State and local tax advisor: April 2020

For COVID-19-related state and local tax information, please see our alert here.

The states covered in this issue of our monthly tax advisor include:

• District of Columbia
• Indiana
• Massachusetts
• New York
• Ohio
• Oregon
• Virginia
• Wisconsin

District of Columbia

COVID-19 emergency nexus guidance issued

The District of Columbia will not seek to impose corporation franchise tax or unincorporated business franchise tax nexus on remote workers during the COVID-19 emergency. Specifically, the District will not impose nexus solely on the basis of employees or property used to allow employees to work from home (e.g., computers, computer equipment, or similar property) temporarily located in the District during the period of the declared public emergency and public health emergency, including any further extensions by the Mayor.

OTR Notice 2020-05 COVID-19 Emergency Income and Franchise Tax Nexus, District of Columbia Office of Tax and Revenue, April 10, 2020

Indiana

Nexus standard waived due to COVID-19

Indiana will not use an employee’s relocation, that is the direct result of temporary remote work requirements arising from and during the COVID-19 pandemic health crisis, as the basis for establishing Indiana income tax nexus or for exceeding the protections provided by P.L. 86-272 for the employer of the temporarily relocated employee.

The temporary protections provided under this guidance will extend for periods of time where:

• There is an official work-from-home order issued by an applicable federal, state, or local government unit.
• Pursuant to the order of a physician in relation to the COVID-19 outbreak or due to an actual diagnosis of COVID-19, plus 14 days to allow for return to normal work locations.

If the person remains in Indiana after the temporary remote work requirement has ended, nexus may be established for that employer. Also, an employer may not assert that only having a temporarily relocated employee in Indiana under the circumstances described above creates nexus for the business or exceeds the protections of P.L. 86-272 for the employer.

COVID-19 FAQs, Indiana Department of Revenue, April 10, 2020

Indiana

Bonus depreciation guidance updated

Indiana has updated its income tax guidance regarding bonus depreciation and IRC Section 179 expensing treatment. The bulletin examples have been updated, and it now provides for a special allowance for 2018 and part of the 2019 tax years with regard to the application of changes to Indiana’s treatment of certain bonus depreciation and expensing adjustments.

Section 179 adjustments

Retroactive to Jan. 1, 2018, a portion of the IRC Sec. 179 allowance is fully allowable for Indiana tax purposes. This exception applies to property that would have been eligible for tax deferral under IRC Sec. 1031 prior to the 2017 Tax Cuts and Jobs Act but is subject to tax after passage of the 2017 Tax Cuts and Jobs Act.

Bonus depreciation

Similarly, for taxable years 2018 and later, a portion of bonus depreciation is allowable for Indiana purposes. The portion allowable is equal to the IRC Sec. 1031 income on the property reduced by the IRC Sec. 179 allowance claimed on the same property, but not below zero.

Filing

If a taxpayer acquired property that would have had additional depreciation or expensing allowable, the taxpayer may elect one of three options. The options are available only if a return was filed on or before Oct. 31, 2019. The taxpayer can:

• Amend previously filed returns to reflect the newly allowable extra depreciation.
• Treat the additional allowed depreciation or expensing as occurring in the first taxable year ending after June 30, 2019, provided the combined 2018 and 2019 depreciation and expensing does not exceed the amount that would have been allowable if the depreciation and expensing had been claimed in the taxable year the IRC Sec. 1031 income was realized.
• Treat the depreciation as if the amendments to allow additional bonus depreciation or expensing had not been enacted.

Information Bulletin #118, Indiana Department of Revenue, April 2020

Massachusetts

NOL regulation amended

Massachusetts amended a regulation that explains corporate excise tax deductions for net operating losses (NOLs). The amendments reflect statutory and other changes since Massachusetts first adopted the regulation in 1993, including:

• Extension of the carryforward period from five to 20 years.
• Elimination of the functionally obsolete NOL deduction rules for startup corporations and life science companies.
• Removal of the separate NOL rules for utility corporations.
• Changes that take into account other rules on the use of NOLs by combined reporting groups.

830 CMR 63.30.2: Net Operating Loss Deductions and Carryforward, Massachusetts Department of Revenue, March 20, 2020

New York

State decouples from certain CARES Act provisions

Enacted as part of New York’s 2020-21 budget package, S.B. 7508 decouples the state from certain federal income tax changes.

Under the corporate franchise tax, an addition modification is required for the amount of the increase in the federal interest deduction allowed under IRC Sec. 163(j)(10)(A)(i). This relates to the federal CARES Act amendment increasing the cap of the business interest expense limitation. The modification is required for taxable years beginning in 2019 and 2020.

