. Jon Bel Edwards signed into law H.B. 558, which moves management and supervision of its uniform electronic local sales tax return and remittance system to the state's Uniform Local Sales Tax Board.
Louisiana Reinstates Sales Tax Holiday on Firearms and Ammunition
Louisiana Gov. Jon Bel Edwards signed into law S.B. 56, which reinstates the state’s “Second Amendment sales tax holiday.” Sales of firearms, ammunition, and hunting supplies are exempt from sales tax through June 2025.
Louisiana Exempts Promotional Samples from Tax
Louisiana Gov. Jon Bel Edwards signed into law H.B. 127, which exempts from state excise and sales taxes certain items given free of charge as samples at conventions, trade shows, and similar events.
Louisiana Increases Excise Tax on Vapor Products and Electronic Cigarettes
Louisiana Gov. John Bel Edwards signed into law H.B.635, which increases the state’s excise tax on vapor products and electronic cigarettes from 5 cents per milliliter of nicotine solution to 15 cents per milliliter of nicotine solution, effective July 1, 2023.
Louisiana Exempts Digital Art from Sales Tax
Louisiana Gov. Jon Bel Edwards signed into law S.B. 227, which provides an exemption from state and local sales and use taxes on digital art sold in a cultural product district.
Louisiana Exempts Certain Prescription Drugs
Louisiana Gov. Jon Bel Edwards signed into law H.B. 629, which provides an exemption from state and local sales and use taxes certain prescription drugs administered by topical system in medical clinics.
Ohio Court Says Fracking Equipment Qualifies for Ohio Oil and Gas Production Exemption
The Ohio Supreme Court held that hydraulic fracturing equipment qualified for the state’s sales and use tax exemption. The equipment qualified as that used directly in the production of crude oil and natural gas.
Oklahoma Extends Tribal Tobacco Tax Agreements over Governor’s Veto
The Oklahoma legislature overrode the governor’s veto to pass S.B. 26, which extends for a year agreements that allow the state to collect half of the tax revenue from tobacco sales on tribal land.
Nevada Sales Tax Exemption for Diapers Put to Voters
Nevada Gov. Joe Lombardo signed into law S.B. 428, which puts before the state’s voters whether to exempt diapers from the state’s sales and use tax. The initiative will be voted on in the November 2024 election.
Washington Clarifies Senior Meals Tax-Free
Washington Gov. Jay Inslee signed into law H.B. 1431, which clarifies that meals furnished to tenants of senior living communities as part of their rental agreement are not subject to sales and use tax. The law takes effect July 23, 2023.
Wisconsin Increases Local Sales and Use Tax Rates for Counties and Cities classified as a “First Class City” (currently, Milwaukee County)
Wisconsin Gov. Tony Evers signed into law A.B. 245, allowing a County in which a first-class city is located and a first-class city to impose an increased local sales and use tax rate on taxable items sold or used in the county or city. Currently, a county may impose a sales and use tax rate of 0.5%. This bill allows a county to increase the rate by an additional 0.375% and also allows a first-class city to impose a sales and use tax at a rate not to exceed 2.0%. These tax rate increases are subject to approval by the voters in the county and city at a referendum. This bill effectively allows the total local tax rate to upon voter approval increase from 0.5% up to 2.875%.
The Multistate Tax Commission (MTC) Passes Joint Resolution on Digital Tax Uniformity
The Multistate Tax Commission passed a joint resolution to work toward a uniform standard for the taxation of digital goods.
PROPERTY TAX UPDATES
Connecticut Authorizes Tax Breaks for Conservation Easements
Connecticut Gov. Ned Lamont signed into law S.B. 998, which authorizes municipalities to create a property tax exemption for real property that qualifies as a greenway, is a terrestrial recreational trail that does not exceed one hundred feet in width, is the subject of a conservation easement conveyed by the owner of the land to a municipality, the state or a nonprofit land conservation organization, and to specify that a greenway trail corridor may be deemed open space land.
Delaware Requires Retail Property Reassessment at least Once Every Five Years
Delaware Gov. John Carney signed into law H.B. 62 on August 9, 2023, which requires that each county reassess the value of real property in the county at least once every five years. The first five-year period starts when the reassessment currently being conducted by each county is completed. The Act also requires that real property be assessed at its "present fair market value" instead of at its "true value in money".
Florida Appeals Court Holds that Airport Repair Property is Tax-Exempt
A Florida appeals court held that airport properties owned by the county and leased to private entities qualify for property tax exemptions because they serve a “governmental purpose.” The lessees used the properties for aircraft maintenance and repair, fueling, flight instruction, and air cargo transport.
Michigan Allows Payments In Lieu of Taxes for Renewable Energy
Michigan Gov. Gretchen Whitmer signed into law H.B. 4317 and H.B. 4318, allowing local governments and certain renewable energy facilities to opt into agreements to accept payment in lieu of taxes.
