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Missouri Bill Would Cut Taxes, Provide Amnesty and Exemptions |
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Alabama Missouri Bill Would Cut Taxes, Provide Amnesty and Exemptions The Missouri House of Representatives has approved a bill that would reduce taxes on corporate and pass-through entity income, provide an amnesty from the assessment or payment of penalties, additions to tax, and interest with respect to taxes administered by the Department of Revenue, and provide new sales and use tax exemptions. Tax Cuts For tax years beginning after 2011, the Office of Administration would be required to compare the sum of the Missouri net individual and corporation income tax revenues received in the fiscal year ending on June 30, 2010, to the Missouri net individual and corporation income tax revenues received in the fiscal year ending on June 30 of the tax year preceding the tax year for which the determination is being made. If the result of the comparison shows a decrease from the revenues received in the fiscal year ending on June 30, 2010, the corporate tax rate would be the same as the immediately preceding tax year until the time that the comparison shows the revenues to be equal to or increased from the revenues received in the fiscal year ending on June 30, 2010. Once the comparison shows the revenues to be equal or increased, the corporate tax rate would be reduced to 5.625% for the first year following the determination, 5% for the second year, 4.375% for the third year, 3.75% for the fourth year, and 3.125% for each subsequent tax year. Also, once the comparison shows the revenues to be equal or increased, S corporation and partnership owners would be entitled to subtract their proportionate share of a specified percentage of the entity's business income. The percentage would be 10% for the first year following the determination, 20% for the second year, 30% for the third year, 40% for the fourth year, and 50% for each subsequent tax year. Amnesty An amnesty would be provided from the assessment or payment of all penalties, additions to tax, and interest on delinquencies of unpaid taxes administered and imposed by the department that are due and unpaid on or prior to December 31, 2011. A taxpayer would have to apply for the amnesty, file a tax return for each tax period for which amnesty is requested, pay the unpaid taxes in full from August 1, 2012, to October 31, 2012, and agree to comply with state tax laws for the next eight years from the date of the agreement. Amnesty would not be available to any taxpayer who at the time of payment is a party to any criminal investigation or to any civil or criminal litigation pending in any U.S. or Missouri court for nonpayment, delinquency, or fraud relating to any tax imposed by the state. If a taxpayer fails to comply with the state tax laws at any time during the eight years following the date of the amnesty agreement, all penalties, additions to tax, and interest that were waived under the agreement would become due and owing immediately. If a taxpayer elects to participate in the amnesty program, as evidenced by full payment of the tax due, the election would constitute an express and absolute relinquishment of all administrative and judicial rights of appeal. No tax payment made under the amnesty program would be eligible for refund or credit. Exemptions New sales and use tax exemptions would be provided for:
H.B. 1639, as passed by the Missouri House of Representatives on May 3, 2012. Licensing Agreement Did Not Create Nexus in Oklahoma Payments a Vermont insurance company received from an Oklahoma taxpayer for intellectual property consisting of trademarks and operating practices did not create sufficient nexus to subject it to the Oklahoma corporate income tax, the Oklahoma Supreme Court has held. The insurance company was established under the laws of Vermont by an international restaurant corporation, to insure various risks of the corporation and its affiliates. In establishing the insurance company, the corporation transferred the intellectual property to the insurance company to meet the capitalization requirements of Vermont for an insurance business. The insurance company was not in the restaurant business and had no say where a restaurant would be located, including Oklahoma. The insurance company did not provide insurance to any person or entity in Oklahoma. The insurance company derived income from licensing the use of the intellectual property under a licensing agreement with the international restaurant corporation. Individual restaurants in Oklahoma acquired the right to use the intellectual property under a sublicense with the international corporation. Oklahoma could tax the value received by the international corporation in contracting with individual restaurants in Oklahoma to use the intellectual property, but could not tax income received by the insurance company under a licensing contract that was not made in Oklahoma and no part of which was performed in Oklahoma. This case was distinguished from Geoffrey, Inc. v. Oklahoma Tax Commission, 2006 OK Civ App 27, 132 P.3d 632, because, in this case, the insurance company was not a shell entity and the licensing agreement was not a sham obligation to support a deduction under Oklahoma law. In this case, due process was offended by Oklahoma's attempt to tax an out-of-state corporation that had no contact with Oklahoma other than receiving payments from an Oklahoma taxpayer who had a bona fide obligation to make payments under a contract not made in Oklahoma. Therefore, the Court of Civil Appeals opinion upholding the Oklahoma Tax Commission's order allowing Oklahoma to tax the insurance corporation was vacated and the order of the Oklahoma Tax Commission was reversed and remanded with instructions to amend its opinion accordingly. In the Matter of the Income Tax Protest of Scioto Insurance Co., Supreme Court of Oklahoma, No. 108943, May 1, 2012. Indirect Connection Sufficient for Addback Exception in Virginia For corporate income tax purposes, the Circuit Court of the City of Richmond, Virginia, has determined that only an indirect connection between a related member and an unrelated licensee is required in order to apply the related-party addback exception for related members that derive at least one-third of their gross revenues from the licensing of intangible property to parties who are not related members. Under the facts presented, the taxpayer, a national restaurant chain, formed an insurance company that formed a related disregarded entity to hold the taxpayer's trademarks and trade names. Under the agreement between the taxpayer and the related entity, the taxpayer was allowed a license to use the trademarks and trade names at a royalty of 3% of the gross sales of the taxpayer's restaurants. The taxpayer was also permitted to sub-license the trademarks and trade names to related and unrelated companies, which it did at a rate of 4% of the companies' gross sales. The taxpayer paid the related entity the 3% royalty fee and added back 100% of the royalty fees paid and deducted on its federal income tax returns for the tax years at issue. It was also undisputed that the related entity acquired at least one-third of its gross revenues from unrelated franchises as a conduit of the royalties paid by those franchises. Under Va. Code §58.1-402(B)(8)(a), corporations are required to add back to taxable income "the amount of any intangible expenses and costs directly or indirectly paid, accrued, or incurred to, or in connection directly or indirectly with one or more direct or indirect transactions with one or more related members to the extent such expenses and costs were deductible or deducted in computing federal taxable income for Virginia purposes." However, several exceptions to the law are permitted, including the exception contained in Va. Code §58.1-402(B)(8)(a)(2), which provides that the addback is not required for any portion of the intangible expenses and costs if "the related member derives at least one-third of its gross revenues from the licensing of intangible property to parties who are not related members, and the transaction giving rise to the expenses and costs between the corporation and the related member was made at rates and terms comparable to the rates and terms of agreements that the related member has entered into with parties who are not related members for the licensing of intangible property." Under a plain language reading of the exception, the court found that the use of the word "derives" did not imply a legislative intent that the related entity actually engage directly in licensing unrelated franchises in order to qualify for the exception to the addback. Rather, the court noted that the language used encompassed both the direct and the indirect receipt of royalties. Thus, the court concluded that the taxpayer was entitled to the exception because the related entity derived at least one-third of its gross revenues from unrelated franchises as a result of the taxpayer's pass-through to the related entity of the same proportion of royalties paid to the taxpayer by related and unrelated members. According to the court, no direct connection between the related member and the unrelated licensee was required. As such, the taxpayer's motion for summary judgment was granted. Wendy's International, Inc. v. Virginia Department of Taxation, Circuit Court of the City of Richmond, No. CL09-3757, March 29, 2012. Income Tax: Division of Property Nondeductible Alabama taxpayers who incurred legal fees and other expenses relating to the division of real property subsequent to an inheritance were not permitted to deduct such expenses as ordinary and necessary for the management, conservation, or maintenance of property held for the production of income. Rather, the expenses were nondeductible capital expenditures since they were incurred to protect and preserve the taxpayers' interest in the property. Newman v. Alabama Department of Revenue, Alabama Department of Revenue, Administrative Law Division, No. INC. 11-575, March 6, 2012, received May 1, 2012. Income Tax: Loss Deduction Allowed in Year Discovered Taxpayers who suffered a financial loss due to a fraudulent Ponzi-type scheme were entitled to a loss deduction on their Alabama personal income tax return in the year the loss was discovered. The safe harbor available under Rev. Proc. 2009-20 that permits the loss to be claimed in the year of indictment did not apply since the taxpayer did not opt to apply it, and the effective date of the procedure was after the year in issue. Jeffery Fore v. Alabama Department of Revenue, Alabama Department of Revenue, Administrative Law Division, No. INC. 11-748, March 30, 2012. Sales and Use Tax: Structural Steel Contractor Improperly Classified as Dual Business Still Liable for Tax Assessment An administrative law judge has upheld the final assessments of Alabama sales and use tax against a structural steel contractor headquartered in Alabama for the tax periods at issue. The taxpayer performed in-state and out-of-state furnish-and-install contracts for both exempt and taxable customers. It also sold structural steel and related materials to customers inside and outside of Alabama. The taxpayer did not have an Alabama sales tax license during the audit period. A Department of Revenue auditor had determined that the taxpayer had operated as a dual business during the audit period because it both sold structural steel and related materials at retail and also used the steel and materials in furnish-and-install contracts. The department concluded that since the taxpayer was a dual operator, it owed sales tax under the sales tax withdrawal provision of Ala. Code §40-23-1(a)(10) when it withdrew the steel and materials from inventory in Alabama and subsequently used the items on the furnish-and-install contracts. However, the administrative law judge held that the taxpayer was not a dual business because it did not maintain a general inventory of structural steel and related materials during the assessment period from which it both made retail sales and also withdrew materials for use on the furnish-and-install contracts. Rather, the taxpayer special-ordered the steel and related materials only after it had contracted with a customer. Thus, the taxpayer knew when it purchased the materials whether the materials would be used on a furnish-and-install contract or resold to a customer. The dual business regulation did not apply in such cases where the purchaser knew when it purchased tangible property how the property should be taxed. However, even though the taxpayer was not a dual business during the audit period, it was still liable for sales tax on the steel and materials purchased in Alabama for use on the furnish-and-install contracts under the sales tax "contractor" provision at Ala. Code §40-23-1(a)(10). The taxpayer was clearly a contractor when it purchased the steel and related items and subsequently erected the materials in the form of real estate. Thus, the taxpayer should have paid sales tax when it purchased the materials from its Alabama vendors. It was irrelevant that some of the materials were later installed outside of Alabama. Concerning the materials the taxpayer purchased from the one out-of-state vendor, if the taxpayer intended to use the materials on an out-of-state furnish-and-install contract when the materials were brought into Alabama for fabrication, Alabama use tax would not have been due under the use tax temporary storage exemption. Concerning the taxpayer's sales to the one out-of-state customer, and also the few sales it made to in-state customers, the taxpayer should have purchased those materials tax-free at wholesale for resale using an Alabama sales tax number. No Alabama sales tax would have been due if the materials had been purchased at wholesale and then resold at retail outside Alabama. Sales tax would have been due if the materials were resold at retail in Alabama to a nonexempt customer. The department also correctly assessed the taxpayer for sales tax on the steel and materials that it had improperly purchased tax-free using its exemption certificate. Tennessee River Steel, LLC v. Alabama Department of Revenue, Alabama Department of Revenue, Administrative Law Division, No. S. 10-612, April 26, 2012. Sales and Use Tax: Emergency Rule Adopted for Tax Holiday for Severe Weather Preparedness Items The Alabama Department of Revenue has adopted an emergency rule regarding the annual state sales and use tax holiday for severe weather preparedness items enacted by Act 256 (H.B. 436), Laws 2012. For 2012, the tax holiday will begin on Friday, July 6, and continue through Sunday, July 8. Beginning in 2013, the annual sales tax holiday will be held during the last full weekend of February. The rule provides a list of covered items that qualify for the holiday. The rule also provides details regarding the following: splitting