Tax Foundation

State Tax Knowledge Update (29 items) - October 24, 2017

The following are state tax and business developments I have curated since October 16, and posted in the LEVERAGE SALT LinkedIn group:

Some of the items may be on the same state/issue/topic, but they are from different sources which may give you a broader perspective to help your company or client.

  1. Nexus New Jersey limited partner actively operating partnership

  2. Louisiana Voters Approve Tax & Transportation Amendments

  3. Pennsylvania loss carryover unconstitutional remedy percentage

  4. Tax Foundation Updates Its Problematic Wishlist for State Tax Policy

  5. The Jig Is Up: Republican Budget Resolution Finally Admits that Deficit Will Soar Under their Tax Plan

  6. The Dishonest Pitch for Trump-GOP Tax Cuts

  7. The Corporate Tax Code is in Dire Shape, But Trump-GOP Plan Would Make It Worse

  8. State Rundown 10/18: Ballot Initiative Efforts Being Finalized

  9. Inaugural Seattle Tax in the City® | Highlights and Takeaways

  10. Local Policy Digest

  11. Weak Growth in State Tax Revenue Persists in 2017

  12. States' Tax Portfolios Drive Differences in Revenue Volatility

  13. Sales Tax Rates in Major Cities, Midyear 2017

  14. 2018 State Business Tax Climate Index

  15. California FTB Expands Treatment Set Forth in Previous Notice on Water-Edge Elections for Non-electing Unitary Foreign Affiliates

  16. District of Columbia OTR Informally Comments on Market-Sourcing of Sales of Non-TPP

  17. Massachusetts DOR Issues Working Draft of Amendments to Regulation on Corporate Excise Tax Nexus

  18. Montana DOR Issues Proposed Regulations Based on New Market-Sourcing, NOL, and Financial Institution Apportionment Provisions

  19. New Jersey Tax Court Upholds CBT Assessment Issued Against Out-of-State Corporate Limited Partner on Passthrough Income Received from Real Estate Partnerships

  20. Pennsylvania Supreme Court Affirms that Fixed-Dollar Cap on NOL Carryover Deduction is Unconstitutional, But Finds that Percentage Cap is Valid

  21. Maine Revenue Services Discusses New Economic Nexus Provisions, Along with Existing Affiliate and Click-Through Nexus Provisions

  22. Comments on Proposed New Mississippi Rule Requiring Out-of-State Sellers with Substantial Economic Presence to Collect Use Tax on In-State Sales are Due October 30

  23. New York City State Appellate Court Affirms that Taxpayer is Subject to Tax in RPTT Matter

  24. Wave of Amazon HQ2 Bids Unlike Anything Experts Have Seen

  25. The State Tax Function and Emerging Technologies: Now Is the Time

  26. Airbnb to File New Hampshire Returns for Hosts

  27. MD Imposed Tax on MI Subsidiary’s Intercompany Loan Interest

  28. Out-of-State Taxpayer Liable for NM Gross Receipts Tax

  29. Remote work is still good business

The above represents 'general curating' of state tax developments into one spot. If you still feel overwhelmed by the volume of state tax developments, please consider my 'custom curating' service. Meaning, clients hire LEVERAGE SALT to daily curate state tax developments relating to a specific industry, state(s), tax type and issueYou can make it as granular as you prefer. This allows you to reduce information overload, and only get the information you need to help your clients or company. This service is provided on a fixed-fee or subscription basis. Contact me at strahle@leveragesalt.com.

Are Remote Retailers and Marketplace Providers in the 'Path of Totality'?

Well, it's the day - solar eclipse day. A once in a lifetime event. Are you ready? Do you have your glasses? Will you see the total eclipse or partial eclipse?

According to the Washington Post, "the path of totality — the 70-mile-wide strip of America from Oregon to South Carolina in which the moon will, for a couple of minutes, block the sun — crosses the homes of an estimated 11 million people."

A total eclipse is something that happens once in a lifetime (if you are lucky; every 400 years or so). Well, today, our modern economy is converging with past sales tax law creating a sales tax 'eclipse' and is having difficulty figuring out how to look at it. We need the 'right glasses' to be able to tax remote retailers (online sellers) and marketplace platform providers. Amazon, since it is the largest marketplace provider I am aware of, has become the creator of this convergence, or sales tax 'eclipse.' 

We - state and federal governments, departments of revenue, taxpayers and tax professionals - must accept the fact that this sales tax 'eclipse' is happening. We must also work together to find the 'right glasses' or we will cause damage to our 'eyes' (economy and state revenue). 

Currently, states have imposed economic nexus standards and use tax notice and reporting requirements ALL with the intent to skirt the physical presence standard established by the Quill court case. The physical presence standard requires a retailer to have a physical presence standard in the state before the state can require the retailer to collect sales tax. 

