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2019 Mid-Year State and Local Tax Update

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Rödl & Partner Tax Matters Vol 2019 – 6, published in July 2019

 

Tax changes at the state and locallevel have continued their feverish pace from 2018 into 2019.  

Following is a summary of changes most likely to impact Rödl & Partner clients. Prior updates have summarized the updates by state. Beginning with this newsletter, we are now separating the updates by Sales Tax or Income Tax, then by state within each category. Also note that many states have passed legislation or released administrative guidance on how various areas of Tax Reform apply to the state. In an effort to keep this newsletter focused on non-tax reform changes, these updates are not available in this communication.  If you have questions about how certain aspects of tax reform are treated in any state, please speak with your Rödl & Partner advisor.


SALES TAX

 

Alabama

The Alabama Supreme Court recently ruled that the state's sales tax law does not distinguish between prewritten ("canned") and custom software – both are taxable in the state. The court did distinguish between the purchase of software, which is taxable, and nontaxable services, including modifying or configuring existing software to meet the needs of the taxpayer.  In the case before the court, a hospital had purchased prewritten software and paid the software vendor for custom development and configuration after the initial purchase.  After paying sales tax on all of these purchases, the hospital filed for a refund on taxes paid for the custom development and configuration. The refund was denied, and the hospital initiated suit.  In its ruling, the court stated that any modifications or configurations to meet the hospital's needs would be nontaxable if separately stated on the invoice. Since the configuration and custom development were included in one invoice amount, the entire amount was taxable.  The hospital was not due any refund on the purchase of software (Ex Parte Russell County Community Hospital, LLC d/b/a Jack Hughston Memorial Hospital v. State Department of Revenue).


Arizona

Arizona has now adopted "Wayfair" economic nexus laws.  Effective October 1, 2019, remote sellers with gross receipts in Arizona of $200,000 for the calendar year 2019 are required to collect and remit sales tax.  The sales threshold is decreased in 2020 to $150,000 and to $100,000 in 2021 and after.

 

In addition, Arizona adopted marketplace facilitator laws that require marketplaces to conform to the sales tax collection requirements if sales to AZ customers exceed $100,000 of gross proceeds of sales or gross income.


California

California legislation has increased the sales threshold for remote sellers to collect and remit sales tax from $100,000 to $500,000 effective April 1, 2019.  The 200 transaction threshold has been removed.  Remote sellers that registered under the lower threshold can call the CDTFA and close their sales tax account after all collected tax has been paid. 

Additional guidance can be found at https://www.cdtfa.ca.gov/industry/wayfair.htm.


Connecticut

Connecticut lowered its "Wayfair" threshold from $250,000 in sales to $100,000 in sales effective July 1, 2019.  The number of transaction threshold of 200 remains the same.   Taxpayers previously not registering for sales tax in the state because of not meeting this threshold should check sales to CT customers from 7/1/2018 through 6/30/2019 to see if registration and collection is now required.

 

Additionally, CT has expanded the definition of tangible personal property to include digital goods and prewritten or "canned" software that is digitally downloaded or accessed.  Exclusions apply when the software is purchased by a business for use by the business. (CT House Bill 7424).  This change is effective October 1, 2019.


Georgia

Georgia has reduced the sales threshold for remote sellers to collect and remit sales tax.  The current sales threshold is $250,000 in sales or 200 or more transactions in the state.  Effective January 1, 2020, the threshold is reduced to $100,000 and the 200 transaction threshold is eliminated.

 

Hawaii

Hawaii's new marketplace facilitator laws treat facilitators as the retailer of goods and services.  Sellers in the marketplace are considered to be wholesalers under the law effective January 1, 2020.


Idaho

Idaho has adopted new economic nexus ("Wayfair") laws effective June 1, 2019 with sales threshold of $100,000 based on gross receipts.  The law also applies to marketplace facilitators. 

 

Illinois

Marketplace facilitators are required to collect and remit sales tax ("retailer's occupation tax" in IL) if sales in the state exceed $100,000 or 200 or more transactions.  These laws are effective January 1, 2020.

 

Additionally, the manufacturing exemption for sales tax has been extended to include materials incorporated into real property that become part of the manufacturing process and certain production supplies that were previously taxed.  Additional details can be found at https://www2.illinois.gov/rev/research/publications/bulletins/Documents/2019/FY2019-28.pdf.

