State and Local Thinking -- September 2016

State and local Thinking: September 2016SALT Alerts Massachusetts Supreme Judicial Court upholds constitutionality of financial institution excise tax apportionment rules
The Massachusetts Supreme Judicial Court has reaffirmed its decision that the state’s apportionment of loan income did not violate the internal consistency test of the dormant Commerce Clause of the U.S. Constitution. Specifically, at issue were the state’s requirements to determine the situs of loans when computing the property factor for financial institution excise tax apportionment purposes. The decision followed a remand from the U.S. Supreme Court to reconsider the case in light of its subsequent decision in Comptroller of the Treasury. v. Wynne. Read the SALT Alert.

Philadelphia’s new soda tax is being challenged
On June 20, 2016, Philadelphia Mayor James Kenney approved the Sugar-Sweetened Beverage Tax, commonly known as the soda tax. The ordinance imposes a 1.5 cent per ounce tax on sugar-based drinks starting on Jan. 1, 2017. This amounts to 24 cents per 16-ounce bottle, or roughly $1.01 per two-liter bottle. This ordinance is the first successful attempt to tax soda beverages in a major city in the United States. The Philadelphia Department of Revenue recently has released proposed regulations for the new tax. On Sept. 14, 2016, a complaint was filed in the Philadelphia Court of Common Pleas by a group including the beverage industry, restaurants and individuals to try to prevent enforcement of the tax. Read the SALT Alert.

JobsOhio launches new R&D grant program
The JobsOhio Board of Directors recently approved an R&D grant program to provide support to R&D centers in Ohio. The purpose of the program is to support the development and commercialization of emerging technologies through strategic corporate R&D centers to ultimately drive job creation within the state. Read the SALT Alert.

Texas comptroller issues franchise tax guidance regarding vendor-funded incentives
For purposes of the Texas franchise tax, the Texas Comptroller of Public Accounts recently issued an internal memo from the Tax Policy Division to the Audit Division outlining the treatment of vendor-funded incentives (VFIs) received by retailers related to goods acquired for resale. VFIs are allowances, credits and rebates offered to retailers by wholesalers and manufacturers, and include items such as volume-based purchase price adjustments and sales-based incentives. Read the SALT Alert.

Maryland comptroller policy restricting carryforwards of exempt federal obligation interest held unconstitutional
On Aug. 12, 2016, the Maryland Tax Court held that the Maryland Comptroller’s policy of restricting carryforwards of exempt federal obligation interest not subtracted discriminates against holders of federal obligations in favor of similarly situated holders of Maryland obligations, and thus violates the Supremacy Clause of the U.S. Constitution. Read the SALT Alert.

California SBE issues guidance on sales tax treatment of technology transfer agreements
The California State Board of Equalization (SBE) has issued guidance on the California Court of Appeal’s decision in Lucent Technologies Inc. v. Board of Equalization and the sales tax treatment of technology transfer agreements (TTAs). In Lucent, the Court held that the taxpayer’s charges for software on storage media as part of a TTA were not subject to sales tax. The SBE recently has issued a special notice that explains TTAs, the Lucent decision, efforts to amend the relevant sales and use tax regulations, and potential refund opportunities. Read the SALT Alert.

U.S. First Circuit Court of Appeals affirms Puerto Rico corporate AMT scheme is unconstitutional
The U.S. Court of Appeals for the First Circuit recently affirmed a U.S. District Court decision that found subsections of Puerto Rico’s alternative minimum tax (AMT) statute unconstitutional. The Court of Appeals affirmed that the District Court had jurisdiction over the case because the taxpayer lacked a plain, speedy and efficient remedy in Puerto Rico courts because of recent regulatory and legislative changes. The Court of Appeals held that the AMT statute was facially discriminatory and continued the injunction against enforcement of the AMT. Read the SALT Alert.

Louisiana ties industrial tax exemption to job creation and local approval
On June 24, 2016, Louisiana Gov. John Bel Edwards issued an executive order that significantly changes the Louisiana Industrial Tax Exemption Program (ITEP). Specifically, the executive order revises the qualification requirements of the ITEP to include job creation and local governmental support for each exemption application. Further, the executive order adds periodic oversight of the state tax exemption program. Read the SALT Alert.

