2019 End-Of-Year State and Local Tax Update

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Rödl & Partner Tax Matters Vol 2020-1, published in January 2020


Once again, updates to state and local taxes were very active for the last half of 2019.  Below are details on changes in sales taxes and income taxes that will impact most businesses. 


Sales Tax:

 

Alabama

Alabama's Supreme Court recently ruled that the state's sales and use tax laws do not distinguish between "canned" or "custom" software.  As such, all software is subject to sales tax.  The Court did distinguish the sale of software versus nontaxable services such as the modification and configuration of software to meet a particular business's needs.  As long as nontaxable services are separately-stated on an invoice to the customer, the nontaxable services are not included in the tax base.

 

California

The California Office of Tax Appeals (OTA) has held that the partial exemption in Cal. Rev. & Tax. Cd. § 6377.1 for tangible personal property used in the manufacturing process does not apply to non-depreciated molds that the taxpayer (Taxpayer) expensed under the de minimis safe harbor election under IRC § 263 and Treas. Reg. § 1.263(a)-1(f) because the molds failed to meet the useful life requirement in Cal. Rev. & Tax. Cd. § 6377.1. The Taxpayer manufactures and sells glass and uses molds in its glass bottle manufacturing process. The useful life of the molds is generally two and one-half years but for federal income tax purposes, the Taxpayer elected to classify the cost of the molds as an expense under IRC § 263 and Treas. Reg. § 1.263(a)-1(f). The Taxpayer sought a sales and use tax refund for the period January 1, 2013, through August 31, 2016, based on its claim that it was entitled to the partial exemption with respect to the molds, which the California Department of Tax and Fee Administration (CDTFA) denied. The partial exemption applies to qualified tangible personal property, but that term does not include consumables with a useful life of less than one year. The only issue before the OTA is the legal question of whether the Taxpayer's molds meet the useful life requirement in Cal. Rev. & Tax. Cd. § 6377.1 despite the Taxpayer's election to expense the molds under the de minimis safe harbor rule, which allows qualifying businesses with an applicable financial statement to deduct as expenses eligible property in the year of purchase if the amount paid does not exceed $5,000 or if the useful life of the property is no more than one year. The Taxpayer made numerous arguments, e.g., the CDTFA acknowledged that California recognizes the 2.5-year useful life of items like the molds for income and franchise tax purposes, the partial exemption must coexist with the de mimimis safe harbor election, Cal. Rev. & Tax. Cd. § 6377.1 deems property expensed under IRC § 179 as having a useful life of at least a year but does not include in this list property expensed via the de mimimis safe harbor election, but the OTA rejected all of them. In order to qualify for the exemption, the law requires the property at issue be depreciated over a useful life of one year or more, and the only statutory exception to that rule is when the property is expensed pursuant to IRC § 179. The legislature's identification of a single instance in which expenses assets meet the useful life requirement implies that the useful life requirement is not met in other instances where the asset is expensed. The legislative history of that statutory exception, which was established by 2017 legislation, is silent as to the legislature's intent, and the OTA is therefore unwilling to interpret this omission as inadvertent, especially since tax exemptions are to be strictly construed against the taxpayer. The OTA declined to read the statutory exception so broadly as to include items expenses under the de minimis safe harbor election and thus agreed with the CDTFA that the Taxpayer was not entitled to a refund with respect to the molds. (Appeal of Owens-Brockway Glass Container, Inc., Cal. Office of Tax Appeals, 2019-OTA-158P, 04/29/2019).

 

Colorado

L. 2019, H1245, effective 08/02/2019 , increases the state vendor fee, which is the amount retained by a retailer to cover the retailer's expense in collecting and remitting tax, to 4% (from 3.33%) for sales made on or after January 1, 2020. The legislation also caps the monthly vendor fee allowance at $1,000 per account. A retailer with multiple locations is treated as a single retailer and is required to register all locations under one account.

 

Connecticut

Connecticut's budget signed by the Governor makes a number of changes to the state's tax laws, including:

  • Sales tax rate on digital products is increased from 1% to 6.35%;
  • Sales tax exemptions for safety products and various services are eliminated, including parking services, dry cleaning and laundry services and interior design services unless purchased by a business for use by such business.

 

Iowa

Effective July 1, 2019, sales tax is applied to the sale of a service or warranty contract if the contract does not specify the fee amount for nontaxable services versus taxable personal property.  The state's prior rules would tax one-half of the sales price for non-separately stated contracts.

