Welcome to the June 2022 issue of Weaver’s State and Local Tax Digest. In this month’s highlights, additional states continue with tax cut legislation and Colorado imposes a new “retail delivery fee.”
INCOME AND FRANCHISE TAX UPDATES
Connecticut Enacts Jobs Tax Incentives
Connecticut Gov. Ned Lamont signed into law H.B. 5506, which includes the JobsCT tax rebate program under which companies can earn tax rebates reaching certain job creation targets.
Colorado Enacts Temporary Refunds
Colorado Gov. Jared Polis signed into law S.B. 233, which provides a refund of excess state revenues for state fiscal year 2021-2022. The law requires a refund to qualified individuals in an identical amount if the amount of excess state revenues exceeds a projected amount on or before September 30, 2022. Qualified individuals are people at least 18 years old that are residents of the state for the entire income tax year beginning January 1, 2021.
Massachusetts Supreme Court Finds State Lacks Authority to Tax Out-of-State Company’s Gains
The Massachusetts Supreme Judicial Court ruled in VAS Holdings & Invs., LLC v. Comm’r of Revenue, Mass. that the Massachusetts Commissioner of Revenue lacked statutory authority to deviate from the “unitary business principle” in taxing an out-of-state company and its nonresident shareholders on gains from the sale of its 50% interest in an in-state company. The Court, however, ruled that the state had the constitutional authority to tax the gains. The court’s constitutional finding allows the state legislature to amend the statute to expand the Commissioner’s authority. Other states could also follow the ruling in making similar changes.
New Mexico Issues Guidance on Estimated Payments for Pass-Through Entities
New Mexico issued guidance on the estimated payments requirement for pass-through entities that elect to file the entity-level tax. The guidance notes that the New Mexico Taxation and Revenue Department will only require these entities to submit the pass-through entity withholding payment on an annual basis. The due date to file the 2022 entity level tax return is the same as the due date of the entity’s 2022 federal partnership or S corporation return.
Oklahoma Enacts Full Expensing and Bonus Depreciation
Oklahoma Gov. Kevin Stitt signed into law H.B. 3418, which conforms the Oklahoma tax code with IRC Section 179 and IRC Section 168. The bill allows taxpayers to immediately and fully expense qualifying property under IRC Section 179 for taxable years beginning after December 31, 2021. Taxpayers may also receive a 100% bonus depreciation deduction for property eligible under IRC Section 168 in the same tax year that the asset is placed in service.
Oregon Opens PTE Registration
Registration for Oregon’s elective pass-through entity (PTE) tax opened June 6, 2022. Qualifying S corporations and partnerships that expect to file the PTE tax must first register through Revenue Online with their current Revenue Online login and password, or a valid email address to create a Revenue Online account. Registration does not mean the business is making the election. A taxpayer makes the election to pay the PTE tax when the return is timely filed.
Texas Comptroller Proposes Amendments to R&D Credit/Exemption Rules
The Texas Comptroller issued proposed rule changes to the franchise tax R&D activities credit and the sales and use tax R&D exemption. The proposed changes include amending the definition of “Internal Revenue Code” to expand the federal Treasury Regulations to the 2011 federal income tax year, and eliminating software examples and carryforwards when the membership of a combined group changes.
Vermont Revises Corporate Income Tax Laws
Vermont Gov. Phil Scott signed into law S53, which makes several changes to the state’s corporate income tax laws. The changes include implementing a “single sales factor” apportionment for taxable C corporations; moving Vermont to the Finnigan method of applying jurisdiction to the income of member-corporations within a unitary combined filing group. The law also reduces the state’s minimum corporate income from $300 to $100 but raises tax for businesses with revenue of $300 million or more to $100,000. The changes apply to tax years beginning on and after January 1, 2023.
PROPERTY TAX UPDATES
Colorado Legislature Passes Credit Calculation Change for Severance Tax
The Colorado legislature passed H.B. 1391, which changes the calculation of the ad valorem tax credit against the state’s oil and gas severance tax. The change applies to taxable years beginning on or after January 1, 2025, and is intended to simplify the credit calculation for ad valorem taxes on a per-well basis.
Georgia Enacts Property Tax Exemption on Timber Equipment
Georgia Gov. Brian Kemp signed into law H.B. 997, which provides a state-wide exemption from all ad valorem taxes for timber equipment and timber products held by timber producers. The exemption applies to taxable years beginning on and after January 1, 2023.
Maine Revenue Services Proposes Changes to Real Estate Transfer Tax
Maine Revenue Services proposed to repeal and replace Rule 207 on the application of the real estate transfer tax to the transfer or acquisition of a controlling interest in an entity that owns real property in Maine. The proposal would provide more narrative explanations in place of examples.
