State Tax News & Views: Voluntary Disclosure, Incentive Disclosure, Migration, Three-wheeled Cars.

Welcome to this edition of our roundup of state tax developments. Consider the Eide Bailly State & Local Tax team for your state tax planning, compliance, and incentive needs!

SSTGB Considers Shorter Lookback Period for Voluntary Disclosure Programs - Emily Hollingsworth, Tax Notes ($):

In an effort to ease compliance, the executive committee of the Streamlined Sales Tax Governing Board (SSTGB) is studying a voluntary disclosure program with a shorter lookback period and looking into guidance on the sales tax treatment of food delivery service companies.

Voluntary disclosure programs are an important state tax tool. They enable businesses that might have state tax compliance problems to "come clean" in states where they haven't been filing and limit their exposure to back taxes. When no tax return has been filed, no statute of limitation starts.

Diane Yetter, founder and president of the Sales Tax Institute, told Tax Notes August 29 that she suggested the board develop a voluntary disclosure program with a shorter lookback period during the SSTGB’s January planning meeting.

States' current lookback periods for voluntary disclosure programs range from three to five years, which are “cost prohibitive for many smaller sellers,” Yetter said, adding that sellers often decide “not to register at all with a state or to register and take their chance” that the state would audit them.

New Rules Will Require States to Be More Transparent About Tax Subsidies - Howard Gleckman, TaxVox:

Congrats to the Government Accounting Standards Board for pushing state and local governments to be more transparent about their tax subsidies. Last week, the agency approved new disclosure requirements that will require states and localities to publicly disclose how much of a given tax is being abated, what other commitments they make as part of these deals, and what promises recipients make in return for the tax breaks.

The new disclosure rules will apply to financial statements for fiscal years beginning after Dec. 15, 2015 so will begin to appear in 2017.

Does Income Tax Affect Interstate Migration? - Martin Sullivan, Tax Notes ($):

For those seeking clear answers, might we suggest that you can’t escape the complexity of reality? (That’s for politicians and ideologues.) What is the role of state income tax in individuals’ location decisions? Like so many things affected by tax, it seems that interstate migration is sometimes affected by state income taxes, but it’s usually just on the margin.

Having seen high-income taxpayers move from California and Iowa to lower-tax states, sometimes the margins can be more than enough to pay for the move and a nice house. In the era of work-from-home, such moves are easier than ever. Taxes aren't everything, but they are certainly a thing.

Sales Tax Rates in Major Cities, Midyear 2024 - Jared Walczak, Tax Foundation:

Among major cities, Seattle, Washington, claims the dubious distinction of imposing the highest combined state and local sales tax rate, at 10.35 percent. The city eclipsed Tacoma, Washington, at 10.3 percent, in April, when King County (in which Seattle is situated) adopted a 0.1 percent additional sales tax to generate additional funding for nonprofits providing cultural programming. Tacoma’s current rate dates to 2021. Chicago, Illinois, and Long Beach, Fremont, and Oakland, California, are in a four-way tie for third-highest major city rates at 10.25 percent. Until 2021, Chicago and Long Beach’s 10.25 percent rates (Fremont and Oakland had not yet joined them) were the nation’s highest.

...

Baton Rouge, Louisiana, is the major city with the highest local sales tax rate, at 5.50 percent. Both Baton Rouge and New Orleans, Louisiana, previously had combined rates of 10 percent, but these cities’ rates dropped slightly with the partial sunset of a temporary state sales tax increase in 2018. Combined with a state rate of 4.45 percent, Baton Rouge’s combined rate is 9.95 percent.

St. Louis, Missouri, has a local rate just below Baton Rouge at 5.454 percent, and Colorado Springs has the third-highest local-level rate at 5.3 percent.

State-By-State Roundup

Alabama

Individual Did Not Abandon Alabama Domicile, State Tax Tribunal Says - Christopher Jardine, Tax Notes ($). "The tribunal found that Becker did not abandon his Alabama domicile because he voted in the state, testified that he intended to return to Alabama, maintained significant family ties in the state, visited for about 10 days per month, and maintained licenses and registrations in Alabama."

