State and local tax advisor: April 2021
Are you looking for the latest changes in state and local taxes? Find the April 2021 roundup here.
- New Jersey
- New Mexico
- New York
- West Virginia
Corporate, personal income taxes: Estimated tax payment guidance released for electing pass-through entities
If a pass-through entity (PTE) anticipates making the election to pay Alabama income tax at the entity level for tax year 2021, it may need to make estimated tax payments. The Department of Revenue released temporary guidance to help PTEs comply with recent tax law changes. The guidance helps electing PTEs determine whether, when, and how they should make estimated tax payments.
The Alabama Electing Pass-Through Entity Tax Act
Beginning with the 2021 tax year, Alabama S corporations and Subchapter K entities can elect to pay state income tax at the entity level. Entities making this election must notify the Department of Revenue by the 15th day of the third month following the close of the tax year for which they elect to be taxed at the entity level. The Department will issue additional guidance regarding the election process, returns, and related matters prior to the 2021 filing season.
Are estimated payments required?
A PTE must make estimated tax payments if it:
- Anticipates making the election pay Alabama income tax at the entity level for tax year 2021.
- Expects its estimated Alabama tax liability to be $500 or more.
What are the due dates?
The due dates for estimated tax payments for calendar year filers for the 2021 tax year are:
- Payment 1 – April 15, 2021
- Payment 2 – June 15, 2021
- Payment 3 – Sept. 15, 2021
- Payment 4 – Dec. 15, 2021
The due dates for fiscal year filers are the 15th day of the fourth, sixth, ninth, and 12th months of the fiscal year.
What are the required payment amounts?
The required estimated quarterly payment is 25% of the “required annual payment.” The required annual payment generally means the lesser of:
- 100% of the tax shown on the return for the taxable year.
- 100% of the tax shown on the return for the preceding tax year.
This safe-harbor rule will apply to electing PTEs making estimated tax payments for the 2021 tax year using the following calculations for the required annual payment:
- S corporations — Calculate the total of lines 1 through 17 in the Alabama column on Schedule K from the 2020 Form 20S; then multiply this total by 5%.
- PTEs other than S corporations — Calculate the total of lines 1 through 17 in the Alabama column on Schedule K from the 2020 Form 65; then multiply this total by 5%.
The Department may, on a case-by-case basis, address special situations and circumstances resulting from the first year of implementing the estimated tax payment requirement.
How can electing PTEs make the payments?
Electing PTEs may make the payments by:
- Check submitted with the Form PTE-V, Pass Through Entity Payment Voucher
- Electronic payment via ACH draft through My Alabama Taxes
What if a PTE does not make the election?
If a PTE makes estimated tax payments and does not ultimately elect to be taxed at the entity level for the tax year, it may request a refund. To request a refund, it should use form PTE-C, Nonresident Composite Payment Return, and list the amount of estimate payments made on line 5b.
News Release, Alabama Department of Revenue, April 2, 2021.
Corporate, personal income taxes: IRC conformity updated
Arizona has updated its conformity to the Internal Revenue Code (IRC) for income tax purposes. For tax years beginning after 2020, Arizona now conforms to the IRC as amended and in effect on March 11, 2021. This includes provisions that became effective during 2020 with the specific adoption of all retroactive effective dates.
Prior tax years
Previously, for tax years beginning after 2019, Arizona conformed to the IRC as amended and in effect on Jan. 1, 2020. Now, the Jan. 1, 2020 conformity date applies only for tax years beginning during 2020.
Arizona has also adopted provisions of the following acts that have retroactive effect for tax years beginning before 2021:
- Families First Coronavirus Response Act (P.L. 116-127)
- Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136)
- Paycheck Protection Program Flexibility Act of 2020 (P.L. 116-142)
- Consolidated Appropriations Act, 2021 (P.L. 116-260)
- American Rescue Plan Act of 2021 (P.L. 117-2).
S.B. 1752, Laws 2021, effective 91 days after adjournment of the 2021 Legislature.
Enacts pass-through-entity-level tax
Effective for tax years beginning on or after Jan. 1, 2022, Arkansas pass-through entities may elect to pay income taxes at the entity level.
The tax rate for electing entities is 5.9% of net taxable income. The rate of tax on capital gains is 50% of the rate imposed on taxable income.
Electing entities are allowed the same provisions for net operating losses as nonelecting entities. Further, an electing entity can choose to receive against its liability for the voluntary tax any credit that it would otherwise have received against its income tax liability.
