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State and local tax advisor: June 2024

June 27, 2024 / 18 min read

Have you heard about the latest changes in state and local taxes? Check our June 2024 roundup here.

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


Sales and use tax: Guidance on manufacturing and R&D exemption issued

California provides guidance on a partial sales tax exemption that allows certain manufacturers, researchers, and developers to pay a lower sales tax rate on qualifying equipment purchases and leases. The publication includes information on the reduced tax rate; eligibility; and qualified persons, property, and uses.

CDTFA Publication 541, Manufacturing and Research & Development Exemption Tax Guide, California Department of Tax and Fee Administration, March 2024.


Corporate, personal income taxes: Workforce shortage tax credit created

Colorado has created a new income tax credit to encourage workforce development in industries that are facing worker shortages. The credit will be available for tax years 2026 through 2032.

Who is eligible for the credit?

Taxpayers in an industry with a demonstrated workforce shortage, as determined by the Office of Economic Development, are eligible for the credit if they incur costs for facility improvement or equipment acquisition associated with training programs designed to alleviate workforce shortages.

However, the credit won’t be allowed under certain circumstances where taxpayers receive other state, local, or federal appropriations.

How much is the credit?

Taxpayers may receive the credit for up to 50% of their qualified costs.

The total amount of credits reserved for all taxpayers cannot exceed $15 million per year. The credit cap will be reduced to $7.5 million per year if certain revenue targets are not met.

How do taxpayers apply for and claim the credit?

Taxpayers must apply to the Office for a tax credit reservation. The Office will accept applications only from 2025 through 2029. If the Office determines that a taxpayer is a qualified applicant and the application is complete, the Office will add the application to an evaluation pool. A selection committee will consider the merits of each application in the evaluation pool and reserve tax credits for qualified applicants. After taxpayers incur their investment costs, they must submit evidence of compliance and a certification of expenditures to receive a tax credit certificate. The Office may levy a reasonable application and issuance fee to cover administration of the credit program.

To claim the credit, taxpayers must file their tax credit certificate with their state income tax return. Persons and organizations that are exempt from tax must file an information return to claim the credit.

Is the credit refundable?

If the amount of the credit allowed exceeds a taxpayer’s income taxes for the year, or a qualified applicant is exempt from tax, the amount of the credit not used to offset income taxes will be refunded.

Is the credit subject to recapture?

The credit is subject to recapture for noncompliance with the credit requirements.

When do these provisions take effect?

These provisions take effect 90 days after final adjournment of the General Assembly, unless a referendum petition is filed. If a referendum petition is filed, then the referred provisions will not take effect unless approved by voters at the November 2024 general election. If approved, the provisions will take effect on the date of the official declaration of the vote thereon.

H.B. 1365, Laws 2024, effective as noted.

Corporate, personal income taxes: Several deductions and credits modified, others repealed

Colorado has enacted legislation modifying several income tax deductions and credits and repealing other infrequently used deductions and credits.

Modified deductions and credits

The modifications to deductions and credits include:

Repealed deductions and credits

The following deductions and credits are repealed, beginning in 2025 except as noted:

Effective date

These changes take effect 90 days after final adjournment of the General Assembly, unless a referendum petition is filed. If a referendum petition is filed, then the referred provisions won’t take effect unless approved by voters at the November 2024 general election. If approved, the provisions will take effect on the date of the official declaration of the vote thereon.

Ch. 373 (H.B. 1036), Laws 2024, effective as noted. 


Multiple taxes: NOL carryforward period extended, other changes enacted

Connecticut enacted legislation that:

The legislation also provides an optional valuation allowance deduction to corporation business taxpayers subject to combined reporting requirements if:

Combined reporting groups that meet the criteria can claim the deduction against their net income over a 30-year period beginning with the 2026 tax year. The deduction is equal to one-thirtieth of the amount necessary to offset the increase in the valuation allowance against NOLs and tax credits in the state. A combined group can carry forward any unused deduction to succeeding tax years until it can use the entire deduction.

Act 151 (H.B. 5524), Laws 2024, effective June 6, 2024 and as noted.


Multiple taxes: NOL cap, many other tax changes enacted

Illinois Gov. J.B. Pritzker signed a budget-related tax package that:

P.A. 103-592 (H.B. H4951), Laws 2024, effective June 7, 2024 and as noted.


