May 25, 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.
SCOTUS rules for grandmother in tax foreclosure takings fight; Jackson again pairs with Gorsuch - Debra Cassens Weiss, ABA Journal:
The U.S. Supreme Court ruled Thursday that a 94-year-old woman could pursue a claim that a tax foreclosure sale violated her rights under the Fifth Amendment’s takings clause.
The Supreme Court ruled for grandmother Geraldine Tyler, 94, whose condo was seized by Hennepin County, Minnesota, to satisfy a $15,000 tax bill. The county sold the condo for $40,000 and kept all the money.
Justices rule Minnesota county violated takings clause - Amy Howe, SCOTUSblog. "Because it ruled in Tyler’s favor on her takings clause claim, the court did not resolve Tyler’s argument that the county’s actions also violated the Eighth Amendment’s ban on excessive fines. In a concurring opinion, Justice Neil Gorsuch (joined by Justice Ketanji Brown Jackson) suggested that, in his view, Tyler would have prevailed on this ground as well."
Link to opinion: GERALDINE TYLER, PETITIONER v. HENNEPIN COUNTY, MINNESOTA, ET AL.
Supreme Court rules for woman who says county took too much for tax debt - Robert Barnes, Washington Post. "Roberts rejected the county’s argument that Tyler had no property interest protected by the Constitution when she fell behind in her taxes."
Unusual Cross-Ideological Agreement in Tyler v. Hennepin County - Ilya Somin, The Volokh Conspiracy. "It's worth noting that only three states joined an amicus brief supporting Hennepin County, one of which is the state of Minnesota, where the county is located. There are twelve states with laws authorizing home equity theft, plus the District of Columbia. The other nine were apparently unwilling to weigh in to support their own laws."
Sales Tax Group Takes Further Steps on Single Filing Portal Idea - Angélica Serrano-Román, Bloomberg ($). "A group that administers a sales tax harmony program in nearly half the US states is continuing to pursue the possibility of a single platform for remote sellers to meet multiple state tax obligations, after receiving encouragement from sellers who might be willing to use it."
Tax Pact Board Says States Should Nix Transaction Threshold - Paul Williams, Law360 Tax Authority:
The Streamlined Sales Tax Governing Board approved a recommendation Tuesday urging states that participate in the tax simplification compact it oversees not to include a transaction threshold in their economic nexus standards for remote sellers.
In approving the change, the board essentially altered the agreement to say that it would prefer that states just impose a monetary threshold, such as the $100,000 figure that most states employ, for remote sellers. However, the recommendation is nonbinding on the 24 states that participate in the agreement, as the participants are encouraged, but not required, to follow the compact's best practices.
10 states still have a threshold that sales tax collection responsibility after, say, 200 transactions, no matter how small the dollar amount involved.
Partially Remote Florida Resident Must Pay Alabama Income Taxes, Tribunal Says - Christopher Jardine, Tax Notes ($). "The Alabama Tax Tribunal ruled that a Florida resident working partially remote for an Alabama company must pay in-state taxes on income sourced to the state."
Related: Telecommuting Workers in Refuge States Complicate State Taxes.
California Credit for Tax on Manufacturing Equipment Advances - Laura Mahoney, Bloomberg:
The bill (A.B. 52) by Assemblyman Bill Grayson (D) would give businesses a personal or corporate income tax credit equal to the local portion of the sales tax they pay on qualified equipment purchases. They are already exempt from the 3.9% state portion of the sales tax, and the credit would cover local levies that can bring total tax to as high as 10.75%.
Assembly members voted 77-0 to pass the bill and sent the bill to the Senate for consideration. Lawmakers have until Sept. 14 to send the bill to Gov. Gavin Newsom (D), who hasn’t taken a position on the bill.