Members of at least 50% of the voting rights of a pass-through entity may make the election on an annual basis before the due date or extended due date of the entity’s income tax return. A member includes:
- A shareholder of a Subchapter S corporation
- A partner in a general partnership, limited partnership, or limited liability partnership
- A member of a limited liability company
The pass-through entity tax is due before the 15th day of the fourth month of the taxable year. However, the tax is required be paid in quarterly estimated installments on the fourth, sixth, ninth, and 13th months of the taxable year. Failure at the end of the year to have paid 90% of the tax owed will result in imposition of the same penalty as applied to all other taxes for which the payment does not exceed 90% of what is owed by the time the tax is due.
Exclusions from tax
Income of a member that is subject to the pass-through entity tax is excluded from Arkansas income tax. Income subject to a similar tax in another state or the District of Columbia is also exempt from Arkansas income tax. Nonresident members of an entity subject to the pass-through entity tax are not required to file an Arkansas income tax return if all pass-through entities the member has an ownership interest in pay the pass-through entity tax.
Act 362 (H.B. 1209), Laws 2021, effective as noted.
Sales and use tax: Florida enacts economic nexus
Florida has enacted economic nexus for sales and use tax purposes. Out-of-state retailers and marketplace providers with no physical presence in Florida are required to collect Florida’s sales and use tax on sales of taxable items delivered to purchasers in Florida if the out-of-state retailer or marketplace provider makes a substantial number of sales into Florida. A “substantial number of remote sales” is defined as any number of taxable remote sales in the previous calendar year in which the sum of the sales prices exceeded $100,000. The legislation is entitled the “Park Randall ‘Randy’ Miller Act.”
Taxation of marketplace sales
A marketplace provider that has a physical presence in Florida or who is making or facilitating a substantial number of remote sales through a marketplace is a sales and use tax dealer.
A marketplace provider that is a sales and use tax dealer or a person who is required to collect and remit sales tax on remote sales is required to collect discretionary sales surtax when the taxable item of tangible personal property is delivered within a county imposing a surtax.
In addition, a marketplace provider that is a dealer must certify to its marketplace sellers that it will collect and remit sales and use tax on taxable retail sales made through the marketplace. Such certification may be included in the agreement between the marketplace provider and the marketplace seller.
A marketplace seller may not collect and remit sales and use tax on a taxable retail sale when the sale is made through the marketplace and the marketplace provider certifies that it will collect and remit the tax. A marketplace seller must exclude such sales made through the marketplace from the marketplace seller’s tax return.
Moreover, a marketplace seller who has a physical presence in Florida must register and collect and remit sales and use tax on all taxable retail sales made outside the marketplace. A marketplace seller who does not have a physical presence in Florida but who makes a substantial number of remote sales must register, collect, and remit sales and use tax on all taxable retail sales made outside the marketplace. For the purpose of determining whether a marketplace seller made a substantial number of remote sales, the marketplace seller can consider only those sales made outside a marketplace.
A “marketplace” is any physical place or electronic medium through which tangible personal property is offered for sale.
A “marketplace provider” is a person who:
- Facilitates a retail sale by a marketplace seller by listing or advertising for sale by the marketplace seller tangible personal property in a marketplace.
- Directly, or indirectly through agreements or arrangements with third parties, collects payment from the customer and transmits all or part of the payment to the marketplace seller, regardless of whether the marketplace provider receives compensation or other consideration in exchange for its services.
The term “marketplace provider” does not include a person who is:
- A person who solely provides travel agency services.
- A delivery network company unless the delivery network company is a registered dealer for sales and use tax purposes and the delivery network company notifies all local merchants that sell through the delivery network company’s website or mobile application that the delivery network company is subject to the requirements of a marketplace provider.
- A payment processor business that processes payment transactions from various channels, such as charge cards, credit cards, or debit cards, and whose sole activity with respect to marketplace sales is to process payment.
A “delivery network company” is defined as a person who maintains a website or mobile application used to facilitate:
- Delivery services
- The sale of local products
A “marketplace seller” is a person who has an agreement with a marketplace provider that is a sales and use tax dealer and who makes retail sales of tangible personal property through a marketplace owned, operated, or controlled by the marketplace provider.
The term “retail sale” is amended to include:
- A remote sale
- A sale facilitated through a marketplace
A “remote sale” is defined as a retail sale of tangible personal property ordered by mail, telephone, internet, or other means of communication from a person who receives the order outside Florida and transports the property or causes the property to be transported from any jurisdiction, including the state of Florida, to a location in Florida. For these purposes, tangible personal property delivered to a location within Florida is presumed to be used, consumed, distributed, or stored to be used or consumed in Florida.
Audit of marketplace provider’s books and records
A marketplace provider must allow the department to examine and audit its books and records. If the department audits a marketplace provider, the department may not propose a tax assessment on the marketplace seller for the same retail sales unless the marketplace seller provides incorrect or incomplete information to the marketplace provider. However, the relief provided to a marketplace seller does not apply if:
- It has been assessed.
