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.
This week marked the fifth anniversary of the Supreme Court decision that opened the door to taxation of remote sellers. The Wayfair decision not only made the collection of sales taxes on internet purchases routine, it may have opened the door for expanded income taxation of out-of-state businesses. Some stories marking five years of Wayfair:
Wayfair — Five Years Later and Moving on to Other Taxes - Andrea Muse, Tax Notes ($):
In its June 2018 decision, the Court concluded 5 to 4 “that the physical presence rule of Quill Corp. v. North Dakota is unsound and incorrect,” allowing states to require remote sellers to collect and remit tax on sales.
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Every state with a state sales and use tax has enacted remote seller and marketplace facilitator legislation, with Missouri being the last state to do so when its law became effective on January 1, 2023. Alaska, which has local sales taxes but no state sales tax, established a remote seller sales tax commission to centrally administer local sales taxes on remote sales.
Wayfair At 5: 5 Things We Know And 5 Things We Don't - Maria Koklanaris, Law360 Tax Authority ($):
The June 21, 2018, holding by the Supreme Court has established some certainties. Physical presence is no longer needed for states to compel businesses to collect and remit sales and use tax. Marketplace facilitator laws are in full effect in every state with a sales tax. Economic nexus is greatly expanded.
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States did not rush to establish factors for economic nexus for the corporate income tax after Wayfair, but it is clear they will assert economic nexus for that tax. They have also shown they will do it for newer taxes, such as those on streaming services.
Five years after the Wayfair ruling, states' reliance on the sales tax grows - Liz Farmer, Route Fifty. "While there’s no way to determine the exact revenue impact of Wayfair, it’s well into the billions. A U.S. Government Accountability Office report last year found that states collected at least $23 billion from remote sellers in 2022. Before the pandemic shopping surge, the 2019 total was just under $7 billion. And before the ruling and most remote sales tax laws took effect, the total was half that amount."
Remote Sellers Left Vexed On Meaning Of Undue Burden - Paul Williams, Law360 Tax Authority ($). "Businesses, however, have expressed frustration with the varying approaches that states have taken, including a patchwork of rules governing which sales count toward a state's economic nexus dollar threshold, and the need to understand thousands of local tax rates and bases."
State-By-State Roundup
Arizona
Ariz. Gov. Vetoes Expansion Of Vehicle Sales Tax Exemption - Michael Nunes, Law360 Tax Authority ($). "Arizona will not expand the state's sales tax exemption for auto sales to include vehicles purchased by out-of-state buyers who leave the state within 30 days, after the bill was vetoed by Democratic Gov. Katie Hobbs.
Arizona Legislature Rejects Automatic Income Tax Reduction Bill - Paul Jones, Tax Notes ($). "Arizona House lawmakers rejected a Senate bill to create automatic reductions to the state income tax when revenues exceed a calculated limit on growth."
California
Justices Won't Hear Amazon Sellers' Appeal In Calif. Tax Suit - Maria Koklanaris, Law360 Tax Authority ($). "The U.S. Supreme Court declined Tuesday to hear an e-commerce trade group's petition to allow federal jurisdiction over the group's attempt to block California from pursuing back sales taxes from sellers participating in an Amazon program."
Louisiana
Louisiana Establishes New Board to Centralize Local Sales Tax Collection - Matthew Pertz, Tax Notes ($). "H.B. 558, signed by Edwards June 14, transfers control of the local returns and remittance system from the Department of Revenue to the state Uniform Local Sales Tax Board at the start of 2024. The new board will have the powers and responsibilities of the DOR committee previously tasked with managing the uniform electronic local return and remittance system. The committee will remain in place at the DOR to advise the board and will gain two new members: the head of a collector’s office and a business representative recommended by the Louisiana Association of Business and Industry and appointed by the governor."
La. To Reinstate Sales Tax Holiday On Guns, Ammo - Jared Serre, Law360 Tax Authority ($):
S.B. 56, signed June 13 by Democratic Gov. John Bel Edwards, will reinstate the state's so-called Second Amendment sales tax holiday, a period in which sales of firearms, ammunition and hunting supplies are exempt from the sales tax.
