The NYC Finance Department's First Deputy Commissioner Michael Hyman offered testimony at the oversight hearing of the NYC Council Committee on Finance on the impact of the Tax Cuts and Jobs Act. Click on the list below to view the updates, state by state.
Corporate Income Tax-Gain From Sale of Limited Liability Company Interest
The Department of Revenue has advised that, based on the facts presented a company with a gain realized from the sale of its interest in a limited liability company (LLC) should treat the gain as business income, and the company should include its distributive share of the LLC's gross income in its Colorado apportionment factor but exclude the gain received from the sale of its interest in the LLC. (Colorado Private Letter Ruling No. PLR-17-009, 12/29/2017.)
Personal Income Tax
Connecticut Governor Dannel Malloy has proposed several measures in his Fiscal Year 2019 budget adjustments proposal to counteract the negative effects of the recently enacted federal tax reform act. One proposal is a new revenue-neutral tax on pass-through entities, fully offset by a personal income tax credit, which would prevent Connecticut's small business owners from being targeted by the federal tax law. Secondly, municipalities would be allowed to create charitable organizations that support town services, in conjunction with a local property tax credit, which would allow cities and towns to continue to provide services while reducing individuals' federal taxes. The governor's budget proposal also calls for Connecticut to not adopt federal tax changes related to accelerated depreciation and asset expensing in order to avoid a General Fund revenue loss. (Governor's Budget Protects Connecticut Residents from Negative Effects of Trump's Tax Law, 02/06/2018.)
Waiver of Penalties in Connecticut.
The Connecticut Department of Revenue Services (DRS) has issued a revised publication regarding requests for waiver of civil penalties and the standard applied by the Commissioner of Revenue Services in determining whether to waive a penalty. The revised publication supersedes PS 2015(4). (Connecticut Policy Statement No. 2017(6), 02/16/2018.)
Estate and Gift, Inheritance, and Transfer — U.S. Supreme Court Action
The U.S. Supreme Court has declined to hear an appeal of a Connecticut Supreme Court case, which upheld the trial court's denial of a refund of estate taxes because the value of qualified terminable interest property (QTIP) marital deduction trusts was properly included in the gross estate and, therefore, was subject to the estate tax. (Estate of Helen B. Brooks, et al. v. Commissioner of Rev. Services, Conn. S.Ct., Dkt. No. 19577, 05/23/2017, petition for cert. denied, U.S. S.Ct., Dkt. No 17-608, 02/26/2018.)
CT Federal Tax Reform and Budget Adjustment Legislation Introduced, (Feb. 19, 2018)
Legislation introduced in the Connecticut Senate would implement Gov. Dannel P. Malloy’s federal tax reform and budget adjustment proposals (TAXDAY, 2018/02/08, S.5, TAXDAY, 2018/02/08, S.6). Provisions that would impact corporation business and personal income taxpayers include:
The legislation would also modify the dividends received deduction for corporation business taxpayers.
S.B. 10 and S.B. 11, as introduced in the Connecticut Senate on February 8, 2018
Georgia Governor Nathan Deal updated H.B. 918 to include the House's Internal Revenue Code (IRC) conformity bill and eliminate sales tax on jet fuel. Georgia’s corporate and personal income tax IRC conformity date would update to January 1, 2018, with certain exceptions. The governor’s bill now doubles the standard deduction, effective January 1, 2018. The bill also lowers income tax rates for businesses and individuals from 6% to 5.75%, effective January 1, 2019. Lastly, if the General Assembly and governor provide further approval, the rate would decrease to 5.5% on January 1, 2020.
Press Release, Georgia Gov. Nathan Deal, February 20, 2018
Corporate Income Tax
Maine Governor Paul R. LePage has instructed the Office of Tax Policy to prepare options for consideration by him and the Maine Legislature to determine how best to respond to the recent federal tax changes made by the Tax Cuts and Jobs Act (TCJA). (Maine Tax Alert, Vol. 28 No. 1, 01/01/2018.)
Maryland Joins Suing States
Maryland will join other states in challenging the constitutionality of the new federal tax law’s $10,000 cap on the deduction for taxes paid to state and local tax governments.
Michigan Appellate Court Holds that Legal Services are Sourced to Client Location for Detroit City Income Tax Sales Factor Purposes
In a published order issued on January 18, 2018, the Michigan Court of Appeals reversed a Michigan Tax Tribunal ruling which had previously held that legal services performed in the City of Detroit for a client located outside of the City were considered “in-city” revenues under the City Income Tax Act sales factor provision.