Nevada Narrows Tax Break for Real Estate Transfers
Nevada Gov. Joe Lombardo signed into law A.B. 448, which restricts a tax break for real estate transfers between affiliated business entities. The law excludes from the tax exemption property transferred “to a business entity formed for the purpose of evading the tax on transfers of real property.”
Oregon Authorizes Local Tax Exemption for Certain Residential Construction
Oregon Gov. Tina Kotek signed into law S.B. 919, which authorizes city or county to adopt five-year property tax exemption for newly constructed accessory dwelling unit, or newly converted duplex, triplex or quadplex, that is used as occupant's primary residence.
Rhode Island Implements Personal Property Tax Exemption
Rhode Island Gov. Dan McKee signed into law H.B. 5200, budget legislation that establishes a statewide tangible personal property tax exemption of $50,000. Businesses pay the state’s tangible personal property tax on property like computer equipment and office furniture. According to the Governor's office, "the legislation would completely wipe out the tangible tax for 75 percent of Rhode Island Businesses."
The Texas House and Senate approved H.B. 3, a historic legislative package aimed at reducing property taxes and simplifying franchise tax reporting requirements throughout the state. H.B. 3 also amends franchise tax provisions relating to revenue exemption and reporting requirements for small businesses. H.B. 3 will take effect only if S.B. 2 or similar legislation relating to the property tax relief becomes law. The bill has no effect if legislation relating to property tax relief is not passed.
Washington Provides Property Tax Exemption for Renewable Energy Property
Washington Gov. Jay Inslee signed into law H.B. 1756, which exempts from state property tax all qualified personal property owned by an eligible taxpayer and used for the generation of renewable energy. Taxpayers granted the exemption are subject to a production excise tax. The law is intended to support clean energy through tax changes that increase revenue to local governments, schools and impacted communities. The law takes effect on July 23, 2023.
Wisconsin Exempts Personal Property from Property Tax
Wisconsin Gov. Tony Evers signed into law A.B. 245, which provides that, beginning with the property tax assessments as of January 1, 2024, no items of personal property will be subject to the property taxes at the State or Local levels. Personal Property Tax has been exempted since January 1, 2018. However, the State continued to impose a property tax on “Public utilities, including railroad companies” and then passed along the taxes levied to each local taxing jurisdiction based on taxes levied on those items as of January 1, 2017. Specifically, this bill creates a personal property tax exemption to the property tax for railroad companies in order to comply with the requirements of the Federal Railroad Revitalization and Regulatory Reform Act.
FUELS AND EXCISE TAX UPDATES
Arizona County to Vote on Extending Transportation Tax
Arizona Gov. Katie Hobbs signed into law S.B. 1102, which allows Maricopa County voters to vote on whether to extend the county’s transportation excise tax to fund transportation projects.
Florida Fuel Rate Changes
For September 1, 2023 through December 31, 2023, the minimum statewide motor fuel tax rate will decrease from 35.225 cents per gallon to 26.325 cents per gallon. Notably, Miami-Dade County’s local option tax will decrease from 6 cents per gallon to zero cents per gallon. Miami-Dade County’s motor fuel tax rate will decrease from 39.225 cents per gallon to 30.325 cents per gallon. Miami-Dade County’s State Comprehensive Enhanced Transportation System (SCETS) rate will decrease from 8.9 cents per gallon to 6.0 cents per gallon. The inspection fee on motor fuel will remain 0.125 cents per gallon.
In addition to the 20.2 cents per gallon of state fuel taxes collected at the loading rack, terminal suppliers must collect a minimum local option fuel tax of 6 cents per gallon, a pollutants tax of 2.071 cents per gallon, and an inspection fee of 0.125 cents per gallon on each gallon of motor fuel sold to licensed wholesalers. Total fuel taxes collected by terminal suppliers on sales of motor fuel to licensed wholesalers is 28.396 cents per gallon beginning September 1, 2023.
Michigan Prepaid Fuel Sales Tax Rate Changes
The new prepaid sales tax fuel rates for September 1, 2023 through September 30, 2023 are:
• Gasoline is 18.4 cents per gallon • Diesel is 20.2 cents per gallon
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In a contentious fight that required two special sessions, the Texas House and Senate approved H.B. 3, a historic legislative package aimed at reducing property taxes and simplifying franchise tax reporting requirements throughout the state.
Tax relief has begun landing in the mailbox for Colorado taxpayers eligible for an exemption from the state’s Retail Delivery Fee, which has created hidden challenges for businesses. Colorado recently passed Senate Bill 23-143, which includes the exemption for businesses with $500,000 or less in retail sales during the prior calendar year.