of items normally sold together; "buy one, get one free" situations; discounts, coupons, and rebates; exchanges; layaway sales; rain checks; mail, telephone, e-mail, and Internet sales; gift certificates and gift cards; and returns. The rule clarifies that the time zone of a purchaser's location determines the authorized time period for the sales tax holiday and provides details concerning retailers' records and the taxability of transportation charges. The emergency rule is scheduled to expire August 29, 2012. Rule 810-6-3-.66-.02ER, Alabama Department of Revenue, effective May 2, 2012. Sales and Use Tax: Legislation Creates Electronic Single Point of Filing Program Legislation has been enacted which provides that no later than September 30, 2013, the Alabama Department of Revenue must develop and make available a system that allows any taxpayer to file and make payments for all (state, county, or municipal) of its Alabama sales, use, leasing or rental tax returns through an electronic single point of filing program. The system will be known as the Optional Network Election for Single Point Online Transactions or "ONE SPOT." The ONE SPOT system will allow for sales, use, leasing or rental tax return filing and tax remittance only and may not provide for the administration or enforcement of local sales and use taxes. The system must be available for use by any taxpayer for tax periods beginning after September 30, 2013, provided that the taxpayer complies with the provisions contained in the legislation and any rules promulgated by the department for the administration of the system. The system developed and implemented must have the capability to allow a taxpayer to file an electronic return for state sales, use, leasing or rental taxes and for each local taxing jurisdiction in which the taxpayer is required to file and remit such taxes. The electronic tax return must contain all information included in the standard multiple jurisdictional tax returns developed pursuant to §11-51-210, Code of Alabama, and all information included in the electronic return must be electronically available to each appropriate local taxing jurisdiction. Also, any taxpayer utilizing the ONE SPOT system for filing an electronic tax return for a local taxing jurisdiction will be required to simultaneously remit payment through the system or through another electronic method of payment accepted by the local taxing jurisdiction or its designee for which payment is being made. No taxpayer will be required to use the ONE SPOT system for tax return filing and remittance of local sales, use, leasing or rental taxes. All penalties and interest must be assessed according to state law and the rules of the department, except that a local taxing jurisdiction may elect to apply the interest at the rate of 1% per month, if it notifies the department of the election in a manner prescribed by the department. In addition, the state discount rate must be applied, except that a local taxing jurisdiction discount rate must be applied if the local taxing jurisdiction notifies the department of such election. A taxpayer that desires a waiver of any penalty assessed in relation to a return filed for a local taxing jurisdiction must apply directly to that local taxing jurisdiction for the waiver. Act 279 (S.B. 459), Laws 2012, effective July 1, 2012, applicable for returns and payments for tax periods beginning after September 30, 2013 Sales and Use Tax: Hotel Operator Liable for Local Lodgings Tax at Increased Rate An Alabama administrative law judge ruled that a corporation engaged in operating hotels was liable to the city of Homewood for lodgings taxes at the increased rate of 6% for the tax period at issue, January through August of 2005. The city of Homewood had increased its lodgings tax by ordinance from 3% to 6%, effective January 1, 2005. In January 2005, the Jefferson County Circuit Court had declared the increase invalid but was later overruled by the Alabama Supreme Court in September of 2005. During the period at issue, the taxpayer continued to collect the city of Homewood lodgings tax at the 3% rate. When the 6% rate was held valid, the Department of Revenue assessed the taxpayer for the remainder of the city of Homewood lodgings tax owed for the tax period at issue. The taxpayer's argument that the department should have been estopped from collecting the disputed tax was rejected. The administrative law judge noted that the Alabama Supreme Court had repeatedly held that the department could not be stopped from its duty to assess and collect taxes. Consequently, the department could not be stopped from assessing the taxpayer for the taxes it owed the city of Homewood. In addition, the taxpayer's argument that the city ordinance by which the tax in issue was levied was invalid because it did not parallel the applicable state levy, as required by state statute, was rejected. The administrative law judge held that the Administrative Law Division, as part of an executive branch agency, was not authorized and did not have the jurisdiction either to declare a statute or ordinance unconstitutional, or to declare a duly enacted statute or ordinance invalid or void for any other reason. Since the department could not be estopped from assessing the city of Homewood tax, and because the Administrative Law Division could not declare the city ordinance to be invalid, the tax and interest had to be affirmed. The penalty included in the final assessment was waived for reasonable cause under the circumstances. Crestmont LLC d/b/a Quality Hotel & Suites v. Alabama Department of Revenue, Alabama Department of Revenue, Administrative Law Division, No. S. 06-871, April 5, 2012. Income Tax: 2011 Conformity Discussed The Arizona Department of Revenue notes that H.B. 2120, Laws 2012, which updated Arizona's conformity to the Internal Revenue Code for corporate income and personal income tax purposes, and which included conformity to federal changes made during 2011, did not add any new nonconformity additions or subtractions. However, additions and subtractions created for nonconformity purposes for 2009, as well as prior nonconformity adjustments for issues such as bonus depreciation and IRC §179 expensing, are still in place. The instructions included with the 2011 Arizona tax returns are correct. For a complete list of the additions and subtractions that apply to 2011 tax returns, taxpayers should consult the instructions for Arizona Form 140 (individuals) or Arizona Form 120 (corporations). 2011 Conformity, Arizona Department of Revenue, April 2012. Income Tax: Out-of-State Corporation Failed to Show Reasonable Cause for Abatement of Penalties An out-of-state corporation did not show reasonable cause for abatement of penalties imposed for late filing of a California corporation income tax return, failure to respond to a demand by the Franchise Tax Board (FTB) for a return, and failure by a nonqualified corporation to file a return within 60 days after the FTB sent notice and demand for a return. It appeared that the late filing occurred because the corporation was unaware of its California filing obligation. However, ignorance of the law did not constitute reasonable cause for the late filing. Nor did it constitute reasonable cause for the failure to respond to the FTB. Finally, the nonqualified corporation demand penalty was separate from the other notice and demand penalty, but the standards for showing reasonable cause were the same, and the corporation did not meet its burden of proving that the failure to file a return in a timely manner after notice and demand occurred despite the exercise of ordinary business care and prudence. Although this may have appeared harsh when combined with the other penalties imposed, each penalty was applied for a different purpose and each penalty punished a different kind of misconduct. The question of whether the penalties were adequate or excessive was a legislative question over which the State Board of Equalization had no jurisdiction. Appeal of Oracle Transcription, Inc., California State Board of Equalization, No. 530845, January 11, 2012 (released May 2012) Income Tax: Corporation Had Substantial Nexus With State, Was Not Immune >From Tax A Massachusetts corporation had substantial nexus to support the imposition of California corporation franchise tax. The corporation engaged, through its authorized California-based representative, in transactions for a corporate business purpose. By operating through its employee in California, the corporation was afforded substantial and enduring benefits and protections of the state that enabled it to generate business for its recruiting services. Thus, the corporation had a regular, systematic, and substantial connection with, and physical presence within, California establishing substantial nexus. Also, there was no basis to find that the proposed assessment by the Franchise Tax Board (FTB) failed to reflect the proper level of the corporation's activities within California. The proposed assessment was based on the average income of a taxpayer in the corporation's industry, and the corporation did not dispute the FTB's estimate of its California income. In addition, the FTB made repeated requests that the corporation provide information necessary for apportionment of the income, but the corporation failed to provide the FTB with such information. Thus, based on the available evidence, the corporation did not meet its burden of showing error in the FTB's determination. Furthermore, although the corporation stated that it provided the FTB with its federal return for the year at issue, the FTB had no record of receiving such return. The State Board of Equalization's Appeals Division staff also requested the return from the corporation, but the corporation failed to respond to that request. The corporation argued that it was immune from tax under P.L. 86-272. However, the corporation's employee's California activities were in the nature of consulting and recruiting services and did not involve the solicitation of tangible personal property. Thus, P.L. 86-272 had no application in this case. In addition, the corporation failed to show reasonable cause to abate a late filing penalty and notice and demand penalties. The corporation's only apparent reason for failing to file timely was that it believed it did not have a filing obligation. The corporation provided no evidence or explanation to show that the late filing or its failure to respond to the FTB's demands was due to reasonable cause and not willful neglect. Finally, there was no reasonable cause exception to the imposition of a filing enforcement fee or interest. Appeal of Warwick McKinley Inc., California State Board of Equalization, No. 489090, January 11, 2012 (released May 2012) Income Tax: Business Income, Unitary Business, Dividends Deduction, and Penalty Addressed In an nonprecedential letter decision, the California State Board of Equalization has ruled as follows:
Business Income The taxpayer received $1.5 billion as a fee for termination of a merger agreement. The income satisfied the transactional test for business income, where the relevant inquiry was whether the transaction or activity that gave rise to the income arose in the regular course of the taxpayer's trade or business. With respect to the transactional test, the taxpayer argued that the relevant transaction was the termination of the merger agreement, which did not occur in the regular course of its business. On the other hand, the FTB argued that the transaction was part of the taxpayer's regularly recurring activity of acquiring cable systems and their system subscribers by acquiring other cable companies. Unitary Business The FTB determined that the taxpayer, a cable television company, was unitary with another company that marketed consumer products and services through a televised home shopping program broadcast. When the FTB determines that a unitary relationship exists, a taxpayer must prove by a preponderance of the evidence that, in the aggregate, the unitary connections relied on by the FTB are so lacking in substance as to compel the conclusion that a single integrated economic enterprise did not exist. The taxpayer contended that intercompany transactions were relatively minimal and the benefits obtained were similar to those that the taxpayer and the company obtained from other companies. The FTB argued that dependency or contribution existed because the taxpayer and the other company were engaged in a vertical enterprise in which the taxpayer obtained content and revenue for its cable operations, while the other company obtained additional viewers. Dividends Received Deduction The taxpayer contended that the FTB erroneously disallowed the deduction it claimed for tax year 1999 for dividends received pursuant to Rev. & Tax. Code §24402. Although a California Court of Appeal held in Farmer Bros., Inc. v. Franchise Tax Board, 108 Cal.App.4th 976 (2003), that §24402 was unconstitutional, the taxpayer argued that only the offending language should be stricken, leaving the taxpayer's full deduction under §24402 intact. However, in Abbott Laboratories v. Franchise Tax Board, 175 Cal.App.4th 1346 (2009), a California Court of Appeal held that Farmer Bros., by declaring §24402(a) unconstitutional, eliminated the statutory deduction in its entirety and, as a result, the allowed percentages of dividend deductions prescribed by subdivision (b) could not be applied. Also, in River Garden Retirement Home v. Franchise Tax Board, 186 Cal.App.4th 922 (2010), a taxpayer attacked the validity of the FTB's remedy of disallowing the deduction for tax years ending on or after December 1, 1999, but the court rejected the taxpayer's arguments. Thus, it was the view of the BOE's Appeals Division that, in light of River Garden Retirement Home and Abbott Laboratories, which were decided after this taxpayer filed its appeal, there was no legal basis for granting the relief sought. Accuracy-Related Penalty The FTB imposed an accuracy-related penalty based on the taxpayer's substantial understatement of tax of more than $9 million. However, the BOE held that the taxpayer showed error in the imposition of the penalty, and ordered abatement of the penalty for tax year 1999, because the taxpayer had shown reasonable cause and good faith in its reporting of the termination fee on its 1999 California return. The fundamental question was not whether the penalty could be avoided if there was reasonable cause and good faith with regard to the taxpayer's alternative nonbusiness-income position (which, considered in isolation, would fail to take into account all the facts and circumstances); instead, it was the broader question of whether there was reasonable cause and good faith with respect to the understatement, considering all of the circumstances. Letter Decision, Appeal of Comcast Cablevision Corp. of California & Comcon Production Services I, Inc., California State Board of Equalization, No. 424198, February 