Doeren Mayhew’s state and local tax (SALT) advisors share the top SALT news across the country to keep your business in the know. Here are some of the most important updates from the past month:

Various State Individual Income Tax Changes

Colorado

Colorado H.B. 1311 was signed into law by Governor Jared Polis on June 23, 2021, and it is effective for tax years on or after Jan. 1, 2022. The bill imposes a cap on itemized deductions for taxpayers with adjusted gross income (AGI) greater than $400,000. It also raises the state earned income tax credit, eliminates the income tax deduction for some capital gains and provides a temporary income tax credit for some costs sustained by businesses converting to a worker-owned cooperative, an employee stock ownership plan, or an employee ownership trust.

Connecticut

Connecticut H.B. 6689 was signed into law by Governor Ned Lamont on June 23, 2021, and it is effective starting with the 2021 tax year. The bill increases the state earned income tax credit from 23% to 30.5% of the federal credit.

Iowa

Iowa S.F. 619 was signed into law by Governor Kim Reynolds on June 16, 2021, and it is effective on June 1, 2023. The bill reduces the top rate from 8.98% to 6.5% and decreases the number of tax rate brackets from nine to four. It uses federal taxable income after deductions and adjustments to calculate state income taxes. The bill also repeals the capital gains deduction (except for the sale of real property used in farming under certain conditions) and eliminates the deductibility of federal income taxes.

Louisiana

Louisiana H.B. 278 was signed into law by Governor John Bel Edwards on June 16, 2021, with activation contingent upon voter approval of constitutional amendment. The bill stands to reduce individual income tax rates.

Maine

Maine now allows employees who worked outside of Maine before the COVID-19 shutdown but remotely in Maine during the shutdown to claim a credit for income tax paid to other taxing jurisdictions for services performed before Jan. 1, 2022.

Various State Corporation Income Tax Changes

Connecticut

Connecticut H.B. 6689 was signed into law by Governor Ned Lamont on June 23, 2021, and is effective starting with the 2021 tax year. The bill extends the 10% corporation business tax surcharge for two more years, delays the start date of the capital base tax phaseout by three years and extends the phaseout period. It also increases the cap on the amount of research and development (R&D) credits corporations can claim from 50.01% to 70% of their annual tax liability, and limits carryforwards of these credits to 15 years for credits allowed in 2021 and beyond. Finally, the bill will establish a tax amnesty program from Nov. 1, 2021, to Jan. 31, 2022, for taxpayers owing Connecticut state taxes.

Illinois

Illinois S.B. 2017 was signed into law by Governor J.B. Pritzker on June 17, 2021, and is generally effective in tax years ending on or after Dec. 31, 2021. It limits corporate net operating loss (NOL) deductions to $100,000 per year for the next three years and decouples from the federal 100% bonus depreciation. The bill also aligns domestic and foreign-sourced dividend deductions.

Iowa

Iowa S.F. 619 was signed into law by Governor Kim Reynolds on June 16, 2021, and is effective on Jan. 1, 2023. It eliminates some Iowa adjustments and deductions used in calculating taxable income. The bill also adds back the federal NOL deduction carried over from a prior taxable year when computing Iowa taxable income and allows any remaining Iowa NOL from a prior taxable year to be deducted. Lastly, it conforms retroactively to federal bonus depreciation for capital assets placed in service on or after Jan. 1, 2021.

Maine

Effective Jan. 1, 2022, Maine provided new guidance on corporate income tax nexus. A nexus is established if the corporation:

  1. Is organized or commercially domiciled in Maine, or
  2. Is organized or commercially domiciled outside Maine, but exceeds any of the following thresholds for the taxable year:
    • $250,000 property in Maine
    • $250,000 payroll in Maine
    • $500,000 sales in Maine
    • 25% of the corporation’s property, payroll or sales in Maine

Composite Returns

Iowa

Iowa S.F. 608 was recently enacted to require pass-through entities to file a composite return on behalf of all nonresident members. The law will be applicable to tax years beginning on or after Jan. 1, 2022.

SALT Cap Workaround

Colorado

Colorado Governor Jared Polis recently signed H.B. 1327, allowing pass-through entities to elect to pay their state income tax at the entity level, rather than at the individual level, starting Jan. 1, 2022. The pass-through entity tax rate will be 4.55%.

New York

In April 2021, New York Governor Andrew Cuomo signed legislation to create the passthrough entity (PTE) tax in New York. It is effective for tax years beginning on or after Jan 1, 2021. Eligible PTEs must elect to pay the tax at the entity level.

Various State Franchise Tax Changes

Illinois

Illinois S.B. 2017 eliminates the planned phaseout of the state franchise tax.

Louisiana

Louisiana S.B. 161 will begin the phaseout (potentially beginning Jan. 1, 2025) of the corporate franchise tax through a set of triggers related to the growth in corporate income and franchise tax collections.

Sales Tax Sourcing Rules

Texas

Regulations taking effect on Oct. 1, 2021, will assign sales tax based on the destination of a sale, not its origin. Under current laws, online sales are sourced to the locations where the companies have warehouses, and those cities where the big retailers reside generally have special agreements with the retailers to pay back a portion of the revenue the cities generated. Several cities will lose revenue because of these new regulations and are considering a legal challenge to block the new rule.

