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
Extension of Time for Election to be Taxed at Entity Level: On June 17, 2022, the Alabama Department of Revenue (Department) issued a press release extending the due date for the filing of the election to be taxed at the entity level for certain pass-through entities to August 15, 2022. The Department stated in this release that this extension is being provided because a number of taxpayers failed to file the required election by the original due date but either made estimated payments or filed required returns as if the election had been made. This entity-level tax election, according to the release, is being implemented for the first time for the 2021 tax year, so the Department wanted to help those who showed an intention to make the election but erroneously failed to do so. Accordingly, the release stated that the Department will recognize elections to be taxed at the entity level that are filed using My Alabama Taxes no later than August 15, 2022, as elections validly made by the due date for those pass-through entities, provided that: (i) the entity timely files the required entity and member tax returns; (ii) the entity timely makes the electing pass-through entity extension payment; or (iii) the entity made an entity-level tax payment prior to the due date of the respective return. The release further states that taxpayers meeting these requirements may access My Alabama Taxes to make the election for the 2021 tax year from July 1, 2022, until August 15, 2022. Contact information is provided in the release for those seeking guidance. More information can be found here.
District of Columbia – Updates Reported
Corporation/Unincorporated Business Franchise Tax Relief Expires July 16, 2022: On June 6, 2022, the Office of Tax and Revenue (OTR) published Tax Notice 2022-06 (Notice), "COVID-19 Franchise Tax Nexus," providing that the relief earlier provided to businesses because of the coronavirus would expire July 16, 2022. In that regard, this notice referenced the Declaration of Public Emergency on March 11, 2020 caused by the coronavirus; and the subsequent relief set forth in Tax Notice 2020-05 indicating that the OTR would not seek to impose corporation franchise tax or unincorporated business franchise tax nexus solely on the basis of employees or property used to allowed employees to work from home during the declared public emergency and the public health emergency, and for a subsequent 90 days after the end of the emergency. That emergency relief was extended several times, with the latest extension being through April 16, 2022. No further extension has been announced; accordingly, the relief set forth in Tax Notice 2020-05 and Tax Notice 2020-07 will expire on July 16, 2022. The latest Tax Notice 2022-06 provides information for various contacts at the OTR's Customer Service Center. More information can be found here.
Florida – Updates Reported
Sales Tax Holidays and Electronic Filing Threshold Change: The Florida Department of Revenue (Department) has recently issued notices regarding sales tax holidays including the following: (i) Tax Information Publication #22A01-08 announcing that a sales tax holiday for back-to-school supplies begins July 25, 2022, and ends August 7, 2022, as described in that TIP; and (ii) effective September 3, 2022, and ending September 9, 2022, a sales tax holiday for tools commonly used by skilled trade workers will be effective, as described in TIP #22A01-09. Additionally, the Department announced in TIP #22ADM-06 that beginning January 1, 2023, taxpayers must file tax returns and remit payments of taxes and fees electronically if the tax amount paid in the prior state fiscal year (July 1 through June 30) is $5,000 or more, which is a reduction in the threshold from the previous $20,000.
Georgia – Updates Reported
Consolidated Income Tax Returns Addressed: For purposes of the federal income tax, parent-subsidiary groups of affiliated corporations have long been permitted to file consolidated income tax returns, reporting the income of all corporations as if they were a single corporation. For purposes of the Georgia income tax, however, the Georgia Department of Revenue (Department) has had to approve the filing of a consolidated income tax return. Georgia House Bill 1058 provides that, beginning in 2023, parent-subsidiary groups that file a consolidated IRS Form 1120 may elect to file a consolidated Georgia income tax return without advance approval. The election is irrevocable for five years. Each member of the group is treated as a separate entity for purposes of apportionment of liability for taxes but net operating losses apportionable to Georgia may be shared among the group. It is expected that the Department will promulgate detailed rules interpreting these requirements. As is the case under existing law, brother-sister groups of corporations may not file consolidated returns even though they may file consolidated returns under GAAP. More information can be found here.