6, 2012 (released May 2012) Sales and Use Tax: Sales Tax Holiday Bill Dead A Colorado bill that would have enacted a back-to-school sales tax holiday under certain conditions has died in the Senate. The bill had previously passed the House. H.B. 1069, as postponed indefinitely in the Colorado Senate Committee on Appropriations on May 7, 2012. Property Tax: Budget Bill Restores Senior Homestead Exemption Colorado Gov. John Hickenlooper has signed the fiscal year 2012-2013 budget bill (H.B. 1335, Laws 2012), which includes the full restoration of the senior homestead property tax exemption. Release, Office of Colorado Gov. Hickenlooper, May 7, 2012. Insurance Tax: Tiered Fee Schedule Established for Insurance Companies For insurance premium tax purposes, recently enacted Colorado legislation amends the surcharge on insurance premiums by establishing a tiered fee schedule for insurance companies based on total income received in Colorado by companies in the prior year. Insurance companies with income above $1.0 million will pay one fee and those with income less than $1.0 million will pay a lower fee. The fee, which will be set by the Commissioner of Insurance, replaces the current fee of $561 and is capped at $3,000. S.B. 110, Laws 2012, effective July 1, 2012. Income Tax: Conformity to IRC, Other Changes Discussed The Florida Department of Revenue (DOR) advises of the following corporate income tax changes: the Internal Revenue Code (IRC) conformity date (excluding bonus depreciation and excess IRC §179 deductions); the exemption amount; the due date for estimated tax payments; and the reenactment of two renewable energy credits. The Florida corporate income tax "piggybacks" federal income tax determinations and uses adjusted federal income as the starting point for computing Florida net income. Florida adopts the Internal Revenue Code in effect on January 1, 2012. However, adjustments are still required for the special bonus depreciation (placed in service before January 1, 2013) and excess IRC §179 expense deduction above $128,000 (tax years beginning before January 1, 2013). Effective for tax years after 2012, the Florida corporate income tax exemption will be increased from $25,000 to $50,000, which will eliminate the tax on corporations with $50,000 or less in Florida income. However, the corporate income tax return filing requirements remain the same, and all corporations are still required to file Florida corporate income tax returns. All estimated payments previously due on June 30, 2013, are due on or before June 28, 2013. Effective for tax years beginning after 2012, the renewable energy technologies investment tax credit and the renewable energy production credit are reenacted. Taxpayers may apply to the Department of Agriculture and Consumer Services (Department) for both tax credits. When claiming these credits on a corporate income tax return, taxpayers must attach to the form a copy of the credit approval/certification issued by the Department. Subsequent transfers of these credits are allowed with some limits. Taxpayers must submit a Notice of Intent to Transfer A Florida Energy Tax Credit (Form F-1193T) to the DOR for all credit transfers. Tax Information Publication, No. 12C01-01, Florida Department of Revenue, May 4, 2012. Sales and Use Tax: Guidance Provided on Electronic Filing and Payment Requirement for Collection Allowance The Florida Department of Revenue provides guidance regarding the collection allowance dealers may deduct, for sales and use tax returns and payments due on or after July 1, 2012, only when they timely file returns and pay tax electronically ("e-file" and "e-pay"). This affects returns and payments due beginning in July 2012 for: (1) monthly filers' June 2012 tax returns and payments; (2) quarterly filers' April-June 2012 tax returns and payments; and (3) semiannual filers' January-June 2012 tax returns and payments. In June, replacement coupon books will be mailed to all dealers who use coupon books for filing quarterly and monthly tax returns. Dealers who do not wish to e-file and e-pay starting in July should use the DR-15 or DR-15EZ payment coupons included in their replacement coupon book. To file and pay sales and use tax electronically, dealers should go to the department's website at http://www.myflorida.com/dor and use the website to file and pay tax electronically or purchase software. Dealers will not be entitled to a collection allowance if they file a paper tax return or pay tax by cash, check, or money order. Also, if a dealer files and pays tax electronically but is late, the dealer cannot deduct a collection allowance from the amount due with the return. Standard banking regulations require one business day to complete an electronic payment, so tax returns and payments must be initiated before 5:00 p.m., Eastern Time, on the last banking day before the 20th of the month to be considered timely. To enroll for e-Services or to electronically file and pay tax without enrolling, a dealer must provide specific information, including the dealer's sales and use tax certificate number and/or business partner number, the dealer's federal employer identification number (FEIN) or Social Security number (SSN), contact information, bank routing/transit number, and bank account number. Tax Information Publication, No. 12A01-03, Florida Department of Revenue, April 30, 2012. Property Tax: Tax Administration Changes Enacted Florida has enacted legislation that includes numerous changes to the administration of property tax. Notably, the bill contains provisions that will:
Ch. 193 (H.B. 7097), Laws 2012, effective July 1, 2012, and as noted Property Tax: Deployed Servicemembers Exemption Deadline Announced Florida property tax taxpayers that were deployed overseas during 2011 in support of Operation Noble Eagle or Operation Odyssey Dawn have until June 1, 2012, to file a claim for the deployed servicemembers exemption. Taxpayers that miss this deadline must file an application for exemption with the property appraiser on or before the 25th day after the assessment notice is mailed. Property Tax Oversight Bulletin: PTO 12-02, Florida Department of Revenue, April 26, 2012. Miscellaneous Tax: Maximum Citrus Fruit Assessments Enacted The term "assessment" is substituted for the words "excise tax" in what was formerly known as the "Florida citrus fruit excise tax." In addition, the maximum assessment for grapefruit that enter the primary channel of trade for use in fresh or processed form is set at 36 cents per box, and the maximum assessment for oranges that enter the primary channel of trade for use in the fresh form is 7 cents per box and 25 cents per box in the processed form. The actual assessment levied each year on tangerines and citrus hybrids regulated by the Florida Department of Citrus that enter the primary channel of trade for use in processed form cannot exceed 25 cents per box or 16 cents per box in the fresh form. Persons liable for the periodic payments of assessments must submit a letter of credit from an issuing financial institution located in the United States, a cash bond, an appropriate certificate of deposit, or an approved surety bond in an amount and manner as prescribed by the department to guarantee payment. Formerly, the letter of credit payment guarantee option was unavailable. Ch. 182 (H.B. 1237), Laws 2012, effective July 1, 2012. Income Tax: Film Credit, Job Credit Provisions Amended Georgia has enacted legislation amending provisions concerning the film tax credit and the job tax credit available against corporate and personal income tax liabilities. The film credit has been expanded to include a qualified interactive entertainment production company (a company whose gross income is less than $100 million that is primarily engaged in qualified production activities related to interactive entertainment that has been approved by the Department of Economic Development). The maximum credit for any qualified interactive entertainment production company and its affiliates is $5 million; the aggregate amount of credits may not exceed $25 million. The credits for qualified interactive entertainment production companies will be allowed on a first-come, first-served basis. Further, the term "production expenditures" has been amended to include payments to a loan-out company by a production company or a qualified interactive entertainment production company that has withheld Georgia income tax at a rate of 6% on payments for services performed in Georgia. The law also amends the definition of "business enterprise" under the job tax credit provision by including affiliates and taxpayers. H.B. 1027, Laws 2012, effective May 2, 2012. Income Tax: Nonresident Withholding, Fiduciary Estimated Tax Provisions Amended Georgia has enacted legislation that amends the personal income tax withholding provision on nonresident distributions by requiring any partnership, S corporation, or limited liability company (LLC) that owns property or does business in Georgia to withhold a nonresident member's share of taxable income sourced to Georgia, whether distributed or not. The amount of tax withheld for each nonresident member is determined by multiplying the nonresident member's share of the taxable income sourced to Georgia by a rate of 4%. Such taxes are due on or before the due date for filing the income tax return for the partnership, S corporation, or LLC, without regard to any extension of time for filing. The written statement furnished to each nonresident member must include, among other items, the total amount of the nonresident member's share of taxable income sourced to Georgia. Further, a nonresident member's share of taxable income sourced to Georgia and subject to withholding under other provisions of Georgia law will not be subject to withholding under this provision. The law also provides an exemption from estimated tax payments with respect to any taxable year ending before the date two years after the date of the decedent's death in the case of the estate of such decedent or a testamentary trust. H.B. 965, Laws 2012, effective May 1, 2012. Sales and Use Tax: Guidance Issued on 2012 Tax Holidays The Georgia Department of Revenue has issued guidance on the sales tax holidays scheduled to take place in the state during 2012. The department advises Georgians that the back-to-school sales tax holiday period (August 10-11, 2012) that applies to purchases of clothing and footwear, personal computers, and computer-related accessories for noncommercial use, and noncommercial purchases of general school supplies, does not apply to (1) sales in theme parks, entertainment complexes, public lodging establishments, restaurants, or airports; or (2) sales of clothing accessories, jewelry, handbags, umbrellas, eyewear, watches, watchbands, cellular devices, furniture, computer-related accessories designed for recreational use, items used in a trade or business or for resale, or rentals. With regard to the sales tax holiday taking place October 5-7, 2012, for noncommercial purchases of energy-efficient and water-efficient products meeting or exceeding Energy Star and WaterSense qualifications, this latter holiday does not apply with regard to purchases for trade, business, resale, or commercial use. Other details concerning the recently enacted holidays were previously reported. The department will promulgate a regulation to provide additional guidance concerning the holiday periods. Informational Bulletin 2012-05-02, Georgia Department of Revenue, May 2, 2012. Sales and Use Tax: Insulin Exemption Enacted, "Lease or Rental" Definition Amended Enacted Georgia legislation amends sales and use tax exemptions and definitions. Provisions in the bill related to corporate and personal income tax are reported separately. The definition of "lease or rental" for sales and use tax purposes has been modified to additionally state that a lease or rental includes agreements covering motor vehicles and trailers when the amount of consideration can be increased or decreased by reference to the amount realized upon the sale or disposition of the property, as provided for under federal provisions. References to leases and rentals have been removed from the portion of the definition of "sale," which states that the taxable situs of motor vehicle retail sales for purposes of local sales and use taxes is the county where the purchaser registers the vehicle. Finally, technical corrections have been made to the "lease or rental" definition and to the definition of "prepaid wireless calling service." The technical correction to the "prepaid wireless calling service" definition, which involved changing a phrase from "sold in predetermined units or dollars" to "sold in predetermined units of dollars," was discussed as a necessary legislative fix at a Streamlined Sales Tax (SST) Compliance Review and Interpretations Committee (CRIC) meeting held last fall. With respect to sales and use tax exemptions, an exemption is added for sales of prescription and nonprescription insulin. Also, a temporary exemption (from July 1, 2012, through December 31, 2013) is enacted for sales to an organization defined by the Internal Revenue Service as an instrumentality of the states related to the holding of an annual meeting in Georgia. H.B. 729, Laws 2012, effective May 1, 2012. Sales and Use Tax: Withholding Amount on Contracts Involving Nonresident Subcontractors Decreases Enacted Georgia legislation decreases from 4% to 2% the withholding requirement for general or prime contractors entering into contracts with nonresident subcontractors. Effective July 1, 2012, the withholding requirement is 2% of the payments due the nonresident subcontractor in satisfaction of any sales or use taxes due the state. The withholding is required when contracts between these parties involve a project of at least $250,000. If the prime or general contractor fails to withhold the required amount, that contractor becomes liable for any sales or use taxes that the nonresident subcontractor owes to the state. H.B. 932, Laws 2012, effective as noted Sales and Use Tax: Laws Amended to Reflect Agency Changes Georgia legislation makes technical amendments to a sales and use tax exemption for fares and charges (excluding charges for charter and sight-seeing services) collected by an urban transit system for the transportation of passengers. Specifically, amendments reflect that urban transit systems are subject to the jurisdiction of the Department of Public Safety, that the fares of such systems are regulated by the department, and that the department issues urban transit system certificates. Previously, the Public Service Commission was indicated as the agency that performed these duties and had jurisdiction over the systems. Another exemption is amended to state that an exemption applies to the sale of tangible personal property ordered by and delivered to the purchaser at a point outside the geographical area of the special district in which the joint county and