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
August Rule Hearing Public Notice: The Alabama Department of Revenue (Department) recently published a Public Notice announcing that the Department will hold rule hearings on August 9, 2022, via web conference. The hearings will begin at 1:30 p.m. CST and will cover a wide variety of Alabama taxes and related issues, including an amendment to: Rule 810-3-39-.02, dealing with the extension of time for filing a corporation return; Rule 810-3-43-.01, dealing with the availability, claiming, and transferability of the rail credits; Rule 810-6-2-.27, dealing with gold, coin, and bullion; Rule 810-6-3-.42.02, dealing with sales to nonresidents; among various other Rules to be addressed at the hearing. The Notice states that to participate in the upcoming web conference public hearing, interested parties should contact the Department’s Tax Policy and Governmental Affairs Division at firstname.lastname@example.org or 334-242-1380 to obtain the appropriate sign-in information. The Notice further stated that rule actions are needed to comply with recent law changes, new guidelines, or procedures. Further, the Notice provides that copies of a proposed rule may be downloaded from the website, where all rulemaking hearings conducted by the Department are posted. More information can be found here.
Alabama Tax Tribunal Ruling on Add-Back Statute: In Pfizer, Inc. v. Department of Revenue (Ala. Tax Trib. Docket No 18-236-JP, July 28, 2022), the Alabama Tax Tribunal ruled in favor of the taxpayer regarding the deductibility of interest paid to a foreign affiliate. Under Alabama's "add-back" statute, Alabama Code Section 40-18-35(b), certain intangible expenses and interest payments paid to a related person are not deductible for Alabama corporate income tax purposes. However, an exception permits the deduction "to the extent the corporation shows … that the corresponding item of income was in the same taxable year … subject to a tax based on or measured by the related member's net income by a foreign nation which has in force an income tax treaty with the United States, if the recipient was a 'resident' of the foreign nation." In Pfizer, the Alabama Department of Revenue disallowed the deduction for interest paid to an affiliate based in Ireland, arguing that the amount was not "subject to a tax" in Ireland due to a similar payment and deduction of interest by the Irish affiliate to a Luxembourg affiliate. The Tribunal found that the subsequent payment and deduction of the interest to the Luxembourg affiliate did not cause the add-back of the interest paid to the Irish affiliate. In doing so, the Tribunal distinguished the decision of the Alabama Court of Civil Appeals in Surtees v. VFJ Ventures, Inc., 8 So.3d 950 (Ala. Civ. App. 2008). A link to the Pfizer decision is here.
District of Columbia – Updates Reported
Tax Deed Recordation Revised Process Following Tax Sale: On June 9, 2022, the Office of Tax and Revenue (OTR) published an announcement that the 2022 real property tax sale would occur on July 19 and 20, 2022. That announcement contained various information regarding the sale such as the location of the sale as well as when and where the list of subject property would be available for review. For those purchasers at that tax sale, the OTR previously issued Notice 2022-04, which set forth the District's revised tax deed issuance and recordation process that would be effective May 1, 2022. Under that Notice and upon receipt of a final order, the tax sale purchaser shall provide a certified copy of the order to the OTR and, after receiving the certified copy of the final order, the OTR shall generate a bill for deed directing the tax sale purchaser to pay the amounts required by applicable law. The purchaser "should pay the required amount to the District within 30 days of the final order." Subject to other conditions in the Notice, and after review of tax account financials and applicable case documents, the OTR will prepare the Tax Deed and record the Tax Deed with the Recorder of Deeds. Questions regarding this revised process should be directed, according to the Notice, to mytax.dc.gov via the tax sale purchaser's account. More information can be found here.
Florida – Updates Reported
Emergency Sales/Use Tax Rule for Purchase of Farm Trailer: The Florida Department of Revenue (Department) recently published Emergency Rule No. 12AER22-11, effective July 1, 2022, implementing changes to the exemption from the sales/use tax with respect to certain agricultural production items. The Department's preamble to this Emergency Rule provides that the Rule implements changes to the exemption from the sales/use tax for the purchase of a trailer by a farmer for agricultural production or to transport farm products from the farm to the place where the farmer transfers ownership of the farm products to another, as well as the new exemption from tax for purchases of materials used to construct or repair fencing used in agricultural production. The text of this Emergency Rule can be found here.
