Keep up with the latest state and local tax developments by reading our SALT Alerts. They are labeled by state so that you can easily find the ones that apply to you. The following are the most recent alerts:
California holds documentary transfer tax can apply to transfers of interests in legal entities that own real estate
On June 29, 2017, the California Supreme Court held that the documentary transfer tax may apply to transfers of interests in legal entities that own real estate. Specifically, the court held that the documentary transfer tax may be imposed when a transfer of a legal entity results in a change in ownership of real property within the meaning of Cal. Rev. & Tax. Code Sec. 64(c) or (d).
Colorado enforcement of remote seller notice and reporting requirements commences
On July 1, 2017, the Colorado Department of Revenue began to enforce extensive notice and reporting requirements on remote retailers that do not collect Colorado sales or use tax. The statutory requirements were enacted in 2010, but had been enjoined due to protracted litigation in federal and state courts. On June 30, 2017, the department adopted an emergency administrative rule to clarify these requirements.
Florida enacts legislation reducing commercial rent tax rate
On May 25, 2017, Florida Gov. Rick Scott signed legislation adopting the reduction of the state’s sales tax on non-residential leases and licenses of real property. The rate is reduced from 6 % to 5.8 % effective July 1, 2017, and may decrease further in the future. Several provisions, mainly relating to sales tax exemptions for data center property and other items, were also included in the legislation.
Illinois’ Cook County imposes soda tax following dismissal of legal challenge
On Nov. 10, 2016, the Cook County Illinois Board of Commissioners adopted the Cook County Sweetened Beverage Tax Ordinance, more commonly known as the “Soda Tax” or “SBT.” The ordinance imposes a $0.01 per ounce tax on sweetened beverages. A legal challenge from a group representing Illinois retail merchants postponed the original July 1, 2017, effective date. On July 28, 2017, the Cook County Circuit Court dismissed the litigation, allowing the SBT to take effect on Aug. 2, 2017. Although Illinois retail merchants have appealed the court’s decision, Cook County joins a growing list of municipalities from across the country which have recently authorized soda taxes, including Philadelphia, San Francisco and Boulder, Colo. (Illinois logo)
Illinois enacts budget increasing income tax rates, eliminating unitary non-combination rule
On July 6, 2017, the Illinois House of Representatives followed the Senate and voted to override Gov. Bruce Rauner’s veto of S.B. 9, enacting the state’s FY 2017-18 budget after two years without a spending plan. Effective July 1, 2017, the legislation substantially increases the corporate and personal income tax rates.
Indiana Tax Court finds department erred in reclassifying gain from sale of subsidiary as business income
On July 11, 2017, the Indiana Tax Court held that the Indiana Department of Revenue erred in reclassifying a corporation’s gain on a 2001 sale of a subsidiary from nonbusiness income to business income. The Tax Court also addressed the scope of the Department’s authority to make adjustments to net operating losses in closed tax years, holding that a calculation of a carryover credit from a closed year can be revisited only to determine the tax liability for an open year.
Maine will impose collection and remittance duties on remote sellers beginning Oct. 1
On June 21, 2017, overriding a veto by Governor Paul LePage, Maine enacted legislation that will require certain remote sellers that do not have a physical presence in the state to collect and remit sales and use tax on sales into Maine. The collection and remittance duties will be triggered if either a gross revenue or transaction threshold is met. The legislation intends to place retailers with a physical presence in the state on equal footing with remote sellers selling into the state.
Michigan Supreme Court clarifies eligibility requirements for charitable institution property tax exemption
On June 28, 2017, the Michigan Supreme Court unanimously held that a charitable institution that imposes certain restrictions or conditions on its beneficiaries may still qualify for a property tax exemption provided the restriction or condition bears a reasonable relationship to a permissible charitable goal. In reaching its decision, the court clarified the correct analysis to use in determining whether an institution impermissibly offers its charity on a “discriminatory basis.” Because both of the prior decisions in this litigation were based on a misinterpretation of the law, the case was remanded to the Michigan Tax Tribunal for further proceedings consistent with the Supreme Court decision.
Minnesota Tax Court holds definition of ‘resident trust’ unconstitutional as applied to inter vivos trusts
On May 31, 2017, the Minnesota Tax Court overturned as unconstitutional the taxation of certain trusts as Minnesota “resident trusts” and held that application of the statutory definition of “resident trust” to inter vivos trusts formed after 1995 violated the Due Process Clauses of the Minnesota and U.S. Constitutions as applied to the trusts at issue.1 The Court determined that the Minnesota domicile of the grantor at the time the trust became irrevocable was not constitutionally sufficient to allow Minnesota to permanently classify the trust as a Minnesota resident trust and to tax the inter vivos trusts’ investment income as Minnesota source income.
Minnesota enacts omnibus tax legislation including expansion of sales tax nexus
The Minnesota legislature was called into a special session on May 23, 2017, to complete its passage of the necessary budget bills and the omnibus tax bill. The legislature passed the omnibus tax bill, H.F. 1, on May 25, 2017. While Minnesota Gov. Mark Dayton expressed strong objections to portions of H.F. 1, he signed the bill on May 30, 2017.
