SALT outlook, trends and predictions for 2018
Grant Thornton’s 2018 Outlook, Trends and Predictions Alert focuses on how we believed 2017 would unfold from a state and local tax (SALT) perspective, and how these predictions lined up with what actually happened. We have also included 10 new predictions on critical SALT issues which we believe will dominate in 2018.
Read our SALT outlook here
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:
Connecticut budget revises net deferred tax liability deduction provisions
On Oct. 31, Connecticut Gov. Dan Malloy signed budget legislation markedly extending the period over which the net deferred tax liability deduction under the state’s unitary combined reporting system may be claimed. Shortly after enactment of the budget, the governor signed a technical amendments bill, S.B. 1503, delaying the first year the deduction may be claimed from the 2018 income year to the 2021 income year.
Indiana tax court adopts operational cost of performance approach for sourcing services
The Indiana Tax Court Nov. 30 overturned an Indiana Department of Revenue adjusted gross income tax (AGIT) assessment on a taxpayer providing online education services, as the taxpayer had a greater proportion of income-producing activities located outside Indiana than within the state.
Michigan enacts administrative alternative dispute resolution process
On Dec. 20, 2017, Michigan enacted legislation that allows taxpayers and the Michigan Department of Treasury to enter into settlement agreements during the informal conference process. Under the new procedures, which apply to all taxes administered under the Revenue Act, the Department has the authority to settle tax disputes for a reduced amount or increase the amount of a taxpayer’s refund.
Montana adopts several regulations, including market-based sourcing
On Nov. 27, 2017, Montana’s Secretary of State enacted new and amended tax regulations largely conforming to 2017 legislative changes, including the adoption of market-based sourcing. The amendments include new apportionment rules for sales of items other than tangible personal property, adopt the use of the Finnigan approach to apportionment, modify net operating loss (NOL) provisions, enact rules for financial institution apportionment, and change depreciation schedules for valuing personal property. These regulations are effective on Jan. 1, 2018, and apply to tax years beginning after Dec. 31, 2017.
New York appellate division holds certain data information services not subject to sales tax
The New York Supreme Court, Appellate Division has held that the competitive price reports purchased by a supermarket retailer were considered to be information services that qualified for a statutory exclusion from sales tax.
New York employs step transaction doctrine to tax series of real property transfers
On Oct. 10, 2017, the Supreme Court of New York, Appellate Division, First Department, held that a series of property interest transfers was properly treated as a single, taxable transaction under the step transaction doctrine and did not qualify for the “mere change in form” exemption under the New York City (NYC) Real Property Transfer Tax (RPTT). In doing so, the Court distinguished the NYC RPTT treatment of these transactions from a recent decision issued by the New York State Tax Appeals Tribunal exempting the transfers from the NYS Real Estate Transfer Tax.
North Carolina requires annual reports to be filed directly with Secretary of State
During the 2017 legislative session, North Carolina enacted legislation requiring that corporations file their North Carolina annual report directly with the Secretary of State’s office beginning Jan. 1, 2018. Previously, the North Carolina annual reports could be filed with the North Carolina Department of Revenue along with S and C corporation income and franchise tax returns. Beginning in 2018, the annual report must be filed with the Business Registration Division of the Secretary of State, separate from the annual income and franchise tax return, by April 15 for calendar year filers and the 15th day of the fourth month for fiscal year filers.
Pennsylvania disallows bonus depreciation on certain assets
On Dec. 22, 2017, the Pennsylvania Department of Revenue issued administrative guidance, Corporation Tax Bulletin 2017-02 (Bulletin), concerning the disallowance and recovery of bonus depreciation under Internal Revenue Code (IRC) Section 168(k). The Bulletin disallows all depreciation on assets subject to 100 percent federal bonus depreciation placed in service between Sept. 28, 2017, and Dec. 31, 2022. Further, cost recovery equal to the full acquisition cost of the asset is allowed only at the time the asset is sold or otherwise disposed of. This currently makes Pennsylvania the only state to fully disallow depreciation on certain assets, though proposed legislation may change this treatment if enacted.
Puerto Rico provides withholding guidance concerning government contracts, waivers for new businesses
Puerto Rico’s reconstruction in the wake of Hurricane Maria’s devastation has created a series of logistical and fiscal challenges, which require the government to respond in an efficient and agile manner. To facilitate the recovery, the Puerto Rico government has entered (and will enter) into various contracts with service providers within and outside Puerto Rico. These government contracts are subject to provisions in the 2011 Puerto Rico Internal Revenue Code (PRIRC) relating to dispositions on withholding at source and filing requirements. On November 10, 2017, the Puerto Rico Treasury Department (PRTD) issued Administrative Determination No. 17-28 (AD 17-28) to provide guidance on withholding requirements related to government contracts. In addition, the PRTD issued separate withholding guidance in Administrative Determination No. 17-30 (AD 17-30) on November 15, 2017 to clarify what constitutes a new business for purposes of requesting a waiver from withholding on payments made for services performed in Puerto Rico.
Tennessee addresses sales tax treatment of self-study online courses, instructor-led webinars
The Tennessee Department of Revenue recently issued guidance on the sales and use tax treatment of self-study online courses and instructor-led webinars. In a revenue ruling, the Department advised a taxpayer that its self-study online training courses are subject to Tennessee sales tax when sold to a Tennessee customer because they constitute remotely accessed software. However, the taxpayer’s instructor-led webinars are not subject to Tennessee sales and use tax because they constitute a sale of non-taxable service under the state’s Retailers’ Sales Tax Act.
Texas comptroller’s amnesty program begins May 1
The Texas Comptroller of Public Accounts has announced that a tax amnesty program will be held from May 1 through June 29, 2018. The program applies to tax periods prior to Jan. 1, 2018, and provides relief from penalties and interest on liabilities that have not been previously identified as due by the Comptroller.
Texas Supreme Court denies use of compact’s three-factor formula for determining franchise tax apportionment
The Texas Supreme Court held on Dec. 22, 2017, that a taxpayer may not elect to use the equally-weighted three-factor apportionment formula provided by the Multistate Tax Compact (Compact), and must use a single receipts factor to compute its franchise tax. In reaching its decision, the Court chose not to address the issue of whether the franchise tax was an income tax, as defined in the Compact, and instead based its holding on a finding that Texas’ membership in the Compact does not prevent the state legislature from requiring a taxpayer to use only the single sales factor formula when apportioning its tax base to Texas.
County Court invalidates Seattle personal income tax
On Nov. 22, 2017, the Superior Court of Washington for King County ruled that an income tax enacted in July by Seattle’s City Council violates a state statutory provision which prohibits a city from levying a tax based on net income. As a result, the decision will prevent Seattle from implementing the personal income tax, which otherwise would have been imposed on high-income Seattle residents beginning with the 2018 tax year.