Welcome to the July 2024 issue of Weaver’s State and Local Tax Digest. This month’s digest features tax major tax reform in Georgia as well as highlights recent legislation in Tennessee related to refund opportunities for income and franchise tax. This Digest also features some major developments in sales and use tax along with excise tax updates.
INCOME AND FRANCHISE TAX UPDATES
Alabama Extends 2023 PTE Election Due Date
Alabama extended the due date for certain pass-through entities to elect to be taxed at the entity level for the 2023 tax year. The Department of Revenue will recognize elections filed using My Alabama Taxes no later than the due date of the 2023 electing pass-through entity return, including extensions. This extension applies to pass-through entities that timely filed the required entity tax return as if the election had been properly made for the year, timely made an electing pass-through entity extension payment, or made an entity-level tax payment prior to the due date of the respective return.
Tennessee Law Could Bring Franchise Tax Refunds
Recently enacted legislation in Tennessee could make taxpayers eligible for a refund of a portion of franchise taxes they paid for a tax period ending on or after March 31, 2020. HB 1893/SB 2103 repeals the “alternative minimum property measure” of the minimum tax base and requires taxpayers to calculate franchise tax using only their apportioned net worth for tax years ending on or after January 1, 2024. The bill authorizes refunds for franchise tax paid using the alternative minimum property calculation, reduced by the amount of tax that would otherwise be owed under the apportioned net worth calculation. To qualify for the credit, refund claims must be filed between May 15, and November 30, 2024.
Governor Brian Kemp signed into law tax HB 1162, updating the state’s conformity date to the Internal Revenue Code (IRC) to January 1, 2024 from January 1, 2023. The change applies to tax years beginning on or after January 1, 2023.
Georgia Reduces Corporate and Individual Income Tax Rates
Governor Brian Kemp signed into law tax reform billsHB 1023 and HB 1015. The bills bring significant changes to Georgia’s tax landscape, benefiting both individuals and corporations. HB 1023 reduces the corporate income tax rate, aligning it with the rate imposed on individuals. Meanwhile, HB 1015 lowers the individual income tax rate.
Additionally, HB 1023 includes a provision for corporations to have an extended filing period for corporate income tax returns starting in 2025. Furthermore, if certain revenue targets are met, the bills will lead to further tax rate reductions, with the aim of reaching a 4.99 percent rate by 2025. These legislative changes mark a proactive approach towards tax reform, aiming to create a more favorable environment for businesses and individuals in Georgia.
Georgia Limits Tax Credits and Exemptions
Georgia enacted HB 1181, establishing a three-year credit carryforward limit for tax credits and reducing the carryforward period for certain income tax credits to five years from 10 years. It also ends certain tax credits on December 31, 2029, including those for research fund investments; alternative fuel, low-emission and zero-emission vehicles and electric vehicle chargers; and leased motor vehicle businesses.
Iowa Moves Flat Tax to 2025
Iowa Governor Kim Reynolds recently signed Senate File 2442, which accelerates the state’s income tax cuts. Starting in 2025, Iowa’s individual income tax rate will be a flat 3.8 percent. This change comes ahead of the previously planned reduction to a 3.9 percent rate by 2026.
Oklahoma Modifies PTE Election for Pass-Throughs
Oklahoma enacted HB 3559, modifying its pass-through entity tax election method to allow entities to make the election by filing an income tax return. Previously, pass-through entities elected to pay income tax at the entity level by filing an election to do so anytime during the tax year or 2 months and 15 days after the end of the tax year.
SALES AND USE TAX UPDATES
Colorado Harmonizes Administration of Local Sales and Use Taxes
The Colorado legislature passed SB24-025, which revises, modernizes, and harmonizes the separate statutes that govern the state administration of local sales or use tax. Under the bill, the department will collect, administer, and enforce a local government sales or use tax in the same manner as it does the state sales tax.
Florida Reduces Rental Sales Taxes
Florida has announced a significant reduction in state sales tax on rental properties, effective June 1, 2024. The tax rate on rent of real property has been reduced from 4.5 percent to 2 percent. The changes also include tax implications for rental periods prior to the effective date. Notably, certain types of rentals are excluded from this reduced rate, such as short-term accommodations, parking spaces, boat docks, and aircraft storage at airports.
Louisiana Appeals Court Confirms Online Hotel Reservation Fees Not Taxable
The Louisiana Court of Appeals affirmed a trial court decision that online hotel reservation fees were not taxable under state and local tax ordinances. In Louisiana, only services defined as “sales of services” are taxable. This includes such hotel services as furnishing rooms, cottages, or cabins. The court affirmed that the online travel company was not a hotel under the law and did not provide taxable “sales of services.” The court also upheld the finding that the travel company was not a dealer responsible for remitting the taxes and did not have a fiduciary duty to remit the taxes and fees from the buyer to the taxing authorities.
Michigan Clarifies Taxation of Payment-Processing Fees
The Michigan Department of Treasury clarified that payment-processing fees are subject to sales tax. A payment processor provides a financial service for the seller for which it imposes a fee, or a “surcharge,” on the seller. That fee represents a cost or expense for which the seller is responsible and that is fairly characterized as a “service cost” or an “expense of the seller.” The fee is therefore part of the sales price and part of the tax base.
Minnesota Retail Delivery Fee to Take Effect
The Minnesota Retail Delivery fee will take effect on July 1, 2024. The 50-cent fee will apply to each transaction of $100 or more for clothing or tangible personal property subject to sales tax. The fee will not apply to retailers with Minnesota retail sales of $1,000,000 or less for the previous calendar year. The fee will also not apply to marketplace facilitators who made Minnesota retail sales of $100,000 or less during the previous calendar year. The Minnesota fee presents new compliance challenges, as seen with the Colorado “retail delivery fee” of 27 cents per delivery imposed in 2022.
