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

Exclusion for Sales Tax on IT Services Delivered In State: In Revenue Ruling 2021-001, the Alabama Department of Revenue (Department) ruled that additional information technology services related to manufacturing software which is delivered remotely by a company with no physical presence in the United States to a customer located in Alabama is not subject to sales tax on invoices for the services so long as the nontaxable services are separately stated on all invoices and do not involve the transfer of computer software. Those requested additional information technology services consisted of hot line support in case of malfunctions or functional questions, suggestion/handouts for additional training, error analysis, weak point analysis, MS Windows update pre-tests, and hosting of test facilities, all of which would be provided from the provider's remote location outside the United States. The provider would conduct regular in-person meetings within Alabama every six months. Revenue Ruling 2021-001 is consistent with the Department's previous positions about separately invoiced services, as opposed to software. More information can be found here.

Excise Tax on Financial Institutions: On August 5, 2021, the Department issued a press release addressing the 2019 law imposing a requirement on financial institutions for making quarterly estimated payments of the annual tax liability for the tax years beginning after December 31, 2019. As stated in this release, to account for the transition from the previous post-payment system for financial institutions, the Department was authorized to wave both penalties and interest linked to unintentional underpayments of estimated tax occurring within the first two applicable tax years. If a financial institution suspects that it may have been or may be billed for underpaying the 2020 estimated tax payments, that financial institution should file a Request for Waiver of Penalty (Form PWR) with the Department. That Form PWR, as noted in the release, may be included within the 2020 Financial Institution Excise Tax Return that has yet to be filed, because of the extended due date, as well as the 2021 Return. The Department noted in the release that penalties and interest will be waived resulting from underpayments of estimated tax payments that were not attributed to an intentional disregard of the law. More information can be found here.

District of Columbia – Updates Reported

Answers to Most Frequently Asked Questions: According to a notice issued by the Office of Tax and Revenue (OTR), the OTR's taxpayer advocate, Elena Fowlkes, has hosted a series of interactive discussions on how to navigate and complete your tax transactions more effectively. The last of those interactive discussions, scheduled for August 27, will address obtaining answers to the most frequently asked questions. This upcoming discussion will be available by live stream beginning promptly at 12 p.m. via OTR's official Instagram page (@MyTaxDC). More information can be found here.

Florida – Updates Reported

Adoption of 2021 IRC for Florida Corporate Income Tax Purposes: On July 30, 2021, the Florida Department of Revenue (Department) issued Tax Information Publication No. 21C01-01. The publication addressed the recent legislation enacted by the Florida Legislature which amends the Florida Income Tax Code so as to adopt the Internal Revenue Code retroactively to January 1, 2021, but which also decouples the Florida Income Tax Code from several federal income tax provisions. The publication also highlighted various issues that corporate taxpayers may face in preparing the Florida Corporate Income/Franchise Tax Return as a result of some of the decoupled federal income tax provisions. Additionally, it noted that some taxpayers may have already filed a Florida Corporate Income/Franchise Tax Return under a different basis than what is explained in this Publication; and, if so, those taxpayers should consider filing an Amended Return, Form F-1120X, and explain the reason for the amendment. The publication stated that the Department will work with the taxpayer to resolve any penalty that may be imposed as a result of the amended return involving the issues discussed in the publication. Those issues include, but are not limited to, the limit on net interest deductions; the federally deducted depreciation of qualified improvement property; business meal expenses; film, television, and live theatrical production expenses; and bonus depreciation. Additionally, the publication addressed the manner in which Florida net operating losses are to be treated for Florida income tax purposes; and, on August 13, 2021, the Department issued a revised publication No. 21C01-01R, correcting the explanation of the use of Florida net operating losses. More information, as contained within that revised publication, can be found here.

Rounding for Sales Tax Purposes: As a result of a new law, Chapter 2021-2, Laws of Florida, businesses that collect and remit sales and use taxes to the Department must use a rounding algorithm in place of the previous "bracket system" when calculating the sales tax due on a transaction. Using this algorithm, the computation of the tax must be carried to the third decimal place; if the third decimal place is greater than four, the tax must be rounded up to the next cent. Businesses may apply the rounding algorithm to the aggregate tax amount computed on all taxable items on an invoice or to the taxable amount on each individual item on the invoice. The new law takes effect July 1, 2021, and businesses have until September 30, 2021 to update their point of sale systems. More information can be found here.