Motor Fuel Taxes Suspended: As a result of the passage of Georgia House Bill 302 and Governor Kemp's subsequent Executive Order signed May 26, 2022, the Georgia excise tax on motor fuel (both diesel and gasoline) has been suspended through July 14. Interstate carriers which operate in Georgia are members of the International Fuel Tax Association (IFTA). The Department has clarified the effect of the suspension of the tax on IFTA reporting requirements. Although motor carriers will be able to purchase motor fuel tax-free and travel non-taxable miles in Georgia during the suspension period, they are still required to file IFTA returns for the quarters that include the suspension period. IFTA returns should still reflect the miles per gallon for the suspension period and should include both tax-free and tax-paid miles. More information can be found here.
Louisiana – Updates Reported
Voluntary Disclosure Proposed Rule Amendments: In a recent edition of the Louisiana Register, the Louisiana Department of Revenue (Department), through the Sales and Use Tax Commission for Remote Sellers, published a Notice of Intent to adopt a rule (beginning on page 1,400 of the Register) to provide general guidance and procedures for the administration of voluntary disclosure agreements. This proposed rule covers a wide variety of matters involving voluntary disclosure agreements with the Department, the purpose of which appears to provide clarifying amendments to existing voluntary disclosure procedures. The Notice states that any interested person may submit written data, views, arguments or comments regarding these proposed amendments received no later than June 27, 2022. A public hearing is scheduled for June 28, 2022, at the location set forth in the Notice. More information can be found here.
Maryland – Updates Reported
Sales and Use Tax Definition of "Digital Product" Altered: On May 29, 2022, Maryland House Bill 791 became law in Maryland without the signature of Governor Hogan, altering the definition of "digital product" for sales and use tax purposes to exclude certain additional products from sales/use taxation. Specifically, this new law, which is effective July 1, 2022, excludes from taxation: (i) a product having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities where the purchaser holds a copyright or other intellectual property interest in the product, if the purchaser uses the product solely for commercial purposes, including advertising or other marketing activities; and (ii) computer software or software-as-a-service purchased or licensed solely for commercial purposes in an enterprise computer system, including operating programs or application software for the exclusive use of the enterprise software system, that is housed or maintained by the purchaser or on a cloud server, whether hosted by the purchaser, the software vendor, or a third party. More information can be found here.
Mississippi – Updates Reported
Individual Income Tax Reductions: On April 6, 2022, Mississippi Governor Reeves signed House Bill 531 into law, known as the Mississippi Tax Freedom Act of 2022 (the Act), accomplishing the largest individual tax cut in state history. The Act provides for the elimination of the four percent bracket for calendar year 2023 and all calendar years thereafter, resulting in no tax being levied on the first $10,000 of taxable income for an individual. For calendar years 2024 through 2026, the five percent rate is gradually reduced to four percent. Taking into account current exemptions under Mississippi law, after the first year a single person with no dependents would pay no tax on the first $18,300 of taxable income. A married couple would pay no tax on the first $36,600 of taxable income. More information can be found here
North Carolina – Updates Reported
Marketplace Facilitator Private Letter Ruling: Earlier this year, the North Carolina Department of Revenue (Department), through its Sales and Use Tax Division, issued a private letter ruling addressing the question of whether a certain taxpayer would be considered as a marketplace facilitator within the facts presented to the Department. Under those facts, the taxpayer created a business-to-business online platform to enable participants to list their parts inventories on the internet and allow customers to place orders for those parts through the platform. According to the ruling, the taxpayer owns and administers the electronic infrastructure of the platform and provides the necessary support to enable participants to connect with the platform. This website can be accessed only by qualified customers with log-on credentials; and, once logged on, the customers may review and order inventory according to the terms of the website. Customers using the website have two payment options, either by establishing an account or by providing credit card information. In response to the question of whether the taxpayer is a marketplace facilitator, the Department first reviewed North Carolina law regarding marketplace facilitators, and then concluded that the taxpayer is a marketplace facilitator which makes marketplace facilitated sales in North Carolina. The Department noted that North Carolina provides a two-part definition of a marketplace facilitator, with the first being that the person lists or otherwise makes available for sale a marketplace seller's items through a marketplace owned or operated by the marketplace facilitator; and second, the person collects the sales or purchase price, processes payments, or makes payment processing available. The Department concluded that this taxpayer satisfied both parts of this definition. More information can be found here.