- Is under audit.
- Has received a bill.
- Is in court before July 1, 2021.
The marketplace provider is relieved of liability for the tax on the retail sale, and the marketplace seller or customer is liable for the sales and use tax if the marketplace provider demonstrates to the department’s satisfaction that:
- The marketplace provider made a reasonable effort to obtain accurate information related to the retail sales facilitated through the marketplace from the marketplace seller.
- The failure to collect and remit the correct amount of tax was due to the incorrect or incomplete information provided to the marketplace provider by the marketplace seller.
This provision does not apply to a retail sale for which the marketplace provider is the seller if:
- The marketplace provider and the marketplace seller are related parties.
- Transactions between a marketplace seller and marketplace buyer are not conducted at arm’s length.
Marketplace seller may contract to collect and remit taxes for marketplace
Effective April 1, 2022, a marketplace provider and a qualifying marketplace seller may contractually agree to have the marketplace seller collect and remit the taxes for sales on the marketplace. This applies to marketplace sellers with annual U.S. gross sales of more than $1 billion, including the gross sales of any related entities. In the case of franchised entities that meet the $1 billion threshold, including the combined sales of all franchisees of a single franchisor.
Also effective April 1, 2022, a marketplace provider must, at the time of sale, collect and remit the following fees on applicable sales:
- Prepaid wireless E911 fee
- Waste tire fee
- Lead-acid battery fee
Electronic filing required
Out-of-state retailers and marketplace providers are required to file returns and remit tax electronically.
Department may establish rules
The Florida Department of Revenue may establish, by rule, procedures for collecting use tax from unregistered persons who but for their remote purchases would not be required to remit sales or use tax directly to the department. The procedures may provide for:
- The waiver of registration
- The irregular remittance of tax
- The elimination of the collection allowance
- The nonapplication of local option surtaxes
Application and tax relief
The act first applies to remote sales made or facilitated on or after July 1, 2021, by a person who made or facilitated a substantial number of remote sales in calendar year 2020. Further, a marketplace seller should only consider those sales made outside of a marketplace to determine whether it made a substantial number of remote sales in calendar year 2020.
Relief of liability for tax, penalty, and interest is granted to the following upon registration with the department by Oct. 1, 2021:
- Any person who conducted remote sales prior to July 1, 2021.
- A marketplace seller for remote sales made before July 1, 2021.
- A marketplace provider with a physical presence in Florida on sales the marketplace provider facilitated on behalf of marketplace sellers.
This tax relief does not apply to a person who:
- Is under audit.
- Has been issued a bill, notice, or demand for payment.
- Is under an administrative or judicial proceeding as of July 1, 2021.
Additionally, the department may not use data received from registered marketplace providers or persons making remote sales to identify use tax liabilities if the person with the use tax liability:
- Is not registered with the department.
- Is not required to register with the department.
- His or her use tax liability was created before July 1, 2021.
Ch. 2 (S.B. 50), Laws 2021, effective July 1, 2021, unless otherwise indicated.
Income tax: Changes to estimated payment requirements discussed
The Illinois Department of Revenue issued a bulletin discussing changes to individual income tax estimated payment requirements. Since the filing and payment deadlines for 2020 income tax returns (IL-1040) were extended from April 15, 2021, to May 17, 2021, a significant number of taxpayers will not be able to accurately calculate and pay their 2021 Illinois estimated income tax. Therefore, the department is providing an additional option upon which taxpayers can base their 2021 estimated tax payments. Taxpayers are required to estimate their tax liability for the year and make four equal installments.
Additionally, taxpayers will not be assessed a late estimated payment penalty if the amount of the timely paid installments equals (1) 90% of actual liability for 2021 or (2) 100% of actual liabilities for 2019 or 2020.
Who are required to file estimated tax?
Individuals are required to make estimated payments if their Illinois individual income tax liability exceeds $1,000 for the year; after subtracting:
- Illinois withholding
- Pass-through withholding
- Tax credits for: (1) income tax paid to other states, (2) Illinois Property Tax paid, (3) education expenses, (4) the Earned Income Credit, (5) and Schedule 1299-C, Income Tax Subtractions and Credits (for individuals)
How to estimate payments based up 100% of 2019 liability if taxpayers failed to file 2020 return
For individual income tax, taxpayers may use Form IL-1040-ES, Estimated Income Tax, and base the estimated tax on the amount of tax owed on 2019 IL-1040, Illinois Income Tax Return. Taxpayers are advised to review 2021 Form IL-1040-ES. Informational Bulletin FY 2021-17, Illinois Department of Revenue, March 2021.
