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 state and local tax (SALT) developments in several states which may be important to you.
Alabama – Updates Reported
Gasoline/Diesel Fuel Excise Tax Will Be Increasing: In late February 2023, the Alabama Department of Revenue (Department) published a Notice advising that, effective October 1, 2023, the gasoline and undyed diesel excise taxes will increase by $0.01 per gallon to $0.29 per gallon for gasoline and $0.30 per gallon for undyed diesel. The Department noted in this Notice that effective October 1, 2023, and on July 1 of every other year thereafter, the gasoline and undyed diesel excise tax rate will be adjusted by the percentage change in the yearly average of the National Highway Construction Cost Index and rounded to the nearest whole cent with the increase or decrease of the excise tax rate not exceeding $0.01 per gallon pursuant to the Rebuild Alabama Act. The Department also stated in this Notice that any wholesale distributor holding motor fuel in inventory outside of the bulk transfer/terminal system on the effective date of the tax increase will be liable for the additional excise tax and must file the required floor-stock tax return and payment on or before January 31, 2024. More information can be found here.
District of Columbia – Updates Reported
Updated Notice Regarding Recordation Tax on Refinancing Instruments: On April 26, 2023, the Office of Tax and Revenue (OTR) issued Notice 2023-04 entitled "Notice Regarding the Taxation of Instruments Relating to Refinances and Modification." The OTR states that this Notice supplements and supersedes Notice 2014-05, dated May 21, 2014, by providing generally that, to constitute a refinance, the new loan must be made to the same obligor(s) who was indebted under the loan(s), as modified or restated, if applicable, that is being paid off, extinguished and replaced, and must be secured by the same real property that secured the loan(s), as modified and restated, if applicable, being paid off, extinguished and replaced. The recording tax law, as referenced in this Notice, provides generally that, at the time a security instrument is submitted for recordation, it is taxed at the rate of 1.45 percent (except for instruments relating to residential properties which are taxed at a lower rate under certain conditions) of the total amount of debt incurred that is secured by the interest in real property (provided, that if the existing debt is refinanced, the rate should reapply only to the principal amount of the new debt in excess of the principal balance due on existing debt to the extent that such existing debt was previously taxable or otherwise exempt as referenced in the Notice). OTR addresses various topics in this Notice, including refinances, modifications, as well as the substantiation of the taxable amount and exemption entitlement. The Notice provides contact information for any questions or comments. More information can be found here.
Florida – Updates Reported
Floating Interest Rate of 11 Percent: On May 3, 2023, the Florida Department of Revenue (Department) published Tax Information Publication No: 23ADM-01 addressing the floating rate of interest applicable under Florida law with respect to deficiencies (underpayments), late payments, and overpayments of most taxes and fees based on the adjusted prime rate charged by banks. The Department states in this Publication that the rate of interest for the period July 1, 2023, through December 31, 2023, is 11 percent, and the daily interest rate factor to be used for this period is 0.000301370. This rate is subject to change effective January 1, 2024, according to this Publication. With respect to overpayments, the Department states in this Publication that interest on overpayments of tax is not applicable to reemployment tax; and further, interest on overpayments generally begins to accrue on the 91st day after the Department receives a completed application for refund. The Department in this Publication also sets forth a list of taxes to which this interest applies, together with a few examples to assist in calculating the penalty under certain circumstances. More information can be found here.
Georgia – Updates Reported
Nontaxable Property Interest Recognized Despite Length of Rental Arrangement: Georgia recognizes a property interest known as a "usufruct." A usufruct is an interest in property that limits the use to a specified purpose, generally subject to limitations and typically of not more than a five-year duration. A usufruct is not subject to ad valorem taxation in Georgia. In contrast, a leasehold estate imposes fewer conditions on use and is a taxable property interest. A commonly used method in Georgia for local governments to grant ad valorem real property tax incentives to attract new businesses is for a conduit development authority to take title to a project and to enter into a rental agreement with a new industry permitting the industry to use the project for a period of years, at the end of which the industry can acquire title to the project in exchange for payment of a nominal sum. In the very recent decision of Joint Development Authority of Jasper County v. McKenzie, Court of Appeals of Georgia, April 28, 2023, a local citizens group attempted to block the determination that a certain project constituted a nontaxable usufruct. In that regard, the Authority is to own title to a truck manufacturing facility, financed by approximately $15 billion in bonds, held by the manufacturer. The parties used a bond validation procedure to validate the structure. In response to the citizen group, the Authority, the manufacturer, and the State argued that the rental arrangement amounted to a usufruct and did not create a taxable property interest. Relying on the restrictions on the use that could be made of the facility, the Appellate Court held that, notwithstanding the rental arrangement had a term which would be greater than five years, the intent of the parties was that the manufacturer had only a usufruct interest, which was not a taxable property interest. More information can be found here.
Louisiana – Updates Reported
Natural Gas Severance Tax Rate Effective July 1, 2023: On May 8, 2023, the Louisiana Department of Revenue (Department) issued Revenue Information Bulletin No. 23-013, addressing the natural gas severance tax rate which is effective July 1, 2023 through June 30, 2024. In this Bulletin, the Department stated that such a rate has been set at 25.1 cents per thousand cubic feet measured at a base pressure of 15.025 pounds per square inch absolute and at a temperature base of 60 degrees Fahrenheit. The Department also sets forth in this Bulletin the methodology used for establishing the foregoing rate. Further, the Department states in this Bulletin that gas produced from an inactive or orphan gas well is subject to a reduced severance tax rate equal to 50 percent, or 25 percent of the severance tax rate, respectfully. The Bulletin also sets forth contact information to which questions can be directed. More information can be found here.