municipal sales and use tax is imposed, regardless of the point at which title passes, if the delivery is made by the seller's vehicle, U.S. mail, or common carrier or by private or contract carrier licensed by the Federal Motor Carrier Safety Administration or the Georgia Department of Public Safety. Previously, the Interstate Commerce Commission and the Public Service Commission were indicated as the agencies licensing private or contract carriers. Similar amendments are made to provisions governing (1) property ordered by and delivered to a purchaser at a point outside the geographical area of a special district in which the tax is imposed, (2) the inapplicability of county sales and use taxes to certain sales of tangible personal property outside a taxing county, (3) the nonimposition of water and sewer projects and costs taxes on products ordered and delivered outside the geographical area of a taxing municipality, and (4) the nonimposition of special district transportation sales and use taxes on property ordered by and delivered to a purchaser outside a special district. H.B. 865, Laws 2012, effective July 1, 2012. Sales and Use Tax: Provisions on Tax Absorption, Manufacturer Energy Tax Phase-In, and Special County Tax Amended Legislation has been enacted that amends Georgia laws related to the prohibition against the absorption of sales and use tax, recently enacted provisions governing an excise tax phase-in on manufacturer purchases of energy, and jurisdiction over the 1% county special purpose local option sales and use tax. Absorption of Tax The legislation limits the prohibition under the law against any retailer advertising or representing to the public that it will absorb all or any part of sales and use tax or that a purchaser is relieved from paying all or any part of sales and use tax. Specifically, effective July 1, 2012, a retailer can make such an advertisement or representation to the public if the retailer states in the advertisement that the retailer will remit any part of the tax not paid by the purchaser, or if the retailer gives the purchaser written evidence that the retailer will be liable for and pay any tax the purchaser was relieved from paying. If a retailer does in fact advertise that any part of the tax not paid by the purchaser will be remitted on the purchaser's behalf by the retailer, the retailer is solely liable for and must pay the tax as advertised. Phase-In of Local Excise Tax on Manufacturers' Energy Purchases The legislation amends, effective January 1, 2013, two provisions contained in recently enacted tax reform legislation (H.B. 386, Laws 2012) governing the upcoming four-year phase-in of a local excise tax imposed on manufacturer purchases and uses of energy. The first provision is amended to provide that within 30 days after a meeting of county and municipal governing authorities within a special district held before the adoption of an ordinance to levy the tax from January 1, 2013, to December 31, 2013, such municipalities can adopt an ordinance levying the tax (and be entitled to all of the tax proceeds) if the county refuses to enter into an intergovernmental agreement to levy the tax. Also, any county that desires to impose the tax countywide within a special district beginning January 1, 2013, must mail written notice to the mayor or chief elected official in each municipality located within the special district by September 1, 2012. The second provision, also related to the phase-in of the excise tax on manufacturer purchases and uses of energy, is amended to state that despite the 2% cap on this tax within a special district or municipality, a 3% cap applies if a municipality levies a water and sewer projects and costs sales and use tax. Also, the excise tax takes effect on the first day of the next succeeding month following the adoption of an ordinance unless otherwise specified in an intergovernmental agreement between a county and municipalities within a special district. Jurisdiction Over County Special Purpose Tax Effective July 1, 2012, Georgia superior courts will have jurisdiction to enforce compliance with respect to the 1% county special purpose local option sales and use tax. Such jurisdiction includes the power to grant injunctions or other equitable relief. Further, the Georgia Attorney General will have authority to bring civil or criminal enforcement actions with regard to this local tax. S.B. 332, Laws 2012, effective as noted Sales and Use Tax: Provisions Governing Aviation Authority Amended Insofar as it affects the Georgia Aviation Authority's sales and use tax exemption on property that it purchases, leases, or uses, enacted legislation requires the Authority, on July 1, 2012, to transfer the aircraft and related parts and equipment that are under its custody and control as of June 30, 2012, that had been transferred to it previously by the Department of Natural Resources and State Forestry Commission back to those agencies. This mandate also applies to a King Air 90 aircraft that had previously been in the control of the Department of Transportation but had been transferred to the Authority. The legislation also expands the general purpose of the Authority by adding as a purpose the disposition of the aviation assets of the Department of Public Safety. Previously, the Authority's general purpose expressly excluded the disposition of these assets. Further, the law expressly states that as of July 1 with respect to the powers and duties of the Authority, the powers and duties of the Department of Natural Resources, the State Forestry Commission, and the Department of Public Safety are not diminished. S.B. 339, Laws 2012, effective July 1, 2012. Sales and Use, Miscellaneous Taxes: Coin-Operated Amusement Device Laws Amended Amendments have been made to laws related to an exemption from Georgia sales and use tax on gross revenues generated from all bona fide coin-operated amusement machines that (1) vend or dispense music or are operated for skill, amusement, entertainment, or pleasure; (2) are in commercial use and provided to the public for play; and (3) are subject to the per-machine annual permit fee. Specifically, the legislation substantially expands the definition for a "Class A machine," a machine that qualifies as a coin-operated amusement device by virtue of its being subject to the per-machine annual permit fee, as indicated above under (3). The definition of "Class A machine" is amended to refer to a bona fide coin-operated amusement machine that is not a Class B machine and does not allow a successful player to carry over points won on one play to a subsequent play or plays, and (1) provides no reward to a successful player; (2) rewards a successful player only with free replays or additional play time; (3) rewards a successful player with noncash merchandise, prizes, toys, gift certificates, or novelties and does not reward a successful player with any item prohibited under the state's criminal code related to gambling; (4) rewards a successful player with points, tokens, tickets, or other evidence of winnings that may be exchanged only for items listed above in (3); or (5) rewards a successful player with any combination of items listed in (2), (3), or (4). Likewise, the definition of "Class B machine" is substantially amended to mean a bona fide coin-operated amusement machine that allows a successful player to accrue points on the machine and carry over points won on one play to a subsequent play or plays as specified in the criminal code, and that both (1) rewards a successful player in compliance with the criminal code, and (2) does not reward a successful player with any item prohibited as a reward or any reward redeemable as an item prohibited under the criminal code. Finally, any business offering one or more bona fide coin-operated amusement machines to the public for play must post its business license or occupation tax certificate. S.B. 431, Laws 2012, effective May 2, 2012. Insurance Tax: Life and Health Insurance Guaranty Association Amended Legislation has been enacted providing a comprehensive revision of the provisions relating to the Georgia Life and Health Insurance Guaranty Association. The association is exempt from taxes in Georgia based upon income or gross receipts and is likewise exempt from all state and local occupation license and business fees and occupation license and business taxes. For the purposes of providing the funds necessary to carry out the powers and duties of the association, the board of directors assesses the member insurers. The amount of Class A assessments for costs and expenses other than for examinations may not exceed $300 (previously $150) per company in any one calendar year. The association must notify each member insurer of its anticipated pro rata share of an authorized assessment not yet called within 180 days after the assessment is authorized. Procedures are specified for protesting all or part of an assessment. A member insurer may offset against its premium tax liability an assessment to the extent of 20% of the amount of such assessment for each of the five calendar years following the year in which such assessment was paid. H.B. 786, Laws 2012, effective July 1, 2012. Insurance Tax: Provisions Governing Participation in Insurance Agreements With Other States Amended Georgia has enacted legislation concerning participation in certain insurance agreements with other states. Specifically, if Georgia participates in a cooperative agreement, compact, or reciprocal agreement with other states and a surplus line policy covers risks or exposures located or to be performed both in and out of Georgia, the surplus line broker must pay an amount equal to 4% of that portion of the gross premiums allocated to Georgia plus an amount equal to the portion of premiums allocated to other states or territories on the basis of the tax rates and fees applicable to properties, risks, or exposures located or to be performed outside of Georgia. In addition, if Georgia participates in a cooperative agreement, compact, or reciprocal agreement with other states, the unauthorized insurers tax, covering risks or exposures located or to be performed both in and out of Georgia, is collected from every such insured in Georgia, after deduction of return premiums. The amount of tax is 4% of that portion of the gross premiums allocated to Georgia plus an amount equal to the portion of premiums allocated to other states or territories on the basis of the tax rates and fees applicable to properties, risks, or exposures located or to be performed outside of Georgia. Finally, if Georgia does not participate in a cooperative agreement, compact, or reciprocal agreement with other states, the tax collected from every such insured in Georgia for insuring property or interests both in and out of Georgia is 4% of the gross premiums paid, after deduction of return premiums. S.B. 385, Laws 2012, effective May 2, 2012. Tobacco Tax: Changes Made to Provisions Relating to Tobacco Products Legislation has been enacted that changes provisions relating to the Georgia tobacco products tax. Beginning January 1, 2013, the term "cigar" includes a little cigar. A "little cigar" means any cigar weighing not more than three pounds per thousand. In addition, no tobacco products may be received, sold, or shipped into Georgia unless they are lawfully obtained from a person that is licensed or from an importer with a valid permit. Provisions relating to the licensing of persons engaged in the tobacco business have also changed. The annual renewal fee for a manufacturer's, importer's, distributor's, or dealer's license will be $10, and all renewal applications must be filed at least 30 days in advance of the expiration date shown on the license. Further, each tobacco dealer's license will be valid for 12 months beginning on the date the initial license is issued, and the first day of the month of issue for subsequent licenses, and will expire on the last day of the month preceding the month in which the initial license was issued. Any dealer who is licensed to sell alcoholic beverages may arrange to have both licenses renewed on the same day each year. Any dealer that follows the proper procedure for a renewal of a license, including filing the application for renewal at least 30 days in advance of the expiration date of his or her existing license, must be allowed to continue operating as a dealer under the existing license until the state revenue commissioner has issued the new license or denied the application for renewal. Invoices sufficient to cover current inventory at a licensed location must be maintained at that licensed location and made available for immediate inspection. All other records may be kept at a locality other than the licensed location and must be provided for inspection within two business days after receipt of notification from the state revenue commissioner or an authorized agent of the commissioner to make the records available. The following punishments will be imposed for transporting unstamped tobacco products with the intent to evade the cigarette or tobacco products tax:
Anyone who possesses unstamped cigarettes or nontax-paid cigars, little cigars, or loose or smokeless tobacco will be liable for a penalty of not more than $50 (currently, $25) for each individual carton of unstamped cigarettes and $50 for each individual nontax-paid carton of little cigars, box of cigars, or container of loose or smokeless tobacco in his or her possession. Anyone who does not obtain a required license, or who conducts business following revocation or suspension of his or her license, will be guilty of a misdemeanor of a high and aggravated nature and, upon conviction, will be subject to imprisonment for up to 12 months, a fine of up to $5,000, or both. Currently, a penalty of not more than $250 is imposed. Act 698 (H.B. 1071), Laws 2012, effective as noted Multiple Taxes: Federal Conformity Updated Georgia has enacted legislation that amends the definition of the Internal Revenue Code for corporate and personal income tax purposes to include federal income tax laws enacted on or before January 1, 2012. Provisions concerning sales and use tax are covered separately. H.B. 729, Laws 2012, effective May 1, 2012. Multiple Taxes: Policy Statement Provides Information Regarding Waiver of Penalties and Interest A policy statement has been issued that provides information regarding circumstances in which the Georgia Department of Revenue may waive penalties and interest. The policy statement is intended to provide procedural guidance to the general public and department personnel and to assist in the administration of laws and regulations by providing procedural guidance that may be followed in order to comply with the law. The revenue commissioner is allowed to waive interest only when there is action or inaction on the department's part. The taxpayer must show that the department either acted in a manner that caused the interest to accrue or the department's failure to act caused the interest to accrue. The revenue commissioner is allowed to waive penalties when it is reasonably determined that the default giving rise to the penalty was due to reasonable cause and not due to gross or willful neglect or disregard of the law or of regulations or instructions issued pursuant to the law. The policy statement provides a list of possible circumstances that may be considered with respect to penalty waivers. Documentation may be required to be provided to the department to substantiate the circumstances. Cases are not necessarily limited to the circumstances listed in the policy statement. Policy Statement 2012-04-27, Georgia Department of Revenue, April 27, 2012. Income Tax: Rules Governing Deductions, Sourcing Rules, Apportionment, Credits, and More Discussed The Idaho Legislature has adopted a concurrent resolution that, with one exception concerning a proposed rule addressing the sourcing rules of guaranteed partnership payments and distributions, adopts the Idaho personal income and corporate income tax regulations proposed by the Idaho State Tax Commission in October 2011. The rules amended cover a variety of topics, including the applicable date of regulatory amendments, deductions, sourcing rules for nonresidents, corporate income tax apportionment, and credits (including the Hire One Act credit). Additional amendments reflect recent state and federal statutory amendments, indexing for the 2011 tax year, and, finally, the repeal of obsolete rules. Application of Regulatory Amendments Amendments clarify that when a rule is adopted, to the extent allowed by statute, it will be applied on its effective date to all taxable years open for determining a taxpayer's tax liability. However, taxable years closed by the statute of limitations remain closed and will not be reopened by the promulgation, repeal or amendment of any rule. Nor will issues resolved by the expiration of appeal time, a notice of deficiency determination, or a final decision of the Tax Commission be reopened. Furthermore, a rule will not be applied to transactions occurring before its effective date in a case where, in the opinion of the Tax Commission, to do so would create an obvious injustice. (Rule 35.01.01.001) Deductions Additional amendments clarify that real property must be held for 12 months in order to qualify for the capital gains deduction. Previously, the regulation failed to specify the holding period provided for in the statutes (Rule 35.01.01.171) Amendments also clarify that an estate's or trust's unused NOL carryover may be claimed by the estate's or trust's beneficiary. The first $100,000 of loss sustained by the estate or trust must be carried back unless the estate or trust makes an election to forgo the carryback. Beneficiaries may not claim an NOL deduction from the estate or trust until the taxable year in which the estate or trust terminates. Beneficiaries are prohibited from claiming an NOL carryback of an NOL incurred by the estate or the trust. For purposes of determining the number of years to which a loss may be carried over by a beneficiary, the last taxable year of the estate or trust and the first taxable year of the beneficiary to which a loss is carried over each constitute a taxable year. (Rule 35.01.01.1210) Sourcing Rules for Nonresidents Amendments revise and/or clarify how nonresidents should source various items of income and/or deductions by making changes that:
Apportionment Amendments to various rules governing apportionment by multistate corporations make the following changes:
Credits The rules governing the credit for qualifying new employees are amended to reflect the repeal of the credit beginning with the 2011 tax year (Rules 35.01.01.745-.748) and its replacement with the Hire One Act credit. New rules governing the Hire One Act credit provide clarification regarding (1) how the credit is applied by pass-through entities, unitary business groups, and the treatment of carryovers; (2) health care benefits; (3) determination of qualifying new employees; (4) calculation of the credit; and (5) recordkeeping requirements. (Rules 35.01.01.755-.759) These amendments do not reflect statutory changes made by Ch. 233 (H.B. 661), Laws 2012, which extended the credit for qualifying new employees until the commencement of the Hire One Act credit. Additional amendments clarify how the investment tax credit against the corporate income tax may be shared by unitary group members in the year a corporation with an investment tax credit is acquired. (Rule 35.01.01.711) Statutory Conformity Finally, other amendments conform the rules to the following recent state or federal statutory amendments concerning:
Indexing Rules are also modified to update the personal income tax brackets to reflect the tax brackets for the 2011 tax year (Rule 35.01.01.075) and to update the grocery credit rule to reflect the 2011 tax year amounts. (Rule 35.01.01.771) Obsolete Provisions The rules governing the pre-1995 investment tax credit (Rule 35.01.01.712 and .713) and the Idaho incentive investment tax credit (Rules 35.01.01.761 and .762) are repealed. Rules 35.01.01.001, .030, .032, .033, .075, .105, .120, .121, 125, .171, .250, .253, .254, .263, .266, .267, .270, .275, .290, .570, .582, .705, .711, .712, .713, .745-.748, .755-.759, .761, .762, .771, .815, .877, and .880, Idaho State Tax Commission, effective February 27, 2012. Sales and Use Tax: Rules Updated to Reflect Legislation Idaho sales and use tax rules regarding gratuities, nonresidents, the Red Cross, foreign diplomatic exemption cards, and amusement device permits have been amended to conform to current law and to make technical changes. The rules were submitted to the Idaho Legislature for review and became effective upon adjournment of the Legislature on March 29, 2012. Gratuities A gratuity or tip is not subject to sales tax when it is paid in addition to the price of a meal. The gratuity can be paid voluntarily by the customer or be required by the seller. To be exempt, the gratuity (1) must be paid to the service provider of the meal as additional income to the base wages of the service provider, (2) must be separately stated on the receipt or be voluntarily paid by the customer, and (3) must not be used to avoid sales tax. Definitions are provided for "meal" and "service provider." (Rule 043) Nonresidents A nonresident college student does not owe use tax on any use of a motor vehicle while he or she is enrolled as a full-time student in a college or university located in Idaho. The motor vehicle must be registered under the laws of the student's state of residence and must be owned by the student or a family member of the student. The college or university must be accredited by the Idaho State Board of Education. Military personnel temporarily assigned to Idaho and their spouses do not owe tax on the use of household goods, personal effects, vehicles, vessels, and aircraft if the items are personally owned, were acquired while the individual resided in another state, and are used primarily outside Idaho. Military personnel receive no special exemption from Idaho sales and use tax regarding motor vehicles or other tangible personal property purchased while temporarily assigned in Idaho. A corporation, partnership, limited liability company, or other organization will be considered a nonresident if it is not required to be registered (formerly, is not registered) to do business with the Idaho Secretary of State and if other conditions apply. (Rules 073 and 107) Red Cross Federal law prevents the state of Idaho from imposing sales tax on any sales by the federal government or its instrumentalities. For purposes of Idaho sales and use tax, the American Red Cross is an instrumentality of the federal government. (Rules 085 and 094) Foreign Diplomat Exemption Card Federal tax exemption cards that are issued to foreign diplomats list all restrictions on tax exemptions on the face of the card, including whether or not the card privileges extend to both official and personal purchases. Language describing the previous appearance of the cards has been deleted. (Rule 098) Amusement Device Permits An amusement device permit for the current year must be affixed to every operating amusement device. If a permit is lost, stolen, or destroyed, a new permit must be purchased. The Tax Commission will not issue a free replacement permit regardless of the reason for the loss. A permit must be affixed to the machine (formerly, near the currency slot) in such a manner that it is easily visible. (Rule 109) The proposed rule changes are published in the Idaho Administrative Bulletin, Vol. 11-10, October 5, 2011 (pp. 687-699), available on the Idaho Department of Administration's website at http://adminrules.idaho.gov/bulletin/2011/10.pdf. Rule 35.01.02.043; Rule 35.01.02.073; Rule 35.01.02.085; Rule 35.01.02.094; Rule 35.01.02.098; Rule 35.01.02.107; and Rule 35.01.02.109, Idaho State Tax Commission, effective March 29, 2012. Severance Tax: Definition of "Valuable Mineral" Expanded A recently amended Idaho mine license tax rule expands the definition of a taxable "valuable mineral" to include not only gold, silver, copper, lead, zinc, coal, phosphate, and limestone, but also any other substance that is not gaseous or liquid in its natural state that makes real property more valuable by reason of its presence and upon which depletion is allowable for federal tax purposes. Accordingly, calcium carbonate, garnet, granite, pumice, quartzite, scoria, shale, slate, and ornamental stone, among others, are valuable minerals. Note, however, that sand and gravel are not included within the expanded definition. Rule 35.01.08.010, Idaho State Tax Commission, effective March 29, 2012. Utilities Tax: Option to File Quarterly Returns Made Discretionary The option for producers of electricity and electrical energy to file quarterly Idaho kilowatt-hour tax returns on a quarterly rather than a monthly basis is now discretionary, subject to the approval of the State Tax Commission. Previously, producers were required to file quarterly if their annual tax liability was $15,000 or less. Additional regulatory amendments clarify that when a filing cycle is changed it takes effect on January 1 of the following year. Previously, the regulation did not specify when the change would take effect. Rule 35.01.07.030, Idaho State Tax Commission, effective March 29, 2012. Multiple Taxes: Interest Rates, Information Exchanges Between Tax Commission and Treasurer Addressed A recently amended Idaho tax rule now includes the calendar year 2012 interest rate information applicable to an underpayment or overpayment of a tax administered by the Idaho State Tax Commission, and another amended rule now allows the Tax Commission and the state's Treasurer to exchange specified information. These amendments are addressed in detail below. Calendar year 2012 interest rate information: For calendar year 2012, the applicable underpayment or overpayment interest rate is 4% simple interest, the same rate that was applicable in calendar year 2011. Information exchanges between Tax Commission and Treasurer: Among other authorized inter- and intra-governmental information exchanges, information regarding the names and current addresses of businesses in Idaho, and individuals or entities identified as owners or potential owners of unclaimed property in the custody of the treasurer may now be exchanged between the commission and the state's treasurer. Rules 35.02.01.310 and .704, Idaho State Tax Commission, effective March 29, 2012. Sales and Use Tax: Cook County Judge Rules Click-Through Nexus Law Is Unconstitutional Circuit Court of Cook County Judge Robert L. Cepero granted Performance Marketing Association, Inc.'s (PMA) motion for summary judgment in its lawsuit against the Illinois Department of Revenue challenging Public Act 96-1544 (H.B. 3659), Laws 2011, the sales tax click-through nexus law. The court found that the Act fails the substantial nexus requirement of the Commerce Clause of the U.S. Constitution, rendering the nexus provisions unenforceable and the Act invalid. Further, the court found that the Act is preempted by the Supremacy Clause by virtue of the federal moratorium against discriminatory state taxes on electronic commerce (the federal Internet Tax Freedom Act). Performance Marketing Association, Inc. v. Hamer, Director, Illinois Department of Revenue, Circuit Court of Cook County, Illinois County Department, Law Division, 2011 CH 26333, May 7, 2012. Income Tax: Withholding Requirements on Out-of-State Income Discussed The Indiana Department of Revenue has updated its personal income tax guidance regarding application of state and county income taxes to residents with out-of-state income and nonresidents with Indiana source income. Specifically, the bulletin has been updated to provide information on withholding requirements for Indiana residents with out-of-state income. If an Indiana resident earns wages in another state that also levies a withholding tax on wages and the nonresident employer does not have a business connection with Indiana, the employer is not required to withhold Indiana state and local income tax. When an Indiana resident earns wages in another state that also levies a withholding tax on wages and the nonresident employer has a business connection with Indiana, the employer is required to withhold both Indiana state and local income tax to the extent that the employee's Indiana liability exceeds the taxes withheld in the employee's state of employment. Finally, when an Indiana resident earns wages in another state that does not levy a withholding tax on wages and the nonresident employer does not have a business connection with Indiana, the employer is not required to withhold Indiana state and local income tax. Information Bulletin #28, Indiana Department of Revenue, May 2012. Income Tax: FAQs on Alternative Fuel Credit Regulations Released The Louisiana Department of Revenue has issued a document containing answers to frequently asked questions about the emergency rule effective April 30, 2012, governing the requirements and eligibility for the alternative fuel credit against corporate and personal income taxes. Among other things, the document discusses whether "flex fuel" vehicles qualify for the credit, whether the credit is limited to 2012 model year vehicles only, and how to claim the credit. The emergency rule was previously reported. Revenue Information Bulletin No. 12-025, Louisiana Department of Revenue, May 3, 2012. Income Tax: Corrected RIB on Alternative Fuel Credit Rule Issued The Louisiana Department of Revenue has issued a Revenue Information Bulletin (RIB) to specifically repeal, modify, and amend the date listed in the answers for questions 4 and 5 in RIB 12-025, which provides answers to frequently asked questions about the emergency rule effective April 30, 2012, concerning the alternative fuel credit against corporate and personal income taxes. Revenue Information