Personal income tax: Taxpayer was personally liable for company’s unpaid withholding taxes

A taxpayer was personally liable as a corporate officer for a company’s unpaid Michigan withholding taxes. Although the taxpayer didn’t sign any of the company’s withholding returns during the period of default, he did sign returns before the period of default using the title of “controller” or “officer.” And while he downplayed his role as merely one of data entry, his testimony indicated that he was almost exclusively responsible for providing financial information to support both tax payments and business decisions. Moreover, the position of “controller” is generally one with significant control over accounting and financial operations, and thus an officer position.

The taxpayer also argued that there was no evidence he willfully failed to pay the taxes. But undermining that premise was his testimony admitting that he knew taxes were in arrears and his duties included trying to resolve the arrearage.

Finally, the taxpayer argued that the Department of Treasury should have been required to first assess the company’s successor purchaser, before assessing the taxpayer. However, the department couldn’t be required to do so where it didn’t have information clearly identifying the purchaser.

Mertz v. Department of Treasury, Michigan Court of Appeals, No. 365480, June 13, 2024.

Corporate income, sales and use taxes: Tax relief available for taxpayers in Cass, St. Joseph, and Kalamazoo counties

The Michigan Department of Treasury has announced that due to the severe storms affecting Kalamazoo, St. Joseph, Branch, and Cass counties, taxpayers residing in those counties may request additional time to file state tax returns. A penalty and interest waiver is also available. Taxpayers must contact the Department by telephone or mail to request relief. The request must include (i) name and taxpayer’s account number, (ii) a description of how the taxpayer was impacted by storm damage and (iii) taxpayer address within the emergency area or the address of the tax preparer located within the emergency area.

News Release, Michigan Department of Treasury, May 28, 2024.


Corporate, personal income taxes: Rules amended, rescinded

Missouri has amended various income tax rules relating to:

Missouri has also rescinded a bank franchise tax rule relating to the deduction for federal income tax paid.

Changes of accounting periods

The rule on changes of accounting periods has been amended to expand the scope of the rule to address changes of tax periods for additional income tax types, personal and dependency exemption deductions, and the handling of 52-53 week tax periods.

Determinations of timeliness

The rule on determinations of timeliness has been amended to address determinations of timeliness where a return is electronically filed or emailed and make other minor changes.

NOLs for individuals

The rule on NOLs for individuals has been amended to make changes to the description of the proper treatment of NOLs for purposes of Missouri individual income tax and address the handling of negative federal adjusted gross income by individuals.

Federal income tax deduction

The bank franchise tax rule for computing the federal income tax deduction has been rescinded because the information in it will be updated and published annually in the bank franchise tax return instructions.

Reg. Secs. 12 CSR 10-2.030, 12 CSR 0-2.240, 12 CSR 10-2.710, and 12 CSR 10-10.135, Missouri Department of Revenue, effective July 30, 2024.


Corporate income tax: Affiliates could use different apportionment

An Oregon corporation excise (income) taxpayer, that filed a consolidated return, was correct that each affiliate was required to determine its own apportioned percentage of the group’s overall income. Oregon argued that a single percentage must be determined for the group as a whole.

The taxpayer contended that some affiliates in its group were interstate broadcasters, while others were not. A taxpayer that is an “interstate broadcaster” must use a special apportionment formula relying on an “audience ratio” to attribute gross receipts. However, the taxpayer contended that other affiliates that do no broadcasting must use the standard, uniform attribution statutes, which generally look to the “destination” of sales of tangible personal property to apportion income.

What did the court determine?

The court found that Oregon law requires the separate computation of apportionment factors for each affiliate joining in a consolidated Oregon return. Oregon’s statutory exception requires each affiliate’s status as an “interstate broadcaster,” or not, to be determined separately. Nothing in the 1989 law adopting the interstate broadcaster apportionment provisions changed that fact.

ABC Inc. and Combined Affiliates v. Department of Revenue, Oregon Tax Court, No. TC 5431, May 14, 2024.

South Carolina

Corporate, personal income taxes: IRC conformity updated

South Carolina has updated its Internal Revenue Code conformity date from Dec. 31, 2022, to Dec. 31, 2023.