Mississippi Exempts Fixed-Wing Aircraft from Sales Tax
Mississippi’s sales tax exemption for fixed-wing aircraft took effect on April 25, 2024. HB 1855 exempts sales, leases, or other retail transfers of certain fixed-wing aircraft used by certified common carriers in the transport of persons or property in interstate, intrastate, or foreign commerce. The exemption also applies to engines, accessories, and spare parts for such fixed-wing aircraft and related purposes.
“Primary Function” Test often a Key in New York Sales Tax Cases
New York tax courts rely on the "primary function" test to assess taxability, emphasizing the main purpose of a transaction over its individual components. Recent cases like Dynamic Logic and Strata Skin Sciences highlight how crucial the Primary Function test is in deciding case outcomes.
Washington Issues Exemption Guidance on Data Centers
In a recent update, the Washington Department of Revenue shed light on tax-exempt purchases for qualifying tenants in eligible data centers. Here's a breakdown of the key points shared:
Qualifying tenants defined: These are business entities primarily engaged in commercial activities for profit, leasing space from a qualifying for-profit business within an eligible computer data center.
Tax exemptions: Eligible server equipment and power infrastructure purchases are now tax-exempt for qualifying tenants, as per the new guidelines.
Documentation requirements: A taxpayer seeking data center exemption for a multi-building data center must provide detailed documentation upfront, describing all planned buildings and contents of the data center.
Construction affirmation: Taxpayers must confirm that the buildings cited in their application represent all planned structures and that no additional buildings are in consideration.
Duration clarification: The guidance emphasizes a single duration measure for data centers with multiple buildings under a single exemption certificate.
Stay informed about these guidelines to ensure compliance and maximize benefits as a qualifying tenant in Washington's data center landscape.
FUELS AND EXCISE TAX UPDATES
Treasury Recommends Enforcement Changes for Biofuel Tax Credits
A Treasury Inspector General report found that the Internal Revenue Service (IRS) has flawed enforcement procedures and limited power to combat fraud in biofuel tax credits. In a recent analysis of credit claims, the Treasury Inspector General for Tax Administration (TIGTA) concluded that the Treasury erroneously paid more than $30 million in biofuel tax credits. TIGTA also made several recommendations to improve enforcement.
California Announces Fuel Tax Rates for 2024-2025
California announced its fuel tax rates for July 1, 2024, through June 30, 2025. The excise tax on gasoline is $0.579 per gallon and the prepaid sales tax is $0.08 per gallon. The excise tax on diesel is $0.441 per gallon and the prepaid sales tax is $0.445 per gallon. The excise tax on jet fuel is $0.02 per gallon and the prepaid sales tax is $0.15 per gallon.
Colorado Reminds Taxpayers on Increase in Road Usage Fees
Colorado's Department of Revenue reminds taxpayers that, effective July 1, 2024, the Bridge and Tunnel Impact (BTI) and Road Usage (RUF) fees increase to $0.04 per gallon.
Illinois Posts Fuel Tax Rates
Illinois announced its fuel tax rates for 2024-2025, effective July 1, 2024 through June 30, 2025. The rates are as follows:
Fuel
Rate
Gasoline/gasohol
$0.470 per gallon
Diesel fuel
$0.545 per gallon
Liquefied petroleum gas (LPG)
$0.545 per gallon
Liquefied natural gas (LNG)
$0.545 per gallon
Compressed natural gas (CNG)
$0.470 per gallon
Indiana Posts Fuel Tax Rates for 2024-2025
Indiana posted its fuel tax rates for 2024-2025, effective July 1, 2024. The tax rate for gasoline will be $0.35 per gallon and the tax rate for special fuels will be $0.59 per gallon.
Maryland’s Tax System Conversion Causes Fuel Tax Return Delays
The conversion of Maryland’s tax system delayed the mailing and creation of the January-February fuel tax returns, and the Maryland Comptroller did not mail the January returns until March 22, 2024. The comptroller will abate any accrued penalty and interest from delays in the submission of the January and February fuel tax returns. Taxpayers who receive a notice of penalties and interest related to December through February period returns should email MFTReturns@marylandtaxes.gov. Once the taxpayer receives the new return pages, they should attach the worksheet and schedules to the return and mail together.
Rhode Island Requires Online Filing of Fuel Tax Returns
The Rhode Island Division of Taxation advised International Fuel Tax Agreement (IFTA) taxpayers that all returns must be filed and payments made online, beginning with the Q1, 2024 filing that is due in April. The Division of Taxation has an online portal for this purpose.
IRS Looking at Superfund Export Tax Refund Claims
The IRS is enforcing the provisions of Internal Revenue Code Section 4662(e)(3) providing which party can claim a refund of tax paid on exported taxable chemicals and what support is required for these claims. Under this section, the exporter of taxable chemicals may claim a credit or refund of the Federal Chemical Superfund Tax to the extent the original taxpayer waives its claim to the credit or refund and the exporter has proof of export. Taxpayers need to have all statutorily required documentation necessary to substantiate a claim for credit or refund of tax paid on chemicals that are exported from the United States.
In this episode of “Motor Fuels Tax Minute,” our hosts introduce Stephen Arredondo, director of property tax services, who offers insight into property tax.
California’s governor has proposed temporarily suspending NOL deductions & limiting tax credits to $5 million for the next three years to address budget shortfalls.
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