Corporate, personal income taxes: Withholding for corporate partners and composite returns eliminated
Kentucky enacted legislation that eliminates:
- Income tax withholding for corporate partners or members doing business in the state only through an ownership interest in a pass-through entity.
- Composite income tax returns and payments for electing nonresident individual partners, members, or shareholders.
Ch. 156 (H.B. 249), Laws 2021, effective March 29, 2021, and applicable to tax years beginning on or after Jan. 1, 2022.
Corporate, personal income taxes: Tax treatment of Paycheck Protection Program loans outlined
The Department of Treasury issued a notice outlining Michigan’s conformity to the federal income tax of treatment Paycheck Protection Program (PPP) loans. The notice also provides guidance on the various income tax issues raised by the federal program.
The Michigan tax base for both individuals and corporations using the Internal Revenue Code (IRC) in effect for the tax year fully conforms to the federal income tax treatment of PPP loans. Although the federal provision creating the PPP loan program is not codified with the IRC, it is a provision of the laws of the United States relating to federal incomes taxes. It is generally the intent that income subject to the Michigan income tax be computed in like manner as under the IRC. Thus, forgiven PPP loans excluded from the computation of federal income tax are similarly excluded from the computation of the Michigan tax base. Likewise, business expenses paid for by PPP loans that are deductible at the federal level remain deductible in computing the Michigan tax base.
In determining whether a corporate taxpayer has substantial income tax nexus with the state, “gross receipts” do not include PPP loan amounts required to be repaid. However, “gross receipts” do include forgiven PPP loan amounts.
When apportioning business income for individual income tax purposes, a forgiven PPP loan amount is a “gross receipt” included in the sales factor calculation. It is included in the denominator of the sales factor for all taxpayers and included in the numerator for taxpayers with a commercial domicile in Michigan.
When apportioning business income for corporate income tax purposes, PPP loans, including the forgiven amount of any such loan, are not included in either the numerator or the denominator of the sales factor computation. This is because when computing the sales factor under the corporate income tax law, “sales” is generally limited to amounts received by the taxpayer as consideration received for the transfer of property that can be characterized as stock in trade; the performance of certain services; or the rental, lease, licensing, and use of tangible and intangible property.
When determining eligibility for various individual income tax credits, “total household resources” (THR) will include PPP expenses deductible at the federal level, because THR is based on federal adjusted gross income (AGI). But, because forgiven PPP loan amounts are exempt from the computation of federal AGI, taxpayers must add the forgiven amounts to THR. Any portion of a PPP loan that is not forgiven is treated like other loans and excluded from THR.
Taxpayers do not need to include any specific loan documentation with the filing of their Michigan returns. But, all taxpayers must keep accurate and complete records necessary for an accurate determination of their tax liability. Borrowers of PPP loans should retain sufficient documentation of their participation in the PPP loan program. This should generally include proof of the taxpayer’s application and subsequent receipt of the PPP loan; the amount of the loan subsequently forgiven; and the business expenses paid through loan proceeds.
Notice: Treatment of Paycheck Protection Program (PPP) Loans Under the Michigan Income Tax Act, Michigan Department of Treasury, April 19, 2021.
Corporate income tax: Holding company had nexus, but no apportionment of income to Michigan
In Apex Laboratories Int’l v. Dep’t of Treasury, a Delaware holding company had sufficient nexus with Michigan to be subject to the corporate income tax. But, it’s apportionment factor was zero, according to the Michigan Court of Claims. Therefore, the holding company was not liable for tax on the gain from the sale of its stock in a Canadian company.
The holding company argued that it had no nexus with Michigan because it had no employees, physical assets, or activities in Michigan. But, it had a physical presence in Michigan through its officers. The officers acted from Detroit on the its behalf. Thus, it had nexus with Michigan for income tax purposes.
However, the sales transaction closed in Canada. The holding company was “subject to tax” in Canada, even though it was not actually taxed there. Also, the only business activity — the transfer of stock — occurred in Canada. Thus, none of the holding company’s income was apportionable to Michigan.
Treasury Update, Michigan Department of Treasury, March 2021.
Income tax: Combined filing conformity to IRC Sec. 1502 discussed
New Jersey has released guidance for corporation business tax filers filing a combined return regarding conformity to IRC Sec. 1502 and the associated regulations. New Jersey acknowledges that combined returns are not the same as consolidated but they are similar. Thus, a taxpayer’s entire net income as reported on a federal consolidated return must match the taxpayer’s entire net income on line 28 on Schedule A of the CBT-100, CBT-100U, or BFC-1, before the respective New Jersey modifications.
