Tax Reform

DON'T PANIC - Physical Presence No Longer Matters in Determining Whether A Company is Required to Collect Sales Tax

On June 21, 2018, the United States Supreme Court ruled in a 5-4 decision in South Dakota v. Wayfair, Inc., et al, that the physical presence test under the 1992 Supreme Court case (Quill Corp v. North Dakota (504 U.S. 298) no longer applies to the obligation to collect and remit sales tax on sales to customers in a state.

DON'T PANIC

Let's pause and everyone take a breath - the articles and posts about the case are like an avalanche of gloom and doom. We don't know exactly how all of this will play out. States will respond in different ways. Congress could still act. New challenges could arise. In the meantime, there is a safe harbor for small businesses to not have to collect sales tax under South Dakota's law. Other states that have enacted or proposed similar laws have the same or similar safe harbor. If all other states follow along, small retailers that are under those thresholds won't have to collect sales tax in every state.

A ‘Cliff Notes’ Version of the U.S. Supreme Court Wayfair Ruling

  1. Quill is overturned; physical presence is not necessary to create substantial nexus

  2. A business may be present in a state in a meaningful way without that presence being physical in a traditional sense

  3. States will respond in different ways to utilize this NEW power (but it is NOT unlimited power)

  4. This ruling applies to companies in any industry including service providers (NOT JUST ONLINE RETAILERS) – any company that has sales in a state, but hasn’t collected sales tax because they don't have a physical presence in the state

  5. Protection may still apply to small businesses

  6. South Dakota law is acceptable - substantial nexus is met with more than $100,000 in annual sales or 200 or more separate transactions; not retroactive; SD is member of SSUTA

  7. Other states with laws similar to South Dakota will most likely be acceptable

  8. Businesses can still challenge state laws under other Commerce Clause doctrines (i.e., if the state’s law causes an undue burden on interstate commerce)

  9. Congress can still regulate interstate commerce

  10. Approximately 20 states have economic nexus sales tax nexus provisions similar to South Dakota

  11. Companies should respond diligently and cautiously.

Small Business Safe Harbor Should Be Challenged and Changed

There is a safe harbor for small businesses to not have to collect sales tax under South Dakota's law. Other states that have enacted or proposed similar laws have the same or similar safe harbor. If all other states follow along, small retailers that are under those thresholds won't have to collect sales tax in every state.

The 'de minimis' activity threshold is probably the remaining sticking point for each state to work with and could create further litigation. In my opinion, the 200 transaction threshold should be eliminated and states should simply rely on a revenue amount as a threshold. Small businesses need better protection especially since state laws are not uniform (complexity), and create an undue burden on interstate commerce for small businesses.

Challenges Remain

The case was remanded to South Dakota courts to determine if any further challenges to the law could be made. Stay tuned.

STATE TAX KNOWLEDGE UPDATE (59 ITEMS) - JUNE 11, 2018

The following are state tax and business developments I have curated since May 22nd, 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. California proposes to amend entity classification rules; comments due June 26

  2. Delaware qui tam case against gift card retailers moves forward

  3. Colorado Market-Based Sourcing Legislation Goes to Governor

  4. California Launches Online Directory of Business Incentives

  5. Tennessee Decouples From Business Interest Deduction Limit

  6. Louisiana Governor Proposes Tax Cuts, Elimination of Deductions

  7. Minnesota Governor Vetoes Omnibus Tax Legislation

  8. Missouri Lawmakers Approve Corporate Rate Cut, Apportionment Changes

  9. 2018 State Tax Amnesty Programs (as of 5 25 18)

  10. California FTB holds interested parties meeting regarding significant proposed revisions to its market-based sourcing rules

  11. The SALT Deduction Limit: The IRS Responds to State Workarounds

  12. Online Travel Companies Are Not Liable for Local California Hotel Tax

  13. Hawaii Use Tax Held Constitutional

  14. TaxDay becomes official MLB Players Association partner

  15. IRS Discusses Certain Payments Made in Exchange for State and Local Tax Credits

  16. California FTB Provides TY 2017 Filing Guidance Regarding IRC Section 965 Repatriation Transition Tax

  17. New Louisiana Law Revises Due Date for Filing Corporate Franchise Tax Returns

  18. Maine Revenue Services Comments that Amended Returns May be Necessary Given State Nonconformity to Recent Federal Tax Law Changes