South Carolina – Updates Reported
Modification of South Carolina Income for Qualified Wages Disallowed for Federal Purposes: On June 10, 2022, the South Carolina Department of Revenue (Department) issued SC Revenue Ruling #22-4 dealing with the federal employee retention credit, and addressing whether a modification from federal taxable income on a taxpayer's South Carolina income tax return will be allowed for qualified wages disallowed as a deduction for federal tax purposes where the disallowances result from the taxpayer claiming the federal employee retention credit in 2020 and 2021. The Department in this Ruling concluded that a taxpayer is allowed a modification to its federal taxable income on its South Carolina income tax return, and may deduct qualified wages disallowed for federal tax purposes as a result of claiming the federal employee retention credit. Citing the South Carolina Code, the Department determined that the expense limitation related to certain federal tax credits do not apply and as a result, a modification to federal taxable income is applicable for that portion of wages that were not deductible in 2020 or 2021 for federal income tax purposes as a result of rules similar to Internal Revenue Code Section 280C. Accordingly, the Department concluded that an employer may make a modification to federal taxable income on its South Carolina income tax return to allow a subtraction for any qualified wages paid that were disallowed under the federal employee retention credit provisions. More information can be found here.
Tennessee – Updates Reported
Sales Tax Legislation and Interest Rate Increase: Following the adjournment of the 2022 Session of the Tennessee General Assembly, the Tennessee Department (Department) issued a number of important notices regarding sales tax legislation enacted by the Legislature, including the following: (i) effective July 1, 2022, and ending August 31, 2022, a sales tax holiday will be effective with respect to the purchase of food and food ingredients, as described in Notice #22-10; (ii) effective July 1, 2022, the exemption from sales and use tax with respect to computer software developed by a person for that person's own use is extended to include fabrication, installation, and repair of computer software performed by an agent of the business rather than being required to be a direct employee of that business, as described in Notice #22-05; and (iii) effective July 1, 2022, a sales and use tax exemption has been created for the period beginning July 1, 2022, and ending June 30, 2025, for equipment, machinery, software, ancillary components, or other infrastructure used by broadband communications service providers or internet access service providers to produce broadband communication services or provide internet access, as described in Notice #22-07. Additionally, and also effective July 1, 2022, the Legislature expanded the current sales tax credit for machinery or equipment used in a certified green energy production facility to include not only such machinery/equipment used to produce electricity but also machinery/equipment used to store electricity. Further, the Department announced that the interest rate effective July 1, 2022, through June 30, 2023, will be eight percent with respect to deficiencies and delinquencies; and the interest rate for installment payment agreements will be 11 percent during that period. More information can be found here and here.
Texas – Updates Reported
Proposed Property Tax Manual Update for the Appraisal of Agricultural Land: The Comptroller's Office has recently filed with the Texas Secretary of State a proposed rule that was published in the Texas Register on June 3, 2022; the proposed rule adopts an updated version of the Manual for the Appraisal of Agricultural Land. According to the filing with the Register, the comment period begins when the rule is published and ends July 3, 2022. Based on the filing, it appears that the updated manual will be dated February 2022, replacing the version dated June 2020. Further, this updated manual will be accessible on the Property Tax Assistance Division website; and copies can be requested by contacting the Comptroller's Office at the number set forth in the Register. More information can be found here.