In general, the principles set forth in the Treasury regulations promulgated under IRC Sec. 1502, including the principles relating to deferrals, eliminations, intercompany offsets, etc., apply to the extent they are consistent with New Jersey law and the unitary business principles to a combined group filing a New Jersey combined return as though the combined group filed a consolidated return. Additionally, the limitations governing federal net operating losses (NOLs) and net operating loss carryovers apply. However, federal carrybacks do not apply because New Jersey NOLs can only be carried forward for 20 privilege periods.
The guidance provides specific guidance regarding:
- Tax rates, payments, and due dates
- Definitions, inclusions, exclusions, modifications, tax base, and return matters
- Ownership requirements and attribution rules
- Intercompany transactions
- Depreciation and certain expensing provisions
- Dividends, dividend exclusion, GILTI, FDII, NOLs, and special deductions
- Tax credits
- Discharge of indebtedness
Technical Bulletin TB-103, New Jersey Division of Taxation, March 16, 2021.
Corporate income tax: Guidance issued on 2020 change to sales factor
The New Mexico Taxation and Revenue Department has issued corporate income tax guidance on new method of determining the sales factor that went into effect on Jan. 1, 2020.
Sales and gross receipts
“Sales” means all gross receipts from transactions and activities in the regular course of business. “Gross receipts” means all income from transactions and activities in the regular course of business, including income from licensing intangible personal property.
Sales of tangible personal property
Sales of tangible personal property are New Mexico sales if either of the following is true:
- The property is delivered or shipped to a purchaser other than the U.S. government within New Mexico regardless of the FOB (free on board) point or other conditions of the sale.
- The property is shipped from an office, store, warehouse, factory, or other place of storage in New Mexico, and the purchaser (1) was the U.S. government, or (2) the taxpayer is not taxable in the state of the purchaser, and did not make an election for apportionment of business income.
Sales other than sales of tangible personal property
Sales other than sales of tangible personal property are New Mexico sales if any of the following are true:
Gross receipts for the performance of personal services are attributable to New Mexico to the extent such services are performed within the state:
- In the case of sales, rental, lease or license of real property, if and to the extent the real property is located in New Mexico.
- In the case of rental, lease or license of tangible personal property, if and to the extent the tangible personal property is located in New Mexico.
- In the case of sale of a service, if and to the extent the service is delivered to a location in New Mexico.
- In the case of sale, rental, lease or license of intangible property, if and to the extent the intangible property is used in New Mexico.
Bulletin B-300.21, New Mexico Taxation and Revenue Department, March 1, 2021.
Multiple taxes: Enacted budget increases tax rates, extends incentives, makes other changes
Enacted as part of New York’s 2021-22 budget package, S.B. 2509 contains a variety of personal income, corporate franchise, sales and use, property, and other tax changes, including those detailed below.
- Personal income tax rates. The bill raises the current top personal income tax rate from 8.82 to 9.65%. It also creates new brackets effective through 2027 with tax imposed at 10.3% for those with income between $5 and $25 million, and at 10.9% for those with income over $25 million. However, the bill continues the phase-in of the middle-class tax cut.
- Corporate franchise tax rates. The bill increases the corporate franchise tax rate from 6.5 to 7.25% through 2023 for taxpayers having business income exceeding $5 million. It also increases the capital base tax rate from 0% to 0.1875%, with exemptions allowed for qualified New York manufacturers, small businesses, and cooperative housing corporations.
- Pass-through entity tax election. The bill creates an optional pass-through entity tax, beginning with 2021, for partnerships and S corporations to pay and deduct state taxes at the entity level in exchange for a personal income tax credit. The applicable rate depends on the amount of pass-through entity taxable income, ranging from 6.85 (if not over $2 million) to 10.9% (if over $25 million).
- Excelsior Jobs Program. The bill enhances the Excelsior Jobs Program with an expanded ITC component of up to 5% for child care services projects, and a credit of up to 6% of net new child care services expenditures.
- Employer-provided child care credit. For taxable years beginning after 2021, the bill enhances the employer-provided child care credit by doubling the credit percentages to 50% of qualified child care expenditures and 20% of qualified child care resource and referral expenditures, plus increasing the cap for each taxpayer to $500,000.
- Property tax relief credit. A real property tax relief credit is enacted for homeowners with income up to $250,000 if their total property tax exceeds a fixed percentage of their income, applicable to taxable years beginning on or after Jan. 1, 2021.
- Out-of-state taxicab and bus corporations. The bill eliminates the Article 9 tax ($15 per trip) and filing requirements for out-of-state bus and taxicab corporations that make fewer than 12 trips into New York per calendar year, applicable to taxable years beginning on or after Jan. 1, 2021.