  19. Michigan Appellate Court Affirms that Holding Company Lacks Requisite Nexus for City of Detroit Income Tax Purposes

  20. New Jersey Appellate Court Affirms Lower Court Decision Involving Unreasonable Exception to CBT Intercompany Expense Addback Rule

  21. New Tennessee Law Includes Delayed Decoupling from New Business Interest Limitations under IRC Sec. 163(j)

  22. Hawaii State High Court Upholds Validity of Use Taxation Scheme on Purchases from Out-of-State Sellers

  23. Washington DOR Advisory Explains that Retailer’s Enhanced Delivery Services May Create Nexus

  24. Corporate Close-Up: No More Passing Through In Connecticut and New York?

  25. Georgia Property Tax Appeal Thresholds Decreased

  26. Delaware Creates Angel Investor Credit

  27. Georgia Creates Additional High-Technology Exemption

  28. Governor Signs Iowa Sales and Use, Excise Tax Reform Legislation

  29. Iowa Enacts Major Income Tax Reform

  30. Connecticut Enacts Pass-Through Entity Income Tax

  31. Montana Adopts Pass-Through Entity Apportionment Rules

  32. Connecticut enacts responses to federal tax reform

  33. California FTB Now Permitting Taxpayers to Make Oral Presentations in Staff-Initiated Alternative Apportionment Proposals

  34. Michigan Department of Treasury Issues New Bulletin on UBG Including Control and Relationship Tests

  35. Pennsylvania DOR Issues Ruling on New Law that Imposes Information Reporting and Notice Requirements

  36. New York Tax Appeals Tribunal Reverses ALJ to Hold that Taxpayer’s Transactions Must be Aggregated and Thus Subject to Tax

  37. Enacted Kentucky Legislation Provides for Mandatory Combined Reporting for Unitary Businesses and Additional Sales Tax Changes

  38. Alabama DOR Issues Guidance Regarding IRC Section 965 Deemed Repatriation Impact on Taxpayers

  39. Iowa enacts significant income tax and sales tax changes

  40. Legislative Session Review: Iowa

  41. Oregon's research credit sunsets - Opportunities for 2017 tax year

  42. Missouri reduces rate, adopts single factor and market sourcing, more

  43. LINK TO IOWA TAX REFORM WEBSITE CREATED BY IOWA DOR

  44. Iowa Governor Signs Tax Reform & Conformity Bill

  45. Wayfair Debated at Georgetown SALT Conference

  46. State Impacts of TCJA Analyzed at Georgetown Conference

  47. Missouri Enacts Corporate Tax Rate Cut and Apportionment Changes

  48. Sales Thresholds Trigger Sales Tax Nexus in Illinois

  49. Michigan Updates Unitary Business Group Guidance

  50. Colorado Enacts Market-Based Sourcing

  51. Connecticut Explains Repatriation Transition Tax Reporting

  52. New Colorado Law Imposes Market-Based Sourcing Provisions for Certain Receipts from Services and Intangibles

  53. New Connecticut Law Makes Various Changes in Response to Federal 2017 Tax Act

  54. Kentucky DOR Explains New Law that Includes Mandatory Unitary Combined Reporting Regime and Market-Based Sourcing

  55. Michigan Department of Treasury Comments on Federal 2017 Tax Act

  56. Montana DOR Issues New Regulations on the Apportionment and Allocation of Income Reported by Pass-Through Entities

  57. New Illinois Law Imposes Remote Seller Tax Collection and Remittance Responsibilities via Economic Nexus Provisions

  58. New Iowa Law Imposes Economic Nexus

  59. Recent Idaho Law Amendments Provide Income Tax Rate Reductions and Amend IRC Conformity

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.