2021 Corporate Income Tax Rate Reduction: The standard rate for the Florida Corporate Income Tax is 5.5 percent. However, a temporary tax rate reduction can be triggered when corporate income tax revenue exceeds certain revenue forecasts. Consequently, and as the result of greater than expected revenue in recent years, the corporate income tax rate has been temporarily reduced during those years to 4.4580 percent. Further, and most recently on August 17, 2021, the Revenue Estimating Conference for the General Revenue Fund issued an Executive Summary stating that through June 2021 the revenue collections had exceeded expectations; and, apart from the sales tax, the greatest gain to the forecasts was from the corporate income tax. As a result, the Conference stated in that Summary that the temporary rate reduction is again triggered for taxable years beginning on or after January 1, 2021, and before January 1, 2022. According to information issued by that Conference, the further reduced corporate income tax rate appears to be 3.5350 percent for those tax years beginning on or after January 1, 2021 and before January 1, 2022. Taxpayers are nevertheless cautioned to await an official statement from the Department regarding the rate reduction amount. More information can be found here and here.

Georgia – Updates Reported

HB 149 as a Federal SALT Limitation Workaround: In November 2020, the IRS issued Notice 2020-75, responsive to the $10,000 limitation on the deductibility of state and local taxes applicable to individuals which was part of the Tax Cuts and Jobs Act of 2017. In the notice, the IRS said that it intended to issue proposed regulations clarifying that state and local income taxes imposed on and paid by a partnership or an S corporation on its income are allowed as a deduction by the partnership or S corporation in computing its non-separately stated taxable income or loss for the taxable year of payment. If, by virtue of state and local legislation, the obligor of the tax is the entity (i.e., a Subchapter S corporation or partnership), this would effectively provide a workaround to the limitation. The tenor of this notice was to validate the workaround acts passed by some states and to invite other states to pass similar legislation.

The Georgia legislature approved, and the Governor signed HB 149, the effect of which is to allow, in limited circumstances, an S corporation or a partnership to make an annual irrevocable election to pay income taxes at the entity level. See May issue here.

The Georgia Department of Revenue apparently believes that HB 149 is directly responsive to the invitation in Notice 2020-75, in that it provides that the annual election makes the entity, and not the partners or shareholders, the taxpayer, thus distinguishing this feature from the otherwise applicable withholding elections.

Sales Tax Extension to Marketplace Innkeepers: In 2020, Georgia adopted amendments to its Sales and Use Tax Act defining "marketplace facilitators" as "dealers" for purposes of requiring so called "click through" merchants who sell through other online merchants to collect and remit sales tax. In 2021, Georgia extended the reach of the Sales and Use Tax Act to booking agents who book rooms for transients. HB 317 adds the term "Marketplace Innkeeper" to the definition of "dealer," thus applying parallel requirements on booking agents. More information can be found here.

Louisiana – Updates Reported

Exemption for COVID-19 Relief Benefits: On July 23, 2021, the Louisiana Department of Revenue (Department) issued Revenue Information Bulletin No. 21-019 addressing the taxability of benefits received from the Louisiana Main Street Recovery Fund and the Frontline Workers COVID-19 Hazard Pay Rebate Program based upon Act 54 of the 2021 Regular Session of the Louisiana Legislature. The bulletin recognized that the Louisiana Main Street Recovery Fund was created in the 2020 Regular Session so as to award grants to Louisiana small businesses to assist with the recovery from the economic impacts of COVID-19; and that the Frontline Workers COVID-19 Hazard Pay Rebate Program was also created in 2020 by the Legislature to provide a one-time $250 rebate to essential critical infrastructure workers who are Louisiana residents. Further, the Department recognized that Act 54 of the 2021 Regular Session provided an individual and corporate state income tax exemption for relief benefits which includes gratuitous grants and rebates. It noted that both of these programs constitute a gratuitous grant or rebate; and, as such, amounts received by individuals or corporations pursuant to either program will be exempt income for state income tax purposes pursuant to Act 54. The bulletin stated that taxpayers seeking to claim the exemption provided by Act 54 should report the exempt income on their 2020 Louisiana Tax Return using one of the applicable forms identified in the bulletin. Further, the Bulletin states that questions concerning the publication may be submitted by email to Policy.Publications@La.gov. More information can be found here.

