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We continue to monitor various state actions for purposes of understanding tax and tax return responsibilities during the pandemic.
Due to COVID-19, the Internal Revenue Service announced extensions of deadlines to pay various taxes and file various tax returns, with such extensions generally being through July 15, 2020. Those IRS extensions, followed in whole or in part by many states, were very helpful to taxpayers. While these IRS extensions have now expired, many states continue to adjust their tax and related requirements to address specific objectives such as raising revenues to assist with depleted governmental budgets, providing incentives to support business employers, and to assist taxpayers generally in dealing with the realities of COVID-19.
This special edition reviews certain updates by several states which may be important to taxpayers.
Alabama – Updates Reported
On August 3, 2020, the Alabama Department of Revenue issued a Notice entitled Gasoline and Undyed Diesel Fuel Excise Tax Law Changes. As stated in this Notice, Governor Ivey signed on March 12, 2019 a law known as the Rebuild Alabama Act (Act). That Act contains various fuel tax rate changes and filing requirements that take place on October 1, 2020. As also referenced in the Notice, and effective October 1, the gasoline and undyed diesel excise taxes will be increased pursuant to the Act by 2¢ per gallon to 26¢ per gallon for gasoline and 27¢ per gallon for undyed diesel. Further, any wholesale distributor holding motor fuel in inventory outside of the bulk transfer/terminal system on the effective date of each tax increase under the Act will be liable for the additional excise tax. The foregoing does not include product located at a retail service station. The Notice provides that a floor-stocks tax return must be filed and the tax paid on or before the last day of the third month following the tax increase. A new floor-stocks return can be accessed on the Department's forms webpage. According to the Notice, this form must be filed manually with the Department at the address in the Notice, and the floor-stocks tax return and payment for the tax increase effective October 1 is due on or before February 1, 2021. More information can be found here.
District of Columbia – Information Reported
In late July 2020, the District's Office of Tax and Revenue (OTR) issued an announcement stating that the OTR has been working with business groups and other taxpayers to resolve issues related to penalties and interest on deferred sales tax payments. With that announcement, the OTR also published Frequently Asked Questions involving the potential abatement of interest and waiver of penalties for the failure by the extended due date of July 20, 2020 to either pay sales and use taxes for the periods ending February 29, 2020 and March 31, 2020, or file returns for such periods by that extended due date. These FAQs address various situations regarding the failure to pay and/or file by that extended due date. The OTR also stated that businesses with additional questions should contact the OTR's Collections Division via email at firstname.lastname@example.org or by calling (202) 724-5045. More information can be found here.
Florida – No Further Updates
Georgia – Updates Reported
On August 17, 2020, the Georgia Department of Revenue issued an Informational Bulletin entitled Property Tax Appeal Deadline and COVID-19. This Bulletin referenced that the Chief Justice of the Georgia Supreme Court has issued an Order Declaring Statewide Judicial Emergency, which has been extended several times, that modifies various deadlines or other time schedules including an extension of the deadline for filing certain ad valorem tax appeals. The most recent of these extension orders, according to the Bulletin, provided that, for notices of assessment issued between March 14, 2020 and July 13, 2020, the 45-day appeal period began running on July 14, 2020, making the new appeal deadline August 27, 2020. Further, the Bulletin noted that pursuant to Georgia law the Department issues Orders Authorizing Collection after receiving required certifications from County Boards of Assessors; and, in view of this recent Extension Order affecting filing of property tax appeals, the certification regarding properties under appeal and values in dispute should be made after the new appeal deadline of August 27, 2020. More information can be found here.
Louisiana – Updates Reported
By Notice of Intent just recently published, the Louisiana Department of Revenue gave notice pursuant to rulemaking procedures that the Department has initiated the regulatory process to finalize a rule which mandates the electronic filing and payment requirements for the Alcoholic Beverage Tax Return, Hazardous Waste Disposal Tax Return, Transportation and Communication Utilities Tax Return, and Report of Inspection and Supervision Fee. Upon finalization of this regulatory process, the electric filing and payment requirements would be mandatory for those particular returns/reports and tax/fee payments effective for all applicable periods beginning on or after January 1, 2021. Interested persons may submit written data, views, arguments or comments regarding this proposed rule to the address as set forth in the Notice of Intent; and written comments will be accepted until 4:30 p.m., September 25, 2020. Further, a public hearing will be held on September 28, 2020 at the location set forth in the Notice. That Notice of Intent can be found here.
