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 of interest to you.
Alabama – Updates Reported
On February 24, 2021, the Alabama Department of Revenue issued a press release offering tax relief to Alabama taxpayers who reside in or have a business located within a federally declared disaster area where damage was caused by recent winter storms. According to the release, the tax relief measures offered by the Department mirror the IRS measures in the same declared disaster areas. Also according to the release, Alabama taxpayers residing in these areas designated as disaster areas by the federal government have until June 15, 2021, to file tax returns due on or after February 11, 2021 and before June 15, 2021; and that penalty relief will be provided during the extension period. Affected taxpayers filing for Individual Income Tax, Corporate Income Tax, Pass-through Entities, Business Privilege Tax, or Withholding Tax may submit a penalty waiver request using the Department's applicable form. The release also provided that a list of the eligible localities can be found on the IRS link within the press release. More information can be found here.
District of Columbia – Updates Reported
On February 17, 2021, the District's Office of Tax and Revenue (OTR) posted Tax Notice 2021-01 dealing with the treatment of hotel stays for federal troops deployed to the District of Columbia. In that regard, the OTR referenced in said Notice that troops from federal agencies as well as troops from other states were deployed to protect the District during the January 6, 2021 violent protests; and that many of those troops stayed in hotels in the District in the days before January 6 and many of the troops remain in those hotels indefinitely. With respect to the sales taxability of hotel stays by these troops during this period, the OTR stated that such hotel stays shall be deemed tax-exempt transactions during this period for sales and use tax purposes. More information can be found here.
Florida – Updates Reported
It has been nearly three years since the U.S. Supreme Court decided the Wayfair case in June 2018, holding that states can require out-of-state sellers to collect and remit sales tax on sales to in-state consumers even if the seller has no physical presence in the consumer's state. In doing so, the Court overruled 50 years of its own precedent. While a large majority of states quickly changed their laws to facilitate collection of the additional tax, Florida has not and remains one of the lone holdouts. Very resistant to anything that might be characterized as a tax increase, the Republican-led Florida Legislature has been on the fence about collecting online sales taxes. Now the pandemic has put the sales tax issue at the center of debate because of the need to replace lost tax revenues. The details are far from certain, but leadership in the Legislature appears to have cut a deal to approve taxation of online sales to residents. The estimated $1.2 billion in revenue from the tax on online sales is proposed to be dedicated to replenish the state's unemployment trust fund and lower the unemployment tax on businesses. Considerable controversy has been generated about reforming the unemployment compensation system if the sales tax revenue is directed to it. Much remains to be sorted out, but taxation of online sales in Florida now seems likely, with the effect on the unemployment tax system yet to be determined. Once this year's legislative session has ended we will report on the details of the new law.
Georgia – Updates Reported
The Georgia Department of Revenue is amending the sales and use tax rules dealing with direct pay reporting. The Department considered these amendments at a remote regulation hearing held on March 9, 2021, with such proposed changes addressing definitions as well as substantive provisions within the current Direct Pay Reporting Regulations found at Section 560-12-1-.16 of the Department's Regulations. More information can be found here.
Additionally, the Georgia Legislature recently passed legislation (H.B.265), and Governor Kemp signed that legislation on February 24, 2021, updating Georgia's corporate and personal income tax laws so as to conform to the Internal Revenue Code as it existed prior to January 1, 2021. This legislation provides that, for taxable years beginning on or after January 1, 2020, the provisions of the Internal Revenue Code of 1986, as amended, which were as of January 2021, enacted into law but not yet effective, shall become effective for purposes of Georgia taxation on the same dates upon which they become effective for federal tax purposes. Notably, businesses eligible for PPP loan forgiveness would not be required to pay Georgia taxes on such forgiven loans even though included in income; and those businesses can claim tax deductions for appropriate business expenditures using the loan proceeds. This new law is effective for all taxable years beginning on or after January 1, 2020. More information can be found here.
Louisiana – No Further Update
Maryland – Updates Reported
On February 15, 2021, Governor Hogan signed into law the Recovery for the Economy, Livelihoods, Industries, Entrepreneurs, and Families Act (the "RELIEF" Act), which is intended to relieve some of the adverse economic effects of the pandemic. As part of the RELIEF Act, and as noted in Tax Alert 03-04-21A issued by the Comptroller of Maryland, Maryland citizens who receive a Maryland earned income tax credit in tax year 2019 are eligible to receive an economic impact payment totaling (i) $300 for individual taxpayers, and (ii) $500 for spouses filing joint returns, surviving spouses and heads of households. Also under the RELIEF Act, unemployment benefits and coronavirus relief payments, to the extent included in federal adjusted gross income, may be subtracted from income taxed by Maryland for the 2020 and 2021 tax years. Other benefits are provided under the RELIEF Act, including an enhanced refundable state earned income tax credit as well as an alternative credit against the gross amount of sales and use tax owed by some vendors for each of the three months of March, April, and May 2021. More information regarding these and other benefits can be found here.
Additionally, the Comptroller has issued Tax Alert 03-11-2021, which extends certain filing due dates in order to allow adequate time to develop new tax returns forms that will be compatible with both federal and Maryland legislation providing relief from the pandemic. In that regard, all individual, corporate, pass-through entity and fiduciary income tax returns that would otherwise be due on varying dates between January 1, 2021 and July 15, 2021, inclusive, are now due on or before July 15, 2021. Further, the first and second quarter estimates are also due by July 15. Additionally, sales and use tax returns for March, April, and May 2021 are due July 15. Interest and penalties are waived if the taxes are paid by July 15. Further, and even though the tobacco tax return is due on June 13, 2021, interest and penalties are to be waived if payments are made by July 15. No action is required to request a waiver of interest or penalties, and such waiver will be automatically granted for taxpayers filing returns and making the payments by the date set forth in this Tax Alert. More information can be found here.