Georgia – Updates Reported
Proposed Rule Amendments for Qualified Timberland Property Appraisal Manual: The Georgia Department of Revenue (Department) published Notice LGSD-2022-004 on July 22, 2022, proposing to amend Rule 560-11-16.05 and Appendix 560-11-16-A involving the Qualified Timberland Property Appraisal Manual. The Department's synopsis in this Notice stated that the purpose of this amendment is to update the Manual and the table of commercial timberland per acre values by ecological region and soil productivity classification. The Department will consider the proposed amendment to this Rule and Appendix at a remote regulation hearing held at 10:00 a.m. EST on August 30, 2022, which can be accessed through the following link: https://meet.goto.com/478259845 or via telephone at 1-877-309-2073 (toll-free) and 646-749-3129 (local) with the access code 478-259-845. The Department also stated that all comments regarding this Rule from interested persons must be received no later than 10:00 a.m. on August 30, 2022. The text of a proposed amendment, as well as other contact information, can be found here.
Expansion of Sales Tax Exemption Relative to Certain Sporting Events: In an effort to encourage major sporting events to come to Georgia, admission sales to nonrecurring sporting events in Georgia have for some years been exempt from the sales tax to the extent such events are expected to generate over $50 million in revenue. Expressly included in such exemptions are the Super Bowl; any semifinal or championship game of a national collegiate tournament; or an all-star game of Major League Baseball, Major League Soccer, or the National Basketball Association. The 2022 General Assembly extended that exemption by the passage of Act 757 (H.B. 1034), signed by Governor Kemp on May 2, 2022, so as to apply the exemption to tickets to the World Cup, which at the time of passage was considering Atlanta as one of the host cities in 2026. Atlanta was subsequently designated as one of the host cities. Further, this exemption was scheduled to be automatically repealed on December 31, 2022, but Act 757 also extended that repeal date to December 31, 2031. More information can be found here.
Living Infants and Fairness Equality (LIFE) Act: On August 1, 2022, the Department issued Guidance regarding Georgia House Bill 481, in particular in light of the recent rulings by the U.S. Supreme Court on June 24, 2022, in Dobbs vs. Jackson Women's Health Organization and in light of a ruling on July 20, 2022, by the 11th Circuit Court of Appeals. This Guidance states that the Department will recognize any unborn child with a detectable human heartbeat as eligible for the Georgia individual income tax dependent exemption. Pursuant to this Guidance, on individual income tax returns filed for the tax year 2022 where, at any time on or after July 20, 2022, and through December 31, 2022, a taxpayer has an unborn child (or children) with a detectable human heartbeat (which may occur, according to the Guidance, as early as six weeks' gestation), the taxpayer may claim a dependent personal exemption in the amount of $3,000 for each unborn child. The Guidance stated that additional information, including return instructions to claim the personal exemption for an unborn child with a detectable heartbeat, will be issued later this year, along with other tax changes impacting the tax year 2022 Georgia individual income tax returns. More information can be found here.
Louisiana – Updates Reported
Proposed Rule Relieving Employers of Withholding for Certain Nonresident Employees: The Louisiana Department of Revenue (Department) recently published a Notice of Intent to initiate a rulemaking procedure relative to Revised Statute 47:112.2, which authorized an individual income tax exemption for certain nonresident employees who performed their employment duties in Louisiana for 25 days or less. The Department noted that this statute relieves employers of such nonresident employees of the requirement to withhold Louisiana individual income tax on the nonresident employee's wages. However, if the nonresident employee performs employment-related duties in Louisiana for a period more than 25 days in a calendar year, the employer is required to withhold and remit tax to Louisiana for the entire year, including the first 25 days. The Notice of Intent states that a public hearing will be held on August 25, 2022, at 1:30 p.m. CST at the Baton Rouge address set forth in that Notice. The text of the proposed Rule provides several conditions in order for an employer to be eligible for the exemption, such as the compensation must be paid for employment duties performed by the nonresident individual in the state for 25 or fewer days in the calendar year; the nonresident individual performed employment duties in more than one state during the calendar year; the wages are not paid for employment duties performed by the nonresident individual in the individual's capacity as a professional athlete or in certain other capacities; and the nonresident individual did not have other income derived from sources within Louisiana during the taxable year, among other conditions. Further, nonresident employees seeking to claim the exemption must file a Form L-4E, Exemption from Withholding Louisiana Income Tax, with their employer in order for their employer to refrain from withholding Louisiana income taxes from their wages, and such Form must be filed annually in order to continue claiming the exemption. Employers receiving the Form L-4E must retain that Form in their records. The Department will not require the payment of penalties or interest for failing to deduct and withhold income tax for a nonresident employee who does not qualify for the exemption if the employer meets certain conditions; otherwise, the Department will require the payment of penalties and interest. The current deadline for comments under this Notice is 4:00 p.m. CST August 24, 2022, and comments are to be submitted to the address set forth in the Notice. More information can be found here (beginning at page 2019).
