Welcome to the January 2023 issue of Weaver’s State and Local Tax Digest. As we start the New Year there are several important highlights to share including the implementation of a pass-through entity tax in Arkansas as well as the implementation of Missouri’s economic nexus law. In addition, several states have updated their fuel tax rates for the first quarter.
Arkansas adopted aruleto implement the state’s pass-through entity tax (PET) election. In 2021, the state passed a law to allow pass-through entities to elect to pay annual state income tax at the entity level for tax years beginning on or after January 1, 2022. A pass-through entity qualifies if owners with at least 50 percent of the voting rights make the PET election.
Colorado Court Holds that Return Must Include Accounts Receivables Subsidiary
The Colorado Court of Appeals held that a Colorado parent company must include its wholly-owned accounts receivables securitization subsidiary on its state-combined corporate income tax return. The court noted that more than 20% of the subsidiary’s property was located in the United States, making it an “includable C corporation” under state law.
Florida Court Affirms Cost-of-Performance Sourcing for Sale of Services
A Florida circuit court reaffirmed the state’s “cost-of-performance” standard for sourcing the sale of services. In Target Enterprise, Inc. vs. Florida Department of Revenue, Fla. Cir. Ct (2nd), No. 2021-CA-002158, the court held that a subsidiary of an online retailer provided sufficient documentation in employee payroll apportionment workpapers to show that the service receipts at issue may be sourced outside of Florida based on the “cost-of-performance” standard. In its decision, the court rejected the Department of Revenue’s apportionment methodology based on the retail square footage of the parent company’s retail stores.
Massachusetts Releases Draft Technical Information on FY 2023 Budget
Massachusetts released a draft technical information on certain provisions in the recently enacted Fiscal Year 2023 Budget. The provisions include the conformity of the personal income tax to the Internal Revenue Code as amended on January 1, 2022; the decoupling of the personal income tax from IRC Section 199A qualified business income deduction; the creation of a personal income tax exclusion for student loan forgiveness; and the repeal of an unconstitutional tax on illegal drugs.
North Carolina Updates Guidance on Pass-through Entity Tax Election
The North Carolina Department of Revenue issued an updated notice on state budget legislation enacted in 2021, which contains a provision for the state’s elective pass-through entity tax. The notice provides answers to frequently asked questions related to North Carolina’s new law. The most recently updated FAQs address whether an “Investment Partnership” can make the PTE election and if a partnership or a limited liability company (LLC) that is classified for federal income tax purposes as a partnership that does business in North Carolina as a rental real estate company can make the PTE election.
Ohio Supreme Court Holds for Taxpayer in IP Receipts Case
The Ohio Supreme Court held that the taxpayer’s intellectual property receipts may be sourced to Ohio only to the extent that they are “based on” the right to use the intellectual property in Ohio. The issue in NASCAR Holdings, Inc. v. McClain, was whether Ohio may apply its commercial-activity tax (CAT) to a portion of the revenue NASCAR derived from nationwide licensing of the rights to use its intellectual property. The relevant statute allows Ohio to tax NASCAR’s receipts from the rights to use its intellectual property “to the extent the receipts are based on the right to use the property in” Ohio. The Court interpreted this law to conclude that most of the tax assessment was unlawful.
Washington Supreme Court Grants State’s Motion to Stay Capital Gains Tax Ruling
The Washington Supreme Court granted the state’s motion to stay a trial court ruling that Washington’s 7 percent tax on long-term capital gains on the sale or exchange of certain capital assets was unconstitutional and invalid as an “income tax” under state law rather than an “excise tax.” In the case, Quinn v. Washington, the plaintiffs argued that the state’s capital gains tax is unconstitutional because it is an income tax and income is property that must be taxed at a uniform rate. Washington argued that the capital gains tax is an excise tax.
SALES AND USE TAX UPDATES
Colorado Issues Revised Guidance on Tax Treatment of Aircraft Sales
The Colorado Department of Revenueissued revised guidance on the sales and use tax treatment of aircraft. Under certain circumstances, sales of aircraft and aircraft parts are exempt from sales and use taxes. The publication provides that exempt aircraft parts may include, but are not limited to, fuselage parts, parts for the aircraft’s engine(s), and seats permanently affixed to the aircraft. An aircraft purchased for use in interstate commerce by a commercial airline is tax exempt, and the sale of a new or used aircraft to nonresidents of Colorado for use outside of Colorado is exempt under certain circumstances. For leased aircraft, a lessor of an aircraft must collect all state and local taxes from the lessee on all payments made pursuant to the lease if the lease is for a term of greater than 36 months. Lastly, qualifying farm equipment is exempt from state and state-administered special district sales and use taxes, and an aircraft that is designed or adapted for agricultural use may be qualifying farm equipment.