Under the legislation, the holiday will take place in 2023 and 2024. According to state law, the sales tax holiday occurs annually on the first consecutive Friday through Sunday of September.
Minnesota
Minnesota DOR Announces Legislative Tax Changes, GILTI Conformity - Emily Hollingsworth, Tax Notes ($):
While some of the tax changes could affect previous tax years, the DOR noted that taxpayers “should not amend any Minnesota returns solely to account for these changes.” It added that it will release updated guidance and tax forms “for affected tax years as soon as they are available, generally in early fall.”
Notable among the legislative updates is Minnesota’s general conformity with the federal GILTI regime. The change was enacted under omnibus tax bill H.B. 1938, which was signed May 24.
Link: Minnesota announcement.
Related: GILTI Tax Impact on U.S. Individuals.
Montana
Montana Biennial Budget Enacts Equipment Tax Exemption Expansion - Emily Hollingsworth, Tax Notes ($).
An enacted bill to triple the threshold amount for the business equipment tax exemption will be implemented through Montana's biennial budget legislation, which was recently signed into law.
The budget bill, H.B. 2, was signed by Gov. Greg Gianforte (R) during a June 14 ceremony. In a release, Gianforte said that the fiscal 2024–2025 biennial budget will allow investments in healthcare, education, and job creation, additional savings in the state’s rainy day fund, and $1 billion in estimated tax cuts to come to fruition.
New Jersey
NJ Senate OKs Boosting SALT Cap Workaround For S Corps - Paul Williams, Tax Notes ($):
S.B. 3704, which the Senate approved by a 37-0 vote Tuesday, would calculate an S corporation's entity-level tax based on the pro rata share of income allocated to the state and, for resident shareholders, income allocated elsewhere. Current law limits the basis of the tax to income allocated to New Jersey.
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The legislation would bring New Jersey's entity-level tax treatment of S corporations in line with the state's treatment of partnerships, according to a summary of the bill.
Related: IRS Blesses Entity-level Tax Deduction used as SALT Cap Workaround.
New York
New York LLC Beneficial Ownership Disclosure Bill Heads to Governor - Amy Hamilton, Tax Notes ($):
The New York State Legislature has approved legislation that would go further than the federal Corporate Transparency Act (CTA) by making public the beneficial owners of limited liability companies.
The Assembly late on June 20 passed the LLC Transparency Act (A. 3484A) and (S. 995B) on a 92–52 vote; the chamber reconvened on June 20 and 21 to wrap up its work this legislative session. The Senate passed the measure 41 to 21 before adjourning June 10. The bill now goes to Gov. Kathy Hochul (D).
Related: Small Business and the Corporate Transparency Act.
Nevada
Nevada Enacts $380 Million Incentives Deal to Bring MLB to Las Vegas - Paul Jones, Tax Notes ($). "The bill approves up to $180 million in transferable state tax credits, allowing them to be provided to the team by the Clark County Stadium Authority in amounts of up to $36 million per year. The county has also agreed to provide $120 million in general obligation bonds and $25 million toward improvements. A special sports and entertainment improvement district will be created to generate tax revenue, including to pay bond debt. The Athletics organization is required to invest at least $1.1 billion to build the roughly $1.5 billion stadium on nine acres in the downtown area, near the T-Mobile Arena, home of the Golden Knights hockey team, and just a few blocks from Allegiant Stadium, where the Raiders football team relocated from Oakland. The stadium will be publicly owned and leased to the team by the stadium authority, and the A’s agreed to stay in Las Vegas for 30 years or else pay off outstanding bond debt and a portion of the tax credits."
North Carolina
North Carolina Governor Signs Bill to Legalize, Tax Sports Gambling - Matthew Pertz, Tax Notes ($). "Under H.B. 347, signed June 14, the state will issue 12 licenses to online operators at a price of $1 million each. The licenses must be renewed every five years at the same cost. Gross wagering revenue will be taxed at 18 percent, similar to neighboring Virginia’s 15 percent rate but far below the rates in states like New York and New Hampshire, both of which levy a 50 percent tax."