Multi-Parish Sales and Use Tax Audit Program: On July 1, 2022, new procedures for the multi-parish sales tax audit program went into effect. In order to minimize costs for all parties, the State of Louisiana implemented the Multi-parish sales tax audit program. A taxpayer may now consolidate multiple audit requests by multiple parishes into a single audit. A multi-parish audit may be requested by a taxpayer that (i) has a location in the state and is registered to file and remit local sales and use taxes pursuant to a local ordinance in at least three parishes; (ii) is not a recipient of a jeopardy assessment issued by any collector; (iii) is not engaged in a current audit by a collector for which a notice of intent to assess was issued prior to July 1, 2022; (iv) agrees to promptly sign all necessary agreements to suspend prescription; and (v) is not involved in any litigation with any collector. A taxpayer that qualifies may request a multi-parish audit from the board within 30 days from the issuance of a notice of examination from all of the parishes in which the taxpayer engaged in taxable transactions during the audit period. There are a number of other procedures that noticed taxpayers must comply with in order to take advantage of this consolidated multi-parish tax audit. More information can be found here.
Maryland – Updates Reported
Sales and Use Tax Exemption Certificate Renewal Online Application: The Comptroller of Maryland (Comptroller) has published an announcement regarding the process by which an exempt organization for sales and use tax purposes can renew its exempt status using the online application. This announcement states that the application must be completed by an authorized officer, and that an authorized officer is a person formally empowered by the business entity to conduct business on its behalf, or a person who can act in an official capacity on behalf of the organization, such as an executive director, CEO, CFO, COO, president, secretary, treasurer, deacon, elder, pastor, or any other officer specified by the rules of operation, Articles of Incorporation, or Bylaws. Further, in order to complete the renewal process, the organization must have the following information: (i) the FEIN for the organization; and (ii) instructions for an exemption certificate renewal letter mailed to the organization. The announcement says that the organization should print a copy of each page during the online renewal application to keep for its records. Upon successful renewal, the announcement states that the organization will receive a new Maryland Sales and Use Tax Exemption Certificate with an expiration date of five years from the current expiration (September 30, 2027) and that new Certificates will be mailed in September 2022. The announcement references that if additional information is required to process the application, the Comptroller's office will contact the organization via written correspondence. The announcement also provides a contact number in the event of questions regarding the renewal application. More information can be found here.
Mississippi – Updates Reported
Guidance On Pass-Through Entity Election: On July 28, 2022, the Mississippi Department of Revenue (Department) published Guidance with respect to the pass-through entity election that was signed into law by the 2022 Legislative Session on April 14, 2022. This Guidance addresses various areas pertinent to the pass-through entity election, which is effective from and after January 1, 2022, including areas such as: eligibility for the election; making or revoking the election; filing an Electing Pass-Through Entity Return; estimated tax payments; composite returns and credits for taxes paid in other states by the electing pass-through entity; and the amount of the credit allowed with respect to individuals and businesses that are owners, members, partners, or shareholders of an electing pass-through entity. More information can be found here.
North Carolina – Updates Reported
Temporary Reduction in Late Payment Penalty: On June 30, 2022, the North Carolina Department of Revenue (Department) published an Important Notice addressing legislation that was passed in the 2021 General Assembly. Effective July 1, 2022, that 2021 legislation changed the calculation of the Failure to Pay Tax When Due Penalty. That penalty is imposed if a taxpayer does not pay the amount of tax that is owed to the Department by the due date of the applicable return, and such penalty is a percentage of the net tax that the taxpayer did not pay by the due date of that return. Pursuant to that 2021 legislation, the General Assembly, according to this Notice, enacted legislation to change the calculation of the penalty from the current flat rate of 10% to a graduated rate, effective July 1, 2022. However, the Notice further states that on June 29, 2022, Governor Cooper signed into law a continuance of the current penalty rate of 10% through December 2022; then temporarily reducing that penalty rate to 5% from January 2023 to June 2024; and then reintroduces the graduated penalty rate in July 2024. The Notice sets forth a table summarizing these changes, and further states that any questions regarding this Notice can be addressed through the Department's Customer Interaction Center at the contact information within the Notice. More information can be found here.