Maryland – Updates Reported

Collection Activities Resumed August 16, 2021: On August 3, 2021, the Comptroller of Maryland issued a news release stating that collection activities resumed beginning August 16, 2021. Collection and licensing activities have been on hold as the result of a previous Executive Order issued by Governor Hogan, as well as a subsequent extension of that Executive Order through August 15, 2021. With the resumption of these collection activities, enforcement activities will include, but not be limited to, offsets of state and federal income tax refunds, license holds, audit and collection activities, including the issuing of liens, offsets of state vendor payments, among others. The release stated that some taxpayers may have received notices from the Comptroller's Office prior to August 16, but these notices will be limited to circumstances where legal action is required earlier than August 16 to protect the interest of the State of Maryland. The Comptroller's Office will continue to work with individuals and business taxpayers who continue to feel the lingering effects of the pandemic; and that taxpayers with liabilities may contact that office at any time to discuss their situations or to enter into payment arrangements. Contact information is provided in the release. More information can be found here.

First State to Enact Tax Whistleblower Protection Bill: As reported by the National Whistleblower Center on June 2, 2021, the Maryland General Assembly passed House Bill 804 captioned "Taxes – Whistleblower Reward Program and Statute of Limitations for Tax Collections." According to this report, Maryland now becomes the first state, after the District of Columbia, to enact a tax whistleblower protection bill similar to the Whistleblower Program administered by the Internal Revenue Service. This House Bill 804, which was enacted according this report without the Governor's signature, goes into effect on October 1, 2021, and generally provides that whistleblowers who report fraud under the Maryland Tax Code to the Maryland Comptroller that leads to the recovery of money owed by a taxpayer will be entitled to receive a monetary reward amount between 15 percent to 30 percent of what the State recovers. More information can be found here and here.

Mississippi – Updates Reported

Contractors Required to Have Sales Tax Permit: By Notice 72-21-04 issued by the Mississippi Department of Revenue (Department), the Department noted that effective April 15, 2021, all residential and commercial contractors who do not maintain a permanent place of business in Mississippi and do not have a contractor's license issued by the Mississippi Board of Contractors, must have a sales tax permit issued by the Department prior to obtaining a building permit from any Mississippi municipality. The notice also stated that contractors who maintain a permanent place of business in Mississippi or who have a contractor's license from the Board of Contractors, are not required to have such a sales tax permit in order to apply for and obtain a building permit. Questions can be addressed to the Department at the contact information provided in the notice. More information can be found here.

South Carolina – Updates Reported

Nonresident's Credit Eligibility Under High Growth Investment Job Creation Act of 2013: On June 1, 2021, the South Carolina Attorney General's Office issued an opinion addressing the question of when a nonresident is "subject to taxes imposed" by the South Carolina Income Tax Act so that such nonresident can qualify for the nonrefundable income tax credit for qualifying investments under the High Growth Investments Job Creation Act of 2013. Under that Act, an "angel investor" is entitled to a nonrefundable income tax credit of 35 percent of its qualified investment made pursuant to that Act –with 50 percent of the allowed credit being applied to the investor's net income tax liability in the year during which the qualified investment is made, and 50 percent of the allowed credit may be applied to the investor's net income tax liability in the tax years after the investment is made and carried forward for a period not exceeding ten years. The term "angel investor" is defined as including an individual who is a resident of South Carolina or a nonresident who "is subject to taxes" in that state. The South Carolina Department of Revenue (Department) has indicated that the Department will not approve the credit for a nonresident individual who did not have income tax liability in the preceding year. In responding to the question of whether "subject to taxes imposed" means being subject to taxes in the preceding year or in the current year in which the investment is made, the Attorney General concluded, after reviewing South Carolina rules of statutory construction and case law, that such office does not believe that a prior history of paying taxes in South Carolina is required for nonresidents to qualify for a tax credit under the Act. However, the Attorney General noted a concern that the application of the "subject to taxes" requirement becomes difficult for nonresidents to demonstrate with respect to the current year in which the investment is made; and, as such, that office suggests that the Legislature clarify the law regarding these issues to make clear the Legislature's intentions. More information can be found here.