- Film credits. The bill extends the empire state film production and post-production credits for one year, through 2026. Also, the post-production credit is amended to make work performed in 11 more counties (Columbia, Dutchess, Greene, Orange, Putnam, Rensselaer, Saratoga, Sullivan, Ulster, Warren, and Washington) eligible for the additional 10% tax credit for certain labor costs. Further, with respect to minimum project budget requirements, the film tax credit program is amended to remove the exception for television pilots, applicable to applications filed with the Governor’s Office for Motion Picture and Television Development on or after April 1, 2021.
- Withholding and wage reporting penalty. The bill increases the maximum penalty imposed on employers for failure to provide complete and accurate wage reporting and withholding reports, from $10,000 to $20,000 per calendar quarter. In addition, the penalty calculation is increased from $50 to $100 per employee. The changes apply to returns filed on or after June 1, 2021.
- Tax preparer requirements. Certain provisions are revised regarding penalties resulting from failure to register or re-register as a tax return preparer or facilitator and for failure to pay the annual registration fee by a commercial tax return preparer. In both cases, a notice will be issued setting forth a 15-day period to cure the failure, and the notice may be sent electronically. In addition, the bill requires tax return preparers and facilitators to display their current registration certificate, a current price list, and the Consumer Bill of Rights Regarding Tax Preparers. Effective Jan. 1, 2022, failure to comply with any of the posting requirements will result in penalties.
- Farm workforce retention credit. The farm workforce retention credit is extended for three years, through tax year 2024.
- Low-income housing credit. Over a five-year period, the legislation increases the aggregate dollar amount of credits available for the low-income housing credit from $104 to $144 million.
- Musical and theatrical productions. The bill delays the sunset date of the musical and theatrical production credit until Jan. 1, 2026 and increases the annual credit cap to $8 million. In addition, a New York City musical and theatrical production credit is created.
- Hire-a-veteran credit. The hire-a-veteran credit is extended for an additional year to taxable years beginning before Jan. 1, 2023, for employment commenced before Jan. 1, 2022.
- Remote work during pandemic. For tax benefits that are based on maintaining a presence within New York, or within specific areas of the state, a taxpayer that has required some or all of its employees to work remotely as a result of the COVID-19 outbreak may designate that remote work as having been performed at the location where such work was performed prior to the state disaster emergency declaration.
- Withholding on unemployment compensation. The bill authorizes a waiver of interest on underpayments of personal income tax for taxable year 2020 due solely to insufficient withholding of tax on unemployment compensation.
- Restaurant credit. A new restaurant return-to-work credit is created, to be claimed in the taxable year that includes Dec. 31, 2021. A business entity meeting the applicable requirements may be eligible to claim a credit equal to $5,000 for each full-time equivalent net employee increase, up to a maximum of $50,000. The total amount of credits under the program is capped at $35 million. Taxpayers who choose to use Aug. 31, 2021, as the last date to calculate their average ending full-time employment and have received their certificate of tax credit by Nov. 15, 2021, will have the option to request an advance payment of the tax credit amount.
- MTA COVID-19 death benefit. A personal income tax subtraction modification is created for death benefits paid to a taxpayer in a lump sum under the COVID-19 family death benefit program established by the Metropolitan Transportation Authority (MTA) in 2020, to the extent includible in federal adjusted gross income. The subtraction, which applies to taxable years beginning on or after Jan. 1, 2020, cannot exceed $500,000.
- Historic properties rehabilitation credit. The credit for rehabilitation of historic properties is increased from 100 to 150% of the federal credit for certified historic structures qualifying as a small project (i.e., qualified rehabilitation expenditures totaling $2.5 million or less), applicable to taxable years beginning on and after Jan. 1, 2022.
- Qualified opportunity funds. The bill requires addbacks for the amount of gain excluded from federal gross income under IRC Sec. 1400Z-2(a)(1)(A), regarding investment in a qualified opportunity fund, applicable to taxable years beginning on or after Jan. 1, 2021. The addbacks are required under the state corporate franchise, insurance franchise, and personal income taxes, as well as the New York City business corporation, general corporation, and personal income taxes.
- Mobile sports betting. The bill legalizes mobile sports betting and requires platform providers to pay a tax based on a percentage of the sports wagering gross gaming revenue attributed to mobile sports wagering. The percentage will be determined under a competitive bidding process, but it cannot be lower than 12%. Also, for the privilege of conducting sports wagering in the state, casinos will pay a tax equivalent to 10% of their sports wagering gross gaming revenue, excluding sports wagering gross gaming revenue attributed to mobile sports wagering.
- Alternative fuels exemptions. The sunset date is extended for the alternative fuel tax exemptions for fuel types E-85, compressed natural gas (CNG) and hydrogen, and the partial exemption for B-20, from Sept. 1, 2021, to Sept. 1, 2026.
