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:
Federal tax reform impacts taxability of SALT incentives
The recently enacted federal tax reform legislation contains an amendment to Internal Revenue Code (IRC) Sec. 118 that expands gross income for federal income tax purposes to include many previously untaxed state and local tax (SALT) incentives.
Arkansas ALJ rejects use of Multistate Tax Compact election without department approval
On December 1, 2017, an administrative law judge (ALJ) for the Arkansas Office of Hearings and Appeals issued two decisions denying taxpayers the use of the Multistate Tax Compact’s equally-weighted three-factor apportionment formula for purposes of the Arkansas corporation income tax.
Federal law provides California wildfires employee retention tax credit for employers
On February 9, 2018, President Donald Trump signed into law the Bipartisan Budget Act of 2018. Among other items, the law provides targeted tax relief to individuals and businesses impacted by the California wildfires. As part of this relief, an Employee Retention Tax Credit (ERTC) is created for companies that paid employees during a period of business inoperability resulting from damage incurred by the California wildfires.
Idaho updates federal tax conformity date, providing selective conformity for key federal tax reform provisions
On February 9, 2018, Idaho enacted House Bill 355 generally updating its conformity to the Internal Revenue Code (IRC) in effect on December 21, 2017 for tax years beginning on or after January 1, 2017. Notably, H.B. 355 also selectively adopts provisions relating to the IRC sections which were enacted as part of federal tax reform, including an addition to income under IRC Sec. 965 (related to the one-time repatriation tax), as well as a required addback of any deductions permitted under IRC Sec. 965 and other special deductions.
Michigan provides method for electricity and gas providers to apportion sales tax exemption for industrial processing
On February 28, 2018, the Michigan Department of Treasury issued a Revenue Administrative Bulletin (RAB) to provide a reasonable method to electricity and natural gas providers to apportion the sales tax exemption for industrial processing. Because property eligible for the exemption may be used simultaneously for exempt and non-exempt purposes, a reasonable method must be applied to determine the percentage of use that qualifies for the exemption.
Michigan Court of Appeals applies market-based sourcing rule to services for Detroit City Income Tax
The Michigan Court of Appeals recently applied a market-based sourcing methodology for purposes of the Detroit City Income Tax to apportion a taxpayer’s receipts from legal services performed in Detroit for a client located outside the city.
NYC Tax Appeals Tribunal addresses receipts factor calculation of consulting services provider
The New York City (NYC) Tax Appeals Tribunal has determined that, for purposes of determining the receipts factor of an investment research consulting company’s general corporation tax (GCT) business allocation percentage, a wide range of the company’s costs should be included in the receipts factor sourcing calculation.
New Jersey Tax Court rules foreign source income not includible in CBT base
On November 28, 2017, the New Jersey Tax Court held that the New Jersey Division of Taxation was unable to impose the Corporation Business Tax (CBT) on the portion of a foreign corporation’s income that was not subject to federal income tax.
Pennsylvania enacts legislation imposing collection and reporting requirements on marketplace sales, modifying net loss deduction limitation
In October 2017, Pennsylvania Governor Tom Wolf approved Act 43, the revenue-raising element of Pennsylvania’s fiscal year 2017-2018 budget, enacting several notable tax changes.
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.
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 comptroller amends franchise tax cost of goods sold rule
On March 16, 2018, the Texas Comptroller of Public Accounts amended the administrative rule governing the Revised Texas Franchise Tax (RTFT) cost of goods sold (COGS) deduction. Notably, the changes impact the determination of which taxable entity is the “owner of the goods” and entitled to the COGS deduction, as well as the costs includible in the COGS deduction for taxable entities furnishing labor or materials to certain real property projects.
Virginia Supreme Court issues revised opinion affirming related-party addback safe harbor exception applies on post-apportioned basis
The Virginia Supreme Court has released a revised split opinion affirming that the safe harbor exception from the Virginia corporation income tax related-party addback for certain corporate expenses applied only to the portion of intangible expenses on which tax was actually imposed.
Virginia advances federal conformity date, issues guidance addressing impact on 2017 tax returns
Virginia enacted emergency legislation, Senate Bill 230 and House Bill 154, advancing the state’s conformity to the Internal Revenue Code (“IRC”) from December 31, 2016 to February 9, 2018. The enactment conforms the state to the Disaster Tax Relief and Airport and Airway Extension Act of 2017 (“Disaster Relief Act”), as well as most provisions contained in the Tax Cuts and Jobs Act (“TCJA”) and the Bipartisan Budget Act of 2018 (“Budget Act”) that are effective for the 2017 tax year.
West Virginia advances federal conformity date to conform with key tax reform law provisions
On February 21, 2018, West Virginia enacted legislation, H.B. 4135 and H.B. 4146, updating its conformity to the Internal Revenue Code (IRC) for purposes of the state’s corporation net income tax and personal income tax, to include amendments made to the IRC during the 2017 calendar year.