STATE TAX KNOWLEDGE UPDATE (59 ITEMS) - May 22, 2018

The following are state tax and business developments I have curated since May 2nd, 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. Wisconsin Explains Reconciliation with Federal Consolidated Returns

  2. Preview of the share image State Sales Tax Shakeup

  3. Indiana Offers Voluntary Disclosure Initiative for Out-of-State Retailers

  4. Kentucky Requires IRC Sec. 199A Addback, Restores Credits

  5. South Dakota Provides Guidance on Foreign Dividend Recapture

  6. MTC Section 18 Alternative Apportionment Regulatory Project Moves Forward with Two Proposed Model Rules - Draft Model Use Tax Reporting Statute Also Advances

  7. Alabama DOR Issues Guidance on IRC Sec 965 Transition Tax Impact on State Tax Returns

  8. California FTB Moves Forward with New Draft Proposed Amendments to Market-Based Sourcing Regulation

  9. Florida DOR Issues Guidance on IRC Sec 965 Transition Tax Impact on State Corporate Tax Returns

  10. New Kentucky Law Imposes Mandatory Unitary Combined Reporting Regime

  11. Ohio Supreme Court Holds in Taxpayer Favor Regarding Credit Computation for Pre-CAT NOLs

  12. Oregon DOR Issues Proposed Administrative Rule on New State Repatriation Tax Credit Pursuant to IRC Sec 965 Repatriation Income for Tax Year 2017

  13. Growing Number of State Sales Tax Jurisdictions Makes South Dakota v. Wayfair That Much More Imperative

  14. Oklahoma Allows Transition Tax Installment Payment Election

  15. Tax Reform Task Force Names Income Tax Proposals for Further Study

  16. California OTA Readopts Emergency Rules on Administration and Procedures of Appeals and Petitions for Rehearing

  17. Focusing the Lens on Film Credits

  18. Indiana DOR Offers Special Limited-Time VDI for Out-of-State Online Retailers with In-State Inventory

  19. New Georgia Law Addresses Federal Partnership Audit Regime Changes and How to Report Adjustments for State Purposes

  20. Taxpayer Asks US Supreme Court to Review 2017 Pennsylvania Supreme Court Ruling on NOL Carryovers

  21. South Dakota DOR Discusses Federal Tax Law Changes Relating to Foreign Dividend Recapture and Potential Impact for State Bank Tax Purposes

  22. Texas Comptroller Issues Franchise Tax Ruling on Whether Proceeds from Certain Hedging Transactions Are Included in Apportionment Factor

  23. Alabama DOR Discusses New Law Requiring Certain Marketplace Facilitators to Collect and Remit Tax

  24. New Georgia Law Requires Some Remote Sellers to Collect and Remit Tax or Else Adhere to Information Reporting Requirements

  25. California FTB Issues Final Report on California’s Conformity to 2017 Federal Income Tax Changes

  26. State and Local Tax Technology Checklist (Techlist)

  27. TWIST - This Week in State Tax

  28. Georgia Expands “Dealer,” Adds Use Tax Notice Requirement

  29. Alabama Opens for Amnesty Applications on July 1

  30. Connecticut Legislature Approves Pass-Through Entity Tax

  31. Legislative Session Review: Georgia

  32. California May 18 meeting on changes to market based sourcing rules

  33. Connecticut Requires Bonus Depreciation, Sec. 179 Adjustments

  34. IRC Conformity Bill Goes to Hawaii Governor

  35. Indiana Special Session Considers IRC Conformity

  36. North Carolina Proposes Income Tax Rate Changes

  37. Legislative Session Review: Kansas

  38. Indiana Enacts IRC Conformity Bill

  39. Indiana Revises Corporate Income Tax Rate Calculation and Credit

  40. Massachusetts Provides Estimated Tax Penalty Relief for IRC Sec. 965 Income

  41. Oklahoma Creates New Credits for Vehicle Manufacturing Industry

  42. “One Maryland” Credit Revised

  43. Maryland Retains Personal Exemptions

  44. Alabama DOR Reminds that 2018 Amnesty Program Begins July 1

  45. Kentucky Claims Commission Amends Rules Related to Tax Appeals Procedures

  46. Alabama DOR Issues Amended Rules on NOL Carryforwards and Revised Filing Due Dates

  47. Updated Connecticut Administrative Guidance Discusses Treatment of IRC Sec 965 Federal Repatriation Transition Tax

  48. New Indiana Law Updates State Conformity to IRC

  49. Massachusetts DOR Issues Release on Estimated Tax Penalty Relief for Corporations Affected by Transition Tax on Deferred Foreign Earnings