 

The Department of Revenue is authorized to hold a tax amnesty program from October 1, 2019 through November 15, 2019. 

If you or your business has unpaid Illinois tax liabilities, please contact your Rödl & Partner advisor to see you can benefit from the upcoming amnesty program.


Indiana

Marketplace facilitators are required to collect and remit sales tax if sales in the state exceed $100,000 or 200 or more transactions.  These laws are effective July 1, 2019.

 

Kentucky

 

As part of wide-ranging tax changes, Kentucky has enacted the following changes to transactional taxes:

 

For sales tax, the term "marketplace facilitator" has been changed to "marketplace provider". 

A marketplace provider makes retail sales on its own behalf or facilitates retail sales of tangible personal property, digital property or services that are delivered either physically or electronically to a Kentucky purchaser for at least one marketplace retailer in any combination of sales exceeding $100,000 or 200 or more separate transactions in the preceding year or current calendar year.  Marketplace providers much register and collect sales tax on behalf of their retailers; marketplace retailers are relieved of all sales tax on sales facilitated by the marketplace provider. 


Services which became taxable under KY's prior year tax reform legislation can be exempt under the resale provisions. Additionally, the law allows a $6,000 de minimis threshold before such services become taxable.

Video streaming services are subject to telecommunications tax. "Video streaming services" means programming that streams live events, movies, syndicated and television programming or other audio-visual content over the Internet for viewing on a television or other electronic device without regard to a particular viewing schedule. 


Louisiana

Remote sellers can collect sales tax of 8.45% in lieu of the actual tax based on location of the customer.  For taxes overpa​id in 2018, sellers can request a refund on or after July 1, 2019.  The state's guidance can be found at ​http://revenue.louisiana.gov/LawsPolicies/.

Additionally, the state now has a voluntary disclosure program ("VDA") for local sales tax in the state. Applications are located at https://www.laota.com/documents/Voluntary_Disclosure_Agreement.pdf.


Maryland

Maryland has enacted marketplace facilitator laws effective October 1, 2019.  Marketplace facilitators selling into the state are required to collect and remit sales tax if sales into the state exceed $100,000 or 200 or more transactions.  Waivers are available in certain situations.

 

Nebraska

Nebraska has enacted marketplace facilitator laws that require facilitators with sales of $100,000 or more or 200 or more transactions in the state to collect and remit sales tax as of April 1, 2019.


Nevada

Nevada adopted marketplace facilitator laws that require facilitators to collect and remit sales tax if gross receipts exceed $100,000 or 200 or more transactions during the previous or current year are exceeded.  The law is effective October 1, 2019 and also authorizes the Department of Taxation to adopt regulations providing for a use-tax reporting obligation on sellers not collecting and remitting sales tax.

 

New Mexico

Marketplace facilitators are required to collect and remit sales taxes as of July 1, 2019 if gross revenue in the state exceeds $100,000.  Marketplace sellers would receive a deduction for sales reported by facilitators if the seller has documentation that the facilitator is registered in the state.


New York

New York's Department of Taxation and Finance released guidance clarifying the application of the state's marketplace facilitator laws.  Specifically, the laws will only apply to the sale of tangible personal property, which includes prewritten software (even downloaded or accessed remotely).  However, the laws to not require facilitators of services to collect and remit tax, even for rentals of vehicles or temporary housing, admissions to amusement events or restaurant food. (https://www.tax.ny.gov/pdf/memos/sales/m19-2s.pdf).


North Dakota

North Dakota is enforcing marketplace facilitator laws effective March 1, 2019.

 

Oklahoma

Legislation for remote sellers goes into effect November 1, 2019 that requires remote sellers to collect and remit sales tax if taxable sales into the state exceed $100,000 a year.  Remote sellers can no longer utilize the use tax notification laws in lieu of collecting and remitting sales tax.  The use tax notification laws are still in effect for marketplace facilitators.


Rhode Island

Rhode Island has codified the $100,000 gross sales or 200 transaction threshold for sales tax collection and remittance requirements for remote sellers.  The law also requires marketplace facilitators and referrers to collect and remit sales tax under the same thresholds effective July 1, 2019.  The Department clarified that the state's use tax notification requirements are still in effect until June 30, 2019.

