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 legislature passes bill transferring many of State Board of Equalization’s responsibilities to new tax agencies
On June 15, 2017, just 72 hours after its publication, the California legislature passed the Taxpayer Transparency and Fairness Act of 2017, in a move that will transfer significant responsibilities for taxation and administration from the State Board of Equalization (SBE) to two newly established agencies that will be overseen by governor-appointed directors.
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.
Connecticut publishes guidance regarding single-sales factor apportionment and market-based sourcing
On April 17, the Connecticut Department of Revenue Services issued Special Notice 2017(1) addressing apportionment changes included in the recently adopted single-sales factor apportionment and market-based sourcing legislation. The Special Notice includes clarifying language and provides taxpayers with detailed guidance regarding how to apply the statutes, including several interpretive examples.
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.
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.
Massachusetts DOR revokes directive explaining bright-line sales tax nexus standard for remote internet vendors
On June 28, 2017, the Massachusetts Department of Revenue issued a directive immediately revoking a prior directive issued earlier this year that would have required out-of-state Internet vendors to collect sales or use tax if they met certain sales and transaction thresholds. Under revoked Directive 17-1, which was scheduled to take effect on July 1, an Internet vendor with a principal place of business located outside Massachusetts would have been required to register, collect and remit sales or use tax on its Massachusetts sales if during the preceding year it had over $500,000 in Massachusetts sales and made sales for delivery into Massachusetts in at least 100 transactions.
Michigan issues guidance on ‘materials and supplies’ deduction for MBT purposes
The Michigan Department of Treasury recently released guidance acquiescing in its interpretation of the term “materials and supplies” contained in the Michigan Business Tax to match the understanding reached in two recent Michigan decisions. The Department’s revised interpretation of “materials and supplies” includes tangible personal property purchased in the tax year that is an ordinary and necessary expense to be used in carrying on a trade or business.
Michigan tax tribunal finds passive holding company did not have nexus for Detroit income tax
On May 2, 2017, the Michigan Tax Tribunal granted a passive holding company’s motion for summary disposition and held that it did not have the requisite nexus with the city of Detroit for purposes of the City of Detroit Income Tax (CDIT). Although the company was “doing business” under the broad definition of the term contained in the City Income Tax Act, the company had no physical presence or minimum connection to Detroit. Furthermore, the tribunal determined that even though the company was part of a unitary business group that was based in Detroit, the company itself did not have nexus with the city for purposes of the CDIT.
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 Jersey Tax Court finds payments made by subsidiary qualify for exception to addback rule
On May 24, 2017, the New Jersey Tax Court granted a taxpayer’s motion for summary judgment and allowed deductions for royalty payments made by a subsidiary to its parent company. Specifically, the court found that the payments qualified for the unreasonable exception to the addback rule because they were substantively equivalent to payments made by the subsidiary and/or the parent to unrelated third parties under transactions involving the same subject and object (the sale of pre-written computer software license and service contracts).
Oklahoma tax legislation revises franchise tax, sales tax and voluntary disclosure agreement provisions
Oklahoma’s legislative session adjourned on May 26, with Gov. Mary Fallin signing a series of measures as a means to temporarily resolve the state’s significant budget issues. The measures were enacted throughout the final month of the session and will impact the state’s corporate franchise, personal income and sales and use tax.
Texas expands ‘qualifying job’ definition for data center sales and use tax exemption
Texas Gov. Greg Abbott signed legislation June 1, 2017 expanding the definition of qualified employment used to determine eligibility for the state sales and use tax exemption for qualifying data center projects. Specifically, the definition of “qualifying job” for purposes of this exemption is expanded to include positions staffed by a third-party employer.