  50. New Oklahoma Law Permits Electing Federal Transition Tax Installment Payers to Elect Similar Payment Scheme for State Purposes

  51. Pennsylvania DOR Announces that 2017 State Supreme Court Ruling on NOL Carryovers Will Not Be Applied to Earlier Years

  52. City of Seattle Poised to Impose an Employee Hours Tax on Some Businesses

  53. Alabama Tribunal Judge Denies DOR Motion to Stay in Online Retailer Legal Challenge of Economic Presence Rule for Out-of-State Sellers Making Threshold Sales into Alabama

  54. New York eyes UBT in response to federal tax reform

  55. Pennsylvania Clarifies Caps for NOL Calculations

  56. California Requires Return Adjustments for Sec. 965 Amounts

  57. Minnesota Legislature Passes IRC Conformity, Rate Reductions

  58. Friday Tax Reform: States Issue Guidance, Waive Penalties for Foreign Income

  59. Corporate Close-Up: Indiana Latest State to Respond to Federal Tax Reform

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.

What do you think are the top issues/topics in state taxation today?

  1. State income tax reform/response to federal tax reform (which covers a wide variety of issues - depreciation, foreign income, dividends, charitable contributions, NOLs, Domestic Production Deduction, Sec. 199A, M&E, interest expenses, Sec. 118, related party expenses, deemed repatriation, like-kind exchange repeal, Sec. 179 expense, R&E expenses amortization)
  2. Wayfair Supreme Court Case regarding sales tax nexus/collection obligations/possible overturn of Quill/physical presence
  3. State taxation of foreign income
  4. Market-based sourcing impact (continuing trend)
  5. Alternative apportionment (is it all alternative?)
  6. Management & utilization of NOLs / 382 NOL issues
  7. Combined reporting vs. separate reporting 
  8. Single-sales factor apportionment impacts (continuing trend)
  9. Whether to utilize Voluntary Disclosure Agreement/Amnesty programs
  10. Utilizing and negotiating credits and incentives
  11. State income taxation of pass-through entities (new pass-through entity audit rules)
  12. Related party expenses / transfer pricing
  13. Private letter ruling requests
  14. Other?????

Businesses Want to Do Business, NOT Taxes

Businesses are playing a game where the rules keep changing, in the middle of the game. 

Taxes keep changing. A constant battle for businesses to keep up when all businesses want to do is business, not taxes.

Businesses must be able to do business with certainty. State tax laws already lack uniformity and create so many opportunities for businesses to screw up. Now, they keep changing, year to year, day to day.

Over the past few months as state governments have been in session, they have passed numerous pieces of legislation to balance the budget including changes to tax rates, filing methodologies, sourcing rules, etc. along with how or if they will conform to all or parts of federal tax reform.

I have been monitoring state tax legislation and have submitted approximately 30 alerts to clients regarding the changes (and we aren't done yet). More to come. 

Let's work together to make state taxes less important, so businesses can thrive.

STATE TAX KNOWLEDGE UPDATE (54 ITEMS) - APRIL 11, 2018

The following are state tax and business developments I have curated since March 13th, 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. Idaho Enacts Tax Reform Legislation

  2. Washington Revises Nexus Rules

  3. California Issues Notice Regarding Processing Docketed Protests

  4. Vermont Gives Income Tax Nexus Examples

  5. Wyoming Exempts Cryptocurrencies

  6. New Idaho Law Generally Updates State Conformity to IRC and Selectively Updates Conformity to Some Federal Tax Code Provisions and Decouples from Others

  7. Idaho State Tax Commission Grants Taxpayer Request for Use of Alternative Apportionment Method on Gain from Sale of LLC Interest

  8. North Carolina DOR Explains Classification as a Holding Company for Franchise Tax Purposes and Qualifying for 150K USD Tax Liability Cap

  9. Receipts from Service Contracts Must be Sourced In-State for CAT Purposes Because Underlying Property Tied to Services is Located in Ohio

  10. Vermont Department of Taxes Issues Nexus Bulletin Including List of Nexus-Creating Activities

  11. Case Challenging Economic Presence Administrative Rule is On Hold Pending the Outcome of US Supreme Court Litigation Involving Quill Physical Presence Standard in Tennessee