Minnesota DOR Discusses How Recently Enacted Federal Tax Reforms May Affect Some State Income Taxation
The Minnesota Department of Revenue (DOR) has issued some guidance on how the recently enacted federal tax reform provisions may impact 2017 Minnesota business tax returns, noting that because Minnesota has not yet adopted the federal changes, adjustments must be made to a taxpayer’s Minnesota business tax return to determine its 2017 Minnesota tax.
Montana DOR Discusses How Recently Enacted Federal Tax Reforms May Affect Some State Income Taxation
The Montana DOR has issued some guidance on how the recently enacted federal tax reform provisions may impact Montana individual income taxes, noting that with the legislation “being the most significant federal tax reform in 30 years it will take additional time to sort through the bill.”
Personal Income Tax — Deduction for Prepayments of Property Taxes
The Division of Taxation has reprinted advice it provided to the New Jersey Society of CPAs regarding the New Jersey property tax deduction. The Division explained that while on the federal tax return a taxpayer can claim a property tax deduction equal to the total of all property taxes paid in 2017 that were assessed by the end of 2017, including prepayment of the first two quarters of the 2018 property taxes, the New Jersey tax deduction is limited to the taxes assessed for 2017 and the deduction cannot exceed $10,000.
Lawsuit Proceeds Qualified as Awards Subject to Gross Income Tax
The New Jersey Superior Court, Appellate Division, has upheld the New Jersey Tax Court and ruled that all lawsuit proceeds received by a taxpayer in a qui tam case qualified as a taxable award for purposes of N.J. Rev. Stat. § 54A:5-1(l). N.J. Rev. Stat. § 54A:5-1 defines New Jersey gross income and identifies various categories of taxable income including amounts received as prizes and award. (Kite v. Director, Div. of Taxation, N.J. Super. Ct., App. Div., Dkt. No. A-3349-15T3, 02/08/2018.)
Interest Not Deductible on Debt Financed Distributions
The New Jersey Division of Taxation has advised that interest expense on new debt obligation that will be used to finance a cash distribution to the partners for personal use is not deductible for New Jersey Gross Income Tax purposes. (New Jersey State Tax News, Vol. 46 No. 4, , 02/01/2018.)
Sales and Use Tax — Sales Tax on Motor Vehicles
The New Jersey Division of Taxation has adopted an amendment to N.J.A.C. § 18:24-7.4 to clarify that, effective February 20, 2018, a motor vehicle dealer is required to separately state New Jersey sales tax on any sales slip, invoice, receipt, or other statement of the price that is provided to the customer in connection with the sale. The Division has adopted an amendment to N.J.A.C. § 18:24-7.5 to clarify that, effective February 20, 2018, dealer charges for documentary service fees, which include services such as clerical services, messenger services, computer time, paperwork preparation charges, which are for the preparation and processing of title and registration documents, financing documents, etc., are included in the sales price when calculating sales tax due on the motor vehicle.
Sales Tax - Syracuse Cycle Shop Owner Sentenced to Prison for Tax Fraud -Defendant failed to remit $37K in sales tax collected.
The New York State Department of Taxation and Finance today announced that a Syracuse businessman has been sentenced to a prison term of three to six years for failing to pay New York State the sales tax he collected from customers.
Robert Woodward was the owner of Rob's Cycle Supply, Inc., 613 Wolf Street, Syracuse, NY. He was charged with collecting $37,323 in sales tax from customers between March 2012 and August 2013, which he failed to remit to the New York State Tax Department as required by law.
The defendant also tried to pay several tax assessments, including the sales tax owed, with a forged check.
Payroll & Employment Tax-
New York Governor Cuomo proposes optional payroll expense tax to protect state taxpayers from federal income tax increases under the Tax Cuts and Jobs Act.
The provision would allow employers to opt into a new Employer Compensation Expense Tax (ECET) that would protect New York individual taxpayers from increased federal income taxes resulting from the $10,000 cap on state and local income tax (SALT) deductions under the Tax Cuts and Jobs Act (TCJA).
A new individual income tax credit would be applied against the New York personal income tax on wages with the advantage that individual taxpayers whose employers opt into the ECET would not experience a decline in take-home pay. A new tax credit would also be available to employers to offset their administrative costs.1 (Governor Cuomo press release, February 12, 2018.)