Tennessee – Updates Reported

Packaging of Multiple Products/Services for Sales Tax Purposes: The Tennessee Department of Revenue (Department) issued Letter Ruling No. 21-04 dated April 28, 2021, which was posted August 9, 2021 on the Department's website. The taxpayer in this ruling is a technology company that develops and sells consumer electronics, computer software, online services and related support to its customers. These products and services include devices, subscription music, subscription TV, online magazines and newspapers, online games, cloud storage, warranty contracts and insurance. The taxpayer sells each of the foregoing individually, but also proposed to offer consumers a new way to purchase those offerings through packages for a set monthly subscription price that includes both products and/or services. In responding to questions addressing the new package offerings, the Department stated that when a transaction involves items or services that are all independently subject to sales tax, the entire transaction is subject to tax; and, similarly, if all the items or services are independently either not subject to sales tax or are exempt, the entire transaction is not subject to tax. However, where the offering proposal includes two or more items sold for a single price and at least one of the items is subject to the sales tax, the entire sales price is subject to the tax. Based upon the foregoing, the Department then addresses the application of the sales tax to packages offered by the taxpayer without a device, as well as packages including a device. The ruling also addresses the applicable state and local tax rates to apply to these differing packages, as well as the appropriate method for sourcing the differing package transactions under differing factual circumstances. For instance, the Department stated that if the taxpayer's packages are purchased from a business location in Tennessee, then the sale is sourced to that location and the local sales tax rate that applies is the local rate for that business location; however, if the sale is made from out-of-state, then the taxes are sourced under different principles depending upon whether tangible personal property is included within the package. More information can be found here.

Shipment to In-State Transload Facility Did Not Create Sales Tax Liability: On July 14, 2021, the Department issued Letter Ruling No. 21-07 addressing the application of the Tennessee sales tax to out-of-state sales shipped to a transload facility in Tennessee. In this situation, the taxpayer is a manufacturer headquartered outside Tennessee, shipping products to wholesale customers that in turn resell the products to other resellers that sell the products to consumers. The taxpayer ships the products from outside Tennessee by either truck or railcar under contractual terms that provide that the risk of loss passes from the taxpayer to its customer upon placement of the product into the hands of the common carrier at the taxpayer's business locations outside Tennessee. The products are then shipped to a third-party transload facility in Tennessee, where the transload facility employees offload the product and reload such products onto other railcars or trucks for shipments by the taxpayer's customers to other locations both inside and outside Tennessee. The taxpayer is registered for Tennessee sales tax as a remote seller, but the taxpayer's customers using the transload facility are not registered in Tennessee. Under these facts, the Department determines that the taxpayer's sales to customers are not subject to Tennessee sales tax when title passes outside of Tennessee and there is no indication that there is a transfer of possession to customers in Tennessee. The Department further noted that since the title passes at taxpayer's out-of-state business locations, the sale for purposes of taxation occurs outside Tennessee and the taxpayer should comply with the laws of the state where the sale is made. Further, the Department noted that merely traveling through a transload facility in Tennessee is not a taxable event; however, when the taxpayer's customer transfers title and possession to a purchaser located in Tennessee, the customer's sale of the product will be subject to either sales or use tax unless the sale qualifies as a sale for resale or is otherwise exempt under Tennessee law. More information can be found here.

Texas – Updates Reported

2022 Water-Efficient Products Sales Tax Holiday: The Comptroller's Office announced that the Texas Water-Efficient Products Sales Tax Holiday for 2022 will begin Saturday, May 28, 2022, through Monday, May 30, 2022. During that holiday time period, certain water-efficient and water-conserving products can be purchased online or by telephone, mail, custom order, or other means (including in-store purchases) that qualify for sales tax exemption when either the item is both delivered to, and paid for, by the customer during the exemption period; or the customer orders and pays for the item, and the retailer accepts the order during the exemption period for immediate shipment, even if the delivery is made after the exemption period ends. During that period, purchases of product displaying a WaterSense label or logo can be purchased tax-free, and such items can be bought for either personal or business purposes. Additionally, water-conserving products can be purchased tax-free during this holiday period, such as items used or planted for conserving or retaining ground water; recharging water tables; or decreasing ambient air temperature, and so limiting water evaporation. Examples of items that qualify for this exemption include a soaker or drip-irrigation hose; moisture control for sprinkler or irrigation system; mulch, among many other examples as set forth in the announcement. Additionally, the announcement provided examples of items that do not qualify for the exemption, such as construction/building materials; air conditioners; ceiling fans, among other items (assuming no other exemption is applicable). The announcement stated that if a sales tax is paid on these exempt items during the sales tax holiday, a sales tax refund can be requested in the manner set forth in the announcement. More information can be found here.