Bulletin No. 12-026, Louisiana Department of Revenue, May 4, 2012. Income Tax: Rebates for Donations to School Tuition Organizations Established Louisiana Gov. Bobby Jindal has signed legislation allowing income tax rebates for donations that a taxpayer makes during a taxable year to a school tuition organization that provides scholarships to qualified students to attend a Louisiana nonpublic elementary or secondary school. The legislation applies to donations made for the 2013-2014 school year and thereafter. The amount of the rebate is equal to the actual amount of the taxpayer's donation used by a school tuition organization to fund a scholarship to a qualified student (not including administrative costs). No scholarship may be designated, referred to, or in any way named after a private entity or be earmarked by a donor to provide a scholarship for a particular student or a particular school; however, a donation may be earmarked for a student with a disability. Rebates will be paid by the Louisiana Department of Revenue at the end of the school year. A "qualified student" is a child who is a member of a family that resides in Louisiana with a total household income that does not exceed 250% of the federal poverty level. A qualified student must also be a student who is entering kindergarten for the first time, a student who attended a public school the previous year, or a student who received a scholarship from a school tuition organization for the previous school year. Act 25 (H.B. 969), Laws 2012, effective January 1, 2013, applicable as noted Severance Tax: Natural Gas Rate Announced Effective July 1, 2012, through June 30, 2013, the Louisiana natural gas severance tax rate has been set at 14.8 cents per 1,000 cubic feet (MCF) measured at a base pressure of 15.025 pounds per square inch absolute and at the temperature base of 60 degrees Fahrenheit. The tax rate is set each year by multiplying the natural gas severance tax base rate of 7 cents per MCF by the gas base rate adjustment, which is determined by the Secretary of the Louisiana Department of Natural Resources in accordance with Louisiana law. The gas base rate adjustment was 212.00% for the period of April 1, 2011, through March 31, 2012. Revenue Information Bulletin No. 12-024, Louisiana Department of Revenue, May 2, 2012. Miscellaneous Tax: Branch and Independent Insurance Agents and Brokers Subject to Tax The Plaquemines Parish Government has the authority to impose a Louisiana local occupational license tax on any person conducting any business within its territorial jurisdiction, including branch and independent insurance agents or brokers. Certain insurance agents and brokers took the position that they were exempt from payment of the occupational license tax based on Attorney General Opinion No. 89-186, which stipulated that state law only allows a license tax to be levied upon an insurance company itself and not upon a particular individual. However, the occupational license tax referenced by §47:341, La R.S., is not the same as the license tax referenced by Attorney General Opinion No. 89-186 and the references cited therein. A review of §47:341, La R.S., and related statutory references concerning the imposition of an occupational license tax failed to reveal any exemption for either branch or independent insurance agents or brokers. Opinion No. 12-0012, Louisiana Attorney General, April 26, 2012. Income Tax: Pass-Through Entity Form No Longer Required to Be Filed Maine Revenue Services has announced that, for tax years beginning after 2011, pass-through entities will no longer be required to file income tax Form 1065ME/1120S-ME, Maine Information Return for Partnerships and S Corporations. The requirement to file Form 1065ME/1120S-ME was repealed by Ch. 655, Laws 2012, Part QQ, which was previously reported. Tax Alert, Vol. 22, Issue 3, Maine Revenue Services, April 2012. Sales and Use Tax: Marinas Required to Absorb Tax on Diesel Fuel Sales Effective July 1, 2012, dyed diesel fuel sold by a marina is subject to Maryland sales and use tax at a rate of 6%, applied to 94.5% of gross receipts. A marina must pay sales and use tax on dyed diesel fuel sales and may not collect the tax from the buyer as a separately stated item. A "marina" is a person who maintains a place of business where motor fuel is sold primarily to vessels. S.B. 446/H.B. 434, Laws 2012, effective as noted above Multiple Taxes: Electronic Filing Requirements of Credits Authorized Maryland has enacted legislation that authorizes the Comptroller of Treasury to require by regulation a corporate or personal income taxpayer to electronically claim the job creation tax credit, the one Maryland tax credit, the biotechnology investment incentive tax credit, the enterprise zone income tax credit, and any other tax credit specified by the comptroller. S.B. 1086 and H.B. 1456, Laws 2012, effective July 1, 2012. Multiple Taxes: Communications Services Tax Reform Commission Created The Maryland General Assembly has established a commission to study reform of taxes on communications services, including corporate income, sales and use, property, and other communications taxes and fees. The commission will assess the feasibility and fiscal implications of a modernized, competitively neutral tax and fee system that eliminates disparate treatment of communications service providers. It will also assess the efficacy of tax and other incentives to encourage investment in broadband networks and emerging technologies. The commission must present an interim report by December 31, 2012, and a final report by June 30, 2013, to the governor and the General Assembly. H.B. 563/S.B. 567, Laws 2012, effective June 1, 2012. Sales and Use Tax: Tax Collection Process Amended Beginning January 1, 2014, a Michigan taxpayer with sales and use tax liabilities of $720,000 or more in the prior calendar year must remit, by the 20th of the month, an amount equal to 75% of its liability in the immediately preceding month. Also due will be a reconciliation payment equal to the difference between the tax liability determined for the previous month and the amount of tax previously paid for that month. Furthermore, a single payment by electronic funds transfer is permitted for amounts due pursuant to the sales tax and use tax. Act 117 (H.B. 4346) and Act 118 (S.B. 428), Laws 2012, effective May 2, 2012. Property Tax: Filing Deadline to Claim Principal Residence Exemption Changed The deadline for a property owner to file an affidavit claiming the local Michigan property tax principal residence exemption has been changed. A property owner may claim the exemption by filing an affidavit with the local tax collecting unit in which the property is located on or before May 1 for taxes levied before January 1, 2012. For taxes levied after December 31, 2011, the affidavit must be filed on or before June 1 for the immediately succeeding summer tax levy and all subsequent tax levies or on or before November 1 for the immediately succeeding winter tax levy and all subsequent tax levies. In addition, a land contract vendor, bank, credit union, or other lending institution is allowed to retain the principal residence exemption on foreclosed property if the property is not occupied, is for sale, is not leased to any person other than the person who claimed the exemption immediately preceding the foreclosure, and is not used for any business or commercial purpose. A lending institution that retained the exemption is required to pay what it otherwise would have paid in school operating taxes and to pay an administration fee. The administration fee is retained by the local tax collecting unit. Act 114 (S.B. 349), Laws 2012, effective May 1, 2012. Property Tax: Rule Implementing Abatement for Gray Water Systems Adopted The Montana Department of Revenue has adopted a new rule to implement Ch. 405 (S.B. 265), Laws 2011, which established a property tax abatement for gray water systems for newly constructed residences and newly constructed multiple dwelling projects. The rule (1) identifies the properties that are eligible for the 9% tax abatement during the course of construction and for 10 years following their date of completion; (2) provides that property owners must file for the abatement on an application form that is available at the local department field office; (3) specifies that the tax abatement is not available unless the taxpayer files for the abatement within one year after the construction is complete; and (4) provides application deadlines. ARM 42.20.519, Montana Department of Revenue, effective May 11, 2012. Sales and Use Tax: Taxpayers Reminded of Electronic Filing and Payment Mandate The Nebraska Department of Revenue has reminded taxpayers with sales and use tax payments of $11,000 or more in 2011 that they are required to file electronically and pay taxes by electronic funds transfer (EFT) starting July 1, 2012. The mandate includes payments for the June 2012 tax liability. A penalty of $100 will be assessed for each payment not made electronically. Payment of interest and/or penalties is included within the EFT mandate. The letter can be viewed on the department's website at http://www.revenue.state.ne.us/electron/Sales_Tax_EFT_Mandate_Letter_3-2012.pdf. EFT Mandate Letter, Nebraska Department of Revenue, March 15, 2012. Miscellaneous Tax: Billings for Underreported Modified Business Tax Discussed The Nevada Department of Taxation has issued a release announcing that it periodically reviews taxpayers' accounts to verify that the modified business tax has been reported correctly by comparing wage information with the Employment Security Division. The department has the authority to review records dating back three years and recently made comparisons for the third quarter of 2009. When a discrepancy is found, the taxpayer may receive a deficiency determination with an amount due. The release explains the steps that should be taken in order to correct the taxpayer's account. Release, Nevada Department of Taxation, May 7, 2012. Property Tax: Municipalities Authorized to Send Tax Bills Electronically New Hampshire legislation allows municipalities to send property tax bills electronically. The collector may issue bills or notices by electronic means only after the taxpayer requests such delivery. No charge may be made for delivery of bills or notices by electronic means, and no penalty may apply if electronic delivery is not chosen. A request for electronic delivery of tax bills or notices must contain the physical signature of the taxpayer or an electronic signature conforming to the requirements of the federal Electronic Signatures Act. Ch. 29 (H.B. 1224), Laws 2012, effective July 1, 2012. Property Tax: Homestead Benefit Applications Mailed For property tax purposes, the New Jersey Division of Taxation has begun mailing applications for the 2011 homestead benefit. Applications will be mailed over the next three weeks to both senior (age 65 or older on December 31, 2011) and nonsenior homeowners. The deadline for filing the applications is June 30, 2012. Because the state budget limits eligibility for senior/disabled homeowners to those with New Jersey gross incomes of $150,000 or less, and for nonsenior/nondisabled homeowners to those with New Jersey gross incomes of $75,000 or less, many homeowners will not receive applications. Most eligible homeowners will receive their 2011 homestead benefit as a credit on future property tax bills instead of receiving a rebate check (or direct deposit). These homeowners can expect to receive a revised property tax bill or advice copy from their tax collector that will reflect the amount of the benefit. Those homeowners who indicate when filing that they no longer own the property or those whose principal residence was a unit in a co-op or continuing care retirement community will have their benefit issued in the form of a check (or direct deposit). With very few exceptions, homeowner benefit applications must be filed over the Internet or by phone. The answers to most questions can be found in the application packet. NJ Tax E-News, New Jersey Division of Taxation, May 1, 2012. Income Tax: Retroactive Application of Empire Zone Amendments Unconstitutional A New York appellate court decided three cases concerning certain amendments to the Empire Zones Act, under which corporate franchise and personal income tax credits are available, and held that retroactive application of the amendments unconstitutionally deprived the taxpayers of their property interests without due process. Legislation enacted in 2009 revised the eligibility criteria for businesses receiving Empire Zone benefits, and the Commissioner of the Department of Economic Development was directed to conduct a review during 2009 of all certified business enterprises. Following the reviews, the taxpayers' certifications were revoked for failure to satisfy the 1:1 benefit-cost test, and the taxpayers were informed that the effective date of the revocations was January 1, 2008, for all three cases. The record established the intention of the Legislature that revocations pursuant the 2009 amendments would be effective for the taxable year commencing January 1, 2008. However, the retroactive application intended by the Legislature violated the taxpayers' due process rights. The court noted that the record did not indicate that the taxpayers had any warning that the criteria for certification were going to change, prospectively or retroactively, prior to April 2009. Furthermore, it was undisputed that the taxpayers maintained their eligibility for Empire Zone tax credits throughout the tax year beginning January 1, 2008, according to the criteria then in effect. Therefore, it was proper for the lower court to declare that the amendments applied prospectively only and that the revocations of the taxpayers' certifications were null and void, to the extent that they were made retroactive to January 1, 2008. Matter of WL, LLC v. Department of Economic Development, Supreme Court of the State of New York, Appellate Division, Third Department, No. 2012 NY Slip Op 03497, May 3, 2012; Matter of Office Buildings Associates, LLC v. Department of Economic Development, Supreme Court of the State of New York, Appellate Division, Third Department, No. 2012 NY Slip Op 03494, May 3, 2012; Matter of Morris Builders, LP v. Department of Economic Development, Supreme Court of the State of New York, Appellate Division, Third Department, No. 2012 NY Slip Op 03486, May 3, 2012. Income Tax: Guidance for Youth Works Program Published The New York Department of Taxation and Finance has issued a corporate and personal income tax technical memorandum to summarize the legislative amendments to the New York Youth Works Tax Credit Program enacted as part of the 2012-2013 New York budget. The application deadline for employers to take advantage of the program is extended to November 30, 2012 (previously, June 1, 2012). The budget legislation also served to clarify the tax year(s) in