Welcome to the December issue of Weaver’s State and Local Tax Digest. This newsletter provides a roundup of recent developments in state and local taxes, including sales, income, and property taxes.
SALES TAX UPDATES
California Announces New Fee Collection Requirements for Marketplace Facilitators
California announced that a new fee collection requirement for marketplace facilitators will begin January 1, 2022. Marketplace facilitators that have registered, or are required to be registered, with the California Department of Tax and Fee Administration must collect and pay the Electronic Waste Recycling Fee, California Battery Fee, Lumber Products Assessment, and California Tire Fee. These fees are in addition to sales or use taxes. The recently passed A.B. 1402transfers the collection responsibilities to the marketplace facilitators. Marketplace sellers will no longer be responsible for collection and remittance.
New Mexico Court Rulesthat Purchaser of Assets was a Successor in Business
In High Desert Recovery, LLC v. N.M. Taxation & Revenue Dept., the New Mexico Court of Appeals held that a purchaser of the assets of a company was a successor in business and a mere continuation of the company. Therefore, the purchaser was liable for the gross receipts tax assessed against the company. The court affirmed the administrative conclusion that the purchaser became a successor in business when it “took [company’s] office equipment, liability insurance policy and tow truck to provide the same services using the same equipment with the same employees to the same customers at the same business location[.]” The court affirmed that these facts satisfy three of the eight factors under N.M. Admin. Code § 3.1.10.16(A) and weighed in favor of categorizing the purchaser as a successor in business.
Ohio Affirms Responsible Party Finding for Bar Owner
In Dunn v. Commissioner, the Ohio Board of Tax Appeals (BTA)affirmeda tax commissioner determination that a taxpayer was a responsible party for unpaid sales tax for a bar he operated with another individual through a limited liability company. The taxpayer argued that he was not in control of sales and distribution of the bar during the times in question and that his partner was the responsible party. The Commissioner rejected these arguments and reasoned that the taxpayer was listed as the CEO on the vendor's license application and the liquor permit. The Commissioner noted as evidence that the taxpayer listed himself as a responsible party on the Responsible Party Questionnaire and stated on the questionnaire that he performed the execution of the overall fiscal responsibilities, filed business tax returns, and signed business tax returns during the audit period. The Commissioner found that the petitioner was a responsible party because he was responsible for the fiscal responsibilities and filed tax returns for the business.
INCOME AND FRANCHISE TAX UPDATES
Delaware Supreme Court Invalidates State Policy on NOL Deductions
The Delaware Supreme Court held that the Division of Revenue’s policy on net operating loss (NOL) deductions exceeded its authority. The Division of Revenue’s policy is that a corporate taxpayer that filed its federal tax returns with a consolidated group is prohibited from claiming an NOL deduction in Delaware that exceeded the consolidated NOL deduction on the federal return in which it participated. The Supreme Court affirmed a state Superior Court decision that the policy violated the Uniformity Clause of Article VIII, § 1 of the Delaware Constitution, which requires that “[a]ll taxes shall be uniform upon the same class of subjects.”
Louisiana Voters Approve Amendment to Lower Maximum Individual Tax Rate
On November 13, 2021, Louisiana voters approved a constitutional amendment to lower the maximum allowable rate of individual income tax and to authorize the legislature to pass a law for a deduction for federal income taxes paid. Under the amendment, the maximum state individual income tax rate on individuals cannot exceed 4.75 percent for tax years beginning after December 21, 2021. Voters, however, rejected measures to authorize streamlined electronic filing, remittance, and collection of sales and use tax; allow certain levee districts to levy an annual tax; and increase from 5 percent to 10 percent the amount of allowable deficit reductions to statutory dedications and constitutionally protected funds.
North Carolina Ends Corporate Income Tax, Reforms Franchise Tax, and Reduces Individual Rates
On November 18, 2021, Governor Roy Cooper of North Carolina signed into lawS.B. 105, a budget bill that begins a phase-out of the corporate income tax in 2025, implements an elective pass-through entity tax as a workaround of the federal limit on state and local tax (SALT) deductions, simplifies the state’s franchise tax base, and reduces individual income tax rates and increases individual deductions. The law reduces the corporate income tax rate to 2.25 percent in 2025, 2 percent in 2026, 1 percent in 2028, and eliminates it after 2029.
Oregon Tax Court Rules Subpart F Income a “Gross Receipt” for Apportionment Purposes
On October 6, 2021, the Oregon Tax Court heldthat Subpart F income qualifies as a “gross receipt” for sales factor apportionment purposes. In reversing an earlier decision, the court determined that although Subpart F income would be excluded from the sales factor, the Oregon law creates an exception that “reincludes” gross receipts if they were “derived from the taxpayer’s primary business activity.”
Vermont Clarifies PPP Expenses
Vermont issued an update stating that it is following federal treatment for forgiven Paycheck Protection Program (PPP) loans in tax years 2020 and 2021. For both tax years, forgiven loans are not taxable in Vermont, and ordinarily deductible business expenses paid using forgiven PPP loans are deductible.
California Finalizes Regulation on Intergenerational Property Transfers
The California Board of Equalization adopted regulations clarifying the exclusion of intergenerational transfers from change in ownership provisions in the state’s constitution. The constitutional changes were adopted with the passage of Proposition 19 in 2020. The regulations address the exclusion of the transfers of principal residences or family farms between parents and children, or grandparents and grandchildren on and after February 16, 2021; the valuation of the property with a new base year value; calculating the new taxable value; and the removal of the transfer exclusion when the real property is no longer the principal residence or the family farm of an eligible transferee. The regulations are effective January 1, 2022.
Minnesota Announces Preliminary Property Tax Levies for 2022
The Minnesota Department of Revenue announced preliminary maximum property tax levies for 2022 that were reported by local governments and passed by local school referenda on November 2, 2021. For 2022, preliminary property taxes statewide will increase by 4.5 percent, or by $502.4 million. Counties use the preliminary amounts to compute parcel-specific property tax estimates for 2022.
Tennessee Tax Changes Create Regional Development Authority
Governor Bill Lee of Tennessee signed into law S.B. 8001, which creates the Megasite Authority of West Tennessee and includes the related property tax and lease changes. The law establishes a regional development authority. It also provides that any agreements between the Megasite Authority and the lessee’s of megasite property regarding payments in lieu of ad valorem taxes become a first lien that may be judicially enforced along with 10-percent per annum interest. The law specifies that when the leased property is the subject of an agreement between a lessee and a local government on payments in lieu of ad valorem taxes, the property is not assessed against the lessee for property tax purposes.
Congress Reinstates and Expands Superfund Excise Taxes
The Infrastructure Investment and Jobs Act, which President Biden signed into law on November 15, 2021, reinstates Superfund excise taxes on the sale and import of certain chemicals as part of the law’s revenue-raising provisions.
On this episode of Weaver: Beyond the Numbers, Rob Nowak, Partner in Tax Services at Weaver, discusses the bonus depreciation of business assets. “Bonus depreciation is one of the incentives that’s been around in the tax code for about 20 years,” Nowak said. “It’s an enhanced expensing election that allows taxpayers to immediately write off the cost basis of qualifying assets placed in service during a year.”