 

Under the state's economic nexus or Wayfair rules, the 200-transaction threshold is removed effective July 1, 2019.

 

Kentucky

The Kentucky Department of Revenue (DOR) has finalized amendments to regulations regarding accelerated payments of sales tax.  Effective November 1, 2019, taxpayers with average monthly sales and use tax liability exceeding $50,000 must remit tax by the 25th of each month for taxes from the period beginning on the 16th day of the previous month and ending on the 15th of the current month.  The prior threshold was $10,000.  The Department will review taxpayer's returns and notify those impacted by the change.  Taxpayers required to make accelerated payments must continue to do so unless notified in writing by DOR. Taxpayers will only be relieved of the responsibility, if their average monthly tax liability is less than $40,000 for two consecutive calendar years.

Additionally, new legislation subjects streaming services to the state's multichannel video programming excise tax.  Effective July 1, 2019, video streaming services are subject to the multichannel video programming excise tax (3%), the gross revenue tax (2.4%) and the utility gross receipts license tax that applies in certain school district (varying rates up to 3%).

 

Louisiana

Remote sellers to Louisiana customers can collect and remit a total tax rate of 8.45% rather than registering and remitting local taxes across LA parishes.  Taxpayers in LA that pay a remote seller at the 8.45% rate rather than a lower combined rate in their parish can apply for a refund.  The Department of Revenue has released procedures on how taxpayers can apply for refunds (Louisiana Remote Sellers Information Bulletin No. 19-001, 05/17/2019).

 

Massachusetts

Massachusetts enacted new "Wayfair" laws that decreases the sales threshold for economic nexus from $500,000 and 100 transactions to sales exceeding $100,000 or more in prior or current taxable year.  The new threshold is effective October 1, 2019.

 

Nebraska

Nebraska is offering relief to remote sellers that have not yet registered to collect and remit sales tax in the state.  Effective April 1, 2019, LB284 requires remote sellers to collect and remit sales tax if the seller has made more than $100,000 in gross Nebraska retail sales, or has made 200 or more separate retail sales transactions in Nebraska in the prior or current calendar year (including sales made through marketplace facilitators or multivendor marketplace platforms (MMPs)). The Nebraska Department of Revenue has issued a General Information Letter (GIL) announcing that it will grant a temporary penalty and interest waiver on unpaid sales tax on those "remote sellers and MMPs that were not engaged in business prior to April 1, 2019; met one of the thresholds during 2018 or 2019; and have not yet complied with the requirements of LB 284." To qualify, "the remote seller or MMP must, by January 20, 2020: (1) obtain a sales tax permit, Nebraska Tax Application, Form 20; (2) report and remit all sales tax and local sales tax due since April 1, 2019; and (3) submit a Request for Abatement of Penalty, Form 21, and a Request for Abatement of Interest, Form 21A, with a reference to [the] GIL written across the top of both forms." Eligible remote sellers and MMPs that have already incurred penalties and interest are also eligible for relief; however, sellers who are physically present in the state are not eligible. (GIL 1-19-2, Neb. Dept. of Rev., 11/08/2019.)


Nevada

The Nevada Department of Taxation has issued a news release on recently passed legislation that, effective July 1, 2019, exempts certain durable medical equipment, oxygen delivery equipment and mobility enhancing equipment, including any repair and replacement parts, from sales and use taxes. Durable medical equipment includes abduction and orthotic pillows, anesthesia ventilators, bone growth stimulators, dialyzers, enteral feeding systems, drug infusion devices and kidney dialysis machines. Oxygen delivery equipment includes tanks and concentrators, ventilators, nebulizers, oral-nasal cannulas and continuous positive airway pressure (CPAP) machines. Mobility enhancing equipment includes wheelchairs, walkers, canes, crutches, mobility enhancing car seats for children with disabilities and swivel seats for persons with disabilities. To be exempt from sales tax, all items must be prescribed for human use by a licensed provider of health care acting within his or her scope of practice. (Nevada Dept. of Taxation news release, 08/01/2019.)


New Mexico

Effective July 1, 2019, "licenses of digital goods" are subject to the gross receipts (sales) tax in New Mexico.


North Carolina

North Carolina has dropped the requirement that digital products must be sold in tangible form to be subject to sales tax.  As of October 1, 2019, all sales of digital products will be subject to tax, even if electronically transmitted.