The Executive Budget bill, now including the ECET provision, will become part of the budget negotiations among the Governor, the Senate, and the Assembly.
Personal Income Tax
On February 15, Governor Andrew Cuomo released his 30-day amendments, which introduced proposals to prevent certain provisions of the federal tax act from flowing through to New York's tax system, including: (1) allowing residents to itemize on New York returns whether or not they itemize on federal returns; (2) continuing the calculation of New York deductions as before the federal tax act; and (3) restoring the New York single filer standard deduction. The governor's 30-day amendments also included a New York payroll tax proposal and a proposal to expand the ability of New Yorkers to make charitable contributions, both of which are intended to mitigate the impact of the severe restriction of the federal SALT deduction.
The NYC Finance Department's First Deputy Commissioner Michael Hyman offered testimony at the oversight hearing of the NYC Council Committee on Finance on the impact that the federal Tax Cuts and Jobs Act. Mr. Hyman testified that because New York tax calculation starts with federal taxable income, when the federal definition is changed, city and state revenue is impacted. He noted that the models used by the Department found that the combination of federal tax changes would increase New York City personal income tax revenue for 1.8 million City taxpayers by $320 million.
Impact on Individuals and Families
As to individuals and families, Mr. Hyman testified that, models that are fed by federal, state, and city data, estimate that about 25% of New York City filers will receive no federal personal income tax cut, 10% will receive an increase, and 37% will receive a cut of less than $20 per week.
Mr. Hyman estimates that the reduction in the amount of federal estate tax paid annually by wealthier New York City taxpayers will total approximately $400 million.
Impact on Businesses Based in or Operating in New York
Mr. Hyman noted that, with its major changes to the federal corporate tax and estate tax, the new federal tax act benefits businesses and high-income households, which own the largest estates and receive the bulk of income from passive investments, like real estate, stocks, and bonds.
Effect of the Tax Cut and the President's Proposed FFY19 Budget on City Residents
Despite increasing NYC personal income tax revenues, according to Mr. Hyman, the federal tax act has a direct and negative effect on New York City's budget. As to individuals, the tax bill repealed the Affordable Care Act (ACA) individual mandate, a key component of the ACA, which helps keep health insurance coverage available and affordable, including for the 4.2 million New Yorkers who benefit from subsidized insurance coverage.
Corporate Income Tax — Impact of federal Tax Cuts and Jobs Act and Bipartisan Budget Act of 2018 in North Carolina
The North Carolina Department of Revenue has issued guidance on the impact of the federal Tax Cuts and Jobs Act (TCJA) and the Bipartisan Budget Act of 2018 (BBA) on taxpayers filing corporate income tax returns. Even if the General Assembly enacts legislation to update its reference to the Internal Revenue Code, it may elect to continue to decouple from some federal provisions. (Impact of The Tax Cuts and Jobs Act and The Bipartisan Budget Act of 2018 on North Carolina's Corporate and Individual Income Tax Returns, N.C. Dept. of Rev., 02/16/2018.)
North Carolina DOR Reminds that Corporate Annual Reports Now Must be Filed Directly with Secretary of State Office
Beginning in 2018, corporations must file their annual reports directly with the Secretary of State, and can no longer file them with the Department as part of their income tax filings.
Sales and Use Tax - SaaS Cloud-Based Software Access in North Carolina
The North Carolina Department of Revenue ruled that North Carolina does not currently impose sales and use tax on revenue from access to cloud based software accessed electronically via an Internet connection. (N.C. Private Letter Ruling No. SUPLR 2018-0005, 01/24/2018.)
Income/Franchise - Oregon DOR Issues Final Market-Based Sourcing Rule
Governor Kate Brown signed legislation which replaced the cost-of-performance methodology for sourcing sales of items other than tangible personal property for Oregon corporate income tax apportionment purposes with a market-based sourcing methodology.
Pennsylvania Tax Amnesty — Non-Participation Assessments
The Pennsylvania Department of Revenue (DOR) has begun mailing non-participation penalty assessments to taxpayers who qualified for tax amnesty but failed to participate in the 2017 Tax Amnesty Program. The law provides a 5% penalty on unpaid tax delinquencies for individuals or businesses with amnesty eligible delinquencies that failed to take advantage of the program. The 2017 Tax Amnesty Program ran between April 21, 2017 and June 19, 2017 and provided a waiver of all penalties and half of the interest due for eligible taxpayers who paid their past due taxes during the amnesty period. (Pennsylvania Tax Update No. 194, 12/01/2017.)
