March 10, 2023
Welcome to this week's state and local tax roundup. Think of Eide Bailly for your state tax needs, whether you are dealing with income taxes, sales taxes, or business incentives and credits.
Challenges to Remote Work Tax Rules Likely Gaining Steam - Benjamin Valdez, Tax Notes ($):
The proliferation of remote work arrangements is upending many conventions, and experts say it’s set to generate increased opposition to one of the more controversial tax policies of the era: convenience of the employer rules.
New York’s convenience rule is the most well known, but several states apply some version of a rule that taxes the income of employees of an in-state business when they work from home at an out-of-state location for purposes of convenience. With more workers telecommuting part or most of the time, the new work model is increasingly grating against these policies, and critics are hoping it will eventually lead to the undoing or curtailment of convenience rules.
Related: Telecommuting Workers in Refuge States Complicate State Taxes
St. Louis To Appeal On Remote Earnings Tax - Maria Koklanaris, Law360 Tax Authority ($):
St. Louis will appeal a circuit court decision holding that the city must issue earnings tax refunds to a group of workers for days worked outside the city after the start of the COVID-19 pandemic.
In a notice of appeal filed Tuesday, the city said it will appeal the decision of Judge Jason Sengheiser of the Missouri's 22nd Judicial Circuit Court, who said St. Louis improperly applied the tax to telecommuters. In January, Judge Sengheiser issued an order saying the language of the earnings tax ordinance didn't permit the city to impose its 1% tax on employees who performed work outside the city for St. Louis employers. Judge Sengheiser also found that the city abruptly changed its prior policy of issuing tax refunds to workers for days worked outside the city without seeking a change in the ordinance's wording.
Looming Pass-through Entity Tax Election Deadlines. 30 states have enacted pass-though entity taxes (PTETs) as workarounds for the $10,000 cap in state and local tax itemized deductions. Some of these taxes require advance elections for entities to qualify.
For a 2022 PTET election, the following deadlines are approaching:
2023 tax year elections must be filed by March 15 for:
New York (state and city)
Related: IRS Blesses Entity-level Tax Deduction used as SALT Cap Workaround
Ariz. To Conform State Tax Law With Internal Revenue Code - Zak Kostro, Law360 Tax Authority ($). "S.B. 1171, which Hobbs signed Friday, conforms the state's tax law with the Internal Revenue Code to reflect changes made in 2022, according to a Senate fact sheet for the bill. Arizona periodically updates its definition of the federal code to incorporate changes from the past year, the fact sheet said."
California OTA: Ex-Wife of NBA Player Entitled to Innocent Spouse Relief - Christopher Jardine, Tax Notes ($). "On appeal, MT said that KT had the sole income for the couple and that he kept the money in a private account in only his name, which she said 'was a form of spousal financial abuse that was devastating,' according to the OTA. MT claimed she did not know of the debt for 2010 and that it was not disclosed during the divorce. She also said she was never provided a copy of the 2010 joint return. MT further claimed that she knew of the household’s $107,489 budget each month for the 2009–2010 NBA season but knew of no other funds because she didn't have access to KT’s bank accounts. After obtaining a copy of federal income tax records, she became aware that the taxable income far exceeded the amount of income reflected in the budget sheets."
Ga. Lawmakers OK Updated IRC References In State Tax Code - Zak Kostro, Law360 Tax Authority ($). "H.B. 95, which passed the state Senate by a 48-0 vote Tuesday after having cleared the House of Representatives by a 172-0 vote last month, would update references to the federal code to mean the provisions of the law as amended and enacted on or before Jan. 1, 2023, according to the bill's text. However, the bill would make certain exceptions for Internal Revenue Code Section 108(i), Section 163(e)(5)(F) and other sections, according to the text."
Ga. House OKs Sales Tax On Some Digital Goods, Services - Zak Kostro, Law360 Tax Authority ($). "H.B. 170, which passed the House by a 162-10 vote Monday, would impose tax on the sale or use of digital products and services including artwork, photographs, newspapers, magazines, video games, music, books and other digital goods transferred electronically, according to a summary and the bill text. The tax would be levied, collected and administered in the same manner and at the same rate as for the retail purchase, retail sale, rental, storage, use or consumption of tangible personal property, according to the bill."