Still further, the Comptroller has very recently published Business Tax Tip # 29, entitled "Sales of Digital Products and Digital Code." This 15-page publication is intended to provide guidance with respect to the recently enacted Century Fairness Act that imposes sales and use taxes on the sale of digital products. More information can be found here.
Mississippi – Updates Reported
On February 1, 2021, the Mississippi Department of Revenue issued Notice 72-21-01, as updated March 1, 2021, addressing the type of equipment qualifying for the reduced 1 ½% rate for sales tax, which is available to professional loggers. According to this Notice, Mississippi Code Annotated Section 27-65-17 was amended during the 2020 Regular Session of the Legislature to remove the requirement that equipment be "permanently" attached to other equipment drawn by a vehicle which is self-propelled in order to qualify for the reduced rate. As of June 23, 2020, the Notice states that such equipment must simply be "attached" to other equipment drawn by a vehicle which is self-propelled in order to qualify for the reduced rate. However, equipment that is mounted to other equipment which is self-propelled is still required to be permanently attached in order to qualify. The Notice goes on to state that the reduced rate is available to professional loggers with respect to equipment used in logging, pulpwood operations or tree farming, and parts and labor used to maintain and/or repair such equipment, within the conditions for the reduced rate. The Notice also references that loggers must meet certain federal education requirements in order to be considered as professional loggers. Further, the Notice states that retailers selling equipment used in logging to professional loggers must maintain adequate records to substantiate charging the reduced rate and that invoices should clearly identify the equipment, parts and repairs that were sold. Retailers, according to the Notice, must maintain a copy of the purchaser's Professional Logger's Permit, and that retailers are required to keep sales records for a minimum of three years. The Notice goes on to give examples of some equipment and parts qualifying for the reduced rate, as well as items that are not eligible for the reduced rate. More information can be found here.
South Carolina – Updates Reported
On March 1, 2021, the South Carolina Department of Revenue issued SC Revenue Ruling #21-5 addressing a tax credit for qualified low-income housing projects created by the state's Workforce and Senior Affordable Housing Act enacted in May 2020. The purpose of this Ruling is to provide an overview of the federal low-income housing tax credit and the new South Carolina housing tax credit, and to address general questions relating to the state credit. Further, this Ruling specifically supersedes Revenue Ruling #21-1 (addressed in our January edition, here), and applies to qualified projects placed in service January 2, 2020 to December 30, 2030. After reviewing background information pertaining to the federal credit as well as the South Carolina credit, the Ruling sets forth various questions and answers, including (for example) addressing the definition of a "project" and a "qualified project"; addressing what is an "eligibility statement" and when such a statement is to be issued; addressing what taxes the state credit can offset and by how much; as well as many other topics involving the South Carolina credit. More information can be found here.
Tennessee – Updates Reported
On February 9, 2021, the Tennessee Department of Revenue posted Letter Ruling #21-02, which addresses the application of the sales and use tax to fees and dues charged for membership in a professional membership organization. Basically, the organization described in this Ruling is a not-for-profit professional membership association, which is exempt from federal income tax under Internal Revenue Code Section 501(c)(6). The organization provides its members with certifications, resources, tools, academic research, publications, professional development courses, and networking opportunities. These individual members pay a one-time application fee to become a member in the organization. As part of such membership, individual members have connection through the organization to the global community of similar professionals, discounts on certification exam fees, and professional development opportunities, among others. The individual members can interact with the organization through an online dashboard, which allows a member to access and update profile information, view a list of upcoming events and webinars, among other opportunities. However, members are not required to utilize any of the organization's products and services; and, according to the organization, many members do not utilize the dashboard or online materials. The organization also offers a free membership that permits a user access to the organization's global community, as well as access to a store to purchase various books, guides, exam preparation materials, among others. In concluding that the membership fees paid to join the organization are not subject to the Tennessee sales and use tax, the Department noted that the tax applies to the sale of tangible personal property and specifically enumerated services unless an exemption applies, but that professional memberships are not listed as taxable on a stand-alone basis as a taxable service or as an amusement. Further, the benefits of the membership, according to the Department, do not necessarily result in the membership fee becoming taxable. The Department noted that under the facts presented, members receive access to a variety of benefits, most of which are not taxable; and, as a result, the added benefits are not essential to the membership sales, but rather are better classified as incidental to the sale of the individual memberships. As such, the sale of the memberships was determined not to be taxable. More information can be found here.
Additionally, the Department on March 12, 2021 issued Tobacco Tax Notice #21-01 dealing with the delivery sales of electronic nicotine delivery systems. According to this Notice, federal law in December 2020 was amended so as to include such delivery systems in the definition of "cigarette." The amended federal law imposes various conditions upon such systems including the filing of monthly reports with the tobacco tax administrator of each state no later than the 10th day of each month. The Department is the tobacco tax administrator for shipments into Tennessee. The Notice states that, beginning May 10, 2021, and the 10th of every month thereafter, any entity shipping electronic nicotine delivery systems into Tennessee from another state is required to report all such shipments to the Department. More information can be found here.
Texas – Updates Reported
Because of the statewide severe winter weather, the Texas Comptroller of Public Accounts in late February announced the extension of the due date for the 2021 Texas Franchise Tax Reports from May 15 to June 15, 2021. The Texas Comptroller stated that this extension aligns the agency with the Internal Revenue Service, which on February 22, extended the April 15 tax filing and payment deadline to June 15 for all Texas residents and businesses. The Comptroller stated that the due date extension applies to all franchise taxpayers, that the extension is automatic, and that taxpayers do not need to file any additional forms. More information can be found here.