New Mexico Extends Property Tax Deadline for San Miguel County
The New Mexico Taxation and Revenue Department extended the property tax deadline in San Miguel County for three months in response to the wildfire emergency. Payment of the second half of 2021 taxes due on April 10 are now due on July 11 and are considered delinquent after August 11. New Mexico provided a similar extension for taxpayers in Mora County.
SALES AND USE TAX UPDATES
Colorado Imposes New Retail Delivery Fee as of July 1, 2022
Colorado has implemented a new “retail delivery fee,” which is a tax of $0.27 per delivery of a taxable product. The fee, effective July 1, 2022, is imposed on the product purchaser but will require retail sellers and marketplace facilitators to collect and remit the tax.
Kansas Gov. Laura Kelly signed into law H.B. 2106, which phases out the state sales tax on food. The bill reduces the state sales and use tax on food and food ingredients from 6.5 percent to 4 percent on January 1, 2023, to 2 percent on January 1, 2024, and eliminates the tax on January 1, 2025.
Louisiana Enacts Local Sales Tax Interest Rate Equalization for Refunds and Taxes Due
Louisiana Gov. John Bel Edwards signed into law S.B. 242, which effectively equalizes the interests rates applied to Louisiana local sales and use taxes; paid under protest, due, and refunds of overpayments.
Maryland Enacts Sales Tax Exclusions for Digital Products
The Maryland legislature enacted S.B. 723, which excludes from the definition of taxable “digital product” certain computer software products and certain products in which the purchaser has a property interest. The legislation becomes effective July 1, 2022.
Pennsylvania DOR Adds NFTs to List of Taxable Digital Products
Pennsylvania’s Department of Revenue released a periodic update to the state’s list of taxable and exempt property under the sales and use tax law that added the transfer of digital products, which include non-fungible tokens, to the list of taxable property.
FUELS AND EXCISE TAX UPDATES
Fifth Circuit Denies Rehearing on Oil Spill Liability Tax Case
On May 23, 2022, the Fifth Circuit Court of Appeals denied the government’s request to rehear Trafigura Trading, LLC v. U.S (5th Cir. No. 21-20127 (March 24, 2022)) with a full panel. The Fifth Circuit in March found the federal oil spill tax under IRC Section 4611(b) unconstitutional when imposed on exports of crude oil from the United States.
Illinois Gov. J. B. Pritzker signed into law S.B. 3685, which allows tax-free sales of dyed diesel fuel for non-highway purposes for sales made by a licensed distributor to an end user of the fuel who is not a licensed distributor.
Kentucky and Georgia Continue Fuel Excise Tax Suspension
Kentucky Gov. Andy Beshear issued an emergency administrative regulation to prevent a July increase of 2 cents-per-gallon in the state’s fuel taxes. The regulation prevents an increase in the gas tax from 26 cents-per-gallon to 28 cents-per-gallon and the diesel tax from 23 cents-per-gallon to 25 cents-per-gallon.
Georgia Gov. Brian P. Kemp extended the states suspension of the motor fuel excise tax through July 14, 2022. Kemp signed legislation in March that suspended the collection of the tax through May 31, 2022.
New York Updates Publication on Fuel Sales Tax Changes
The New York Department of Taxation and Finance updated Publication 718-F (Local Sales and Use Tax Rates on Qualified Motor Fuel, Highway Diesel Motor Fuel, and B20 Biodiesel) to list the localities that changed their method of computing local sales tax on fuels to a cents-per-gallon method beginning June 1, 2022. The changes applies to motor fuel, highway diesel motor fuel, and B20 biodiesel sold as qualified fuel. Sales and use taxes on motor fuel and highway diesel motor fuel are suspended from June 1, 2022 through December 31, 2022.
For information or assistance in complying with these requirements, contact us. We are here to help.
Texas Supreme Court Rules that Receipts from Services are Sourced to Location of Equipment
The Texas Supreme Court ruled in Sirius XM Radio, Inc., v. Hegar, No. 20-0462 that the apportionment of receipts from services under Tex. Tax Code § 171.103(a) must be determined through “origin-based” rather than “destination-based” sourcing.
New York Tax Cut Legislation Expands SALT Cap Workaround and Extends PTET Election Deadline by Six Months
New York is the latest state to provide tax reductions to business and individual taxpayers. New York’s recently passed $221 billion Fiscal Year 2023 budget expands the benefits of the state’s workaround of the $10,000 federal cap on state and local tax (SALT) deductions and provides a number of tax breaks for both individuals and businesses.
New York and California to Expand Taxation of Out-of-State Internet Activities
Following a recent Technical Memorandum issued in California, New York has issued a proposed rule to adopt parts of the Multistate Tax Commission’s (MTC) updated statement on P.L. 86-272, which was updated in 2021 to reflect the impact of e-commerce. P.L. 86-272 limits the ability of state and local governments to tax the net income of out-of-state businesses on income derived within the state.