Hawaii House Axes Tax Bracket Revamp From Gov.'s Proposal - Jaqueline McCool, Law360 Tax Authority ($). "H.B. 1049, which unanimously passed the House on Tuesday and has been sent to the Senate, would create a tax credit for teachers and make adjustments to the renters and dependent care credits. The revised bill, which was introduced at the request of Democratic Gov. Josh Green, removed Green's proposed cuts to the state's income tax rates and a proposed doubling of the state's standard deduction."
Senate Republicans advance bill to eventually eliminate Iowa's income tax. Here's the plan - Stephen Gruber-Miller, Des Moines Register:
Senate Study Bill 1126 would lower Iowa's income tax rate to 3.55% in 2026, 2.95% in 2027 and 2.5% in 2028.
Beginning in 2030, the bill would transform Iowa's taxpayer relief fund into an "individual income tax elimination fund" and use the money in the fund to eventually lower the individual income tax rate further until it is eliminated entirely.
Kentucky House Approves Tax Cut, SALT Cap Workaround Bill - Matthew Pertz, Tax Notes ($):
H.B. 360 was approved in the House on a 76–17 vote March 8. The bill sets up criteria for a permanent elimination of the state's individual income tax, expanding on the conditional individual income tax rate reductions that were first implemented under a 2022 bill (H.B. 8). It would require the state budget director to annually report on whether the state met two key conditions in the previous year: that contributions to the rainy day fund exceeded 10 percent of general fund receipts, and that general fund receipts exceeded the amount appropriated to the fund by at least the amount of potential revenue that would be lost if the individual income tax rate were reduced by 1 percentage point.
H.B. 360 would also put Kentucky among the league of states with a passthrough entity (PTE) tax, allowing passthrough owners to skirt the federal Tax Cuts and Jobs Act's $10,000 cap on the state and local tax deduction. The bill would grant each passthrough partner a nonrefundable credit equal to 95 percent of the entity’s tax burden, proportionate to the partner’s share of the business, effective for tax years beginning on or after January 1, 2022.
Computer Error Leads to Hundreds of Blocked Tax Refunds in Maryland - Matthew Pertz, Tax Notes ($)."Maryland officials are apologizing after hundreds of tax refunds were mistakenly halted for missed child support payments."
Gov. Gretchen Whitmer signs Michigan tax relief, minus $180 checks - Jonathan Oosting, Bridge Michigan:
Calling it "a new day in Lansing," Democratic Gov. Gretchen Whitmer on Tuesday signed legislation to expand the Earned Income Tax Credit for lower-income workers and repeal the so-called pension tax on retirement income.
The new law won’t include $180 inflation relief checks for all tax filers this spring, as the governor had proposed, and other forms of relief will be delayed because Senate Republicans denied the bill “immediate effect” in order to preserve a potential permanent income tax rate reduction.
Mont. Lawmakers OK Single-Factor Corp. Tax Apportionment "S.B. 124, which passed the state House of Representatives by a 94-4 vote Wednesday after having cleared the Senate last month, would change Montana's corporation income tax apportionment for multistate businesses from a three-factor method with double-weighted sales to single-factor apportionment based on sales, according to a fiscal note. The bill goes next to Republican Gov. Greg Gianforte."
According to this chart by the Federation of Tax Administrators, Montana would become the 31st state that would apportion multistate income by sales only. This formula favors in-state corporations while increasing taxes on corporations without significant in-state operations.
Pennsylvania Governor Proposes to Nix Cellphone Tax, Accelerate Tax Cuts - Benjamin Valdez, Tax Notes ($). "Shapiro also called on lawmakers to accelerate reductions to the corporate net income tax. Under the fiscal 2023 budget signed by then-Gov. Tom Wolf, the corporate net income tax rate fell from 9.99 percent to 8.99 percent this year and is slated to decrease by half a percentage point annually until reaching 4.99 percent in 2031."
The final bills Utah lawmakers passed - Erin Alberty, Kim Bojórquez, Axios Salt Lake City. "A $400 million tax cut package approved by the Legislature includes lowering the state income tax rate from 4.85% to 4.65%."
Utah Legislature Passes Tax Cut Bills - Paul Jones, Tax Notes ($):
The main tax cut bill, H.B. 54, now heads to Gov. Spencer Cox (R), who is expected to sign it. In a March 3 release noting the close of the state's 2023 legislative session, Cox lauded the tax cut along with other bills approved by the Legislature.