 

South Carolina

South Carolina has amended its economic nexus ("Wayfair") laws to include marketplace facilitators under the definition of "retailer".  Effective April 26, 2019, marketplace facilitators are required to collect and remit sales tax if sales to customers in the state exceed $100,000.


Utah

Utah has updated its marketplace facilitator rules to provide that sellers within a marketplace are not required to register for sales tax for facilitated sales unless they otherwise have nexus with the states.  If a seller does have nexus outside of the marketplace and files sales tax returns, sales made through the marketplace are not required to be reported on the returns.  Any overpaid sales taxes must be refunded through the marketplace facilitator and not with the state.  This bill is effective October 1, 2019.

 

Vermont

Vermont enacted marketplace facilitator laws effective June 1, 2019.  All facilitators with either $100,000 in sales or 200 or more transactions are required to collect and remit sales tax in the state.


Virginia

Virginia has adopted both remote seller laws and marketplace facilitator laws.  Effective July 1, 2019, remote sellers or marketplace facilitators are required to collect and remit sales tax if gross sales into he state exceed $100,000 or 200 or more transactions.  The state's guidance is located at https://www.tax.virginia.gov/remote-sellers-marketplace-facilitators-economic-nexus.


West Virginia

West Virginia has expanded their existing remote seller requirements for sales and use tax collection to marketplace facilitators effective July 1, 2019.  The state's existing threshold requirements for remote sellers is $100,000 or more of gross revenue or 200 or more transactions to customers in the state.

Wyoming

Wyoming requires marketplace facilitators  to collect sales tax if gross receipts to customers in the state exceed $100,000 in a year or the facilitator has 200 or more transactions in the state.  The law is effective July 1, 2019.


INCOME TAX

 

Arkansas

Arkansas enacted a tax reform bill with multiple changes to the state's income tax.  Effective in 2021, the maximum corporate income tax rate is reduced from 6.5% to 6.2%, then further reduced in 2022 to 5.9% on income exceeding $25,000.  Additionally, a single-sales factor is implemented beginning in 2021 and the net operating loss carryforward period is increased to eight years (for losses before 2021) and ten years (for losses occurring on or after 2021).


Connecticut

The state's 10% surtax is extended through tax years beginning prior to January 1, 2021.  Additionally, the capital stock tax rate is reduced each year until phased out on or after January 1, 2024 (House Bill 7424).


Georgia

A recent Georgia ruling LTR 2018-1 

stated that a Canadian corporation without a U.S. permanent establishment (“PE”) under the treaty could end up with Georgia taxable income.  Georgia’s computation of taxable income in the state begins with Federal taxable income.  A foreign business without a U.S. PE begins their computation with $0 Federal taxable income, but modifications to taxable income under Georgia law could result in positive or negative Georgia taxable income.


Hawaii

Hawaii has recently enacted several changes that will impact corporate taxable income beginning in 2020.  The state has passed economic nexus provisions that requires corporate income tax payments for businesses with either $100,000 in gross sales or 200 or more transactions in the state (note that some businesses may still be protected from tax under Public Law 86-272).  Additionally, the state is moving to market-based sourcing for the sale of intangibles.

 

Illinois

The Department of Revenue is authorized to hold a tax amnesty program from October 1, 2019 through November 15, 2019. 

 

If you or your business has unpaid Illinois tax liabilities, please contact your Rödl & Partner advisor to see you can benefit from the upcoming amnesty program.


Kentucky

Kentucky has enacted wide-ranging tax law changes including the following:

 

Kentucky conforms to the Internal Revenue Code as of December 31, 2018 (i.e., after tax reform) for both corporate and individual tax purposes for tax years beginning in 2019.

The Combined/Unitary corporate income tax laws were updated to clarify members that are included in a combined group. Specifically, the definition of "tax haven" is amended to exclude any jurisdiction that has entered into an income tax treaty with the U.S. and the law specifies that the combined report is to be filed on a water's-edge basis.  The election period for filing a consolidated return in lieu of a unitary combined return is reduced to 48 months from 96 months.The minimum limited liability tax is $175.

The filing extension was revised to seven months from six months. Additionally, estimated tax computations now follow Federal.


