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Recent Developments in State and Local Tax

May 21, 2024
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Key Takeaways

  • State and local tax developments are in constant flux and affect businesses in various ways.
  • Some states have changed their corporate income tax rates, sourcing rules, and filing requirements.
  • Some states have eliminated or reduced the sales tax on food and food ingredients, while others have imposed new fees or rules on retail deliveries.

State and local tax developments are in constant flux. From changing legislation to expanded compliance obligations, businesses must constantly stay aware of their potential sales tax exposure.

  • Download this helpful guide to see the key financial implications for CFOs.

Income and Franchise Tax Updates

California: Microsoft’s State Tax Appeal Win Could Signal More Refunds to Come

The California Office of Tax Appeals ruled in favor of Microsoft for a $94 million win, allowing the company to include 100% of dividends in the sales factor while still taking advantage of the 75% dividends received deduction.

While the ruling is not precedential and it is unclear if the FTB will follow this decision moving forward, taxpayers who file in California should review their water’s-edge returns for possible refund claims.

Michigan: Court of Appeals Rules Holding Company Has Taxable Nexus in Detroit

The Michigan Court of Appeals reversed a Michigan Tax Tribunal ruling and held that an out-of-state holding company had nexus for City of Detroit corporate income tax purposes.

The Appellate Court reasoned that although the company had no property or payroll in Detroit, its officers and agents took several actions within the city in connection with the sale of a company-owned asset. These actions were sufficient to demonstrate taxable nexus between the holding company and Detroit.

Minnesota: Tax Bill Corrects Deduction and Dependent Amounts

Minnesota Governor Tim Walz recently signed a bill adjusting the standard deduction amounts for 2023. This bill was passed to correct an error in previous legislation that used the 2019 standard deduction amounts instead of inflation-adjusted amounts.

The 2023 standard deduction amounts will be adjusted to:

  • $27,650 for married, joint, or surviving spouse filers
  • $20,800 for head of household filers
  • $13,825 for all other filers

Minnesota: Retail Deliveries of Tangible Personal Property Will Incur a Fee

The Minnesota Department of Revenue recently issued guidance on the new retail delivery fee that takes effect on July 1, 2024. Starting then, a 50-cent fee will be applied to deliveries of tangible personal property and clothing costing $100 or more.

The fee does not apply to food or prepared food items, baby supplies, or medical devices. Retailers with less than $1M of in-state sales and marketplace facilitators with less than $100k of in-state sales during the previous calendar year are exempt.

New Mexico: Legislation Imposes Flat Corporate Income Tax Rate and Limits Water’s-Edge Combined Group

New Mexico Governor Michelle Lujan Grisham signed House Bill 252 into law (more information here). The newly enacted legislation takes effect on January 1, 2025, and makes numerous changes to the state’s individual income tax, gross receipts tax, and corporate income tax.

Highlights include:

  • All corporate taxpayers will be subject to a flat 5.9% tax rate, eliminating the lower 4.8% income tax rate that currently applies to income below $500,000.
  • The water’s-edge filing group exclusion for “80/20 companies” will now exclude only foreign corporations with less than 20% of their property, payroll, and sales sourced to locations within the United States.
  • Subpart F income will be included in the corporate income tax base.

Pennsylvania: Department of Revenue Issues Guidance on Market-Based Sourcing

Pennsylvania released Corporation Tax Bulletin 2024-01 to address the new market-based sourcing rules enacted in 2022. The rules apply market-based sourcing principles to receipts from certain intangible property and are applicable to tax years beginning after December 31, 2022. Guidance includes many examples illustrating how the Department would apply the new rules in various situations.

Sales and Use Tax Developments

Indiana: Elimination of Sales Tax Transaction Threshold

Effective January 1, 2024 (retroactive), under SB 228 (more information here), Indiana no longer requires sellers to collect and remit state sales tax when they reach 200 sales transactions in the state. Going forward, only sellers with $100,000 or more of sales in Indiana and those with a physical presence in the state will be required to collect and remit sales tax.