Colorado Income Tax Reporting Bill Sent to Governor - Emily Hollingsworth, Tax Notes ($):
The bill would combine two of the three income tax reporting options for passthrough entities with nonresident owners. According to the bill summary, “Under current law, partnerships and S corporations (pass-through entities) have 3 options for ensuring that the income taxes owed by nonresident owners will be paid. Pass-through entities may file a composite return on behalf of these owners, withhold an estimated tax payment, or collect and file an agreement that the owner will file a separate return.” H.B. 23-1277 would consolidate the composite return option and the withholding option and would clarify that the required tax payment is equal to “the aggregate income attributable to the state multiplied by the highest marginal tax rate in effect under section 39-22-104.”
The bill would also conform Colorado to the Multistate Tax Commission's model statute for reporting adjustments to federal taxable income and federal partnership audit adjustments.
Colorado Bill Creates Income Tax Credit for Clean Hydrogen Use - Tax Notes ($). "Colorado H.B. 23-1281, signed into law as Chapter 237, creates a two-tiered income tax credit for qualified use of clean hydrogen for tax years 2024-2032; the tier one credit is equal to $1 per kilogram of clean hydrogen used and the tier two credit is 33 cents per kilogram of clean hydrogen used."
Colo. Extends Income Tax Credit For Child Care Contributions - Jared Serre, Law360 Tax Authority ($):
Colorado will extend an income tax credit for monetary contributions toward child care services under a bill signed by Democratic Gov. Jared Polis.
H.B. 1091, signed into law Tuesday, will allow the credit to be used through 2027 — a three-year extension from the current end-of-2024 deadline.
Colorado Amends Industry, Semiconductor Manufacturing Tax Credits - Tax Notes ($). "Colorado H.B. 23-1260, signed into law as Chapter 227, makes income tax credits for advanced industry and semiconductor manufacturing refundable for qualifying taxpayers; allows municipalities and counties to create Creating Helpful Incentives to Produce Semiconductors (CHIPS) zones, within which semiconductor manufacturers may apply for enterprise zone income tax credits in accordance with the federal CHIPS Act of 2022 (H.R. 4346); and allows qualifying businesses to carry forward unused portions of the job growth incentive credit."
Illinois Launches Tax Credit Program for Construction Projects - Benjamin Valdez, Tax Notes ($). "Gov. J.B. Pritzker (D) and the Department of Commerce and Economic Opportunity (DCEO) in a May 17 release announced that the state is now accepting applications under the Blue Collar Jobs Act tax credit program, which allows businesses to claim corporate tax credits of up to 75 percent of the income tax withholdings of construction workers on eligible projects."
Iowa Governor Signs Law Regarding Pass-Through Business Entity Tax, Credit – Bloomberg ($). “The Iowa Governor May 11 signed a law creating a new voluntary pass-through entity (PTE) individual income tax and a refundable credit for partnerships and S corporations.”
Iowa Revenue Department Requests Feedback on SALT Cap Workaround - Emily Hollingsworth, Tax Notes ($). "In a May 22 announcement, the DOR requested feedback from taxpayers and practitioners on H.F. 352, signed into law May 11. The bill, which retroactively applies to tax years on or after January 1, 2022, allows passthroughs to elect to pay state income tax at the entity level. In turn, entity owners are allowed to claim a credit to offset the amount of taxes paid, skirting the federal Tax Cuts and Jobs Act's $10,000 cap on the state and local tax deduction."
New Taxes on Tap for Minnesota Corporations, Millionaires - Michael Bologna, Bloomberg ($):
New revenue would come into state coffers through conformity with the federal approach to taxing the global intangible low-taxed income, or GILTI, of multinational corporations—an anti-base erosion feature of the 2017 federal tax law. The plan to tax GILTI would begin with the 2024 tax year. Corporations could claim a 50% deduction for dividends received. An earlier plan imposing mandatory worldwide combined reporting for the calculation of corporate income taxes was stripped from the compromise tax bill.
High-income taxpayers would pay more to the state under a less generous scheme for claiming standardized and itemized deductions. Deductions would be cut by 10% for joint filers with adjusted gross income over $304,970, and 20% for those earning more than $1 million. Additional revenue would be created through a new tax on the net investment income of individuals, estates, and trusts over $1 million at a rate of 1%.