which a qualified employer may claim a tax credit under the program. The legislation stated that qualified employers are eligible for a $500-per-month credit for up to six months for each qualified employee employed in a full-time job, or $250 per month for up to six months for each qualified employee employed in a part-time job of at least 20 hours per week. It is clarified that this component of the credit will be allowed in the tax year in which the wages are paid to the qualified employee. Furthermore, a qualified employer will be allowed an additional $1,000 credit for each qualified employee who is employed full-time for one full year (the original six months plus an additional six months). This additional credit will be allowed in the tax year in which the additional six-month period ends. Qualified employers may take an additional $500 credit for each qualified employee who is kept on in a part-time job for six months beyond the first six months of employment. This additional credit will also be allowed in the tax year in which the additional six-month period ends. TSB-M-12(5)C,(4)I, New York Department of Taxation and Finance, May 4, 2012. Sales and Use Tax: Estimated Audit Methodology Accepted With Adjustments The New York Division of Taxation properly resorted to an estimated audit methodology to determine the sales and use tax due from a restaurant operator because the taxpayer failed to provide adequate books and records for the audit period. The methodology chosen here, the markup of purchases to determine sales, was an accepted estimated sales tax audit methodology in cases without adequate sales records. However, the execution of various computations and assumptions within the methodology as applied in this case were flawed. The auditor struggled to adequately explain portions of the audit, such as the rationale behind a portion of the markup test that added a lump sum to the cost of the menu items based upon "office experience" and the omission of other costs that should have been included, that were identifiable on the purchase invoices presented. Even though the flaws in the audit were not insignificant, particularly when multiplied over the entire audit period, they did not render the audit results nullified, but, instead, necessitated adjustments to better reflect the proper sales tax computations. Since only a portion of the audit calculations consisted of a component that could not be substantiated, and the calculation could be more reasonably estimated by the modifications offered and substantiated by the taxpayer's accountant, these modifications were used to adjust the assessment results and the liability was reduced. In addition, penalties were properly imposed because the taxpayer was eventually made aware of the division's request for documents and the taxpayer's accountant's failure to act upon that request. Having firsthand knowledge of what records were required to be produced, and without an adequate explanation as to why these records were never brought forth, the taxpayer failed to prove that its actions were based upon reasonable reliance on professional advice, as opposed to willful neglect. Accordingly, the penalties on the adjusted assessment were upheld. Jefferson Pub, Inc., New York Division of Tax Appeals, Administrative Law Judge Unit, DTA No. 823440, April 26, 2012. Insurance Tax: Retaliatory Tax Credit Not Allowed for Additional Franchise Tax Paid A New York court has rejected a taxpayer's claim that the Superintendent of Insurance erred in denying a retaliatory tax refund and credit. It was undisputed that New York's retaliatory taxes could be offset by the amounts paid for franchise taxes for the same tax year. However, the taxpayer sought relief as the result of a 2006 payment of additional franchise taxes for tax year 1995, which did not correspond directly to the years for which the credit and offsets were sought. The 2006 payment was the result of a recalculation prompted by a federal audit disallowing a portion of the taxpayer's net operating loss (NOL) deductions, which had originally been carried back to tax year 1995. After the payment, the taxpayer sought a refund of retaliatory taxes for 2003 and cancellation of an assessment of retaliatory taxes for 2007. The superintendent's determination that the taxpayer failed to demonstrate an error in calculation was not irrational or contrary to the clear wording of Insurance Law §9109. No mathematical error was described, and the sole basis for the taxpayer's claim was the disallowance of the federal NOL deductions. It was also not irrational or contrary to the clear wording of §9109 to find that the taxpayer failed to demonstrate an erroneous interpretation of a statute. Even though the Tax Law imported the federal NOL deductions in determining the amount of franchise taxes due, and certain deductions were disallowed, the taxpayer failed to allege how the statute was misinterpreted as a result of the disallowance. In addition, even assuming that an error of fact occurred, the superintendent's determination had to be upheld in light of the three-year time limit imposed by §9109 and the requirement that the overcharge result "because of" a mistake of fact, an error in calculation, or an erroneous interpretation of a statute. No error was made within three years of the purported 2006 discovery resulting from the federal audit. The alleged error was made in 1995, or arguably from 1997 through 2001, when the taxpayer overstated its NOL deductions. It was not irrational or contrary to the clear wording of the statute for the superintendent to conclude that the credit sought had insufficient nexus to (and, therefore, was not "because of") the alleged mistake. The superintendent's position that §9109 required some form of year-to-year matching was also consistent with the statutory scheme. Without some form of year-to-year matching, an insurer could postpone or aggregate franchise tax payments to avoid retaliatory tax obligations in a particular year. Finally, the court also rejected the taxpayer's reading of Tax Law §1511, which referred to a credit allowed "for any taxes paid under this article." As correctly argued by the superintendent, the word "any" referred to the type of taxes paid, not the period of time for which a credit was permitted. The court noted that Tax Law §1511 and Insurance Law §9109 should be read together. Accordingly, if the superintendent did not have the authority under §9109 to grant a refund or credit, the court could not read §1511 as requiring that such a refund or credit be granted. Prudential Insurance Co. of America v. Wrynn, New York Supreme Court, New York County, No. 102267-2011, April 16, 2012. Motor Fuels, Sales and Use Taxes: Recent Technical Tax Law Changes Explained The New York Department of Taxation and Finance has issued a memorandum that explains technical changes made to the tax laws related to the diesel motor fuel excise tax (Article 12-A), petroleum business tax (Article 13-A), and prepaid sales tax (Article 28) to address current industry practices. The amendments, effective June 1, 2012, allow tax-free interdistributor sales of undyed qualified biodiesel, and crude oil is deleted from the definition of "diesel motor fuel." In addition, exemptions for certain alternative fuels have been extended through August 31, 2014. TSB-M-12(2)M, TSB-M-12(6)S, Taxpayer Guidance Division, New York Department of Taxation and Finance, May 3, 2012. Property Tax: Fiber Optic Cables Not Subject to Tax Property owned by companies that provided fiber optics telecommunications services was not subject to New York City property tax because their fiber optic cables did not fall within the definition of real property, property or land. In addition, the cables did not fall under the special franchise provisions of §102(17), Real Property Tax Law, because fiber optic cables are not wires that conduct light. RCN New York Communications, LLC v. Tax Commission of the City of New York, Appellate Division of the Supreme Court of New York, First Department, No. 260046/08, 260044/08, 7536, May 3, 2012. Multiple Taxes: FY 2013 Budget Contains No Tax Increases New York City Mayor Michael R. Bloomberg presented the fiscal year 2013 executive budget and noted that it contains no tax increases. According to Bloomberg, gains in tax revenue, together with growth in the high technology, film, television, tourism, and higher education sectors, are all contributing to the city's economic recovery. Release, Office of New York City Mayor Bloomberg, May 3, 2012. Income Tax: Debt Relief Program Extended Through End of May The North Carolina Department of Revenue is extending the current April 30 deadline to May 31 for taxpayers with outstanding personal income tax liabilities to participate in the department's Individual Income Tax Debt Payment Program. In exchange for paying their outstanding balance of tax and interest owed by May 31, the department will waive certain unpaid civil penalties and fees, which could save individuals as much as 35% to 40%. Participating taxpayers can also avoid forced collection actions such as garnishments, liens, and levies. To date, more than 29,000 taxpayers have participated in the program, saving more than $18 million in penalties and fee waivers. Any taxpayer who has properly filed his or her state tax returns and has received a notice for unpaid taxes prior to January 1, 2012, may participate. A taxpayer who has not filed a return, does not currently have an outstanding tax liability, or is the subject of an ongoing criminal investigation or prosecution is not eligible to participate. Anyone interested in participating should contact the nearest NCDOR local service center or call (877) 252-4983. Members of the State Employees' Credit Union may also qualify for a low-interest loan program to pay their unresolved tax balances; see the loan program listed at https://www.ncsecu.org for more information. Individual Income Debt Payment Program Extended until May 31, North Carolina Department of Revenue, May 1, 2012. Miscellaneous Tax: Genuine Issues of Material Fact Existed in License Tax Challenge The North Carolina Court of Appeals reversed a decision granting summary judgment to a city and against certain taxpayers because there was a genuine issue of whether a municipal privilege license tax was reasonable and not prohibitory. The taxpayers operated businesses that sold blocks of Internet usage and telephone time to customers. Customers received a free sweepstakes entry upon purchasing time, with predetermined prizes that could be revealed by using computers on the business premises. In 2010, the city enacted an ordinance instituting a privilege license tax applying to businesses conducting "electronic gaming operations" of $2,000 per business location and $2,500 per computer terminal conducting such gaming operations within each business location. A group of business owners subsequently filed an action to enjoin the city from enforcing the privilege license tax against them, and the city filed for summary judgment, which was granted. The taxpayers contended that the trial court erred in granting summary judgment for the city and denying summary judgment for the taxpayers because the ordinance in question is unenforceable under several legal theories. The taxpayers' arguments that the ordinance unlawfully classified and exempted property for taxation, violated the rule of uniformity, and was preempted by federal law were found to be without merit. However, several of the plaintiff taxpayers presented sufficient evidence to rebut the presumption that the license tax was reasonable and not prohibitory of their businesses. Once conflicting evidence is received by the trial court on the issue of whether the privilege license tax is reasonable and not prohibitory, the issue becomes a material question of fact reserved for the fact-finder. Therefore, it was inappropriate for the trial court to decide such a matter on summary judgment as to the taxpayers that presented such evidence. Smith v. City of Fayetteville, North Carolina Court of Appeals, No. COA11-1263, May 1, 2012. Property Tax: Low-Income Housing Credits, Rent Restrictions May Be Considered in Assessment The North Dakota attorney general has issued an opinion stating that taxing authorities may consider the effect of tax credits and rent restrictions on a property's value when assessing, for purposes of North Dakota property tax, a property built using federal low-income housing tax credits. The amount of weight a taxing authority gives to the tax credits and rent restrictions will depend on the circumstances and facts relevant to the particular property. Opinion No. 2012-L-04, North Dakota Attorney General, May 1, 2012. Property Tax: Renter's Refund Filing Due Date Reminder Issued The North Dakota Office of the State Tax Commissioner has issued a release reminding low-income senior citizens and disabled persons that they may be able to receive a refund for part of the money they paid as rent for their home or apartment if they file for a renter's refund by May 31, 2012. The refund program is only available to low-income renters who are age 65 or older or permanently and totally disabled. In addition to age and disability status requirements, to qualify for the program a renter's 2011 income cannot exceed $26,000. The maximum refund is $400. Taxpayers who think they might qualify should contact the Tax Department in Bismarck at 701.328.3127 or 877.328.7088 (select option 6) for more information and to request an application. Release, Office of State Tax Commissioner Corey Fong, May 7, 2012. Income Tax: Grants Authorized for Use of Vacant Buildings Recently signed Ohio legislation authorizes grants to an employer that moves operations into a facility that has been vacant for 12 months and increases payroll by hiring and employing employees at the facility. The grants are equal to $500 per employee. To be eligible, the employer must employ at least 50 employees or at least 50% of its Ohio employees at the vacant facility. An employer may qualify for the grant only once. Employers will be ineligible for the grants if the employer is eligible to claim an income tax credit or other incentive under an agreement with the tax credit authority. H.B. 18, Laws 2012, effective 91 days after filing with the Secretary of State; Bill Analysis, Ohio Legislative Service Commission Income Tax: Voluntary Disclosure Agreement Guidance Revised The Ohio Department of Taxation has updated an information release to stress the necessity for organizational depictions for purposes of the commercial activity tax (CAT) voluntary disclosure agreements (VDA). The updated release clarifies that taxpayers must provide a complete organizational chart of the business structure that reflects its common owner for purposes of the CAT. Taxpayers are reminded that, in general, if a person owns and controls, directly or constructively through related interests, more than 50% of the value of the ownership