Louisiana

Louisiana has enacted an election to allow pass-through entities to be taxed the same as C corporations.  Effective for tax years beginning on or after January 1, 2019, the election must be made in writing at any time during the preceding or taxable year and on or before the due date of the corporate tax return (15th day of the 4th month from the close of the tax year).   The election is irrevocable except by the LA Dept of Revenue or owners of more than 50% of the entity.  Electing entities would not have the income of the pass-through entity reported on the individual income tax returns.  The election is not available for entities filing a composite tax return. 

 

For corporations, LA has changed how net operating losses are applied.  Under previous law, losses were applied on a last-in, first-out basis, meaning older losses are at jeopardy to expire.  House Bill 263 was signed into law to apply net operating losses on a first-in, first-out basis for tax years beginning on or after January 1, 2020.


New Jersey

New Jersey has issued additional guidance on the new required filing for unitary groups.  The managerial member of the group must register and receive a NJ identification number for the group.  The application of the state's throwback rules (Joyce or Finnigan methods) are impacted by whether or not the group elects affiliated filing or water's-edge or worldwide filing.  Group registration can be filed at https://www.state.nj.us/treasury/taxation/mandatory-registration.shtml. Additionally, the state has clarified that businesses included in the combined group with New Jersey nexus are each subject to the $2,000 minimum tax.


New York

The Governor's budget was implemented which made many changes to New York taxes, primarily related to how the state conforms with Federal tax reform. Additionally, the top individual tax rate of 8.82% originally ending in 2019 was extended to 2024.


Oklahoma

A new tax law in Oklahoma allows pass-through entities to elect to be taxed at the entity level rather than at the individual level effective for tax years beginning on or after January 1, 2020.  Additional information can be found at 


Pennsylvania-City of Philadelphia

The City of Philadelphia requires businesses with economic nexus with no physical presence in the state to file and pay the city's Business Income and Receipts Tax ("BIRT") effective January 1, 2019.  Economic nexus is defined as having at least $100,000 in Philadelphia gross receipts during any 12-month period ending in the current tax year and sufficient connection with Philadelphia to establish nexus under the U.S. Constitution.  The amended regulation states that businesses protected under P.L. 86-272 that solicit sales of personal tangible property to Philadelphia customers remain protected from the net income portion of the tax; however, these taxpayers are subject to the gross receipts portion of the tax since this tax is not protected under P.L. 86-272. 

 

Rhode Island

Rhode Island has enacted an elective pass-through entity tax.  Effective for tax years on or after January 1, 2019, pass-through entities can elect to pay tax at the entity rate of 5.99%. 


Vermont

Vermont is adopting market-based sourcing effective for tax years beginning on or after January 1, 2020.  Currently, Vermont apportions taxable income based on a three-factor formula of property, payroll and sales with the sales factor double-weighted.  Beginning in 2020, sales of services are sourced to Vermont if the customer is benefiting from the service in Vermont.  Any receipts in the denominator attributed to a state where a taxpayer is not taxable are removed from the denominator.

 

Washington

Washington is increasing its Business & Occupation ("B&O") tax.  Effective in 2020, businesses under the "Services and Other Activities" classification will be subject to a surcharge of 20% of the amount of tax after any credits are applied.  Business under certain advanced computing classifications will incur a surcharge ranging from 33 1/3% to 66 2/3% of the tax, based on the amount of worldwide gross receipts of the business.

 

If you have any questions, please contact your Rödl & Partner representative.


This publication contains general information and is not intended to be comprehensive or to provide legal, tax or other professional advice or services. This publication is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Consult your advisor.

We have made reasonable efforts to ensure the accuracy of the information contained in this publication, however this cannot be guaranteed. Neither Rödl Langford de Kock LP nor any of its subsidiaries nor any affiliate thereof or other related entity shall have any liability to any person or entity which relies on the information contained in this publication, including incidental or consequential damages arising from errors or omissions. Any such reliance is solely at user's risk.

Any tax and/or accounting advice contained herein is based on our understanding of the facts, assumptions we have been asked to make, and on the tax laws and/or accounting principles in effect as of the date of this advice. No assurance is given that the conclusions would be the same if the facts or assumptions change, or are not as we understand them, or that the tax laws and/or accounting principles will not change subsequent to the issuance of these conclusions. In addition, we do not undertake any continuing obligation to advise on future changes in the tax laws and/or accounting principles, or of the impact on the conclusions herein.

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