The bill also includes a 50 cent fee for retail deliveries. It provides for one time refundable credits of $260, plus a $1,570 child tax credit. It exempts Social Security benefits from taxpayers with income under $100,000 for joint filers and $78,000 for single filers; the exemption is clawed back with a stepped phaseout of 10% for each $4,000 that income increases over those amounts.
Link: HF 1938
Minnesota lawmakers OK raising gas tax, new delivery fee - Alex Derosier, Duluth News Tribune:
An increase to the gas tax and the delivery fee are just some of the tax increases in the transportation bill. There’s also a new Twin Cities metro sales tax of 0.75%, which will apply to the seven-county metro area and go toward transit projects.
The transportation bill also increases motor vehicle registration tax, a move expected to bring in a total of $787 million in the next four years.
The report says the governor is expected to sign the bill.
Adult-Use Cannabis Bill, With 10% Tax, Goes to Minnesota Governor - Michael Bologna, Bloomberg. "The Minnesota Senate passed HF 100, which creates a regulatory framework for adult-use cannabis, by a vote of 34-32 early Saturday morning. The bill had passed the House May 18 by a vote of 73-57. In addition to Minnesota, 22 states and the District of Columbia have enacted measures to legalize and regulate cannabis, according to the National Conference of State Legislatures."
Mont. To Provide Optional Pass-Through Entity Tax, Credit - Zak Kostro, Law360 Tax Authority ($):
Montana will institute an optional pass-through entity tax and a refundable credit, allowing some stakeholders a workaround for the $10,000 federal cap on state and local tax deductions, under a bill signed by the governor.
S.B. 554, which Republican Gov. Greg Gianforte signed Friday, will allow pass-through entities to pay state income tax at the entity level, with owners allowed a refundable tax credit for their share of taxes paid, according to the bill text.
Related: IRS Blesses Entity-level Tax Deduction used as SALT Cap Workaround.
Mont. To Impose Tax On Electric Vehicle Charging Stations - Jared Serre, Law360 Tax Authority ($). "H.B. 55, signed into law Friday by Republican Gov. Greg Gianforte, will impose a tax of 3 cents per killowatt-hour for electricity used at publicly available charging stations. The tax will be in addition to the public utility's approved rate on electric current, according to the bill."
Oklahoma Supreme Court To Decide Native Taxation Claims - Crystal Owens, Law360 Tax Authority ($). "The ripple effect from a 2020 landmark Supreme Court ruling that reaffirmed tribal sovereignty is continuing in Oklahoma as the state's high court is set to determine whether a Muscogee (Creek) Nation citizen is immune from paying state income taxes under federal law."
Okla. Excludes Some Hotels From Marketplace Facilitator Tax - Jared Serre, Law360 Tax Authority ($). "H.B. 2335, signed Friday by Republican Gov. Kevin Stitt, would exempt hotels and motels with more than 12 rooms from collecting and remitting the state's 4.5% sales tax for marketplace facilitators."
Portland Area Voters Nix Capital Gains Tax Opposed by Local Leaders - Paul Jones, Tax Notes ($). "Measure 26-238 was overwhelmingly rejected by 81.19 percent of the vote during the May 16 election. The proposal sought to create a 0.75 percent tax on capital gains in the county, adjusted up or down as needed, to fund 'free, culturally specific and responsive legal representation, with translation, to persons sued in Multnomah County residential eviction proceedings,' as well as “related housing claims and appeals, including to maintain public housing assistance,” according to the ballot summary. The measure would have created a new tenant resource office to run the program that would have contracted with nonprofit law firms and organizations to provide legal representation."