I am all for states figuring out the best way to tax these remote retailer transactions; or first determining if they should tax it. I get that the states need revenue. What I disagree with is how states are going about trying to make it happen. Adopting economic nexus laws that fly in the face of Quill to simply get companies to challenge the economic nexus law is ridiculous. States want taxpayers to either comply or challenge the law, hoping the U.S. Supreme Court will take the case and overturn Quill

The use tax notice and reporting requirements are more burdensome and complicated than simply collecting and remitting sales tax. Again, another indirect way that states are simply trying to get companies to collect sales tax. If you can't change the law, create a law that is more complicated so companies choose the less burdensome road. I get it, but I disagree with it.

Companies want certainty. Companies don't want to focus on sales tax, they want to focus on their business. They want taxes to get out of the way or at least be something easy and clear to comply with. Companies don't want to get caught not complying and have to pay additional taxes, interest and penalties. The problem is, states are trying to force new tax collecting obligations without working together with businesses and tax professionals. They are forcing it, which is producing uncertainty and more confusion. 

State taxes already present a maze of taxing jurisdictions all competing for business and revenue with non-uniform tax laws. With this sales tax 'eclipse' staring us down, all I ask is that we work together to find the 'right glasses.' I ask the states to stop forcing damage to our eyes.

Tax Legislation: Are We Asking The Right Questions?

State tax developments are everywhere. They happen daily. The question is - are we just reporting them or are we challenging them?

This legislative season has seen crazy proposals to raise revenue, balance budgets - all influenced by political pressures and confusion. We have policy organizations submitting reports and studies asserting that certain proposals are ridiculous or would either be unfair or detrimental to the state and specific taxpayers. This complexity not only applies to state tax legislatures, but also the federal government - as we know. The problem is that states generally have to balance their budgets every year to operate (although apparently that doesn't apply to Illinois).

One thing I noticed is that state legislative sessions are focused on raising revenue. Always asking what can or should be taxed? What new forms of business do we need to tax? What tax revenue are we missing out on?

I think those are the wrong questions. The questions we should be asking are:

  • What services should the state or federal government provide?
  • To what extent ($$) should the government provide those services?
  • How do we prioritize those services?
  • What is the cost/benefit of providing those services?
  • At what point does the provision of those services cause detriment to citizens and our economy? 
  • What oversight will each service have to avoid waste and efficient use of taxpayer dollars?

We don't always need more revenue. We need to rethink and revamp the purpose of government. Our governments should be lean and efficient. They should provide us with what we need most - not more or less. It's not about tax revenue, it's about efficient government. It's about the health and wealth of our country - financially, physically and spiritually. 

If we never ask the right questions, we won't get the right answers.

Louisiana's Gross Receipts Tax Proposal - So Good (NOT)

I just finished reading a post by Nicole Kaeding at The Tax Foundation about how confusing and bad the Louisiana Gross Receipts Tax proposal is. I couldn't agree more.

Why do states continually try to raise revenue by making tax calculations more complex which end up producing unintended consequences or unconstitutional tax regimes?

Many answers are possible, but I digress. Back to Louisiana's gross receipts tax proposal.

I had noticed that Louisiana proposed a gross receipts tax, but hadn't drilled down into the details. When I read Nicole's article, I couldn't believe what I was reading. I particularly love the flow chart she provides which shows the complex tax structure under HB628.

As the corporate income tax becomes less of a revenue source, will more states adopt something similar? I hope not, but as history tells us, states like to play copycat.

Here is a link to another post Nicole wrote which discusses what states currently employ gross receipts taxes and other states considering such a tax. 

Tax Foundation "Climate Index" Criticized by CBPP

Erica Williams, Assistant Director of State Fiscal Research at the Center on Budget and Policy Priorities (CBPP), wrote an article last week highlighting a new website,"Grading the States: Business Climate Ranking and the Real Path to Prosperity." According to Erica's article, the website seeks to "debunk the state rankings from several organizations purporting to measure each state's 'business climate' and prospects for economic growth." In other words, the website does not believe the rankings represent a state's true business climate.

One of the several business tax climate indexes the website criticizes is the Tax Foundation's well-known index. I respect the Tax Foundation and have always viewed their research as thorough and well done. I have also always viewed such indexes and reports as helpful insights into a state's business and tax environment. However, regardless of the index or the organization releasing such a report, I always take the report with a 'grain of salt.' Any report can display facts and statistics, but just like statistics in general, I believe any report can be slanted to tell a specific story. I also believe any report or statistics cannot tell the whole story. For example, a state's tax environment and incentives will always play a role in a corporation's location decision. However, a state's tax environment is never the only factor. Also, a corporation's location or relocation decision is a 'customized' option. Meaning, every corporation does not receive the same treatment because states make custom incentive packages for different corporations. Thus, just because a state's climate index says one thing, each corporation may feel a different tax impact based on the incentives they receive or don't receive.

In summary, I do not criticize or endorse the website or the Tax Foundation's index. I believe the conversation is healthy and puts a spotlight on the importance of a state's business and tax climate for everyone. 

Just like with most things, we can all usually agree on the problems we face, we just can't seem to agree on the solutions.