 

North Carolina has also added certain property management services as subject to sales tax.  Effective January 1, 2020, repair, maintenance, or installation services provided by the real property manager for an additional charge is subject to sales tax, along with certain other arrangements related to a property management contract.

 

Additional information for these changes in North Carolina can be found on NC Bulletin E-505.

 

Ohio

Beginning October 1, 2019, the sales tax exemption for equipment and supplies used to clean processing equipment that is part of a continuous manufacturing operation to produce dairy products is expanded to food for human consumption instead of only dairy products.

 

Oregon

Oregon has enacted a Commercial Activity Tax ("CAT") to supplement education spending in the state.  In addition to the state's current corporate income tax, CAT is based on gross receipts and applies to businesses with "commercial activity" of $750,000 or more in the state.  The tax is effective for years beginning on or after January 1, 2020.

 

Rhode Island

Rhode Island's sales tax laws have been expanded to include tax on the sale of digital products effective October 1, 2019.

 

The state also enacted legislation (Senate Bill 5590) which adopts a ten-year statute of limitations on most taxes, including sales tax.  The new statute is effective for tax liabilities that become final, due and payable after July 1, 2019.

 

Tennessee

Tennessee Revenue Ruling #19-02 has ruled that Subpart F income is a dividend for franchise and income tax purposes.  If a taxpayer directly owns 80% or more of the stock of the CFC which produced the Subpart F income, the taxpayer is eligible for the dividends-received deduction.  Any indirectly-owned CFCs are not eligible for the deduction unless the ownership of the CFC is through a disregarded single-member LLC. 

 

Additionally, in Frequently Asked Questions, the Department of Revenue has advised taxpayers that when investment in property, including machinery and equipment, in which an investment tax credit was claimed is sold or otherwise disposed, the taxpayer is required to recapture a portion of the credit.  Any credit not utilized due to the amount of tax liability in the year the credit is claimed is not subject to recapture.

 

Texas

Effective 10/1/2019, remote sellers are offered a local tax option for collecting use tax in Texas as an option from collecting the various rates of local tax throughout the state.  Under this option, remote sellers can collect 8.45% across Texas.  The rate will vary each year and the updated rates will be published in the beginning of each calendar year.  Taxpayers must notify the Comptroller of their intention to use the flat rate of tax.  Any Texas consumers paying a higher rate of tax due to the flat-rate can apply for a refund from the state.

 

Vermont

The Department of Taxes (DOT) has issued a fact sheet on prewritten software accessed remotely. For sales tax purposes, charges for remote access to prewritten software accessed solely through an internet or cloud platform are not considered charges for tangible personal property (TPP). However, prewritten software that is downloaded from the internet and installed on a computer, falls under the definition of taxable TPP. Other specified digital products also remain taxable; under Vt. Stat. Ann Title 32 § 9771(8), Vermont specifically imposes the sales tax on digital audiovisual works, digital audio works, digital books, and ringtones that are transferred electronically. Digital photos are not taxable. (Prewritten Software Accessed Remotely, FS-1213, 07/01/2019.)


Virginia

Virginia issued ruling PD-19-82 that clarified sales tax liabilities on related-party transactions.  In the ruling, two subsidiaries were held liable for sales and use tax on computer property rented from the parent entity.


Wisconsin

Wisconsin has enacted marketplace facilitator laws.  Effective January 1, 2020, a marketplace facilitator with gross sales of $100,000 or 200 or more transactions into Wisconsin are required to collect and remit sales tax to the state.

 

INCOME TAX: 

Alabama

For tax years beginning after December 31, 2019, Alabama's apprenticeship tax credit is broadened and extended.  Eligible employers that employ an apprentice for at least seven full months of the prior tax year can claim a nonrefundable credit of $1,250 (previously $1,000) for each apprentice employed, not to exceed 10 (previously, five) apprentices employed.  Additional credits of up to $500 are available for each qualified apprentice enrolled in a secondary or post-secondary career and technical education program who is under the age of 18 at the time the credit is claimed.  The credit is extended from 2021 through the 2025 tax year.

 

California

In Chief Counsel Ruling 2019-02, the CA Franchise Tax Board ruled that gain on the sale of a business with a §338(g) election must be apportioned to the state using apportionment factors of the entity that was sold.  The election must be made on the target entity on its final tax return, where the gain is reported using the target corporation's apportionment factors.