South Carolina Updates IRC Conformity - Matthew Pertz, Tax Notes ($). "H. 4017, signed into law May 16, is effective immediately. The annual housekeeping bill updates the state’s laws to match IRC updates through December 31, 2022, including expired federal income tax provisions that were extended, but not amended, during 2023. While in years past South Carolina has specifically avoided conformity with provisions of massive federal bills, like the Coronavirus Aid, Relief, and Economic Security Act and the Tax Cuts and Jobs Act, there were no such carveouts this year."
2023 Sales Tax Holiday for Food and Food Ingredients - Tennessee Department of Revenue. "Public Chapter 377 (2023) creates a new sales tax holiday starting at 12:01 a.m. on Tuesday, August 1, 2023, and ending at 11:59 p.m. on Tuesday, October 31, 2023. During this period, food and food ingredients may be purchased tax free. Food and food ingredients purchased from a micro market or vending machine remain subject to sales tax."
Tennessee's New Sales Tax on Hemp-Based Cannabinoids Begins July 1 - Matthew Pertz, Tax Notes ($). "Under S.B. 378, the state will collect an additional 6 percent sales tax on hemp-derived cannabinoids on top of the 7 percent statewide and applicable local sales taxes. Retailers must buy a license for $250, while producers will continue to pay a $500 licensing fee as they did before. Licenses must be renewed annually at the original cost. The state expects to issue 200 growers licenses and 4,000 sellers licenses, according to the bill's fiscal note."
Kinder Morgan Wins ‘Tax Ferret’ Argument at Texas High Court - Perry Cooper, Bloomberg ($):
A school district in Texas improperly hired a private attorney to seek more than $200 million in taxes from Kinder Morgan Inc., the state high court ruled Friday.
Kinder Morgan and the county appraisal district convinced the trial court to dismiss the suit because the school district hired Lemon as a “tax ferret” under an unauthorized contract allowing for compensation on a contingent-fee basis.
Virginia Court: Taxpayer Can Switch Apportionment Method in Amended Return - Christopher Jardine, Tax Notes ($). "In Department of Taxation v. 1887 Holdings Inc., the Virginia Court of Appeals affirmed the Richmond Circuit Court's decision that the taxpayer is not barred from using the income apportionment method for manufacturing companies on an amended return after it used the standard apportionment method on its original return."
Tax History Corner
Unintended consequences. In 1696, a tax on windows was imposed on dwellings with more than 10 windows. It was considered progressive by standards of the day - who but the rich would have so many windows? Unintended, but predictable, consequences ensued, per parlaiment.uk:
In towns and cities it was unusual for the working classes to live in individual homes. They would usually live in large tenement buildings which, however they had been subdivided, where considered to be one dwelling house under the terms of the tax, and therefore subject to heavy window tax assessments.
As it was the landlord, as the property owner, who was subject to the tax, windows in tenement buildings were often boarded up, and new buildings were constructed without sufficient window accommodation. The interpretation of the tax was also very strict. No definition of a window was included in the legislation, and it tended to be interpreted in such a way as to include the smallest of openings in any wall. In some cases even perforated grates in larders were charged as if they were a large window. Not only did tenants suffer as a result of inadequate ventilation in their living quarters, invariably the costs of the window tax that were imposed were passed on to the residents in heavier rents.
Public policy is a chess game, and you need to look more than one move ahead.
Did you know? The current Memorial Day holiday has its origins in the U.S. Civil war. From History.com:
On May 5, 1868, General John A. Logan, leader of an organization for Northern Civil War veterans, called for a nationwide day of remembrance later that month. “The 30th of May, 1868, is designated for the purpose of strewing with flowers, or otherwise decorating the graves of comrades who died in defense of their country during the late rebellion, and whose bodies now lie in almost every city, village and hamlet churchyard in the land,” he proclaimed.
The date of Decoration Day, as he called it, was chosen because it wasn’t the anniversary of any particular battle.
On the first Decoration Day, General James Garfield made a speech at Arlington National Cemetery, and 5,000 participants decorated the graves of the 20,000 Civil War soldiers buried there.
Have a great long weekend, and maybe decorate a neglected grave if you get a chance.
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.