  12. Washington DOR Issues Regulatory Amendments Reflecting 2017 Legislation that Expands Business and Occupation Tax Economic Nexus Provisions

  13. State Tax Reform Opportunities and Challenges: The STAR Partnership

  14. Business Income Tax Collections FF(3.19.2018)

  15. Emergency Regulations Adopted for Appeals From CDTFA

  16. Preliminary CA Report on IRC Conformity Revised

  17. New York Allows Withdrawal of Group Election in Some Cases

  18. California Releases Summary of 2017 Federal Legislation

  19. Utah Enacts Tax Rate Cuts, Single Sales Factor Apportionment

  20. Florida Enacts IRC Conformity, Rate Reduction

  21. Virginia Court Confirms “Subject to Tax” Exception Decision

  22. Individual Income Insights: Highlights of the ABA and IPT Advanced Income Tax Conference in New Orleans

  23. Extras on Excise: U.S. Supreme Court to Decide Whether to Review Loudoun County BPOL Case, Possibly Adding a Second Major State Tax Case to its Docket

  24. New York allows withdrawal of certain combined elections by June 1

  25. Florida updates conformity to IRC; rate reduction possible

  26. New Florida Law Updates State Conformity to IRC, Extends Bonus Depreciation Decoupling, and Includes Contingent Corporate Income Tax Rate Reductions

  27. New Georgia Law Decouples from 2017 Tax Reform Act’s GILTI Provisions

  28. New Idaho Law Generally Updates State Conformity to Federal Bipartisan Budget Act of 2018

  29. Illinois DOR Discusses Recently Enacted Federal Tax Reforms - Specifically State Reporting Requirements Involving the New Foreign Income Deemed Repatriation Transition Tax

  30. New Jersey Tax Court Reaffirms that Tech Company Foreign Source Income that is Not Taxable for Federal Purposes is Not Taxable under CBT

  31. Memo Explains Limited-Time Withdrawal Procedure from Some Commonly Owned Group Elections in New York

  32. Utah New Law Permits Corporations to Pay Tax on IRC Sec 965 Deferred Foreign Income in Installments, Lowers Corporate Tax Rate, and Expands Mandated Single Sales Factor Apportionment

  33. Virginia Supreme Court Holds that Intercompany Royalty Payments Must be Taxed in Another State to Qualify for Subject-to-Tax Addback Exception Once More

  34. New Idaho Law Imposes Remote Seller Click-Through Nexus Provisions

  35. Indiana New Law Provides that Remote Access Software is Not Subject to Tax

  36. Louisiana Trial Court Holds that Online Marketplace Facilitator Must Collect Local Sales and Use Taxes on Third-Party Retailer Online Sales

  37. Arizona Changes Multistate Service Provider Apportionment Rules

  38. Illinois Proposes Addition Adjustment for FDII and GILTI

  39. Alabama Changes Income Tax Filing Thresholds

  40. Oklahoma Caps Personal Itemized Deductions

  41. Florida Enacts Tax Rate Reductions and Modifications

  42. COST: Tennessee Testimony on Federal Tax Reform Conformity

  43. New Hampshire’s Internet Sales Tax Fight Continues

  44. New Wisconsin Law Updates State Conformity to IRC and Couples and Decouples from Various Provisions of the 2017 Federal Tax Reform Act

  45. New Utah Law Revises Certain Single Sales Factor Apportionment Method Provisions

  46. New Ohio Law Updates State Conformity to IRC

  47. New York City Memo Explains Limited-Time Withdrawal Procedure from Some Commonly Owned Group Elections

  48. New Arizona Law Includes Sales from Intangibles in Defining Multistate Service Providers that May Elect Use of Special Sales Factor Sourcing Provisions

  49. Louisiana: Online marketplace provider required to collect sales tax

  50. Legislative Session Review: Wisconsin

  51. Wisconsin Tackles IRC Conformity

  52. Arizona Updates IRC Conformity

  53. Kentucky Governor Vetoes Major Tax Legislation

  54. Corporate Close-Up: Alabama Pass-Through Entity Owners, Rejoice! Why You May be Entitled to a Refund for The 2013 Through 2017 Tax Years

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.