Maryland – Updates Reported
On July 24, 2020, the Maryland Office of the Comptroller issued Tax Alert #07-24 (Alert) which deals with the Maryland income tax. This Alert addresses the Maryland impact of the federal CARES Act on the (i) business interest expense deduction; (ii) limitation of excess business losses for noncorporate taxpayers; (iii) net operating losses; and (iv) qualified improvement property (QIP) bonus depreciation. The introductory provisions of that Alert state that Maryland generally conforms to federal income tax laws except where the Maryland Legislature has enacted decoupling legislation. However, Maryland law also provides that if the revenue impact of an Internal Revenue Code (IRC) amendment for a taxable year that begins in the calendar year in which the amendment is enacted is greater than $5 million, the amendment does not affect the determination of Maryland taxable income for that tax year. In other words, Maryland automatically decouples from those federal changes if the impact is greater than $5 million. The Alert states that, in a report dated June 12, 2020, the Bureau of Revenue Estimates concludes that each of the key provisions referenced above would have an impact greater than $5 million in each year affected, 2018, 2019 and 2020. Nevertheless, the Maryland statute permits decoupling only for purposes of calculating Maryland taxable income for the year in which the amendment was enacted. The Alert goes on to say that Maryland is therefore automatically decoupled from the CARES Act provisions affecting the tax year 2020, but conforms to that Act with respect to the years 2018 and 2019. The Alert goes on to address the impact of Maryland decoupling from the 2020 year with respect to each of the four tax topics referenced earlier. In brief, and subject to the Alert's analysis, the Alert states that (i) as to interest expense, Maryland is decoupled from IRC Section 163 as amended by the CARES Act as it applies to a tax year beginning in 2020; (ii) as to excess business losses, Maryland is decoupled from IRC Section 461(1) as amended by the CARES Act as it applies to the tax year 2020; (iii) as to net operating losses, Maryland is decoupled from IRC Section 172 as amended by the CARES Act as it applies to the 2020 year; and (iv) since Maryland has legislatively decoupled from the federal bonus depreciation except as such bonus is taken by a manufacturer, non-manufacturers may not take bonus depreciation on QIP at the Maryland level even though the property qualifies for federal bonus depreciation. Each of those tax topics are discussed in more detail in the Alert, which can be found here.
Mississippi – Updates Reported
On August 12, 2020, the Mississippi Department of Revenue announced via Twitter that, as of August 20, 2020, the Department will resume issuing audit assessments and will end the period of suspension of accrual of penalty and interest. That suspension period began on March 26, 2020. According to this Twitter announcement, audit staff will be resuming normal audit functions but will continue to work with taxpayers who are negatively affected by the pandemic. That Twitter announcement can be found here.
South Carolina – Updates Reported
On August 5, 2020, the South Carolina Department of Revenue issued Information Letter #20-23 addressing certain extraordinary charges imposed by retailers due to COVID-19. The Information Letter stated that, in order to recover a portion of the lost sales revenue during the pandemic, or to recover some of the costs incurred to implement necessary health and safety measures, some retailers are increasing the sales price of items sold to consumers or may add a separate fee to the customer's bill such as a COVID-19 surcharge or fee or a handling charge. The purpose of this Information Letter is to remind retailers and consumers of the application of the sales/use taxes to an additional COVID-19 surcharge or fee, a handling fee, a takeout charge or a similar charge. The Information Letter stated that the sales tax is 6% (plus applicable local sales tax) of the gross proceeds of sales upon every person engaged in South Carolina in the business of selling tangible personal property at retail. Therefore, under South Carolina law, a COVID-19 surcharge or fee, a handling fee, a takeout charge, or similar fee charged by the retailer as part of the sale of tangible personal property, is includable in the gross proceeds of sales and subject to the tax, unless otherwise exempt. The Information Letter then goes on to provide several examples of when the tax applies and when a potential exemption may apply. One such example is a restaurant that sells hot meals for dine-in or takeout, and, because of the increased inventory and operating costs due to COVID-19, the restaurant adds an additional 10% COVID-19 surcharge to each order. Since that surcharge is part of the gross proceeds of sales, the basis or measure upon which the sales tax is calculated would include that surcharge. More examples and other information can be found here.
Tennessee – Updates Reported
On August 14, 2020, the Tennessee Department of Revenue issued Notice #20-16 dealing with interest expense carryforward for purposes of this State's franchise and excise taxes. That Notice recognized that the federal Tax Cuts and Jobs Acts (Act) amended Internal Revenue Code Section 163(j) to limit the business interest expense deduction. Pursuant to legislation enacted by Tennessee, and for tax years beginning after December 31, 2017 and before January 1, 2020, Tennessee recognizes this federal limitation. However, pursuant to that same Tennessee legislation, and for tax years beginning on or after January 1, 2020, Tennessee decoupled from the Act's amendment of Section 163(j) and the business interest expense deduction is no longer limited. Pursuant to the Act, Section 163(j) allows taxpayers to carryforward the business interest expense deduction limited by the amendment. According to this Notice, and for tax years beginning on or after January 1, 2020, a taxpayer may deduct the 2018 and 2019 carryforwards to the extent they are deducted for federal income tax purposes. The Notice references that the carryforward is limited in the same manner it is for federal income tax purposes under Section 163(j) as amended by the Act. Further, the Notice recognizes that the 2018 and 2019 carryforward amounts deducted for federal income tax purposes will be included on Schedule J, Line 27a, of the Franchise and Excise Tax Return along with the current year's business interest expense. The Notice further directs that taxpayers should maintain records sufficient to verify the 2018 and/or 2019 carryforward amounts that are taxed. Further, the Notice states that Tennessee taxpayers that are members of a federal consolidated group should allocate the federal consolidated group's carryforward of business interest expense for its 2018 and 2019 years in the same manner as the allocation of the group's interest expense deduction for those tax years, referencing Important Notice #19-18 for relevant information as to how this allocation is calculated. More information can be found here.
Texas – Information Reported
In the August 2020 Tax Policy News, the Texas Comptroller reminded taxpayers that the deadline for filing a franchise tax second extension request for mandatory electronic payers was August 17, 2020. The reminder also stated that entities that properly secured a second extension (after filing a first extension by July 15) will have until January 15, 2021 to file their report (the due date is extended from November 15, 2020 as a relief from the COVID-19 pandemic). To have properly secured a second extension entities must have electronically submitted payment using the appropriate electronic payment method set forth in that edition of Tax Policy News. More information can be found here.