Welcome to the December 2022 issue of Weaver’s State and Local Tax Digest. This month’s digest highlights ballot initiatives across the country, including the reduction of corporate tax rates in Colorado and the fuels tax increase in Florida. Additionally, the Dallas County Appraisal District continues to battle a ransomware attack and Indiana has ruled that some virtual items are not subject to sales or use tax.
INCOME AND FRANCHISE TAX UPDATES
Colorado Voters Approve Tax Reduction
Colorado voters approvedProposition 121, which reduces individual and corporate tax rates from 4.55 percent to 4.40 percent. The reduction is retroactive to January 1, 2022. Colorado voters also approvedProposition FF, which limits allowable deduction amounts to $12,000 for itemized or standardized deductions, or $16,000 for joint filers, for taxpayers with federal taxable income of $300,000 or more. This lowers the income threshold for the deduction limitation from the current $400,000.
California Voters Reject Additional Tax on High Earners
California voters rejectedProposition 30, which would have imposed an additional tax of 1.75 percent tax on the share of annual income that exceeds $2 million. Revenue from the new tax would have gone to programs to support “zero-emission vehicle” purchases and wildfire response and prevention activities.
Massachusetts Voters Approve Additional Tax on High Earners
Massachusetts voters approved Question 1, which will impose an additional 4 percent tax on income amounts that exceed $1 million. The tax is on top of the state’s current income tax rate of 5 percent. The threshold amount is to be adjusted annually for inflation. The tax applies to tax years beginning on or after January 1, 2023 and is intended to “provide the resources for quality public education and affordable public colleges and universities, and for the repair and maintenance of roads, bridges and public transportation…”
Texas Court Upholds Sirius XM Cost Analysis
A Texas appellate court ruled that Sirius XM’s “cost-of-performance” analysis was sufficient to support its sourcing of services “performed in this state.” The Comptroller had argued that the company could not rely on cost-of-performance data to apportion the fair value of its services. In 2021, the Texas Supreme Court ruled in Sirius XM Radio, Inc., v. Hegar, No. 20-0462 that tax apportionment for receipts from services is based on “where the taxpayer’s personnel or equipment is physically doing useful work for the customer.” The issue of whether Sirius XM’s cost-of-performance methodology for determining the fair value of its Texas services was remanded to the court of appeals.
SALES AND USE TAX UPDATES
Indiana Rules Streaming Video Sales Not Subject to Sales Tax
The Indiana Department of Revenue issued a revenue ruling on the sales and use taxability of digital goods. A streaming video service sought an opinion on whether its sales of virtual items were sales of specified digital products or digital codes subject to sales and use tax. The Department of Revenue ruled that the taxpayer’s sale of virtual items was not subject to tax. The Department reasoned that buyers did not receive specified taxable products through the sale of the digital codes. Thus, the virtual items were not the sale of specific digital products or digital codes and were not subject to sales and use tax.
Utah Proposes Amendment on Taxation of Custom Software
The Utah State Tax Commission issued a proposed amendment to the rule on the taxation of custom software. The proposed rule clarifies that the sale, rental, or lease of custom computer software constitutes a sale of personal services that is not subject to the sales and use tax.
PROPERTY TAX UPDATES
Oklahoma Supreme Court Holds PTCs Cannot be used for Fair Value of Wind Farm
The Oklahoma Supreme Court held that production tax credits (PTCs) used to finance construction of a wind farm are intangible personal property and cannot be used to determine the fair cash value of the property. The property owner protested a county property value assessment that included the PTC in the property’s value. In affirming the district court ruling, the court held that “PTCs are intangible personal property exempt from ad valorem taxation—even if they have both tangible and intangible aspects.”
Ransomware Attack on Dallas County, Texas Appraisal District
The Dallas Central Appraisal District website has been subject to a ransomware attack that has kept the website down since early November. The appraisal district disclosed the attack on November 8. The appraisal district sets property values and determines property taxes in Dallas County and issues homestead exemptions. The office is unable to process homestead exemptions online during the attack. Property owners can still pay property taxes to Dallas County tax office.