- Exemption related to the Dodd-Frank Protection Act. The sales and use tax exemption for certain sales or services transacted between financial institutions and their subsidiaries related to the Dodd-Frank Wall Street Reform and Consumer Protection Act is extended for three years.
- Breast pump replacement parts and supplies. A sales and use tax exemption is enacted for breast pump replacement parts and breast pump collection and storage supplies for an individual purchaser for home use, effective Sept. 1, 2021.
- Food and drinks sold through vending machines. The sales and use tax exemption for certain food and drinks sold through vending machines is extended from May 31, 2021, to May 31, 2022.
- Economic Transformation and Facility Redevelopment Program. The Economic Transformation and Facility Redevelopment Program tax credits are extended for an additional five years to Dec. 31, 2026. Also, the definition of qualifying facilities under the program is amended to include correctional facilities selected by the Governor for closure by March 31, 2026.
- Renewable energy products. The existing real property tax exemption for renewable energy projects is extended and a standardized approach for assessment for solar and wind infrastructure is established.
- Collection and reporting of taxicab tax and congestion surcharge. The technology service provider (TSP) is made responsible for collecting and remitting the taxicab tax and congestion surcharge, applicable for trips occurring on or after July 1, 2021. A “technology service provider” or “TSP” means a person that acts by employment, contract, or otherwise on behalf of one or more taxicab owners or HAIL vehicle owners to collect the trip record for a taxicab trip or HAIL vehicle trip.
- State racing admission taxes. The bill repeals the state admissions taxes in the Racing, Pari-Mutuel, Wagering and Breeding Law (RPWBL) and imposes the state sales tax on those admissions to racetracks at the same rate, effective Nov. 1, 2021. Also, any admission charges collected prior to the repeal of the RPWBL provisions would continue to be administered under those provisions as if they had not been repealed.
- Real estate transfer tax compliance. The bill amends the real estate transfer tax (RETT) to include any responsible person of a business entity in its definition of “person.” This enables the Tax Department to assess taxes even in transactions between temporary entities that dissolve after the transaction takes place. In addition, the bill clarifies that the grantor (seller), and only the grantor, is responsible for paying the basic RETT, and that the grantor is not allowed to pass through the cost of the RETT to the grantee (buyer). It also provides a cause of action to a grantee who is forced to pay the RETT because the grantor failed to do so to recover the amount paid. These provisions are effective July 1, 2021, except for conveyances that are made pursuant to binding written contracts entered into on or before April 1, 2021, provided that the date of execution of such contract is confirmed by independent evidence. Further, a technical fix is provided to the LLC disclosure requirements previously enacted by exempting publicly traded companies, REITs, UPREITs, and mutual funds from the requirement to list all members/shareholders. Finally, disclosure of LLC members’ identities is not subject to tax secrecy provisions.
- Tax filing and reporting requirements for alcoholic beverage and highway use taxes. The tax return filing frequency is reduced for alcoholic beverage tax and highway use tax taxpayers. For highway use taxpayers, it does so by raising the filing thresholds applicable to taxable periods beginning on or after Jan. 1, 2022. Specifically, carriers whose total highway use tax liability for the previous calendar year was not more than $1,200 would be required to file annual returns, and carriers whose total tax liability for the previous calendar year was not more than $12,000 would be required to file quarterly returns. Carriers whose total tax liability for the previous calendar year was more than $12,000 would continue to be required to file monthly returns.
- Cigarette licensing provisions. A retail dealer with a revoked or suspended cigarette license is prohibited from possessing any taxed cigarettes and tobacco products during the period of revocation or suspension. Also, a retail dealer who failed to obtain a cigarette license is prohibited from possessing any taxed cigarettes or tobacco products.
- Real property tax forms and processes. The bill facilitates the modernization and consolidation of the process for reporting real property transfers and for paying the associated tax and fees.
Ch. 59 (S.B. 2509), Laws 2021, effective April 19, 2021, applicable as noted.
Corporate, personal income taxes: IRC conformity and pass-through withholding rate updated
Ohio has enacted legislation:
- Updating the state’s IRC conformity date to March 31, 2021.
- Exempting certain amounts from the Commercial Activity Tax (CAT).
- Making changes to the income taxation of unemployment benefits.
- Updating the withholding rate for pass-through entities.
The updated conformity date incorporates changes to the IRC made after March 27, 2020, the previous incorporation date. Among the changes to federal law incorporated by the update are changes made by the Consolidated Appropriations Act 2021 (CAA) and the American Rescue Plan Act of 2021.
Further, taxpayers with tax years ending after March 27, 2020, and before March 31, 2021, can irrevocably elect to apply the IRC in effect to their taxable year.
The law exempts the Second Draw Paycheck Protection Program (PPP) loan amounts forgiven under the CAA from the CAT. A similar exemption already exists for First Draw PPP loan amounts forgiven under the CARES Act.