Missouri’s economic nexus law took effect January 1, 2023. Remote sellers or marketplace facilitator that sell tangible personal property into Missouri in excess of $100,000 must collect and remit the vendor’s use tax on the retail sale. Missouri has also published a frequently asked questions (FAQ) document for remote sellers and marketplace facilitators.
As of January 1, 2023, the Office of State Tax Commissioner will no longer mail paper return forms for sales and use, lodging and restaurant, and prepaid wireless 911 fee tax returns. Taxpayers are to file and pay tax returns using the state’s online portal.
Texas Comptroller Rules that Medical Record Fees are Not Taxable
The Texas Comptroller issued a private letter ruling that the taxpayer’s custodian and authorization fees for the retrieval of medical records pursuant to pending litigation are not taxable. Texas imposes a sales tax on the sale of tangible personal property and taxable services. The taxpayer invoices to customers may include three types of charges for medical records: custodian, authorization, and copy fees. The copy fees are taxable data processing services, while the taxpayer’s custodian and authorization fees are not taxable.
Washington Amends Sales and Use Tax Regulations
The Washington Department of Revenue (DOR) amended a regulation on the sourcing of sales of tangible personal property, retail services, extended warranties, digital products, digital codes, and leases of tangible personal property. The amendment incorporates existing provisions for sourcing sales of tangible personal property, incorporates provisions and examples on the department’s existing historical policies for use tax sourcing, reorganizes and reformats current standards, clarifies existing provisions and examples in the rule to ensure the department’s existing historical policies are clearly represented, retitles the rule to better represent the content and scope of the rule, and clarifies or incorporates any other relevant or related information based on external stakeholder comments. The amendment is effective January 9, 2023.
PROPERTY TAX UPDATES
Iowa Business Tax Portal Goes Online
Iowa’s GovConnectIowa is now effective. The online portal allows business taxpayers to manage their business tax accounts in one location. This includes filing sales, use, withholding, and fuel tax returns, making payments, and viewing letters from the department.
Maine’s Tax Portal Goes Online
The Maine Tax Portal is now online. The portal integrates all the tax types administered by Maine Revenue Services into a single system for online filing. This expands the online functions that facilitate the taxpayer’s and practitioner’s ability to conduct business electronically with Maine Revenue Services. The system will be implemented over a four-year period in four rollouts, each of which will involve a subset of taxes and programs.
FUELS AND EXCISE TAX UPDATES
A number of states have updated their motor fuel tax rates and related fees effective in the first quarter of 2023. Weaver will monitor these actions and update this post regularly throughout the quarter.
Delaware Reduces Hazardous Substance Cleanup Tax
Delaware’s Hazardous Substance Cleanup Act rate was reduced from 1.675 percent to 0.8389 percent, effective January 1, 2023.
Florida Posts Motor Fuel Rates for 2023
Florida’s motor fuel tax on gasoline is $0.35225 per gallon (up from $0.33425 per gallon) and the motor fuel tax on diesel is $0.361 per gallon, (up from $0.343 per gallon) effective January 1, 2023.
Georgia Posts Retail Prices to Calculate Fuel Tax and Sets New Fuel Tax Rates
Georgia posted the average retail prices on which the calculation of the prepaid local tax on fuel is based. For the first half of 2023, the average retail prices of gasoline, diesel, aviation gasoline and special fuel (including CNG) is $3.00 per gallon. LPG is $2.992 per gallon.
Georgia Posts Fuel Tax Rates
Georgia posted its fuel tax rates for calendar year 2023. The new rates take effect once the excise tax comes into effect on January 11, 2023:
Gasoline: $0.312 per gallon (up from $0.291 per gallon)
Diesel: $0.350 per gallon (up from $0.326 per gallon)
Aviation Gasoline: $0.010 per gallon (unchanged)
LPG: $0.312 per gallon (up from $0.291 per gallon)
CNG: $0.312 per gallon (up from $0.291 per gallon)
Illinois Posts Fuel Taxes
Illinois set its prepaid sales tax on fuel for the first quarter of 2023 at $0.23 per gallon for all motor fuels, including, gasoline, gasohol, and biodiesel blends between 1 percent and 10 percent. This rate is unchanged from the second quarter of 2022.
The Illinois Motor Fuel Tax rates from January 1, 2023, through June 30, 2023 are as follows:
Diesel: $0.498 per gallon (up from $0.467 per gallon)
Gasoline: $0.423 per gallon (up from $0.392 per gallon)
LPG: $0.498 per gallon (up from $0.467 per gallon)
LNG: $0.498 per gallon (up from $0.467 per gallon)
CNG: $0.423 per gallon (up from $0.392 per gallon)
Massachusetts Sets 1Q Fuel Tax Rates
Massachusetts set its fuel tax rates for the first quarter of 2023 as follows:
Gasoline: $0.24 per gallon (unchanged)
Diesel: $0.24 per gallon (unchanged)
Jet fuel: $0.173 per gallon (down from $0.234 per gallon)
Aviation gasoline: $0.382 per gallon (down from $0.436 per gallon)
LPG and propane: $0.292 per gallon (up from $0.285 per gallon)
Michigan Issues Fuel Tax Rates
Michigan issued fuel tax rates that are effective January 1, 2023.