South Carolina – Updates Reported
Sales Tax Holiday Dates and List of Exempt/Non-Exempt Items: On June 28, 2022, the South Carolina Department of Revenue (Department) published Information Letter #22-10, addressing the sales tax holidays for 2022, as well as setting forth a list of exempt and non-exempt items. According to this Information Letter, sales tax holidays for 2022 will include eligible sales taking place from August 5 through August 7, 2022. The eligible items generally include clothing and accessories; footwear; school supplies; computers, computer software, printers, and supplies; and certain bed and bath supplies. Non-exempt items include items for use in a trade or business; clothing or footwear rentals; watches; eyewear; and other items as referenced in the Letter. Further, the Information Letter sets forth examples of these exempt and taxable items in the listing attached to the Letter. More information can be found here.
Tennessee – Updates Reported
Franchise Tax Ruling Did Not Require Add-Back of Short-Term Trade Payables: On June 6, 2022, the Tennessee Department of Revenue (Department) posted Letter Ruling #22-03, dated May 4, 2022, addressing the applicability of the Tennessee franchise tax add-back requirement for short-term intercompany trade payables. The facts of this Ruling involved a corporate "Taxpayer" that manufactures, assembles, and sells certain products, with such products being generally manufactured and assembled at an affiliated plant. The Taxpayer conducts operations within the United States through its U.S. Branch. The U.S. Branch, according to the Ruling, serves primarily to ensure that the products of the various business groups flow smoothly from the Taxpayer to customers in North and South America; and, specifically, the US Branch provides administrative control and coordination with Taxpayer’s major customers in the United States. The facts also reveal that when a customer in the United States places an order for products, the U.S. Branch purchases the inventory from an affiliate, which creates a short-term intercompany trade payable that is based upon an IRS-approved Advance Pricing Agreement that establishes an appropriate "arm's length" price for the inventory purchased by the U.S. Branch from the affiliate. The trade payable created from such purchase is settled on a monthly basis. The Taxpayer files its Tennessee franchise and excise return on a separate entity basis and reports the activities of the U.S. Branch. The Taxpayer has not made an election to compute net worth on a consolidated basis. In response to the question of whether the Taxpayer must add back the trade payables in arriving at its net worth when calculating the franchise tax liability, the Department determined that the Taxpayer is not required to so add back these short-term intercompany trade payables owed by the U.S. Branch to the affiliate. While Tennessee Code Annotated Section 67-4-2107(b)(1) requires that the debt of a corporation owed to an affiliate corporation must be added back to its franchise tax base calculation if its capital stock is inadequate for its business needs, and notwithstanding Franchise Tax Rule 1320-06-01-.15, which governs the amount of affiliated debt that must be included in a corporation's franchise tax base, the Department takes the position in this Ruling that account or trade payables that are current liabilities are not considered affiliated debt. The Department then referenced that the U.S. Branch trade payables owed to the affiliate are settled on a monthly basis, and therefore it appears that the Taxpayer appropriately classifies such trade payables as a current liability for financial reporting purposes. The Department thus concluded that the add-back provisions do not apply. More information can be found here.
Texas – Updates Reported
Back-to-School Sales Tax Holiday Tips for Sellers: The Comptroller's Office has published a segment in its July Tax Policy News addressing some tips for sellers during the back-to-school sales tax holidays, which begins August 5 and lasts through August 7, 2022. That segment states that if you are a seller of items that could qualify for the sales tax holiday, these tips published by the Comptroller will assist in handling special situations such as rain checks, advertising, and tax reporting. The Comptroller then discusses the types of items that qualify for the sales tax holiday, which predominantly are clothing, footwear, and other items, as well as school supplies; compared to non-qualifying items, which generally include textbooks, computers, software, clothing and footwear used for athletic activities, jewelry, and handbags, among many other non-qualifying items. The Comptroller goes on to provide tips with respect to selling backpacks and school supplies; school supplies bought using a business account; online purchases and telephone orders; layaways and rain checks; advertising non-qualified items; and reporting the applicable tax. More information can be found here.