State Tax News & Views: Tax-Free NIL Deals and the Final Four.

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.

States Weigh NIL Tax Breaks to Attract Top College Athletes - David Hood, Bloomberg ($):

This year’s Final Four in the men’s NCAA Basketball Tournament had more in common than being No. 1 seeds: Their home states either already give student athletes a tax break on earnings from endorsements and marketing tied to their personal brands, or are trying to enact one.

Legislators in Duke’s home state of North Carolina and Auburn’s Alabama are floating bills that would partially or fully exempt student-athletes’ earnings from name, image, and likeness deals from income taxes. Such bills—also circulating in Georgia and Illinois—are designed to help colleges and universities compete for athletic talent with the likes of the Gators’ home state, Florida, and Houston’s home state of Texas, which don’t have income taxes in the first place.

Maybe it's not an issue just for athletes.

Retirees Who Move to Lower-Tax States May Not Save as Much as They Think - Debbie Carlson, Wall Street Journal:

The impact of state income taxes depends in part on the tax bracket. For instance, the state income tax may be a significant factor for wealthier retirees relying on investment returns, but for many middle-income retirees, income taxes become less important since they are typically drawing down and not earning so much, says Jared Walczak, vice president of state projects at the Tax Foundation in Washington, D.C., a tax-policy research organization.

For middle-income retirees, sales taxes and property taxes often take precedent, Walczak says, since states with little to no income taxes often rely on these two categories. For example, Tennessee has no income tax, but its combined state and average local sales-tax rate of 9.56% is the second-highest nationally, according to the Tax Foundation.

Sales Tax Nexus by State - Bloomberg:

“Nexus” is the requisite contact between a taxpayer and a state before the state has jurisdiction to tax the taxpayer.

...

In 2018, the U.S. Supreme Court issued a decision in South Dakota v. Wayfair, Inc., overturning the physical presence requirement for sales and use tax nexus. The statute at issue in the case required out-of-state retailers who lacked physical presence in South Dakota to nonetheless collect and remit the state’s sales tax if the retailer had $100,000 in sales or 200 transactions delivered into South Dakota in the preceding year.

Prior to the Supreme Court’s South Dakota v. Wayfair decision, a physical presence in the state was required for sales and use tax nexus.

State-By-State Roundup

California

Calif. OTA Denies Bad Debt Deduction For S Corp.'s Payments - Jaqueline McCool, Law360 Tax Authority ($). "A California shareholder in an S corporation that invested in another company is not eligible to claim a bad debt deduction, the state Office of Tax Appeals ruled, saying he failed to prove that the S corporation's payments were bona fide debts.

Link: OTA Case No. 21037435

Colorado

Colorado Governor Signs Film Fest Tax Incentives Bill - Emily Hollingsworth, Tax Notes ($):

Colorado Gov. Jared Polis (D) has approved tax incentives for film festivals less than two weeks after the Sundance Film Festival announced that it has chosen Boulder as its new host city.

...

Under H.B. 25-1005, global film festivals and smaller Colorado-based festivals can apply for refundable income tax credits over a 10-year period, beginning January 1, 2027. The bill defines a global film festival as one with a multidecade operating history that attracts 100,000 or more in-person ticket sales and more than 10,000 out-of-state and international attendees.

Florida

Florida House Unanimously Advances $5 Billion Sales Tax Cut - Michael Bologna, Bloomberg ($):

The Florida House of Representatives unanimously approved legislation Wednesday slashing the state’s sales tax to 5.25%, bucking Republican Gov. Ron DeSantis’s demands for property tax cuts.

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DeSantis has sparred with his fellow Republicans in the House in recent weeks, asserting a sales tax cut would primarily benefit tourists visiting the state rather than Florida residents.

Idaho

Idaho treatment of California Wildfire Payments under the Disaster Relief Act of 2023 - Idaho State Tax Commission E-mail:

Here is how we are handing the wildfire relief payments:

Idaho will allow amended returns for the California wildfire relief payments. If the amended return requesting a refund is within 3 years of the due date of the return the taxpayer can get a refund. If it is beyond the 3 years, the taxpayer will be entitled to a nonrefundable credit that will apply to any income tax debt or can be used to offset future income tax debt.

Indiana

Indiana Governor Approves Tax Breaks for WNBA All-Star Event - Emily Hollingsworth, Tax Notes ($). "Under S.B. 314, all revenues, expenditures, and transactions by the WNBA and its affiliates related to the All-Star Weekend are exempt from state and local taxes. However, the exemption doesn't apply to WNBA employees’ wages and salaries that could be subject to Indiana income taxes."

Kansas

Kansans May Finally Get a Low, Flat Income Tax - Katherine Loughead, Tax Policy Blog. "Senate Bill 269 passed the House and Senate at the end of March with more than two-thirds of legislators supporting the measure in both chambers. This legislation would use tax triggers to dedicate individual income tax, corporate income tax, and privilege tax revenues over an inflation-adjusted fiscal year (FY) 2024 baseline to implement income tax reform and relief, provided the state’s Budget Stabilization Fund remains well-funded. If adopted, these reforms would make Kansas’ tax code substantially more competitive while returning revenue growth to taxpayers in a fiscally responsible manner."

Maryland

Md. Lawmakers OK Tax on Data Services, High Earners - Michael Nunes, Law360 Tax Authority ($):

Maryland would impose a tax on data service and create new income tax brackets for high earners under a budget package passed by the legislature, which next goes to the governor, who has voiced support for the measure.

Members of the state Senate, by a 33-14 vote, and House of Delegates, by a 101-39 vote, agreed to a conference committee report on H.B. 350 on Monday, sending it next to Democratic Gov. Wes Moore. The $67 billion budget proposal would include a 3% tax on data and information technology services, along with two new income tax brackets on those who earn more than $500,000.