Iowa: Changes to Administrative Rules on Remote Sales, Marketplace Sales, and Sourcing of Services, TPP, and Digital Products

Effective March 13, 2024, the Iowa Department of Revenue adopted several changes to the administration of certain sales and use tax rules, including:

  • Rebate of Iowa sales tax paid
  • Refunds for eligible businesses under Economic Development Authority Programs
  • Remote sales and marketplace sales
  • Sourcing taxable services, tangible personal property, and specified digital products

New Mexico: Resale Certificate Not Accepted in Good Faith

The Supreme Court of New Mexico held that a taxpayer did not accept in good faith a nontaxable transaction certificate (NTTC). Therefore, the taxpayer was not entitled to safe harbor protection from the payment of gross receipts tax.

The taxpayer, a private detention center, held inmates under a contract with the County. This included fulfilling a previous agreement between the County and the Marshals Service to house and supervise federal prisoners at the detention center. Payments for these services were received directly from the Marshals Service. The taxpayer accepted an NTTC executed by the County, but misstated to the Department that the payments were not coming directly from the Marshals Service. The court held that based on the facts and circumstances known by the taxpayer, they did not accept the NTTC in good faith.

Oklahoma: State Sales Tax on Food and Food Ingredients Abolished

Oklahoma Governor Kevin Stitt signed House Bill 1955 into law, eliminating the state’s 4.5% sales tax imposed on the retail sale of food and food ingredients.

The bill specifies that “food and food ingredients” includes bottled water, candy, and soft drinks. However, it does not include alcoholic beverages, dietary supplements, marijuana and marijuana infused products, prepared food, or tobacco.

The effective date is projected to be 90 days after the end of the current legislative session.

Texas: Comptroller Adopts General Standard for Situsing of Orders

The Texas Comptroller of Public Accounts amended 34 TAC §3.334 concerning local sales and use taxes. The amendment adds subsection (c)(7) regarding the location of where an order is received. In adopting the provision, the Comptroller is implementing “a general standard that is applicable to all situations, including automated website orders and fulfillment warehouse” with respect to where an order is received.

Wyoming: Elimination of Sales Tax Transaction Threshold

Effective July 1, 2024, under HB 0197 (more information here), Wyoming will no longer require sellers to collect and remit state sales tax when they reach 200 sales transactions in the state. Following this change, only sellers with $100,000 or more of sales in Wyoming and those with a physical presence in the state will be required to collect and remit sales tax.

  • A well-developed internal process for sales and use tax compliance is essential. We’ll help you review and assess your current processes, then make recommendations for improvements.

Unclaimed Property Developments

Idaho: New Unclaimed Property Legislation Passed

House Bill 471 repeals the existing unclaimed property statute. The new legislation makes several changes including:

  • the acceleration of dormancy periods
  • the extension of owner contact
  • the modification of statutorily required notices and the reporting of particular property types
  • the expansion of the statute of limitations

Wisconsin: New Rule Adopted on Time-Period for Liquidation of Virtual Currency

The Wisconsin Department of Revenue adopted Wis. Admin. Code Tax 10.01, establishing the time-period for the conversion of unclaimed virtual currency. The rule requires holders of unclaimed property to report and remit virtual currency to liquidate it within 30 days before the November 1 due date.

Monitor State and Local Tax Changes

Recent developments in state and local tax and unclaimed property can have a lasting impact on businesses throughout the country. These developments highlight the importance of staying up to date with state and local tax obligations and the potential risks associated with non-compliance.

Professional guidance can help you understand and address your own state and local tax situation. Eide Bailly’s state and local tax team can help you take a proactive approach to managing your taxation issues.

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About the Author(s)

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Melissa Menter

Senior Manager
Melissa has over 20 years of experience helping clients with a broad range of tax issues. She has both Big Four and in-house Fortune 500 corporate tax experience, which gives her the perspective of being able to see a problem and its possible solutions from multiple angles. Melissa is a creative thinker and enjoys crafting customized, practical solutions to complex tax problems.