California

California Bills to Modify, Extend SALT Workaround Are Likely Dead - Paul Jones, Tax Notes ($):

One of the bills that may have died is S.B. 1501, which is intended to allow passthrough entity owners who don’t make the tax prepayment required by California’s SALT cap workaround to nonetheless use the workaround. The legislation passed out of the Assembly Revenue and Taxation Committee in early July but was then held under submission by the Assembly Appropriations Committee on August 15.

The office of Sen. Steven Glazer (D), the bill’s author, didn’t respond to a request for comment by press time, but the decision to hold the bill in committee appears to bode ill for its prospects.

Like most states, California enacted an optional entity-level tax for partnerships and S corporations to enable business owners to dodge the $10,000 cap on itemized deductions for state and local taxes. Like most states with such workarounds, California provides a tax credit to partners and S corporation shareholders based on the amount of entity level tax paid. This credit makes sure that only a single tax is paid on the entity income.

California Digital Ad Tax Likely Dead After Google Deal - Paul Jones, Tax Notes ($). "A California bill to impose a digital ad tax on major online platforms appears to be dead following a deal between a lawmaker and Google to provide funding to support journalism in the state."

California Retailer Tax-Sharing Disclosure Bill Wins Final Vote - Laura Mahoney, Bloomberg ($). "California cities would be required to disclose how much sales tax revenue they give to retailers in exchange for assigning online sales to their jurisdictions under a bill passed on Wednesday."

Colorado

Colorado Governor Plans to Sign Property Tax Relief Measure - Michael Bologna, Bloomberg ($). "Property taxes in Colorado have escalated quickly in recent years, due in part to surging property values across the state. Polis, a second-term Democrat, pledged to sign the bill, saying it would save homeowners hundreds of dollars on their property tax bills each year. Polis noted the benefits available under HB24B-1001 come on top of the more than $1 billion in property tax cuts provided under SB24-233, which passed the Legislature in May. In Denver, where the median home price is $709,920, the average tax savings per homeowner from the two measures will be $233.47 for tax year 2025 and $259.91 for tax year 2026, Polis said."

Illinois

Ill. Exempts Certain Home-Delivered Meals From Taxes - Maria Koklanaris, Law360 Tax Authority ($). "Purchases of certain home-delivered meals for older and lower-income residents are exempt from an array of state taxes, the Illinois Department of Revenue said."

Kansas

Kansas Tax Department Issues Guidance on NOL Subtraction - Emily Hollingsworth, Tax Notes ($). "In an August 15 notice, the DOR said that effective July 1, a new subtraction method is available for taxpayers who carried back federal NOL deductions for losses that occurred in tax years 2018 through 2020 under IRC section 172(b)(1). The provision was enacted under S.B. 410 earlier this year, according to the notice."

Louisiana

Annual Louisiana Second Amendment Weekend Holiday Scheduled Friday, September 6, through Sunday, September 8, 2024 - Louisiana Department of Revenue. "The exemption applies statewide to all consumer purchases of firearms, ammunition, and hunting supplies. Firearms eligible for the sales tax exemption include shotguns, rifles, pistols, revolvers or other handguns which may be legally sold or purchased in Louisiana. Ammunition fired from a gun or firearm is eligible for the tax exemption."

Maine

Passthrough Study, Corporate Tax Data Sharing Bills Take Effect in Maine - Tyrah Burris, Tax Notes ($). "The possible SALT cap workaround is part of a larger study mandated under L.D. 1891, which requires the Maine Revenue Services Office of Tax Policy to examine the state’s system of taxing passthrough business income at the partner or shareholder level. The office must examine the possible adoption of a mandatory or elective passthrough entity tax like those enacted in other states, and it must consider how the federal SALT cap has affected Maine taxpayers."

Maine is one of only four states with an income tax that does not also have a SALT-workaround entity tax.

Michigan

Mich. Tax Applies Only To NFTs With Physical Components - Jaqueline McCool, Law360 Tax Authority ($). "In the newsletter, released Tuesday, the department said the state does not tax digital goods, and therefore NFTs that represent digital goods are not subject to the state's 6% sales tax. However, if an NFT purchase comes with ownership in tangible property, then it's subject to tax."