 

Colorado

Colorado's corporate tax rate under the TABOR amendment is 4.5% for 2019 tax year only (reduced from 4.63%).

 

Connecticut

Connecticut's budget signed by the Governor makes a number of changes to the state's tax laws, including:

  • the $250 business entity tax currently payable every other year by S corporations, partnerships and LLCs is eliminated effective January 1, 2020;
  • The pass-through entity tax credit available to owners of pass-through entities as a credit against the owners' personal income tax liability is reduced from 93.01% to 87.5%.
  • The 10% corporate business tax surcharge is extended through 2020.
  • the capital base component of the corporation business tax is phased out over four years beginning January 1, 2021, as follows: 

2021       decrease to 2.6 mills from current 3.1 mills

2022       decrease to 2.1 mills

2023       decrease to 1.1 mills

2024       decrease to 0 mills


Florida

Florida's corporate tax rate is reduced to 4.458% (from 5.5%) for tax years 2019 through 2021 (Tax

Information Publication No: 19C01–04).

 

Georgia

Georgia has increased the number of jobs required to be created for businesses to qualify for the Quality Jobs Tax Credit.  For tax years beginning on or after January 1, 2020, the following changes are made to the credit:


​Tier
​Old Number of Jobs Req.
New Number of Jobs Req.
​1
​2
​10 new jobs within 1 year of date of first withholding
​2
​10
​25 and 50 new jobs anywhere in GA within 2 years of date of first withholding
​3
​15
​No changes
​4
​25
​No changes
​Military or Opportunity Zone
​2
​No changes
​LDCT
​5
​No changes


In addition, guidelines are created for businesses to qualify for the manufacturing tax credit.  The credit may only be taken beginning with the tax year immediately following the tax year when the qualified investment property costing more than $100,000 is purchased or acquired by the taxpayer and is limited to 50% of income tax liability.  Credits in excess of 50% can be claimed against GA payroll withholding.  The credit is capped at $1 million per employer and $10 million in total.  The credit is set to expire December 31, 2024.

 

Hawaii

Hawaii adopts economic nexus for business income tax purposes effective for tax years beginning after December 31, 2019.  If during the current tax year or the preceding tax year a person engages in 200 or more business transactions with persons in Hawaii or the person's total gross income attributable to Hawaii sources equal or exceeds $100,000, the person is presumed to be engaging in business in Hawaii.

 

L. 2019, S1360 (Act 232), effective 07/02/2019 and applicable to tax years beginning after 12/31/2018, requires partnerships, estates, and trusts to withhold taxes on the income of nonresident partners and beneficiaries. The withholding must be an amount equal to the highest marginal tax rate applicable to nonresident taxpayers, multiplied by the amount of the taxpayer's distributive share of income attributable to Hawaii reflected on the partnership's, estate's, and trust's return for the taxable period. Publicly traded partnerships, as defined by IRC § 7704(b), are exempted from this withholding. Instead, such partnerships must file an annual information return reporting the name, address, taxpayer identification number, and other information requested by the Department of Taxation of each unit holder with income sourced to Hawaii. 

 

Illinois

L. 2019, S1591 (P.A. 101-0207), effective 08/02/2019, extends the sunset date for the research and development tax credit from January 1, 2022 to January 1, 2027. For taxable years beginning on or after January 1, 2020, an apprenticeship education expense credit is available. The credit is an income tax credit for qualified education expenses incurred by an employer, on behalf of a qualifying apprentice. The credit will be equal to 100% of the qualified education expenses, but cannot exceed $3,500, per qualifying apprentice, per taxable year. An additional $1,500 credit is available if the qualifying apprentice resides in an underserved area.

 

Additionally, IL will phase out the state's franchise tax imposed on C corporations doing business in the state.  In 2020, the first $30 of franchise tax is exempt and by 2020, the tax will be entirely phased out.

 

Indiana

Indiana's corporate income tax reduction phase-in continues.  The tax rate is 5.5% for tax years after 6/30/2019 and before 7/1/2020.

 

Kentucky

The fact sheet and guidelines for the Kentucky small business tax credit have been updated. The credit is available against the corporation income tax, the personal income tax and the limited liability entity tax. Eligible small businesses include for-profit entities that have 50 or fewer full-time employees at the time of application. Qualified applicants are eligible to receive a tax credit in an amount not to exceed the lesser of: (1) $3,500 per eligible job created; or (2) the rounded dollar amount invested in qualifying equipment or technology. There is a $25,000 maximum tax credit cap per applicant for each calendar year. In addition, the total combined allocation of tax credits available for both the Kentucky Small Business Tax Credit program and the Kentucky Selling Farmer Tax Credit program is $3 million per state fiscal year (July 1—June 30). Both programs draw from the same tax credit pool. (Kentucky Small Business Tax Credit Fact Sheet, 10/01/2019; Kentucky Small Business Tax Credit Guidelines, 10/01/2019.)