New Hampshire enacts legislation updating IRC conformity, decreasing tax rates
On June 28, 2017, New Hampshire Gov. Chris Sununu signed a budget bill which updates the Internal Revenue Code (IRC) conformity date and increases the IRC Section 179 depreciation expense deduction limitation. Further, the law reduces the tax rates for the business profits tax and the business enterprise tax, and repeals the electricity consumption tax.
North Carolina enacts budget legislation reducing income tax rates, providing sales tax exemptions
During June 2017, the North Carolina legislature passed legislation that included various income tax and sales tax provisions as part of the state budget. Gov. Roy Cooper vetoed the state’s budget bill, S.B. 257, but the budget was enacted when the legislature overrode his veto on June 28, 2017. The budget bill includes corporate and personal income tax rate reductions, sales and use tax exemptions, and amendments to various credits and incentives.
Ohio Board of Tax Appeals provides guidance on determining ultimate destination rule for CAT purposes
The Ohio Board of Tax Appeals (BTA) held that a taxpayer’s sales were properly sitused to Ohio for purposes of the Commercial Activity Tax because the “ultimate destination” of the goods sold by the taxpayer, after all transportation had been completed, was Ohio. The BTA’s determination of the “ultimate destination” of the goods rested on customer orders and bills of lading, all of which reflected “ship to” addresses in Ohio. The BTA noted that the taxpayer’s failure to produce any evidence that the goods may have subsequently been removed from Ohio foreclosed any argument that the “ultimate destination” was outside Ohio.
Ohio enacts budget including expanded sales tax nexus, municipal income tax changes, and amnesty program
The Ohio legislature recently passed biennial budget legislation including several significant tax provisions. Gov. John Kasich signed the bill on June 30, 2017, vetoing several line items. Notably, the legislation expands sales tax nexus, eliminates the throwback rule used to apportion business income for municipal income tax purposes, allows businesses to elect for the Ohio Department of Taxation to administer the municipal income tax, and provides for the establishment of a tax amnesty program.
Oklahoma Supreme Court allows individual to take capital gain deduction for sale of s corporations’ goodwill
On June 27, 2017, in a unanimous decision, the Oklahoma Supreme Court reversed the Oklahoma Tax Commission and held that an individual taxpayer could take a capital gain deduction for the proceeds that he received when two S corporations in which he held an ownership interest sold substantially all of their assets.
Oregon enacts legislation adopting market-based sourcing, altering unitary group determination
In Oregon’s legislative session this year, several laws were enacted that will impact Oregon taxpayers, including: replacement of the cost-of-performance method with market-based sourcing for sales of intangible property and services; an update of key apportionment terminology to conform to the Multistate Tax Compact; a narrowing of Oregon’s sales definition for sales factor purposes; alteration of the unitary group determination; and updating the Internal Revenue Code conformity date. Efforts to enact a gross receipts tax failed to gather the necessary support, although such a tax could appear on Oregon’s 2018 general election ballot.
Pennsylvania Commonwealth Court finds township’s local business privilege tax not fairly apportioned
The Pennsylvania Commonwealth Court recently held that a local business privilege tax imposed on fees paid by Pennsylvania 7-Eleven franchise stores to 7-Eleven’s regional office in Upper Moreland Township was unconstitutional because the tax was not fairly apportioned. Specifically, the Commonwealth Court held that the township’s apportionment methodology failed to reflect that the activity generating the fees resulted from economic activity occurring both within and outside the state.
Pennsylvania Commonwealth Court upholds Philadelphia’s beverage tax
On June 14, 2017, the Commonwealth Court of Pennsylvania sustained the Philadelphia Beverage Tax (PBT), more commonly known as the “Soda Tax.” In September 2016, a group of beverage industry associations and affected local retailers filed suit to block enforcement of the PBT. In a 5-2 decision, the Commonwealth Court affirmed a lower court ruling finding the PBT a valid tax, holding that it did not duplicate Pennsylvania’s state sales tax, was not pre-empted by the Food Stamp Act, and did not pose a uniformity violation. The decision allows the city to proceed fully in its enforcement of the PBT.
Washington imposes collection and remittance, notice and reporting requirements on marketplace facilitators
On July 7, 2017, Washington Gov. Jay Inslee signed legislation that will require remote sellers, marketplace facilitators, and referrers to collect and remit sales or use tax, or alternatively comply with notice and reporting requirements. The governor also signed legislation that extends the preferential Business and Occupation (B&O) tax rates for solar silicon and semiconductor materials manufacturing, but vetoed a provision that would have substantially reduced the general manufacturing B&O tax rate.
City of Seattle approves new personal income and sweetened beverage taxes
Over the past two months, the City of Seattle has approved two new taxes. Seattle’s City Council approved an income tax on July 10, 2017, imposing a 2.25% tax on resident individuals and certain trusts with total income above $250,000 ($500,000 for joint filers) per year, before adjustments, deductions, and credits. The tax applies to income received on or after Jan. 1, 2018. Additionally, on June 6, 2017, the City Council approved an ordinance imposing a tax on distributors of sweetened beverages in Seattle. The sweetened beverage tax is imposed on a per fluid ounce basis on distributors that distribute such beverages in Seattle beginning Jan. 1, 2018.