California FTB Chief Counsel Ruling considers economic nexus standard and throwback
The California Franchise Tax Board (FTB) recently issued a Chief Counsel Ruling clarifying that a taxpayer, in determining whether it met the state’s economic nexus standard for doing business, was required to aggregate the sales of tangible personal property with royalties received from licensing agreements in the state. Read the SALT Alert.

Illinois EDGE tax credit proposals should be submitted by Nov. 10, 2016
The Illinois Economic Development for a Growing Economy (EDGE) tax credit is scheduled to sunset on Dec. 31, 2016. No new EDGE agreements may be made after Dec. 31, 2016, but existing agreements will remain in effect. To date, the state of Illinois has not indicated that it will renew or enact a replacement for the credit upon expiration. The Illinois Department of Commerce and Economic Opportunity (DCEO), which administers the program, recently communicated that any company with a project that may qualify for the tax credit should submit a proposal to DCEO no later than Nov. 10, 2016. Read the SALT Alert.

Washington Annual Reconciliation of Apportionable Income form due Oct. 31
Taxpayers engaging in apportionable activities for Washington business and occupation tax purposes are required to complete and file an Annual Reconciliation of Apportionable Income form (Reconciliation form) by Oct. 31 of each year with the Washington Department of Revenue. The Reconciliation Form for the 2015 calendar year is due Oct. 31, 2016. Read the SALT Alert.

Pennsylvania enacts budget legislation expanding sales tax base, establishing tax amnesty program  
On July 13, 2016, Pennsylvania Gov. Tom Wolf signed into law Act 84, the revenue-raising element of Pennsylvania’s $31.5 billion fiscal year 2016-2017 budget, enacting several notable tax changes. The tax reforms under Act 84 are expected to generate $752 million in new Pennsylvania tax revenue. The measure was passed without any of the broad-based tax increases Gov. Wolf sought, but contains several significant provisions of interest to Pennsylvania taxpayers, including an expansion of the sales and use tax base to include digital products, statutory guidance on filing amended corporate tax reports, significant changes to the bank shares tax, and the establishment of a 60-day tax amnesty program. Read the SALT Alert.

Virginia provides tax guidance for software companies and cloud computing services
The Virginia tax commissioner recently addressed the application of corporate income tax and sales and use tax standards to cloud computing services in the commonwealth. According to the ruling, cloud computing services are treated in the same manner as electronically downloaded software and thus are not subject to Virginia sales tax. For corporate income tax purposes, the ruling explains that merely purchasing cloud computing services from an independent contractor, without any other presence in Virginia, won’t cause a taxpayer to establish nexus in the commonwealth. Read the SALT Alert.

New Hampshire enacts legislation updating IRC conformity, repealing phantom tax on sale of business
New Hampshire enacted two laws that change important elements of the New Hampshire business profits tax. The first law updates the Internal Revenue Code (IRC) conformity date and increases the IRC Section 179 depreciation expense deduction limitation. The second law repeals the phantom tax imposed on the sale or exchange of interests or beneficial interests in a business organization. The New Hampshire Department of Revenue Administration recently issued guidance on the implementation of the phantom tax legislation. Read the SALT Alert.

Thought leadership from our State and Local Tax professionals Publications

  • Sept. 21: Tax Analysts, "#1 2016 STT 184-1 U.S. Supreme Court Asked to Review Another State Tax Retroactivity Case," SALT Business Line Leader Matt Melinson, Managing Director Vito Cosmo and Senior Associate Patrick Skeehan quoted.
  • Sept. 16: Bloomberg BNA Daily Tax Report, "A Primer: The Congressional Battle Over Digital Sales Tax," Jamie Yesnowitz, Principal, SALT - National Tax Office Leader quoted.

Tax professionals Meet Dan Bartholet, SALT partner in the Minneapolis office

Dan Bartholet is a SALT partner in the Minneapolis office, where he serves clients in the health care, manufacturing, retail, food and distribution industries. Dan specializes in analyzing and interpreting multistate income, sales and use, and property tax laws.   

Dan manages multistate sales and use tax refund studies; assesses sales and use tax systems/processes and manages systems implementation projects; manages state tax minimization and restructuring studies; works with clients to manage state income, sales and use, and property tax audits; estimates multijurisdictional tax exposure and refund opportunities; and represents clients before various state tax authorities.

He's a CPA and director of the Minnesota Taxpayers Association. He received his BA degree from the University of St. Thomas in St. Paul, Minn.

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