State and local taxes impact almost every taxpayer, and developments in any one jurisdiction can be frequent and sometimes confusing. In this newsletter edition, we will briefly summarize certain SALT developments in several states which may be important to you.
Alabama – Updates Reported
New 1099-K Filing Requirement: The Alabama Department of Revenue (Department) published a news release on April 6, 2022, entitled "New 1099-K Filing Requirement." In this release, the Department stated reporting that entities required to file form 1099-K Information Returns with the Internal Revenue Service must also file with the Department a duplicate of the Information Returns or a duplicate of all Information Returns related to taxpayers or participating payees with an Alabama address. The release goes on to state that, pursuant to a certain 2017 legislative enactment in Alabama, those settlement entities, third-party settlement organizations, electronic payment facilitators, and third parties acting on behalf of payment settlement entities are required to file duplicate federal form 1099-K Information Returns with the Department within 30 days of the IRS filing due date. The release goes on to state that 2021 1099-K Information Returns will be due on or before May 2, 2022. Further, the release provides that interested parties can visit the Department's website in order to file the Form 1099-K electronically; and such parties can contact the Department with questions regarding this requirement. More information can be found here.
District of Columbia – Updates Reported
Treatment of Pass-Through Entity Taxes Paid to Other Jurisdictions: On March 31, 2022, the Office of Tax and Revenue (OTR) published Tax Notice 2022-03 addressing whether a resident individual taxpayer would be prohibited from claiming a credit for taxes paid by a pass-through entity in another state notwithstanding the federal limit on the amount of state and local taxes individuals can deduct on their federal income tax returns, which is $10,000. According to the Tax Notice, the OTR concludes the D.C. Code does not restrict a resident individual taxpayer from claiming a credit for these taxes so as long as the pass-through entity tax "is akin to an individual net income tax and does not fall within the enumerated tax types listed in" the D.C. Code as one of the taxes not qualified for a credit. This Tax Notice contains various conditions and limitations; more information can be found here.
Florida – Updates Reported
Solid Mineral Tax Rates for 2022: On March 21, 2022, the Florida Department of Revenue (Department) issued Tax Information Publication No: 22B07-01 which sets forth the severance tax rates for phosphate rock producers, heavy mineral producers, and other solid minerals producers. This Publication sets the severance tax rate for the period through December 31, 2022, on a per ton basis. The Publication further states that questions should be addressed in writing to the Department, Taxpayer Services, at the address set forth in the Department's Publication. More information can be found here.
Georgia – Updates Reported
New Income Tax Legislation Provides Refunds to Qualified Taxpayers: The 2022 Georgia General Assembly recently enacted House Bill 1302, (Act 582), which provides for a one-time tax credit for a "qualified taxpayer", meaning an individual taxpayer who filed an individual income tax return for both the 2020 and 2021 taxable years by the due date for filing the income tax return for the 2021 taxable year, including any extensions which have been granted. The term "qualified taxpayer" does not include a nonresident alien individual, an individual who was claimed as a dependent on another taxpayer's federal or Georgia return for the 2020 year, or an estate or trust. Under this Bill, once a qualified taxpayer files an individual income tax return for the tax year 2021, the Georgia Department of Revenue (Department) shall automatically credit such qualified taxpayer with a one-time refund amount equal to the lesser of (a) the qualified taxpayer's 2020 individual income tax liability as properly reported, consistent with this Bill, or (b) an amount which is based on such taxpayer's filing status for the 2020 taxable year, equal to $250 in the case of a single taxpayer or married taxpayer filing a separate return, $375 in the case of a head of household, or $500 in the case of a married couple filing a joint return. The refunds and credits provided shall not, according to the Bill, constitute taxable income for Georgia individual income tax purposes. Other conditions also apply, and the Department may promulgate rules to implement and administer the foregoing. More information can be found here.
Individual Income Tax Rate Reduction: Also during the 2022 Georgia Assembly, House Bill 1437 was passed by both the House and Senate and has been signed by Governor Brian Kemp so as to reduce the individual income tax rates, subject to a delay if certain revenue criteria are not satisfied. If such criteria are satisfied, however, the individual income tax rates would be gradually reduced over several years such that the tax imposed for the year 2025 would be 5.5 percent and for years beginning on or after January 1, 2029, would 4.99 percent. Additionally, the amount of the personal exemption deduction in computing the Georgia taxable income for individuals would be revised such that the exemption for a single taxpayer or head of household would be $12,000; the personal exemption for a married couple filing a joint return would be reduced over several years to different levels, with the deduction being $24,000 for years beginning on or after January 1, 2030; the amount of the exemption for married taxpayers filing separate returns would be half of the amount of the personal exemption allowed for married couples filing a joint return; and a dependent of a taxpayer would be allowed a $3,000 deduction. More information can be found here.
