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 affirms use of combined reporting in Harley-Davidson case
On Aug. 22, 2018, the California Court of Appeal, Fourth District, affirmed that the California Franchise Tax Board can mandate the use of combined reporting by interstate unitary businesses, but permit intrastate unitary companies to choose either separate or combined reporting. After independent review, the Court found that there is a legitimate state interest to require combined reporting of taxable income of interstate unitary entities to accurately compute all income attributable to California, despite any potential discriminatory eﬀect on interstate commerce.
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.
District of Columbia raises taxes to support public transportation
On July 30, 2018, the District of Columbia enacted the Fiscal Year 2019 Budget Support Emergency Act of 2018, with an effective date of Oct. 1, 2018, unless otherwise provided. A significant goal of the Act from a local tax perspective was to provide a stable, annual source of funding for the Washington Metropolitan Area Transit Authority (WMATA), which was previously funded by annual contributions from member jurisdictions and federal grants.
Louisiana’s special legislative sessions yield results
Louisiana Gov. John Bel Edwards called three special legislative sessions to address a $650 million budget gap due to temporary tax measures expiring on June 30, 2018. In the second special session, Edwards signed H.B. 17, legislation that adopted an economic nexus standard contingent on the decision in South Dakota v. Wayfair, Inc.
Michigan court clarifies MBT ‘materials and supplies’ deduction
On July 24, 2018, the Michigan Court of Appeals determined that the materials and supplies deduction contained in the Michigan Business Tax (MBT) means 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.
Minnesota 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.
Minnesota Tax Court clarifies research and development credit
The Minnesota Tax Court recently considered the computation of the state research and development (R&D) credit in two very similar decisions. In partially granting the taxpayers’ motions for summary judgment, the Court determined that the Minnesota “base amount” must be computed using federal gross receipts in the denominator of the fixed-base percentage.
Minnesota applies tax to out-of-state drug receipt
On Aug. 15, 2018, the Minnesota Supreme Court endorsed the imposition of the Minnesota Legend Drug Tax on a non-resident mail-order pharmacy’s receipt of prescription drugs for ultimate distribution to Minnesota customers, despite such receipt occurring wholly outside the state. In reversing a decision of the Minnesota Tax Court, the Supreme Court sustained this taxation of an out-of-state activity against challenges brought forth on both federal Due Process and Commerce Clause grounds.
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.
Pennsylvania Supreme Court upholds Philadelphia’s beverage tax
On July 18, 2018, the Pennsylvania Supreme Court sustained the Philadelphia Beverage Tax (“PBT”), more commonly known as the “Soda Tax.” The Court affirmed the Commonwealth Court’s ruling finding the PBT to be a valid tax, holding that it does not duplicate Pennsylvania’s state sales tax and is not pre-empted by the Sterling Act.
Rhode Island to start sales, use tax on ‘software as a service’
On Oct. 1, 2018, Rhode Island will begin imposing its 7% sales and use tax on software as a service items. This change was included in the state’s budget legislation that was enacted on June 22, 2018.1 The Rhode Island Division of Taxation recently has issued guidance clarifying the implementation of this tax.
South Dakota passes economic nexus bills, lifts Wayfair injunction
On Sept. 12, 2018, South Dakota Gov. Dennis Daugaard signed into law S.B. 1 and S.B.2 following a one-day special legislative session, enacting economic nexus provisions on remote sellers and marketplace providers. This action lifts the long-standing injunction that had resulted from S.B. 106, the original 2016 South Dakota legislation which led to litigation that culminated in the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc.
Texas district court applies cost of performance sourcing rules
A Texas district court recently ruled that cost of performance sourcing rules applied to source subscription revenues received by a satellite radio company. The Texas comptroller had argued that the revenue should be sourced based on the locations where the satellite transmissions were received by subscribers.
Virginia upholds BPOL assessment despite Internet Tax Freedom Act protections
On May 16, 2018, the Virginia Department of Taxation upheld a local jurisdiction’s assessment of Business, Professional, and Occupational License (“BPOL”) tax on a taxpayer that underreported gross receipts related to Internet access services. While the Department held that the federal Internet Tax Freedom Act (“ITFA”)2 applies to the BPOL tax, the Department nevertheless upheld the locality’s assessment, declining to determine that the BPOL was subject to the ITFA’s “grandfather” clause.