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:
Wayfair ruling overturns Quill physical presence requirement
On June 21, 2018, in a 5-4 decision, the U.S. Supreme Court decided South Dakota v. Wayfair, Inc., a landmark case concerning sales and use tax nexus standards. Last year, the South Dakota Supreme Court held that a law requiring certain remote sellers to collect sales tax on sales made in the state was unconstitutional because it violated the physical presence requirement for sales and use taxes under Quill Corp. v. North Dakota and its application of the Dormant Commerce Clause.
Colorado enacts market-based sourcing statute
On June 4, 2018, Colorado enacted legislation that introduces market-based sourcing for sales of other than tangible personal property for tax years beginning on or after January 1, 2019.1 The legislation is intended to conform the state’s sourcing methodology to the model statute endorsed by the Multistate Tax Commission (MTC). The legislation also expands on the state’s alternative apportionment provisions.
Connecticut enacts economic nexus and marketplace seller legislation
On June 14, 2018, Connecticut Gov. Dannel Malloy signed legislation imposing sales tax collection responsibilities on retailers and marketplace facilitators meeting certain requirements.
Hawaii enacts legislation updating IRC conformity date
On June 13, 2018, the Hawaii legislature enacted legislation updating Hawaii’s conformity date to the Internal Revenue Code (IRC) to Feb. 9, 2018, as it applies to corporate and personal income taxes for tax years beginning after 2017. Hawaii’s prior IRC conformity date was Dec. 31, 2016, for tax years beginning after 2016. Hawaii specifically decouples from several key IRC provisions contained in H.R.1, more commonly known as the Tax Cuts and Jobs Act (TCJA).
Hawaii enacts economic nexus standards for general excise tax
On June 12, 2018, Hawaii enacted legislation that subjects an out-of-state person who is engaged in business to the state’s general excise tax (GET) if the person has a specified amount of sales or number of transactions within the state. The sales thresholds for economic nexus mimic the thresholds of the South Dakota legislation that recently was considered by the U.S. Supreme Court in South Dakota v. Wayfair, Inc. The legislation is effective July 1, 2018, and applies to taxable years beginning after Dec. 31, 2017.
Illinois enacts use tax collection requirements for remote retailers and service providers
On June 4, 2018, Illinois enacted budget legislation that includes a requirement for remote retailers and service providers to collect and remit use tax and service use tax when they have a specified amount of sales or number of transactions within the state. The sales thresholds for economic nexus mimic the thresholds of the South Dakota legislation that recently was considered by the U.S. Supreme Court in South Dakota v. Wayfair, Inc.
Indiana legislation updates IRC conformity date
On May 14, 2018, Indiana Gov. Eric Holcomb signed legislation, H.B. 1316, that adopts many of the federal tax reform provisions contained in H.R. 1, commonly referred to as the Tax Cuts and Jobs Act (TCJA). The legislation, which was passed by the legislature during a one-day special session, updates Indiana’s Internal Revenue Code (IRC) conformity date from Dec. 31, 2016 to Feb. 11, 2018, retroactively to Jan. 1, 2018. Although Indiana largely conforms to the TCJA, the state decouples from several provisions contained in the TCJA.
Maryland Tax Court rejects lower interest rates on refunds
On May 23, 2018, the Maryland Tax Court ruled that providing lower interest rates for refunds related to the U.S. Supreme Court’s decision in Comptroller of the Treasury of Maryland v. Wynne than for other refunds is unconstitutional.
Minnesota Supreme Court upholds Commissioner’s ability to require alternative apportionment method
On July 5, 2018, the Minnesota Supreme Court overturned a Tax Court decision and upheld the Commissioner of Revenue’s authority to require a financial institution to treat captive partnerships as financial institutions for apportionment factor purposes. The Supreme Court determined that the Commissioner had met her burden of proof when she showed that the regular apportionment formula did not fairly and correctly apportion the taxpayer’s income in Minnesota.
MN Supreme Court denies application of resident trust tax
On July 18, 2018, the Minnesota Supreme Court found unconstitutional the application of a Minnesota income tax statute defining a “resident trust” to four related, irrevocable inter vivos trusts whose primary link to Minnesota was the grantor’s Minnesota domicile. In its decision, the Supreme Court determined that this contact proved too irrelevant—and that other, ancillary ties proved too attenuated—to support Minnesota’s taxing the trusts’ income from all of its intangibles and investments in a constitutional manner.
Missouri modifies corporate, personal income taxation
Over the past two months, the state of Missouri enacted three bills making substantial modifications to both its corporate income tax regime and personal income tax provisions. Specifically, the legislation reduces income tax rates for both individuals and corporations, modifies or repeals certain personal income tax deductions and exemptions, modifies consolidated return requirements and replaces the numerous apportionment methods for corporations with mandatory single sales factor apportionment. Effective dates for these provisions vary as specified below, and in certain instances could result in some flexibility for taxpayers preparing their 2017 corporate returns.
New Jersey enacts tax amnesty program
On July 1, 2018, New Jersey enacted legislation directing the director of the Division of Taxation to establish a 90-day tax amnesty program that must conclude by Jan. 15, 2019. The program applies to state tax liabilities for returns due prior to Sept. 1, 2017, and provides relief from certain penalties and one-half the interest due.
Pennsylvania enacts legislation addressing depreciation
On June 28, 2018, Pennsylvania Gov. Tom Wolf signed legislation, S.B. 1056, to address bonus depreciation issues raised by the federal tax reform provisions contained in H.R. 1, commonly referred to as the Tax Cuts and Jobs Act (TCJA). In December 2017, the Pennsylvania Department of Revenue issued guidance disallowing all depreciation on property subject to 100% federal bonus depreciation. This legislation, which applies to tax years beginning on or after Jan. 1, 2017, was enacted in direct response to this guidance and allows accelerated depreciation on this property, without a deduction for bonus depreciation.
Seattle enacts, then quickly repeals employee hours tax
Seattle Mayor Jenny Durkan signed unanimously passed legislation on May 16, 2018, adopting an employee hours tax for the privilege of engaging in business in the city. On June 12, 2018, however, the Seattle City Council reversed course and voted to repeal the tax with a 7–2 vote. The $275 per full-time employee tax would have applied to businesses having taxable gross income of more than $20 million and was intended to raise revenue to address the city’s homelessness and affordable housing issues.