Virginia Tax Commissioner Finds Department Lacked Jurisdiction for Appeal
The Virginia Tax Commissioner ruled that the Virginia Department of Taxation lacked jurisdiction to address the taxpayer’s appeal of a property tax assessments because the taxpayer did not file the appeal within 90 days of the issuance of county’s final local determination. Virginia law allows taxpayers 90 days to appeal local business tax assessments. The taxpayer asserted that the Department of Taxation had jurisdiction because the county’s final local determination did not address one of the issues set forth in its local appeal. The taxpayer also asserted that subsequent to issuing its final local determination, the county entered into negotiations with the Taxpayer which nullified the final local determination, requiring the County to issue a new final local determination. The Virginia Tax Commissioner rejected these arguments and found that the taxpayer was required to file an appeal within 90 days of the final local determination.
FUELS AND EXCISE TAX UPDATES
Florida Increases Fuel Tax Rates
Florida increased statewide tax rates on motor fuel, diesel fuel, and the minimum local option tax on motor fuel collected at fuel terminals, effective January 1, 2023.
Motor Fuel
The tax rate on motor fuel will increase from 19 cents per gallon to 20.2 cents per gallon;
The State Comprehensive Enhanced Transportation System rate will increase from 8.3 cents per gallon to 8.6 cents per gallon;
The inspection fee on motor fuel will remain 0.125 cents per gallon.
Diesel Fuel
The state tax rate on diesel fuel will increase from 19 cents per gallon to 20.2 cents per gallon;
The county tax rate on diesel fuel will increase from 15.3 cents per gallon to 15.9 cents per gallon statewide;
The total state and county rates on diesel fuel will increase from 34.3 cents per gallon to 36.1 cents per gallon statewide.
Aviation Fuel
The state tax rate on aviation fuel is 4.27 cents per gallon.
Fuel Taxes Collected at Fuel Terminals
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 14.9 cents per gallon;
A pollutants tax of 2.071 cents per gallon;
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 37.296 cents per gallon. Terminal suppliers and wholesalers must remit the local option tax rate above the minimum on motor fuel sold to retail dealers or end users that do not have a wholesaler or terminal supplier license. This rate is in addition to the minimum local option tax of 14.9 cents per gallon collected by terminal suppliers when fuel is removed from a licensed terminal.
Missouri Governor Signs Legislation Extending and Enacting Agricultural Tax Credits
Missouri Governor Michael L. Parson has signed legislation extending the expiration dates for the Wood Energy Tax Credit, the Meat Processing Facility Investment Tax Credit, the Agricultural Product Utilization Contributor Tax Credit, the New Generation Cooperative Incentive Tax Credit, and the Rolling Stock Tax Credit. The legislation enacts tax credits for retailers and distributors of higher ethanol blend fuels; retail dealers of biodiesel blends; biodiesel producers; taxpayers who establish or improve urban farm operations; and lenders participating in the loan program under the Specialty Agricultural Crops Act. The legislation also exempts utility vehicles for agriculture use from state and local sales and use taxes and modifies the definition of "local log truck" and "local log truck tractor" for sales tax purposes.
On July 1, 2022, Colorado rolled out its new Retail Delivery Fee to help offset the rising cost of highway and bridge maintenance throughout the state. The tax amounts to a $.27 fee on each sale of taxable tangible goods delivered to in-state residents by way of motor vehicle.
2022 Year-End Tax Planning Strategies for Individuals
Relatively minor changes to the tax law were made in 2022 via passage of the Inflation Reduction Act. With the Republicans now in control of the House of Representatives, it is unlikely that there will be significant tax law changes in 2023. Thus, traditional year-end tax planning strategies apply for 2022 and include: projecting the amount of tax due for 2022; funding retirement plans; making charitable contributions; making annual exclusion gifts; funding a health savings account; tax loss harvesting; investing in a Qualified Opportunity Fund; determining the impact of the excess business loss limitation; withdrawing a Required Minimum Distribution; and creating an online account with the Internal Revenue Service.