If there are IRC sections adopted by South Carolina that expired on Dec. 31, 2023, and are extended, but not amended, by congressional enactment during 2024, then those sections are also extended for South Carolina income tax purposes.

H.B. 4594, Laws 2024, effective May 20, 2024.


Sales and use tax: Taxability of website design, development, and marketing consulting services discussed

The Texas Comptroller of Public Accounts issued a publication discussing the applicability of sales and use tax to an advertising agency’s (taxpayer’s) sales of website design, website development, marketing consulting, advertising, and retainer services. The comptroller determined that the services to design and plan, but not create, a website didn’t fall under the list of services subject to tax. Therefore, the taxpayer’s website blueprinting service, when provided on a stand-alone basis, wasn’t taxable.

However, the taxpayer’s website creation, design and development, and website support services were taxable data processing services as it involved the compilation, storage, and manipulation of data. Additionally, it was noted that the marketing consulting and advertising services generally don’t fall under the list of taxable services. But the creation of graphic or finished art is a taxable sale of tangible personal property.

Finally, although the taxpayer’s lump sum charges for retainer services included both taxable and nontaxable items, as an advertising agency, it wasn’t required to separately list these items or list tax on its charges for retainer services. The comptroller stated that the taxpayer’s invoices must indicate tax was collected on any taxable items provided and that the taxpayer’s books and records must document the taxable items provided and the tax collected on those items.

Letter No. 202404008L, Texas Comptroller of Public Accounts, April 25, 2024.


Sales and use tax: Assessment partly sustained due to sufficient nexus

The Washington Department of Revenue’s (department’s) assessment of business and occupation (B&O) tax and retail sales tax issued against a limited liability company (taxpayer) was partly sustained because the taxpayer’s activities created sufficient nexus with Washington. In this matter, the taxpayer challenged the assessments covering a period when it was a subsidiary of a national retailer and a subsequent period after it merged into its parent entity. The taxpayer disputed the sufficiency of taxing nexus for pre-merger periods and disputed the taxation of internal transfers for post-merger periods. Additionally, the taxpayer asserted that a number of wholesale sales were improperly classified as retail sales.

Upon review, the Administrative Review and Hearings Division determined that the taxpayer had substantial nexus for pre-merger periods based on its relationship with and use of its parent company’s Washington retail locations. Further, it was noted that the taxpayer did not provide sufficient records to characterize disputed transactions as wholesale sales, and thus these portions of the assessments were sustained.

Finally, for post-merger periods, it was noted that the taxpayer ceased to exist as a separate legal entity and became part of the parent entity and, therefore, there was no longer a basis to tax accounting entries as if they were still taxable intercompany transfers. Accordingly, the taxpayer’s petition was granted in part and denied in part.

Determination No. 21-0083, Washington Department of Revenue, 42 WTD 066, Dec. 22, 2023, released April 2024.

Sales and use tax: Rule on single factor apportionment revised

The Washington Department of Revenue has amended its excise tax rule on single factor receipts apportionment for purposes of the business and occupation (B&O) tax. Neither the taxpayer nor the department may use an attribution method that unfairly attributes or distorts the apportionment of the taxpayer’s receipts. A taxpayer with Washington apportionable receipts is required to keep all books and records to show that the attribution method used fairly apportions and doesn’t distort the taxpayer’s apportionable receipts. Such records must also support the attribution method. The taxpayer must use the same attribution method for all apportionable receipts in a tax year from the same service.

Regarding where the taxpayer’s customer receives the benefit of the service, if the taxpayer’s service is provided to a customer engaged in business and the service relates to the customer’s business activities, the customer receives the benefit of the service where the customer’s related business activities occur. Related business activities occur either in the customer’s market or at the customer’s business location. The customer’s related business activities occur in the customer’s market if the taxpayer's service is:

WAC 458-20-19402, Washington Department of Revenue, effective June 15, 2024.

The information provided in this alert is only a general summary and is being distributed with the understanding that Plante & Moran, PLLC, is not rendering legal, tax, accounting, or other professional advice, position, or opinions on specific facts or matters and, accordingly, assumes no liability whatsoever in connection with its use.

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