Louisiana – Updates Reported
Jobs Tax Credit Program Deadline: On April 13, 2022, the Louisiana Department of Revenue (Department) issued a news release advising Louisiana employers that April 30, 2022, is the deadline for applying for the 2022 Louisiana Youth Jobs Tax Credit Program. According to the release, this Program provides incentives for companies to hire unemployed young people from economically challenged backgrounds, and aims to help young people gain critical workforce skills needed for successful careers. This Program would provide a credit of $1,250 for hiring an eligible youth for a full-time position, or $750 for a part-time position. Eligible employees are Louisiana residents ages 16 through 23 who were unemployed prior to being hired by the business applying for the tax credit. More information regarding the Program and the credit can be found here.
Maryland – Updates Reported
Renewal of Sales and Use Tax Exemption Certificate: The Comptroller of Maryland (Comptroller) has published an announcement advising if an organization is renewing its sales and use tax exemption certificate that expires September 30, 2022, then that organization must apply for the renewal of the certificate. The Comptroller's announcement provided that the Sales and Use Tax Application is for first-time sales and use tax exemption certificate filers, or organizations holding a card with an expiration date of September 30, 2017, or earlier; and the organization must operate out of a physical business location in Maryland, Delaware, Pennsylvania, Virginia, Washington, D.C. or West Virginia. The Comptroller's announcement further stated that Maryland law provides that the organization must be in Maryland or one of these adjacent jurisdictions to qualify; and that organizations in other states do not qualify. More information regarding the exemption renewal process can be found here.
Mississippi – Updates Reported
Pass-Through Entities Can Elect Taxation: On April 14, 2022, Governor Tate Reeves signed into law House Bill No. 1691, which authorizes pass-through entities to elect to be taxable for Mississippi income tax purposes and pay income tax at the entity level. The Act states in part that for calendar year 2022, and for each calendar thereafter, any partnership, S corporation or similar pass-through entity may elect to be taxed as an electing pass-through entity and pay the income tax at the entity level. The term "electing pass-through entity" means a partnership, S corporation or similar pass-through entity has made an election pursuant to the Act. The Act further provides that, to be taxed as an electing pass-through entity, the entity shall submit the appropriate form to the Mississippi Department of Revenue (Department) at any time during the tax year or on or before the 15th day of the third month following the close of that taxable year for which the entity elects to be taxed as an electing pass-through entity. This election shall be binding, according to the Act, for that taxable year and all taxable years thereafter and shall not be revoked unless the entity submits the appropriate form to the Department at any time during a subsequent taxable year on or before the 15th day of the third month following the close of that taxable year for which the entity elects to no longer be taxed as an electing pass-through entity. Various conditions and requirements are set forth in the Act relative to this election. The Act is effective and shall be enforced from and after January 1, 2022. More information can be found here.
North Carolina – Updates Reported
Phase 2 of the Business Recovery Grant Program Begins May 2, 2022: On April 12, 2022, the North Carolina Department of Revenue (Department) issued a press release regarding the Department's plans to launch applications for Phase 2 of the Business Recovery Grant Program (Program) on Monday, May 2, 2022. The application deadline is June 1, 2022. The press release stated changes are being made to the Program's eligibility criteria allowing many additional businesses to qualify for these grants. According to the release, the Program will issue a payment to an eligible North Carolina business that suffered an economic loss of at least 20 percent during the pandemic; the grant amount is a percentage of the economic loss demonstrated by the eligible business or $500,000, whichever is less. The release further states that many businesses excluded from Phase 1 are eligible to apply in Phase 2 and, in addition to COVID-impacted businesses in the hospitality industry such as restaurants and hotels, the Program will now be open to other businesses affected by the pandemic, with a list of eligible businesses included in the release. Further, the release stated two types of grants will be available to eligible businesses for Phase 2: (i) a hospitality grant available to eligible arts, entertainment, or recreation businesses, as well as eligible accommodation or food service businesses such as a hotel, restaurant, or bar (NAICS Code 71 and 72); and (ii) a reimbursement grant available to eligible businesses not classified in NAICS Code 71 or 72. A business's previous receipt of a grant award from certain federal programs will not make it ineligible for a reimbursement grant. Other terms and conditions for applying for the Program grants are set forth in the Department's release. More information can be found here.
South Carolina – Updates Reported
Further Guidance Regarding Entity Tax Reporting: On March 11, 2022, the South Carolina Department of Revenue (Department) issued Information Letter #22-4 addressing matters regarding tax forms and reporting issues for the tax year 2021 with respect to the optional election for certain pass-through entities to report active trade or business income directly on their tax returns and pay an entity level income tax on such income. This option was addressed in our June 2021 SALT edition with this new Information Letter #22-4 providing additional guidance and clarification with respect to several important South Carolina income tax form reporting or tax software issues and instructions for this filing season. Issues addressed in this publication include the Section 179 expense deduction; clarification of determination of active trade or business income, or passive investment income; active trade or business losses for certain non-electing entities; and tax credits, among other issues. This Information Letter notes that the guidance published in the Department's Revenue Ruling #21-15 (found here) and in this Information Letter is controlling over the tax form mechanics and instructions. More information can be found here.