Economic Nexus

Missouri

Missouri Governor Mike Parson signed S.B. 153 on June 30, 2021, requiring remote sellers and marketplace facilitators to collect and remit sales and use tax. It is the last state to address the economic nexus issue discussed in the Wayfair case. The rule will be effective beginning Jan. 1, 2023. Vendors with cumulative gross receipts of over $100,000 from the sale of tangible personal property for the purpose of storage, use or consumption in the previous 12 months will be required to collect and remit sales and use tax. Marketplace facilitators will also be required to remit sales and use tax on behalf of their third-party sellers.

PPP Loan Treatments

New Hampshire

Paycheck Protection Program (PPP) loan forgiveness is now excluded from taxable income. Expenses paid by PPP loans are now deductible.

Iowa

Iowa taxpayers may now exclude PPP loan forgiveness from income and deduct associated expenses.

Gross Receipts Tax

New Mexico

The state now applies the destination sourcing method to calculate gross receipts tax.

Oregon

Oregon S.B. 164 allows businesses with fiscal year-ends to file a short tax year return for Oregon’s gross receipts tax at the end of their 2021 fiscal year-end, and file returns on a fiscal-year basis thereafter.

Professional Services Tax

Several states including Colorado, Minnesota, Nebraska, Oklahoma, Texas, Vermont and Wyoming may be willing to tax professional services.

Digital Tax

Texas

Texas S.B. 153, effective on Oct. 1, 2021, excludes services to encrypt electronic payment information for acceptance onto a payment card network, and settling of an electronic payment transaction, from the definition of data processing service for sales and use tax purposes.

Colorado

Colorado H.B. 1312 recently defined digital goods such as videos, music and electronic books as tangible personal property subject to the sales and use tax.

Multiple States

  • Personal Information – Washington, Oregon, New York and Indiana are proposing bills to impose taxes on sales of personal information.
  • Multistate Tax Commission (MTC) – The MTC agreed to begin the project of taxing digital goods. It is dedicating one of its July 21 annual meeting seminars to a session titled “Taxation of Digital Items: What States Can and Should Do to Make It Work.”
  • Cryptocurrencies – Cryptocurrencies might be subject to sales and use tax as more and more states are taxing digital properties. However, it is hard for crypto artists to collect and remit sales tax since states have different sourcing rules and different economic nexus standards. State tax departments and legislatures will likely begin to take actions to deal with cryptocurrency transactions.
    • Washington is considering taxing non-fungible tokens (NFTs) as digital assets.

Telecommuter Income Tax

The Multi-State Worker Tax Fairness Act of 2021 was recently introduced in the U.S. Senate, proposing to limit the degree to which states can apply their income tax to wages earned by nonresident telecommuters and other multi-state workers. According to the act, in applying a state’s income tax laws to the pay of a nonresident individual, the state may find a nonresident individual working in the state for a limited time only if the individual is physically present within the state. Therefore, the state cannot impose nonresident income taxes on the individual’s pay for any amount of time when the nonresident individual is physically present in a different state.

Additional State Bills and Updates

Iowa

Iowa S.F. 619 reduces the inheritance tax rate by 20% per year over four years until it is eliminated on Jan. 1, 2025. The same bill also reduces the maximum amounts of annual tax credits Iowa may issue in a year for the High Quality Jobs Program and the Renewable Chemical Production Tax Credit Program. The Redevelopment Tax Credit scheduled to expire in 2021 was also extended for 10 years.

Louisiana

  1. Digital Nomads

S.B. 31 provides digital nomads an individual income tax exemption for 50% of gross wages related to remote work, or up to $150,000. The exemption applies for two of the four years of 2022 to 2025, and it only allows 500 individuals to participate in this program. Digital nomads are defined as individuals who:

    • Establish residency in Louisiana after Dec. 31, 2021,
    • Work remotely full-time for a nonresident business,
    • Haven’t established residency or domicile in Louisiana for any of the three years before establishing residency or domicile after Dec. 31, 2021,
    • Aren’t required to file a Louisiana income tax return for any of the prior three years and
    • Work either remotely or in a coworking space.
  2. Partnership Audit Regime

Louisiana conforms to the federal partnership audit regime through S.B. 160. A partnership can make adjustments at the entity level instead of requiring each partner to file an amended return.

Maine

L.D. 1216 clarifies who must register to collect and remit sales and use tax in Maine.

Texas

Texas released guidance excluding medical or dental billing services performed before the original submission of a related insurance claim from the definition of insurance service. Such services will not be taxable and the treatment is effective immediately.

Vermont

  • IRC Conformity – Vermont conforms to the federal tax code as of March 31, 2021, which excluded PPP loan forgiveness from taxable income for the 2021 tax year.
  • Alcoholic Beverages Tax – Alcoholic beverages sold at events of tax-exempt organizations are exempt from tax in the same manner that meals at such events are exempt.
  • Sales Tax – Vermont exempts sales tax on feminine hygiene products.

For more information on how these new updates may affect your organization, contact Doeren Mayhew’s state and local tax advisors today.