Maine

L. 2019, S505 (c. 386), effective 06/19/2019, creates a refundable corporate income tax credit for major food processing and manufacturing facilities. Beginning with the first full tax year after the certified applicant has been issued a certificate of completion or the tax year beginning on January 1, 2022, whichever is later, and for each of the following 19 tax years, a certified applicant is allowed a credit against income tax for the taxable year in an amount equal to 1.8% of the certified applicant's qualified investment. If the certified applicant is a pass-through entity, the owner or owners of the certified applicant are allowed the credit. A credit is not allowed for any tax year during which the taxpayer does not meet or exceed the statutorily provided employment targets as measured on the last day of the tax year. A credit is not allowed for any tax year following two consecutive tax years during which the certified applicant did not have between $5.5 million and $12 million, in ordinary business income. Cumulative credits may not exceed $34 million under any one certificate. The Commissioner of Economic and Community Development may not issue certificates of approval that total, in the aggregate, more than $100 million of qualified investment or any individual certificate of approval for more than $85 million of qualified investment. The legislation also provides definitions, procedures for application and certificate of approval, the process for appeals, reporting requirements, rulemaking requirements, and evaluation criteria.


Maryland

The Maryland Court of Special Appeals has affirmed the ruling of the Maryland Tax Court that an out-of-state subsidiary corporation was subject to Maryland corporate income tax because it had sufficient contacts with Maryland and the Maryland Comptroller fairly apportioned income to the taxpayer's Maryland-related income producing activities. Intellectual property from the parent (a multi-national producer and marketer of processed foods and agricultural products) and other subsidiaries were exchanged for stock in taxpayer and the taxpayer managed, controlled, promoted, and marketed its brand names and trademarks as well as incurred legal and consulting fees protecting the trademarks, but had no employees, agents, or representatives present or engaged in activities in Maryland. In Maryland, nexus is sufficient to justify state corporate income taxation if the economic reality is that the parent's business in Maryland produced the income of the subsidiary. In this case, the taxpayer's royalty income for the licensed trademarks, which was paid back to the parent in the form of intercompany payments, is subject to Maryland income tax because the taxpayer lacked real economic substance as a business separate from its parent as evidenced by the fact that the parent company controlled the taxpayer through stock ownership, functional integration, and common employees via directors and officers. With regard to apportionment, Maryland's 3-factor apportionment formula does not clearly reflect the income allocable to Maryland since the taxpayer did not record Maryland sales, payroll, or property, and, therefore, the comptroller's blended apportionment factor derived directly from the Maryland income tax returns of the parent's entities and the parent's own apportionment figures, was appropriate and there was no clear and convincing evidence that this method was unfair. (ConAgra Foods RDM, Inc. v. Comptroller, Md. Ct. Spec. App., No. 1940, September Term, 2015, 06/27/2019.)


New Hampshire

New Hampshire adopted market-based sourcing for sales of services and certain intangibles effective as of January 1, 2021, and applicable to taxable periods ending on or after December 31, 2021.  New Hampshire currently using cost-of-performance sourcing.

 

Additionally, the new law includes a "throw out" rule.  Sales will be excluded from the denominator of the sales factor if a taxpayer is not taxable in a state to which the sale is assigned, or if the state of assignment cannot be determined.

 

Additionally, the current tax rate reductions dependent upon state revenues have been repealed and replaced.  Effective for tax years on or after December 31, 2021, BPT and BET rates will change based on the following:

  • If state revenues are 6% or more of official revenue estimates, rates will be 7.5% and .5%;
  • If state revenues are 6% or less below official revenue estimates, rates will be 7.9% and .675%.
  • If neither of the above apply, rates remain at the current rates of 7.5% and .5%.

 

New Jersey

New Jersey has changed the state's treatment of FDII and GILTI income and no longer requires that these income types are apportioned using the New Jersey GDP percentage over a GDP percentage of states where taxpayers are filing business tax returns.  The new guidance removes this apportionment and apportions the income as traditional business income (NJ TB-92).