Public Draft of Ruling Addressing Employer Wage Withholding Requirements: On March 29, 2022, the Department circulated for public comment a draft Ruling dealing with employer wage withholding requirements for income tax purposes in view of the unprecedented temporary closings of offices and businesses and stay-at-home orders issued as a result of the COVID-19 pandemic. In that draft, the Department again noted that temporary relief has been provided regarding a business's establishment of nexus solely because an employee is temporarily working in a different work location due to COVID-19 from March 13, 2020, through June 30, 2022; and the Department will not use the temporary change of an employee's work location during the COVID-19 relief period to impose withholding requirements. However, the draft Ruling goes on to state that, with relaxation of COVID-19 restrictions, the Department is ending its temporary relief provided in earlier Information Letters and subsequent extensions through June 30, 2022. The Department notes in this draft Ruling that COVID-19 has brought about changes in the work environment and more employers are providing employees with greater flexibility to return to the office, work from home, or work remotely from anywhere on a permanent or flexible basis. As a result, the purpose of this Ruling, when finalized, will be to provide guidance to employers regarding their South Carolina withholding requirements for resident and nonresident employees, whether the employees are working in the employer's office/location or working partially, primarily or wholly remotely from home or other remote locations. The draft Ruling reviews South Carolina law, and then provides a summary of the general rule applicable to resident employee wage withholding; the special rule for resident employees working outside South Carolina (partially or totally); and nonresident employee wages rules. The Ruling then provides examples of employer wage withholding requirements. The comment period for this draft Ruling has now expired, and it is yet to be determined when the Department will issue the final version. More information can be found here.
Tennessee – Updates Reported
Excise and Franchise Tax/Industrial Machinery Credit Ruling: On March 15, 2022, the Tennessee Department of Revenue (Department) posted Letter Ruling #22-01 addressing whether a certain manufacturer in the business of producing industrial gas would be entitled to the industrial machinery credit against the excise and franchise taxes since the manufacturer was selling not only the gas but also certain credits that were created as a result of such production. As noted in the Ruling, the taxpayer operates a production facility where it produces and sells industrial gas to its customer. The gas is produced by equipment purchased by the taxpayer for the production of such gas, and such equipment would otherwise qualify for the industrial machinery credit against the franchise and excise taxes. However, when the industrial gas produced by the taxpayer is sold into the transportation fuel market, it qualifies for renewable identification numbers (RINs) and, if sold into California, it also qualifies for the low carbon fuel standard (LCFS) credits. Both types of credits are used to comply with federal and state regulatory mandates, and can be sold by the taxpayer to others for similar use. For accounting purposes, the taxpayer accrues the sale of the credits directly into its revenue and accounts receivable when the credits are produced, and the does not have an inventory or other balance sheet related to those credits since they are all sold to the customer with the gas when produced. Based upon the foregoing, the Department stated in the Ruling that the taxpayer's revenue was derived from the sale of the industrial gas and the credits that were created when it was produced; and that those credits were generated by the same activity that produced the industrial gas and were not the product of any other effort or activity undertaken by the taxpayer. Therefore, the Department concluded all of such revenue is derived directly from the process of producing industrial gas at the Tennessee location, and therefore the taxpayer's principal business at that location was manufacturing which, in turn, allowed the taxpayer's purchases of equipment used for the production of industrial gas to qualify for the industrial machinery credit. More information can be found here.
Business Tax Amendment: In the 2022 General Assembly, 2022 Public Chapter 683 was enacted, requiring the Department to make available a certificate to every person filing a business tax return indicating whether a taxpayer is filing as a retailer or wholesaler for business tax purposes. Vendors to that taxpayer can then rely upon such status "for purposes of determining the vendor's liability under" the business tax. In the preamble within this new law, the General Assembly recognized that the liability of a vendor with regard to the business tax depends on whether the vendor's customer is a wholesaler or retailer. As a result, and pursuant to this new law, the Department is to provide a certificate to a customer as proof that the customer filed as a wholesaler or retailer; and, as to the transactions occurring during the certificate's effective period, a vendor who receives a certificate from a customer can rely upon the certificate for purposes of determining the vendor's business tax liability. Further, a vendor who receives a certificate from a customer shall not owe additional tax, nor be refunded tax, based on a retroactive change in the customer's status as a wholesaler or a retailer for the period covered by the certificate. The new law will be effective January 1, 2023. More information can be found here.
Texas – Updates Reported
Sales Tax Holidays Discussed: In its March 2022 Tax Policy News (News), the Comptroller's Office discussed a few holidays on which purchases of certain items will be exempt from the Texas sales tax. One such holiday is the 2022 Emergency Preparation Supplies Sales Tax Holiday which begins on Saturday, April 23, and ends on Monday, April 25, 2022, and during which certain emergency preparation supplies qualify for tax exemption if purchased for a sales price within the limits set forth in the News. Other such holidays include the ENERGY STAR Holiday and the Texas Water-Efficient Products Holiday, which begins Saturday, May 28 and runs through Memorial Day, Monday, May 30, 2022. Each of these tax holidays contain various restrictions and limitations; more information regarding these holidays can be found here.