In addition, the tax law is amended to provide that, for taxable years beginning before Jan. 1, 2022, any amendments made to the Internal Revenue Code after March 1, 2020, do not apply to the New York personal income tax.

These changes are contained in Part WWW of the bill.

Ch. 58 (S.B. 7508), Laws 2020, effective April 3, 2020, applicable as noted

Ohio

IRC conformity updated

Ohio has updated its Internal Revenue Code (IRC) conformity to incorporate changes to the IRC taking effect after March 30, 2018. The incorporated IRC changes include the federal Further Consolidated Appropriates Act, 2020. Several of the changes directly affect the tax base of income tax taxpayers by increasing or decreasing their federal adjusted gross income. Among the changes are:

• The extension of the deduction for qualified tuition and related expenses (applies to taxable years beginning in or after 2018).
• The extension of an exclusion from gross income of the discharge of indebtedness on a qualified principal residence (taxable years beginning in or after 2018).
• An increase in the required age from 70.5 to 72 for required minimum distributions from tax-advantaged “qualified” retirement plans, e.g., individual retirement account and 401(k) retirement plans (taxable years beginning in or after 2020).
• A requirement for a nonspouse beneficiary of a qualified retirement plan to withdraw all money from an inherited account within 10 years (taxable years beginning in or after 2020).
• The allowance of penalty-free distributions from qualified retirement plans for births and adoptions (taxable years beginning in or after 2020).
• An expansion of Section 529 education plans to allow distributions for expenses associated with apprenticeship programs and up to $10,000 in student loan repayments (taxable years beginning in or after 2019).

Further, taxpayers with tax years ending after March 30, 2018, and before March 27, 2020, can irrevocably elect to apply the IRC in effect to their taxable year.

H.B. 197, Laws 2020, effective March 27, 2020

Oregon

Registration for Corporate Activity Tax discussed

The Oregon Department of Revenue (department) reminds businesses that they are required to register for the Corporate Activity Tax (CAT) within 30 days of passing $750,000 in Oregon commercial activity for the year. Businesses that passed the threshold in late February will need to register with the department by the end of March.

To register, individuals doing business in Oregon will need their name and their social security number or individual taxpayer identification number. Businesses will need their entity’s legal name and federal employer identification number.

Additionally, businesses and individuals will need: (1) their mailing address; (2) the date they exceeded or expect to exceed $750,000 in Oregon commercial activity; (3) a valid email address or current Revenue Online login, and; (4) their Business Activity Code (Refer to the current list of North American Industry Classification System codes found with their federal income tax return instructions.) Business may also opt for a short CAT registration training document available on CAT page of the Revenue Online website.

CAT registrants who want to make Automated Clearing House (ACH) payments must submit an ACH credit application for the Corporate Activity Tax (CAT). The application is available on the department’s website through Revenue Online by scrolling down to “Tools” and clicking “apply for ACH credit.” Once their application is completed, taxpayers will receive a confirmation providing the routing and account number. Taxpayers should not use account numbers from other tax programs. First-quarter estimated payments for the CAT are due April 30.

Press Release, Oregon Department of Revenue, March 30, 2020

Virginia

Reporting requirements for partnerships revised

Virginia has enacted new procedures for reporting certain partnership adjustments that result from federal tax changes and other changes to federal taxable income. The bill updates state law regarding the reporting of tax adjustments to make it align with new federal partnership audit procedures.

Ch. 1030 (H.B. 1417), Laws 2020, effective July 1, 2020; Fiscal Impact Statement, Virginia Department of Taxation

Wisconsin

State conforms to certain CARES Act provisions

Although Wisconsin’s general IRC conformity tie-in date remains at Dec. 31, 2017, the state has specifically adopted certain recent amendments made by the federal CARES Act (P.L. 116-136), including a partial above-the-line deduction for charitable contributions, the suspension of certain limitations on charitable contribution deductions, an exclusion for payroll protection loan forgiveness, an exclusion for certain employer payments of student loans, and special rules on the use of retirement funds.

In addition, although Wisconsin generally requires depreciation and amortization to be computed under the IRC as in effect on Jan. 1, 2014, the state has conformed to a CARES Act amendment that corrects a TCJA drafting error by providing a 15-year recovery period for qualified improvement property.

The bill text is available at https://docs.legis.wisconsin.gov/2019/related/acts/185.pdf.

Act 185 (A.B. 1038), Laws 2020, effective April 17, 2020; Summary of Provisions, Wisconsin Legislative Fiscal Bureau