 

New Jersey has released guidance on the treatment of net operating losses for tax periods ending on or after July 31, 2019 (NJ TB-94) for single-entity filers.  Guidance on combined filers is forthcoming.  Under new tax laws, the state moved from pre-apportionment losses to post-apportionment losses.  Taxpayers must follow the guidance to convert their outstanding New Jersey loss carryforward to a new amount available based on post-apportionment rules.

 

The state has also issued guidance on new mandatory combined filing for certain corporations.  TB-89 is located on the Department of Revenue website at https://www.state.nj.us/treasury/taxation/pdf/pubs/tb/TB-89.pdf.

 

The New Jersey Division of Taxation has announced that the angel investor tax credit will increase from 10% of the qualified investment to 20% of the qualified investment for tax years beginning on or after January 1, 2020. The investments must be in New Jersey emerging technology businesses such as advanced computing, advanced materials, biotechnology, electronic device technology, information technology, life sciences, medical device technology, mobile communications technology, and renewable energy technology. The Division also announced that if the New Jersey emerging technology business is in a qualified opportunity zone, low-income community, or is certified by New Jersey as a minority or women's business, the tax credit is 25% of the qualified investment. (Notice: Angel Investor Tax Credit Increase, N.J. Division of Taxation, 08/02/2019.

 

New Mexico

New Mexico has enacted combined tax return filing effective for tax years beginning on or after January 1, 2020.  Additionally, sourcing of sales from services and intangibles changes to market-based sourcing from cost of performance for tax years beginning on or after January 1, 2020.

 

New York

The MTA surcharge on corporate franchise tax will increase to 29.4% (from 28.9%) effective for tax years beginning in 2020.

 

North Carolina

L. 2019, S523 (c. 169), effective for taxable years beginning on or after 01/01/2019, and applicable to a request for a refund filed on or after 01/01/2019, limits refunds for payments by a business for a nonresident owner or partner. The manager of the business may not request a refund of an overpayment made on behalf of a nonresident owner or partner if the manager of the business has previously filed the return and paid the tax due. The nonresident owner or partner may, on its own income tax return, request a refund of an overpayment made on its behalf by the manager of the business. 

 

Oregon

Oregon has enacted a Commercial Activity Tax ("CAT") effective for tax years beginning on or after January 1, 2020.  The entity-level tax on gross receipts with limited deductions apply to pass-through entities as well as corporations with "substantial nexus" in the state.  "Substantial nexus" is defined as payroll of $50,000 or more in the state, property of $50,000 or more in the state, or sales to customers located in the state of $750,000 or more.  Because the tax is based on gross receipts and is not a net income tax, businesses are not entitled to protection from the tax under Public Law 86-272.

 

The amount of tax is $250 plus the product of the taxpayer's taxable commercial activity in excess of $1 million for the calendar year multiplied by 0.57%.  Quarterly payments are required.  Note that this tax is in addition to the state's corporate excise and income tax.  Unlike the corporate excise and income tax, however, this tax can be passed along to customers.  Affected businesses should determine if their invoicing process should change and plan accordingly.


Oregon – City of Portland

The City of Portland issues regulations on implementing the new gross receipts tax passed by voters in November 2018 under the "Clean Energy Fund".  While the ballot initiative identified businesses subject to the tax as "retail", the regulations apply the tax more broadly.  Impacted businesses are those with a Portland business licenses with worldwide gross receipts of at least $1 billion and City of Portland gross receipts of $500,000 or more.


Pennsylvania

PA's omnibus tax bill (L. 2019, H262 (Act 13) modified various state tax credits.  The Job Creation Tax Credit will not approve applications after July 1, 2020.  The Rural Jobs and Investment Tax Credit is modified to change the definition of a "rural business".  Effective July 1, 2019, a rural business has fewer than 150 employees (down from 250 employees).  Additionally, the annual cap on the total amount of credits is increased from $1 million to $6 million, and the total amount that may be awarded over the life of the program is increased from $6 million to $30 million.

Additionally, the PA Department of Revenue issued a bulletin in September 2019 establishing the state's Wayfair threshold amounts will apply to corporate income tax purposes as well as sales tax.  Beginning in 2020, businesses with gross receipts sourced to Pennsylvania of at least $500,000 is required to file and pay the Corporate Net Income Tax (CNIT), even if the business does not have physical presence in the state.