Maryland – Updates Reported
Publication of Digital Advertising Tax Return: On May 10, 2023, the Comptroller of Maryland (Comptroller) published an updated Publication addressing the ongoing dispute as to the enforceability of the state's Digital Advertising Gross Revenues Tax. In that regard, the Comptroller noted in the Publication that the Supreme Court of Maryland ruled on May 9, 2023, in favor of the Comptroller in the case of Comptroller of Maryland vs. Comcast of California, Maryland, Pennsylvania, Virginia, West Virginia, LLC et. al., holding that administrative remedies had not been exhausted before challenging the tax in court, and thus ordered the lower court to dismiss the action. Further, the Comptroller stated in this updated Publication that any taxpayer who delayed filing of the 2022 digital ad tax return pending the outcome of the foregoing litigation, should file their return and remit their tax payment as required by statute. This Publication, originally issued February 27, 2023, then sets forth the annual filing and payment requirements for this tax. More information can be found here.
Mississippi – Updates Reported
Sales Tax Exemption for Certain Motor Vehicle Transfers: On May 1, 2023, the Mississippi Department of Revenue (Department) issued Notice 72-23-04 addressed to all county tax collectors. In that Notice, the Department states that as a result of Senate Bill 2011 which was passed in the 2023 Regular Session of the Legislature, there is an exemption from the sales tax on transfers of motor vehicle titles between a trustee and a beneficiary of a trust, between a corporation and one of its shareholders in a transaction which qualifies for nonrecognition of gain or loss pursuant to Section 351 of the Internal Revenue Code, and transfers of legal ownership of motor vehicles between a partnership or limited liability company and one of its partners or owners within the State of Mississippi. The Department notes that this exemption is effective July 1, 2023, and transferors must complete the Affidavit of Motor Vehicle Title Transfer and provide the original Affidavit to the local county tax collector. Contact information is provided in this Notice for questions or further assistance. More information can be found here.
North Carolina – Updates Reported
Retroactive Legislation Impacting Taxed Partnerships: On April 4, 2023, the North Carolina Department of Revenue (Department) issued an Important Notice addressing legislation recently enacted on April 3, 2023. That legislation includes several key provisions that enhance North Carolina's recently enacted pass-through entity (PTE) tax. The Department stated in this Notice that several of these recently enacted provisions will affect the 2022 Tax Returns, and further the purpose of this Notice is to provide an overview of those key retroactive changes. The Department then addressed several of such changes such as the expanded Taxed Partnership eligibility, changes to the instructions for the 2022 Partnership Return, changes expanding the individual income tax credit for taxes paid in another state by a PTE, and information as to amending a 2022 Tax Return in order to make the election to be a Taxed Partnership. More information can be found here.
South Carolina – Updates Reported
Enhanced Online Business Tax Application: On April 26, 2023, the South Carolina Department of Revenue (Department) issued a News Release announcing that the Department has streamlined and dramatically improved its online Business Tax Application, making it easier for anyone doing business to register a new business with the Department and apply for business tax accounts. The Department also stated in the Release that first-time business applicants will create a MyDORWAY account as part of the application process. Further, the Department noted businesses that already managed their tax accounts on MyDORWAY can easily add new tax accounts without logging out, which cuts down on the length of the application dramatically according to the Department. The Department then addressed in the Release several situations such as where an applicant needs to register a new business with the Department, needs to add tax accounts to an existing business, and which type of information would be needed in order to complete the online application process. More information can be found here.
Tennessee – Updates Reported
Significant Tax Legislation Enacted in 2023: Among other tax legislative developments during the 2023 Session, the Tennessee General Assembly passed and Governor Lee signed the following significant tax legislation into law: (i) Tennessee Works Tax Act, 2023 Public Chapter 377, which provides a three month sales tax holiday in 2023 for groceries, provides small businesses with a business tax filing threshold of $100,000, and makes various changes to the excise and franchise taxes including enactment of a mandatory single sales apportionment factor for tax years ending after 2025 (and various other tax changes in that Act as reviewed by the Tennessee Department of Revenue (Department) in Important Notices issued May 15, 2023 found here); (ii) 2023 Public Chapter 86, found here, which establishes a Brownfield redevelopment area fund to be administered by the Tennessee Department of Environment and Conservation, and creating a franchise and excise tax credit to be administered by the Department based on the remediation costs in a brownfield property for qualified projects; and (iii) 2023 Public Chapter 184, found here, which was proposed by the Tennessee Comptroller's Office so as to modify the administrative procedures for contesting property taxes within the jurisdiction of the State Board Equalization.
Texas – Updates Reported
Energy STAR /Water-Efficient Products Sales Tax Holiday: The Comptroller's Office recently published information regarding the sales tax holiday for certain Energy STAR energy-efficient products and certain water-efficient and water-conserving products. According to the Comptroller's announcement, the upcoming 2023 holidays begin Saturday, May 27, and go through Memorial Day on Monday, May 29, 2023, ending at midnight. Also according to that announcement, there is no limit on the number of qualifying items that can be purchased, and there is no need to give the seller an exemption certificate to buy items free of tax. For additional information, taxpayers can refer to the Energy STAR sales tax holiday and the water-efficient products sales tax holiday publications, which can be found here and here.