Income/Franchise - Pennsylvania DOR Announces Immediate Effectiveness of 2017 Legislative Amendments Involving NOL Limitations
The Pennsylvania DOR has published a notice announcing the immediate effectiveness as of January 27, 2018, of certain net operating loss (NOL) provisions within legislation that was signed into law in 2017, thereby increasing the percentage cap of taxable income on Pennsylvania’s NOL carryover deduction for state corporate net income tax purposes to 35% of taxable income in 2018, and then to 40% of taxable income in 2019 and thereafter, effective as of January 27, 2018.
Sales/Use - Pennsylvania DOR Discusses New Law that Imposes Information Reporting and Notice Requirements on Some Remote Sellers, Including Marketplace Facilitators
The Pennsylvania DOR has issued a bulletin on legislation enacted in 2017 that requires certain out-of-state remote sellers, online marketplace facilitators, and referrers meeting specified “economic nexus” statutory criteria to collect and remit Pennsylvania sales tax on their sales to in-state customers beginning March 1, 2018, or else choose to comply with new information reporting and consumer notice requirements. (Sales and Use Tax (“SUT”) Bulletin 2018-01)
Malt Beverage Tax - The Pennsylvania Malt Beverage Tax Credit Program is Currently Accepting Applications for the Program Year
A taxpayer that is a manufacturer of malt or brewed beverages may submit an application for tax credits against the malt beverage tax imposed under Article XX of the Tax Reform Code for investment in qualified capital expenditures placed into service in this Commonwealth between July 1, 2017 and December 31, 2017. A taxpayer may apply for a Malt Beverage Tax Credit by submitting an application along with supporting documentation to the Department of Revenue by April 1, 2018.
Sales And Use Tax - ALJ holds that Online Marketplace Provider is Not Required to Collect Tax on Third-Party Sales During Pendency of Case
In a case involving whether the South Carolina DOR can mandate an e-commerce platform to collect state sale/uses tax on its third-party marketplace sales to South Carolina purchasers under current law as an in-state person in the business of selling tangible personal property at retail, the administrative law judge (ALJ) has denied the DOR’s related motion for injunction for the online marketplace provider to begin collecting state sales and use tax on all gross proceeds from all retail sales across its website and to deposit those proceeds into a trust pending the outcome of this case.
DOR Accepting Third-Party Retail Sales Tax Applications
The South Carolina Department of Revenue (DOR) is now accepting retail sales tax applications from third-party suppliers whose products are sold on Amazon.com to South Carolina purchasers, giving these retailers the ability to collect and remit sales and use tax on these sales, until the current legal matter between the DOR and Amazon Services, LLC (“Amazon”) is resolved. The DOR maintains that under South Carolina law, Amazon is the retailer responsible for collecting and remitting sales and use tax on all goods sold on Amazon.com, but on July 21, 2017 Amazon filed a legal challenge, asserting it is not responsible for collecting and remitting sales and use tax on third-party supplier products sold on its website. (News Release: SCDOR Now Accepting Retail Sales Tax Applications from Third Party Suppliers, S.C. Dept. of Rev., 02/23/2018.)
Sales and Use Tax - U.S. Supreme Court Sets Oral Argument Date for South Dakota v. Wayfair
On April 17, 2018, the U.S. Supreme Court will hear oral arguments in South Dakota v. Wayfair, a significant case involving a South Dakota law that requires an out-of-state seller to collect sales tax from South Dakota customers if the seller's gross revenue from taxable sales delivered in South Dakota exceeds $100,000, or if the seller makes more than 200 deliveries of these sales in South Dakota annually. In September 2017, the South Dakota Supreme Court ruled that the statute violates the “physical presence” requirement articulated in Quill Corp. v. North Dakota, 504 US 298 (1992). The fate of Quill's physical presence rule could be decided as early as this summer. (South Dakota v. Wayfair, Inc. et al., S.D. S. Ct., 2017 SD 56 (2017), cert. granted, U.S. S.Ct., Dkt. No. 17-494, 01/12/2018, oral argument scheduled for 04/17/2018)
David Seiden is the partner-in-charge of the firm’s State and Local Tax Practice, and brings more than 25 years of expertise to all areas of state and local tax (SALT). He can be reached at 914.517.4447 or at firstname.lastname@example.org.
Azriel Septimus is part of the firm’s State and Local Tax Practice team and can be reached at 212.697.1000 x1308 or at email@example.com.