 

Pennsylvania – City of Philadelphia

Businesses with at least $100,000 of gross receipts to customers within the city of Philadelphia are subject to the city's BIRT (Business Income and Receipts Tax) effective for tax years on or after January 1, 2019.  A BIRT return or extension is due by April 15, 2020 for taxpayers subject to this new economic nexus standard.  Information about BIRT can be found here.

 

Rhode Island

Rhode Island has changed the statute of limitations for sales and use tax, corporate income tax, personal income tax and estate taxes.  Effective for any state tax liabilities that become final, due and payable after July 1, 2019, the statute of limitations is extended to ten years for notice of deficiencies.

 

Tennessee

Tennessee's FAQs have been updated to state that computer software is not considered tangible personal property for purposes of computing franchise tax.

 

Texas

Texas has proposed amended regulations that would apply economic nexus to the state's franchise tax.  Previously, the TX Comptroller's office released a statement that the state would still apply a physical presence standard for franchise tax purposes despite the Supreme Court's ruling in Wayfair related to sales tax.  The proposed amended regulation would require businesses with gross receipts of $500,000 or more to Texas customers in a calendar year to file and pay the franchise tax.  Since the tax is based on gross margin rather than taxable income, the state has always taken the position that Public Law 86-272 would not apply to the franchise tax.

 

If finalized, the new standard would be effective for franchise tax reports due on or after January 1, 2020.

 

Utah

Utah's 2020 budget passed in mid-December reduces the corporate and individual income tax rate to 4.66%. 

 

Vermont

The Department of Taxes reminds taxpayers of the change in treatment of capital gains that will take effect July 1, 2019. Under current law, there is a 40% exclusion for capital gains; however, effective on July 1, and applicable to the sales of assets on or after that date, net capital gain on the sale of depreciable personal property, regardless of whether sold by an individual or business, cannot exceed 40% of federal taxable income or $350,000, whichever is less. (Vermont Tax News for Individuals, Vt. Dept. of Taxes, 06/28/2019; VTax News for Practitioners, Vt. Dept. of Taxes, 06/28/2019.)

 

Wisconsin

Pass-through entities can elect to be taxed at the entity level at a rate of 7.9% of net income and claim a credit for taxes paid to other states.  Failure to pay any taxes due by the entity can result in taxes collected from the partners, shareholders or members.  Effective for tax years beginning on or after January 1, 2019.

 

L. 2019, A10 (Act 7), effective for taxable years beginning on 01/01/2019, provides that moving expenses paid or incurred during the taxable year to move the taxpayer's Wisconsin business operations, in whole or in part, to a location outside the state or outside the United States may not be deducted as provided under the Internal Revenue Code. The legislation defines "moving expenses" to include: (1) vehicle rentals; (2) storage rentals; (3) moving company expenses for packing, unpacking, and transportation; (4) consulting fees and surveys; (5) brokerage commissions or fees; (6) architecture, design, and remodeling expenses; (7) expenses paid or incurred to sell property in this state; (8) loss on the sale of property in the state; (9) lease cancellation fees; (10) expenses paid or incurred for professional services, including legal services; (11) utility fees; (12) employee wages; (13) reimbursement of an employee's expenses; (14) the cost of meals, lodging, and fuel; and (15) mileage deductions for vehicle use.

 

OTHER TAXES: 

Florida Rental Tax

Effective January 1, 2020, Florida's rental tax on real property is decreased from 5.7% to 5.5%.  This tax is imposed at the rate in effect during the time a tenant occupies real property, regardless of when the rent is paid; therefore, rental charges for occupation of real property beginning January 1, 2020 are subject to the reduced rate even if paid prior to January 1, 2020.

 

Illinois Mobile Workforce

Illinois S.B. 1515 amends personal income tax withholding and return filing requirements for out-of-state residents for tax years beginning after December 31, 2020, to establish a 30 working day threshold for compliance.

 

Maine Unclaimed Property

Maine has replaced its unclaimed property rules with a new version effective October 1, 2019.  Most notably, the law changes the application of "gift obligations" and "stored value" cards, excluding loyalty programs and game-related digital content from these definitions. 

 

North Carolina Withholding

Effective January 1, 2020, NC's requirement to withhold taxes on payments for services of nonresident contractors is expanded to include payees without an ITIN. 


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This publication contains general information and is not intended to be comprehensive or to provide legal, tax or other professional advice or services. This publication is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Consult your advisor.

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