There is also now an exemption from the CAT for Bureau of Workers’ Compensation (BWC) dividends paid to employers in 2020 and 2021.
Ohio may now temporarily abate any interest or penalties for the underpayment of state and school district income taxes due on unemployment benefits received in 2020. Also, individuals will now be able to elect to have state income tax withheld from their unemployment benefits.
Pass-through entity withholding tax
Finally, the withholding rate that pass-through entities use when remitting taxes on nonresident investor income is reduced from 5 to 3% for individual investor and from 8.5 to 3% for nonindividual investors after 2022.
S.B. 18. Laws 2021, effective March 31, 2021.
Corporate income tax: Utah addresses taxation of Sec. 965 Income, GILTI, and FDII
Utah has enacted legislation addressing the state taxation of:
- IRC Sec. 965 income
- Global intangible low-taxed income (GILTI)
- Foreign-derived intangible income (FDII)
The legislation is operative retroactively for:
- The last taxable year of a taxpayer beginning on or before Dec. 31, 2017
- Tax years beginning on or after Jan. 1, 2018
Dividends received deduction
Taxpayers may utilize the state’s 50% dividends received deduction for amounts included in federal taxable income under:
- IRC Sec. 965(a) (deferred foreign income)
- IRC Sec. 951A (GILTI)
Unadjusted income and special deductions
“Unadjusted income” means federal taxable income determined on a separate return basis before intercompany eliminations, and before:
- The net operating loss deduction
- Special deductions (previously, special deductions for dividends received)
“Special deductions” includes deductions under:
- IRC Sec. 250 (GILTI and FDII)
- IRC Sec. 965(c) (participation exemption)
H.B. 39, Laws 2021, effective as noted above.
Corporate income tax: Informational combined reporting requirement announced
The Virginia Department of Taxation announced that corporations subject to Virginia income tax may need to file a one-time report by July 1, 2021, showing the difference between the amount of tax the corporation would pay if it filed as part of a unitary combined group and the amount of tax based on the current filing requirements. Taxpayers should use their 2019 corporation income tax calculations to complete the report. The Virginia General Assembly created the requirement so that the department can put together a report detailing the revenue impacts of combined corporate income tax reporting.
There is no tax due with the report. However, taxpayers may be subject to a $10,000 penalty if they do not file the report, or if they make a material misstatement or omission.
A designated member of the unitary group will need to file the report using taxable year 2019 information. The report will need to include information about the unitary group’s income, apportionment computation, tax credits, and tax liability calculation. The designated member will need to provide this information as if filing a unitary combined report under both the Joyce and Finnigan methods, as well as the same tax information under the current filing requirements for all the members of the group that have nexus with Virginia.
Members outside United States
The calculations should not include any information from members incorporated outside the United States whose average property, payroll, and sales factors outside the United States equals 80% or more. Members whose income is not subject to federal taxation because of the provisions of a federal tax treaty should exclude that income from the report, along with any associated apportionment factors or expenses.
Insurance companies and banks
Corporations required to file the Virginia insurance premiums license tax or Virginia bank franchise tax are not considered part of the unitary combined group for purposes of this report. Corporations that would be liable for those two taxes if they were located in Virginia should also not be considered part of a unitary group.
Notice, Virginia Department of Taxation, April 8, 2021.
Corporate income tax: Apportionment formula changes, market-based sourcing enacted
West Virginia enacted corporate income tax legislation that:
- Replaces the three-factor apportionment formula with a single sales factor formula.
- Adopts market-based sourcing rules for income from services and intangible property.
- Eliminates the sales factor throwout rule for sales of tangible property shipped or delivered to a state that does not tax the taxpayer on income from those sales.
Sales of services
Taxpayers must source or assign income from the sales of services to West Virginia if the services are delivered to a location in the state.
Rented, leased, or licensed intangible property
A taxpayer must source income from rented, leased, or licensed intangible property to West Virginia if:
- The property is used in the state.
- The property is used in marketing goods or services purchased by a consumer in the state.
Sales of intangible property
Taxpayers must source income from the sales of intangible property to West Virginia if the property is used in the state. A sale of a contract right, government license, or similar intangible is used in West Virginia, if the holder can use the intangible property in all or part of the state. If receipts from intangible property sales are contingent on the productivity, use, or disposition of the intangible property, a taxpayer must use the sourcing rules that apply to rented, leased, or licensed intangible property.
A taxpayer must exclude all other receipts from a sale of intangible property from the sales factor.
The apportionment and market-based sourcing rules are effective for tax years beginning on or after Jan. 1, 2022.
H.B. 2026, Laws 2021, effective June 28, 2021 and as noted.
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