Massachusetts

Massachusetts Court Upholds Income Tax on Nonresident's Stock Sale - Cameron Browne, Tax Notes ($). "A nonresident is liable for income tax on the stock sale of a Massachusetts risk management company he founded because the sale is related to his trade or business in the state, the Massachusetts Appeals Court has held."

Link to opinion.

Massachusetts Ruling Upends Norms for Taxing Nonresident Income - Perry Cooper, Bloomberg ($):

A recent Massachusetts appeals court ruling endorsing the revenue department’s broad reach to tax nonresidents’ capital gains is unsettling expectations about how such stock sales are treated across the state.

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The decision will “garner attention—and possibly consternation—from state tax lawyers and practitioners nationwide” because typically states don’t tax nonresidents when they sell stock in a company unless the stock was awarded as compensation for services, said Richard Jones, a partner at Sullivan & Worcester LLP in Boston.

Key to the court’s decision was its holding that the stock was related to Welch’s compensation, Jones said. “Yet it is difficult to reconcile this conclusion with the fact that Mr. Welch acquired the stock on founding the company,” he said.

Mississippi

Bill Signed by Mississippi Governor Could Eliminate Income Tax - Matthew Pertz, Tax Notes ($):

Mississippi Gov. Tate Reeves (R) has signed a bill that will reduce the state's income tax rate each year until it reaches 3 percent in 2030.

But H.B. 1, signed during a March 27 ceremony, has a significant typo that will allow the state to continue reducing the income tax rate beyond 2030 if almost any revenue growth occurs after that year.

Minnesota

Minn. Biz Groups Bash Social Media Data Tax Bills - Sanjay Talwani, Law360 Tax Authority ($):

The measures would impose an excise tax on the collection of data from Minnesota users of social media platforms, starting at 10 cents per month per consumer beyond 100,000 in the state. The monthly tax would rise to 25 cents per month for users of a platform above 500,000 in the state and 50 cents on customer totals beyond 1 million. The tax is estimated to raise nearly $100 million annually if enacted.

Advocates said the measure would modernize the state's tax structure by recognizing current economic realities and raise needed revenue while taxing corporate activities with social costs, including negative impacts on the mental health of children.

Unintended consequences of the tax could include the scaling back of widely used services such as Gmail, Google Maps, Facebook and YouTube, said Kouri Marshall, representing the Chamber of Progress, a tech industry coalition. Small businesses that rely on the internet "in an already fragile economic situation" would feel it the most, he told the Senate panel.

Missouri

Mo. Senate OKs Capital Gains Tax Exemption - Michael Nunes, Law360 Tax Authority ($). "The state Senate passed H.B. 594 by a vote of 27-6 on Monday, sending it to the House of Representatives. The legislation would allow individuals and corporations to subtract capital gains when determining adjusted gross income."

Montana

Mont. Gives Taxpayers An Electronic Communications Option - Zak Kostro, Law360 Tax Authority ($). "H.B. 91, which Republican Gov. Greg Gianforte signed Monday, authorizes the department to send letters, notices and other communications electronically to a taxpayer if the taxpayer elects to receive communications that way, according to the bill's text."

Montana To Appraise Taxable Real Property Every 2 Years - Zak Kostro, Law360 Tax Authority ($). "H.B. 90, which Republican Gov. Greg Gianforte signed Thursday, provides that all real property must be revalued every two years for tax purposes, except for railroads, which will continue to be assessed annually, according to the bill text and a fiscal note summary."

Oregon

Oregon Considers Decoupling from the Federal Tax Code - Jared Walczak and Andrey Yushkov, Tax Policy Blog. "State legislators should focus on improving Oregon’s tax competitiveness by using the tools of sound policymaking, rather than decoupling from the IRC and making an already complex tax code even more convoluted and difficult to comply with."

South Carolina

South Carolina Lawmakers Have Other Options for Achieving a Flat Income Tax - Manish Bhatt, Tax Foundation. "South Carolina lawmakers recognize the need for tax reform to boost the state’s competitiveness and to benefit taxpayers. Now, a unified contingent of lawmakers together with Governor Henry McMaster (R) intend to have the Palmetto State join the flat tax revolution. Unfortunately, while the plan would implement a low, flat rate that is highly competitive with other states’ systems, it yields a significant tax increase for many households that have historically had very little liability in South Carolina."

Texas

Texas House OKs Increase In Biz Property Tax Exemption -Michael Nunes, Law360 Tax Authority ($). "H.B. 9, which the House passed Thursday by a 133-10 vote, would exempt $250,000 of the assessed value of income-producing property from tax, an increase from $2,500. The legislation would go into effect pending results of a referendum to amend the state's constitution on Nov. 4."

Tax History Corner

Tariffs in US History

The provisional Congress of the Confederate States of America had its initial meeting 164 years ago this week. Within two months it passed a tariff bill. The bill imposed tariffs ranging from 5% (tea, coffee, spices) to 25% (wine and liquor).

To the extent it might have been designed to protect domestic industry from import competition, it was helped by the U.S. Navy, which did its best to prevent any imports at all to the Confederacy. The protection of Confederate domestic manufacturing became complete when a combined Army-Navy operation captured Fort Fisher in North Carolina in January 1865, closing the last operating Confederate seaport.

Despite this sturdy, if inconvenient, protection of domestic industry, the principal Confederate army surrendered to General Grant's forces 160 years ago yesterday.

State Tax News & Views: Tax-Free NIL Deals and the Final Four.

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Joe B. Kristan, CPA