Minnesota

Minn. Justices OK Denial Of Homestead Tax Break - Sanjay Talwani, Law360 Tax Authority ($). "The tax court noted that Vasko's water bills showed "no measurable use" of water during the period in question, and the justices rejected Vasko's explanations of why the water meter did not reflect her actual usage. Vasko claimed that she had water hauled into the property during extended shutoffs, and also that the meter was not measuring the water correctly because it was broken, the justices said."

Nebraska

Berkshire Unit Fails in Nebraska High Court Foreign Income Case - Perry Cooper, Bloomberg ($):

A Berkshire Hathaway Inc. unit failed to convince the Nebraska Supreme Court on Friday that the company properly deducted income repatriated under the 2017 tax law.

Precision Castparts Corp. asked the high court to reverse a 2023 trial court opinion upholding the Department of Revenue’s decision to deny the manufacturer’s request to deduct income generated since 1986 by its foreign subsidiaries on its amended 2017 tax return.

The court affirmed, holding that the income included in federal taxable income under the Internal Revenue Code doesn’t qualify for a state deduction as “dividends ... deemed to be received.”

Link: Neb., No. S-23-564

This Nebraska Man Almost Lost His Home and All of Its Equity Over a Small Tax Debt. He Just Won in Court. - Billy Binion, Reason. "The Nebraska Supreme Court's recent about-face came in response to that decision from the U.S. Supreme Court, which ordered that the state's judges reconsider their initial ruling on Fair's claims. This go-round, they concluded that pocketing Fair's excess equity would be a violation of the Takings Clause, requiring that the investor reimburse him for the surplus."

Texas

Austin Light-Rail Plan Faces Fresh Suit Over Transit Tax Model - Nate Beck, Law360 Tax Authority ($). "The group of plaintiffs on Monday named the Austin City Council in its lawsuit arguing that the Austin Transit Partnership — a local government arm overseeing the transit plan — can't collect money under a provision allowing taxpayers to challenge collections written into a 2019 law establishing the voter referendum that advanced the tax."

Wisconsin

Wisconsin Commission Finds Aircraft, Software Transactions Taxable - Andrea Muse, Tax Notes ($):

Transactions between an insurance company and a financing company concerning software and aircraft are leases subject to sales tax, the Wisconsin Tax Appeals Commission has held.

The commission decided in CMFG Life Insurance Co v. Department of Revenue that the arrangements were valid sale-leasebacks even though language in the contracts stated that the transactions were financing arrangements for tax purposes. The August 6 decision was released August 23.

West Virginia

West Virginia Certifies Income Tax Rate Cut - Tyrah Burris, Tax Notes ($). "Department of Revenue Secretary Larry Pack and State Auditor JB McCuskey on August 15 certified the personal income tax reduction taking effect on January 1, 2025, Gov. Jim Justice (R) announced in a release."

Tax Policy Corner

86-272 Still Hanging On, Barely - David Brunori, Law360 Tax Authority ($; free to LinkedIn members here):

The Minnesota Supreme Court put another nail in P.L. 86-272's coffin. The law is running out of nails. In Uline Inc. v. Commissioner of Revenue, the court said that an out-of-state catalog- and internet-based distributor's activities in Minnesota exceeded the protections of P.L. 86-272, the federal law shielding out-of-state businesses from state income tax.

What did the taxpayer do to run afoul of P.L. 86-272? Its sales representatives obtained and used information about competitors' products and business practices. Of course, those representatives used that information to make sales. But the department asserted, and the court agreed, that obtaining the information was actually market research. And market research is outside the protections of the law.

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Here is the problem. Why would anyone ever use market research except to make sales? "Merely soliciting sales" is a standard that is increasingly difficult to meet.

Tax Automotive Corner

Tax can show up in the strangest places, in the strangest forms. For example, on British motorways, in the form of the Reliant Robin. This... unusual vehicle had a tax angle. Per Wikipedia: "Despite its size, by being a three-wheeler with an official mass below 450 kg (992 lb), the Robin could traditionally be driven by holders of a B1 category driving licence in the United Kingdom, and registered and taxed at motorcycle rates, which gave a saving of £55 a year over a conventional car."

This lovely car is shown in the image at the top of the post. As I said above, taxes aren't everything...

State Tax News & Views: Voluntary Disclosure, Incentive Disclosure, Migration, Three-wheeled Cars.

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Joe B. Kristan, CPA