VIEWpoint Issue 1 | 2023
2023 Compliance Trends: Staying Ahead in an Evolving Regulatory E...
2023 Tax Calendar
Doeren Mayhew’s state and local tax (SALT) advisors highlight the top SALT news across the country to keep your business up-to-date. Here are some of the most popular legislation updates from the past month:
On Jan. 24, 2021, the Texas Comptroller adopted several amendments to the Texas sourcing rules for franchise tax purposes. Most of the amendments are retroactive to Jan. 1, 2008, except as otherwise noted in the code section. Texas general rule sources service to “the location where the service is performed,” but the new rule specifies the location of performance should be the “receipt-producing, end-product act or acts.” If there is no such act, the location of all essential acts may be considered. If the services are performed both inside and outside of Texas for a single charge, the new rule required taxpayers to use reasonable methods to determine the fair value of the services performed in Texas, such as using the hours worked to apportion the total costs. Hegar v. Sirius XM Radio, Inc. is an ongoing case regarding the service sourcing rule that is pending review by the Texas Supreme Court.
Internet Hosting Services (IHS) in Texas should be sourced to the location where the customer is located. For sales tax sourcing purposes, the taxpayer will need to determine the location based on the ultimate consumer or the end-user of the service – this is retroactive to 2014.
The new rule provides the receipts from the dissemination of advertising (ex. magazines, television, radio) are sourced to the locations of the advertising audience. For reports due before the 2021 report year, radio or television station transmitters in Texas may source their advertising receipts to Texas. If the location of the audience cannot be reasonably determined, the taxpayer may source 8.7% of the gross receipts to Texas.
Texas H.B. 1445 states an “insurance service” does not include a medical or dental billing service performed before the “original submission” of a related insurance claim or a claim made to a medical assistance program funded by the federal and/or state government, effective Jan. 1, 2022.
On May 21, 2021, the Massachusetts Supreme Judicial Court ruled the apportionment of sales tax on software sold in Massachusetts and used outside of Massachusetts is allowed. The seller of the software may collect and remit the tax based on the apportioned amount if the purchaser certifies the accuracy.
Missouri S.B. 153, which will establish remote seller nexus and marketplace facilitator rules starting Jan. 1, 2023, was sent to Governor Mike Parson on May 25, 2021. The rule will require 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 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.
On May 3, 2021, Kansas adopted a bill establishing a remote seller nexus threshold and the marketplace facilitator rules. Prior to this bill, Kanas did not provide a threshold that a remote seller had to meet or exceed before being required to remit sales and use tax, and marketplace facilitators were not required to collect and remit sales and use tax.
Beginning July 1, 2021, a remote seller that has over $100,000 sales in Kansas in the preceding calendar year (or the current calendar year) must collect and remit sales and use tax. Also beginning July 1, 2021, marketplace facilitators who make or facilitate over $100,000 sales of property or services must collect and remit sales and use tax.
Across the Nation
Although little progress was made, nine states have introduced digital advertising or data tax bills this year. Arkansas, Connecticut and Indiana have been specifically exploring the advertising tax on social media. The other six states, Massachusetts, Montana, New York, Texas, Washington and West Virginia, focus on advertising tax more broadly. Additionally, New York and Washington have been considering data taxes. New York designed it as an intangible property tax, while Washington treated it as a gross receipts tax on the sale of consumer data.
The Maryland Comptroller published a tax bulletin stating a regulation will be adopted to issue guidance on the digital advertising tax. The bulletin also specified the applicability date of the digital ad tax will be the 2022 tax year, with the first quarterly estimated payment due April 15, 2022.
PPP loan forgiveness is now excluded from taxable income. Expenses paid for with PPP loans are not deductible if the loan was forgiven or anticipated to be forgiven.
PPP loan forgiveness is now excluded from taxable income. Expenses paid for with PPP loans are deductible.
On May 8, 2021, Texas H.B. 1195 was signed into law by Governor Greg Abbott and effective immediately. The bill specifies a loan or grant under the Coronavirus Aid, Relief, and Economic Security (CARES) Act is excluded from total revenue for Texas franchise tax purposes. Additionally, the expenses and compensation paid using the qualifying loan or grant can be included as cost of goods sold and compensation for Texas franchise tax purposes.
The Hawaii Department of Taxation now requires all partnership returns to report a partner’s capital account on a tax basis for taxable years beginning after Dec. 31, 2019.
Massachusetts’s Senate proposed a bill allowing pass-through entities to pay a 5% state excise tax and allow qualified individuals to take a credit proportionate to their share of tax due multiplied by 0.9. The Senate is expected to send the bill to Governor Charlie Baker by July 1, 2021.
On May 17, 2021, South Carolina passed a bill allowing pass-through entities to elect to file and pay their state income tax at the entity level, beginning in tax year 2021. The tax rate will be a flat 3% rate.
The Legislature passed Illinois S.B. 2531 on May 30, 2021, allowing partnerships and S corporations to pay their income tax at the entity level at a rate of 4.95% and then claim a credit on their state return. The bill is effective for taxable years ending on or after Dec. 31, 2021, and beginning prior to Jan. 1, 2026.
Governor Greg Gianforte signed two bills on May 6, 2021, lowering the state’s top marginal individual income tax rate and reducing the number of individual income tax brackets starting in tax year 2022. However, the reduction will be terminated if the tax relief will result in the loss of federal funds under the American Rescue Plan Act of 2021, or the repayment of federal funds to the government.
On May 26, 2021, Nebraska Governor Pete Ricketts signed a bill reducing the corporate income tax rate on income over $100,000 from 7.81% to 7.5% starting on or after Jan. 1, 2022. The rate will be further reduced to 7.25% for tax years beginning on or after Jan. 1, 2023.
Several bills were signed on May 21, 2021, to lower both corporate and individual state income tax rates beginning Jan. 1, 2022.
North Carolina’s new law signed on April 27, 2021, waived the interest on underpayments of individual, partnership and trust income tax from April 15, 2021, to May 17, 2021. The interest will start accruing on an underpayment of tax beginning May 18, 2021.
Oregon is proposing to provide permanent interest waiver relief to qualifying business income taxpayers who owe 2019 income tax because of financial hardships incurred from the COVID-19 pandemic. The current temporary rule is only effective from Dec. 14, 2020, through June 11, 2021.
On May 11, 2021, New Jersey revised its guidance regarding the business interest expense limitations treatment on its corporation business tax. New Jersey conforms to the modifications of I.R.C. §163(j) made as part of the CARES Act to the extent they are consistent with the New Jersey Corporation Business Tax Act. Specifically, New Jersey conforms to the adjusted taxable income deduction limit for applicable periods.
At least 38 municipalities are offering grants or tax benefits to lure remote workers from urban centers. The incentive programs vary, but most will provide grants ranging from $5,000 to $15,000 and require recipients to buy or rent homes for at least two years. There are also some creative perks; the southwest Michigan program offers golf and fitness memberships, as well as access to co-working spaces.
Have questions or concerns about how these new SALT updates may impact your organization? Contact Doeren Mayhew’s dedicated state and local tax advisors today.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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