The inflation-adjusted tax rate imposed on motor fuel under the MFTA for the tax period beginning January 1, 2023, through December 31, 2023, is 28.6 cents-per-gallon (the prior year rate of 27.2 cents per gallon x 1.05 = 28.6 cents per gallon).
The tax rate applicable to alternative fuel under the MFTA is also 28.6 cents-per-gallon (or per gallon equivalent) for the tax period beginning January 1, 2023, through December 31, 2023.
The fuel tax rates under MCL 207.212(6) for motor carriers licensed or otherwise subject to the International Fuel Tax Agreement is 28.6 cents per gallon (or gallon equivalent) of motor fuel and alternative fuel for the tax period beginning January 1, 2023, through December 31, 2023.
Nebraska Sets Fuel Tax Rates For First Half of 2023
Nebraska set its fuel tax rates for January to June 2023 at $0.29 per gallon for gasoline, gasohol, diesel, ethanol and compressed gas (this is up from $0.248 per gallon). There is no change to the rates for aviation gasoline and jet fuel.
New Jersey Sets Petrol Products Gross Receipts Tax
New Jersey’s petroleum products gross receipts tax rates for Q1 2023 are unchanged as follows:
Gasoline: $0.309 per gallon
LPG: $0.309 per gallon
Diesel: $0.349 per gallon
Fuel oil: $0.124 per gallon
Aviation fuel: $0.04 per gallon
Other: 7 percent of gross receipts
New York Sets Motor Fuel Tax Rates
New York’s motor fuel tax rates, effective January 1, 2023, are unchanged. The gasoline tax remains $0.0805 per gallon. The diesel tax remains $0.08 per gallon. The petroleum business tax on other motor fuel products increased, effective January 1, 2023, as follows:
Motor Fuel: $0.181 per gallon (up from $0.173 per gallon)
Diesel: $0.1635 per gallon (up from $0.1555 per gallon)
Jet Fuel: $0.073 per gallon (up from $0.07 per gallon)
North Carolina Increases Fuel Tax Rates for 2023
North Carolina increased its motor and alternative fuels tax rates from 38.5 cents to 40.5 cents per gallon for January 1, 2023 through December 31, 2023. The inspection tax will remain at .0025 cents per gallon.
Ohio Sets 1Q Prices for Petroleum Activity Tax
Ohio set the average wholesale prices of fuel for determining the Petroleum Activity Tax (PAT) for the first quarter of 2023 as follows:
Gasoline: $2.813 per gallon with a tax rate of $0.0182845 per gallon
Diesel: $3.821 per gallon with a tax rate of $0.0248365 per gallon
Propane: $1.086 per gallon with a tax rate of $0.007059 per gallon
Pennsylvania Issues Motor & Alternative Fuels Tax Rates
Pennsylvaniasetits motor fuels tax rates as follows:
Gasoline: $0.611 per gallon (up from $0.576 per gallon)
Diesel: $0.785 per gallon (up from $0.742 per gallon)
Aviation Fuel: $0.06 per gallon (unchanged from 2022)
Jet Fuel: $0.02 per gallon (unchanged from 2022)
For alternative fuels, the tax rates will be as follows:
Ethanol: $0.408 per gallon (up from $0.384 per gallon)
Methanol: $0.306 per gallon (up from $0.289 per gallon)
LPG/Propane: $0.451 per gallon (up from $0.425 per gallon)
E-85: $0.438 per gallon (up from $0.413 per gallon)
M-85: $0.352 per gallon (up from $0.332 per gallon)
CNG & Hydrogen: $0.611 per gallon (up from $0.576 per gallon)
West Virginia Sets 2023 Motor Fuel Tax Rate
West Virginiasetits motor fuel tax rate for calendar year 2023 at $0.372 per gallon, up from $0.357 per gallon in 2022. The rate includes a flat rate of $0.205 per gallon as well as a variable rate based on the average wholesale price of the fuel. For CNG, the tax rate is $2.239 per 1,000 cubic feet (or $0.284 per 126.67 cubic feet when converted to gasoline gallon equivalent). For LNG, the tax rate is $0.183 per gallon. For LPG, the tax rate is $0.210 per gallon.
For information or assistance in complying with these requirements, contact us. We are here to help.
Doubling of R&D Tax Credit Can Mean More Cash for Technology Companies and Startups
Qualified new businesses and startups, including technology companies, may be eligible to elect to apply the R&D tax credit against their payroll taxes for up to five years, saving them up to $2,500,000 in payroll taxes.
Advanced Manufacturing Production Credit Supports Production of Renewable Energy Technology
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.