Ohio
Ohio BTA: Company President Is Responsible for Unpaid Withholding Taxes - Cameron Browne, Tax Notes ($). "In a June 16 decision in Chapman Enterprises Inc. v. Harris, the BTA affirmed the tax commissioner’s final determination that a corporation and its officer are responsible for employer and school district tax assessments. The assessments came after the corporation’s bookkeeper failed to remit the withholding taxes and was embezzling corporate funds."
Rhode Island
Rhode Island Enacts Budget With Business Property Tax Relief - Benjamin Valdez, Tax Notes ($). "McKee on June 16 signed a House substitute to H.B. 5200, a fiscal 2024 appropriations bill that exempts the first $50,000 of business property from the municipal tangible property tax starting on the assessment date of December 31, with a requirement that the state reimburse municipalities for the lost revenue beginning in fiscal 2025. The bill also caps the tax so that it can’t exceed the rate set by a municipality on December 31, 2022."
Texas
Texas To Exempt Menstrual Products, Diapers From Sales Tax - Zak Kostro, Law360 Tax Authority ($). "S.B. 379, which Abbott signed Sunday, exempts from tax the sale, storage, use and other consumption of certain menstrual products, adult and children's diapers, baby wipes and bottles, maternity clothing, wound care dressings and other "family and wound care items," according to a bill digest."
Vermont
Vermont Lawmakers Override Veto of Payroll Tax - Benjamin Valdez, Tax Notes ($):
The House and the Senate voted June 20 to override Scott’s veto of H. 217. The bill, intended to greatly increase funding to the state’s child care sector, will levy a 0.44 percent tax on wage income and a 0.11 percent tax on self-employed net income beginning July 1, 2024.
Employers will be responsible for at least three-quarters of the tax, and employees for as much as one-quarter, according to the bill. Employers will also need to withhold employees’ share of the tax and remit the full amount of taxes to the Department of Taxes.
Vt. Conforms State Tax Code To Fed. Income, Estate Tax Law - Michael Nunes, Law360 Tax Authority ($). "H.B. 471, which Republican Gov. Phil Scott signed Monday, aligned the state's income and estate statutes with federal statutes as written as of Dec. 31, 2022. The law also clarified some aspects of the state's sales and use tax for alcoholic beverages, as well as a property tax exemption for rent-restricted units."
Vermont Enacts Bill to Legalize, Tax Sports Betting - Benjamin Valdez, Tax Notes ($). "H. 127 legalizes sports betting and authorizes the Department of Liquor and Lottery to negotiate a revenue-sharing agreement with sportsbook operators that acts as a tax on gross revenue. Under the bill, the revenue-share rate can’t be lower than 20 percent but will ultimately be determined through a competitive bidding process. The bill was signed June 14."
Wisconsin
Wisconsin Ditches Personal Property Tax - Paul Jones, Tax Notes ($). "The personal property tax repeal is contained in a larger package referred to as the shared revenue bill, A.B. 245, which Evers signed June 20. The legislation is the result of an agreement announced earlier this month between Evers and the Republican legislative majority that resolved key contentions over state spending, including increasing financial support for local governments by 20 percent and augmenting education funding in the state by around $1 billion."
Tax History Corner
The farmers nobody likes. "Tax Farming" was a common historical practice for tax collection before the advent of modern tax administration. Wikipedia explains (footnotes omitted):
Tax farming is a financial management technique in which a legal contract assigns the management of a revenue source to a third party while the original holder of the revenue stream receives fixed periodic rents from the contractor. This practice was first developed by the Romans. Under their system, the Roman State reassigned the power to collect taxes to private individuals or organizations. These private groups paid the taxes for the area, and they used the products and money that could be garnered from the area to cover the outlay
The practice shows up in the New Testament account of Zacchaeus the tax collector. Short version: people didn't like him. Tax farmers had a reputation for corruption and extortionate behavior.
While the Roman Empire gave up on tax farming, it was part of the revenue systems of pre-revolutionary France and the Ottoman Empire. It isn't part of the U.S. tax system, though "tax ferrets" sometimes do crop up here.
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