Lawmakers approved “massive tax cuts, including slashing the income tax from 4.85 percent to 4.65 percent, rolling back Social Security taxes, and providing a double tax exemption for pregnant women,” according to the release.
Vt. Senate Passes Tax To Bypass SALT Cap - Jared Serre, Law360 Tax Authority ($). "S. 45 passed through the chamber Wednesday by a voice vote. The legislation would allow pass-through entities in Vermont to pay state income taxes at the entity level and claim an unlimited federal deduction for state and local taxes paid, thus avoiding the $10,000 cap on such payments. Individual members of pass-through entities would also be provided with a state tax credit equivalent to 90% of the individual's pro rata share of the tax paid by the company."
W.Va. Lawmakers Pass Income Tax Cuts, Small-Biz Credit - Jacqueline McCool, Law360 Tax Authority ($).
H.B. 2526 passed the House by an 89-4 vote Saturday and was sent to Justice, who said in a news release that he would sign the bill. Among other tax changes, the bill would reduce the state's personal income tax rates but would not cut them as much as a previous plan pitched by Justice and passed by the House.
The new proposal, passed by the Senate late last month, would impose a 2.36% tax on income up to $10,000, a 3.15% tax on income over $10,000 and up to $25,000, a 3.54% tax on income over $25,000 and up to $40,000, a 4.72% tax on income over $40,000 and up to $60,000, and a 5.12% tax on income over $60,000.
West Virginia Enacts Tax Cut, Property Tax Rebates - Benjamin Valdez, Tax Notes ($).
West Virginia Gov. Jim Justice (R) has approved legislation that cuts the personal income tax and provides rebates for the business inventory tax.
Justice on March 7 signed H.B. 2526, which cuts the tax rate for each personal income tax bracket, retroactive to January 1.
West Virginia House Approves SALT Cap Workaround - Benjamin Valdez, Tax Notes ($). "The House approved S.B. 151 March 9 on a vote of 91 to 1. The bill would allow for passthrough entities to elect to pay income tax at the entity level and for owners to claim a tax credit equal to their distributive share of the tax paid, effective retroactive to January 1, 2022. Under the entity-level tax, passthroughs would effectively avoid the federal $10,000 SALT cap enacted under the Tax Cuts and Jobs Act."
StubHub Owes $8.5M Tax On Ticket Resales, Wis. Board Rules - Sanjay Talwani, Law360 Tax Authority:
In a ruling released Tuesday, the Wisconsin Tax Appeals Commission upheld a sales tax assessment by the state Department of Revenue against StubHub, a subsidiary of eBay, on about $154 million worth of ticket resales from 2008 to 2013. The commission rejected the argument by StubHub, which operates an online secondary marketplace connecting ticket holders with buyers, that it functioned like "an open-air market" and the ticket holders were liable for the tax.
The commission also rejected StubHub's argument that it was only transferring tickets, physical or electronic, and not the actual admissions to events, which the company said were provided by other parties who should be subject to the tax. The commission said StubHub's "novel" argument would mean that only venues themselves could be subject to the tax.
Related: Eide Bailly State and Local Tax Services.
In other news
The Bears 'Bear Down' on Leaving Chicago - Billy Hamilton, Tax Notes ($).
The Center for Economic Accountability probably offered the best take on the issue: “The thing is, stadium subsidies are a terrible idea. They sit empty and useless most of the time, coming to life for a few hours on gameday and then going dark and silent again. This makes them virtually worthless from the standpoint of economic development or job creation: Even baseball stadiums, home to 81 home games a season, only bring in as many customers as a mid-sized Walmart or other big-box store does over the course of a year.” Similarly, in a 2017 poll, 83 percent of the surveyed economists agreed that “providing state and local subsidies to build stadiums for professional sports teams is likely to cost the relevant taxpayers more than any local economic benefits that are generated.
So, if the issue was easily reduced to a strict cost-versus-benefit accounting, stadium deals wouldn’t happen. But that’s not the whole story. Stadium subsidies remind me of film tax credits — or the weather, for that matter. Everyone complains about them, but nobody does anything about them. That’s because, in the end, few states or cities can resist the lure of having a pro football, baseball, basketball, or soccer team to call their own.
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.