interest of another person, the first person is a common owner of the second person. Those persons must be members of a combined taxpayer group unless they elect to be members of a consolidated elected taxpayer group. A taxpayer's election to be a consolidated elected taxpayer group will be effective from the date of the initial written request to enter into a VDA, unless a retroactive application has been requested by the taxpayer and approved by the tax commissioner. If a taxpayer wishes to request a retroactive application of its election to be a consolidated elected taxpayer group, it may request such treatment and the decision is left to the discretion of the tax commissioner. CAT 2008-01, Ohio Department of Taxation, revised May 2012. Multiple Taxes: General Tax Amnesty Application Period Started The Ohio Department of Taxation has issued a reminder to taxpayers regarding the Ohio General Tax Amnesty, which allows taxpayers to pay, without penalty, most unreported or underreported state and local taxes, including individual income taxes, school district income taxes, sales taxes, excise taxes on motor fuels and tobacco, and the commercial activity tax. Under the program, taxpayers may pay taxes starting May 1, 2012, for taxes that were incurred and payable prior to May 1, 2011. Taxes paid under the program will not be subject to penalties, and taxpayers will only be required to pay half of the regular interest charge. Although not covered by the general tax amnesty, use taxes are eligible under a separate use tax amnesty program. The department has set up a website with application forms and additional information about the amnesty program at http://www.ohiotaxamnesty.gov/. The department's release announcing the program is available at http://tax.ohio.gov/divisions/communications/information_releases/amnesty_info.stm. Information Release, Ohio Department of Taxation, May 1, 2012. Income Tax: Eligibility for Volunteer Firefighter Training Credit Amended The Oklahoma personal income tax credit for volunteer firefighter training has been amended to provide that, to be eligible for the credit, a volunteer firefighter is required to provide adequate documentation to the Oklahoma Tax Commission of at least 12 credited hours toward the State Support or State Basic Firefighter or Firefighter I from an internationally recognized accrediting assembly or board, their equivalent, or other related fire or emergency medical services training approved by the Council on Firefighter Training and offered by the Oklahoma State University Fire Service Training or Oklahoma Department of Career and Technology Education prior to or during the first taxable year for which a tax credit is claimed. Previously, a taxpayer was required to provide documentation that he or she had completed at least 12 credited hours toward the Volunteer Firefighter Practices program. After having completed the State Support or State Basic Firefighter or Firefighter 1, the taxpayer must complete at least six hours of continuing education each year until the volunteer firefighter completes Intermediate or Advanced Firefighter or Firefighter I. The firefighter must continue to complete at least six hours of continuing education per year to continue claiming the credit. A firefighter is no longer required to receive additional certification for annual chemical, biological, radiological, and nuclear (CBRN) response training and weapons of mass destruction (WMD) training. H.B. 1835, Laws 2012, effective November 1, 2012. Income, Franchise Taxes: Credits for Qualifying Environmental Project Enacted Legislation has been enacted that provides a credit available against Tennessee franchise and excise taxes for the owner of a "qualifying environmental project." A "qualifying environmental project" is a project in which the taxpayer makes an investment in excess of $100 million to eliminate mercury from the manufacturing process and operations of one or more existing chlor-alkali manufacturing and ancillary facilities and equipment in Tennessee. The one-time credit is equal to 1.75% of the investment in the qualifying project and has the same carryforward features, limitations, and other attributes as are applicable to the job tax credits (§67-4-2109(b)(1), T.C.A.). The owner of a qualifying project is also entitled to six annual credits in the amount of 1.75% of the investment in the qualifying project and such credits have the same carryforward features, limitations, and other attributes as are applicable to the enhanced job tax credits (§67-4-2109(b)(2)(B)(iii), T.C.A.). The maximum investment in a qualifying project that is eligible for the credits is $100 million, inclusive of all capital investment and other direct and indirect costs of the project. To be eligible for the credits, construction of the qualifying project must have commenced on or after January 1, 2011, and be substantially complete on or before January 1, 2014. The credits are available in the later of the year in which the qualifying project is substantially complete or July 1, 2013. As a condition to receiving the credits, the owner of a qualifying project must agree to maintain an annual average of at least 350 permanent jobs in Tennessee for a period of six years after the substantial completion of the qualifying project. If the owner does not maintain the required number of jobs in a specific year, the annual credit for that year will be reduced in proportion to the percentage of the shortfall. Further, the owner must agree to forego any and all claims for the job creation tax credits. S.B. 3174 and H.B. 3322, Laws 2012, effective April 30, 2012. Sales and Use Tax: Awards Program Fees and Merchandise Discussed Fees paid by clients to a taxpayer for managing clients' awards programs, through which program participants redeem points with the taxpayer in exchange for merchandise, are not subject to Tennessee sales and use tax, but merchandise obtained by the redemption of points is subject to tax when shipped to participants in Tennessee. The taxpayer charges clients a per-point fee when awards points are issued to the accounts of participants. The per-point fee is not subject to tax because the management of the awards program is a nontaxable service. Further, no part of the transaction between the taxpayer and the client can be described as the furnishing of an otherwise nontaxable service that is sold as part of the sale of a taxable good or service. The taxpayer is required to collect tax on award merchandise shipped to participants in Tennessee. A participant's redemption of points is a taxable sale because the taxpayer transfers title and possession of merchandise in exchange for consideration, for purposes other than resale. Although no cash value is communicated to the participant relating to the value of the points, the points clearly have value, and are thus properly characterized as consideration. The sales price of a particular item generally equals the per-point fee multiplied by the number of points redeemed by the participant to obtain the item. Letter Ruling No. 12-01, Tennessee Department of Revenue, March 13, 2012. Sales and Use Tax: Food Rate Change Notice Issued The Tennessee Department of Revenue has issued a notice informing taxpayers that the state sales and use tax rate on food and food ingredients will decrease from 5.5% to 5.25%, effective July 1, 2012. Important Notice No. 12-04, Tennessee Department of Revenue, May 8, 2012. Sales and Use Tax: Taxability of Installation, Service, and Other Related Charges Discussed A Utah State Tax Commission case discusses the applicability of sales and use tax to various charges made by a company on its invoices. Installation and Other Charges The company was not liable for Utah sales tax on installation and delivery charges that were not separately stated from each other on company invoices if the installation charges were not for a repair or renovation to tangible personal property. However, the company was liable for tax on installation charges in transactions that involved repairs to property and for transactions that were bundled transactions involving the provision and installation of property. Prior to July 1, 2011, the phrase "repairs or renovations of tangible personal property" was defined to include the attachment of tangible personal property to other tangible personal property. Effective July 1, 2011, the definition of "repairs and renovations of tangible personal property" was amended to exclude the attachment of property to other property if no repair or renovation was involved. The commission concluded that the statutory definition of the phrase does not include assembly or installation charges for which no repair or renovation is involved both before and after July 1, 2011. The commission relied on both the construction of the definition statute prior to enactment of the legislation and the history of the legislation amending the definition in reaching its conclusion. Services described with words such as "move" or "reconfigure" and "tear down" or "knock down" are nontaxable service transactions. None of these services are services enumerated as taxable by statute or were anticipated at the time of the original purchase transactions. The company was not liable for fuel charges as they are nontaxable delivery charges. Service Charges The commission also found that numerous services provided by the taxpayer, including building maintenance services performed on real property and the replacement of light bulbs and ballasts, were nontaxable. The maintenance services were not a service enumerated as taxable by statute. In addition, the commission found that a light bulb is sufficiently distinct from the light fixture that replacement is not a taxable repair or renovation of tangible personal property even if the light fixture is part of tangible personal property. Moving services bundled with the sale of moving materials, however, were taxable because it was unclear whether the moving charge was related primarily to the services or the materials. Truck Purchase The company was not liable for tax on the purchase of a truck for which it could not produce an invoice showing that was paid. The company purchased four other vehicles during the audit period, paying sales tax on each purchase. The commission concluded that the company's habit was to pay sales tax when purchasing a vehicle. Remittance of Tax The commission also ruled that the company was required to remit all sales tax that it collected from customers, even if it collected more sales tax than was due. Commission Decision, Appeal No. 10-2637, Utah State Tax Commission, January 1, 2012, issued May 2012. Multiple Taxes: Legislature Passes IRC Conformity Update, Corporate Minimum Tax Increase, More Legislation passed by the Vermont House of Representatives and the Senate would update the state's conformity with federal income tax laws for personal and corporate income tax purposes, increase the corporate income minimum tax for corporations with gross receipts in excess of $2 million, temporarily exempt charges for remotely accessed software from sales and use tax, and make other changes. Corporate and Personal Income Taxes If enacted, the legislation passed by the House and Senate would increase the $250 current minimum tax for corporations, other than small farm corporations and digital business entities, to $500 for corporations with gross receipts over $2 million and to $750 for corporations with gross receipts over $5 million. The increase would be effective beginning with the 2012 tax year. The bill would also update the Internal Revenue Code (IRC) conformity date for personal and corporate income tax purposes so that Vermont would generally conform to the IRC as in effect for the 2011 taxable year, applicable to post-2010 taxable years. Sales and Use Taxes As passed by the House and Senate, the legislation would temporarily prohibit the Department of Taxes from assessing sales and use tax on charges for remotely accessed software. The temporary moratorium would apply to charges for remotely accessed software made after December 31, 2006, and before July 1, 2013. Taxes paid on such charges would be refunded upon request, provided that the refund claim is made within the statute of limitations period and is properly documented. "Charges for remotely accessed software" would mean charges for the right to access and use prewritten software run on underlying infrastructure that is not managed or controlled by the consumer or a related company. The sales and use tax imposed on the purchase of specified digital products would not be affected by this provision. As previously reported, the Senate passed a provision that would have exempted charges for remotely accessed software made after December 31, 2006. H.B. 782, as passed by the House of Representatives and the Senate on May 4, 2012. Income Tax: Insufficient Information Provided Regarding Cost of Performance The taxpayer, a construction contractor based in Virginia that performed construction jobs both in and outside the state, did not provide sufficient information to document its cost of performance for each construction project engaged in during the tax year in question for purposes of its sales factor in computing Virginia corporation income tax. Under the facts presented, the taxpayer engaged in contract activities outside Virginia; however, direct costs for officer's salaries, solicitation, advertising, bidding, and administration (including depreciation, overhead and taxes) were incurred in Virginia. The taxpayer produced documentation to show that a majority of its costs incurred on projects performed in other states should be attributed outside Virginia. However, the information provided was not of sufficient detail to show whether some employees performed activities on a contract both within and without Virginia. Additionally, the Virginia Department of Taxation determined that the taxpayer may have improperly attributed wages to Virginia in its payroll factor because the taxpayer reported the wages of its employees that performed work in Maryland in the numerator of its Virginia payroll factor because their wages were reported to the Virginia Employment Commission (VEC) for unemployment compensation purposes. Under 23 VAC 10-120-200(A)(4), any wages reported pursuant to the VEC is presumed to be compensation paid in Virginia. However, when Virginia has entered into a reciprocity agreement with another state, the wage reporting for VEC purposes may not be determinative of payroll attributable to the state. Ruling of Commissioner, P.D. 12-47, Virginia Department of Taxation, April 23, 2012. Sales and Use Tax: Rule on Adjudicative Proceedings for Reseller Permits Amended The Washington rule on brief adjudicative proceedings has been amended to adopt the adjudicative procedures in RCW 34.05.482 through 34.05.494 for the following matters relating to sales and use tax reseller permits:
If the department decides to revoke a reseller permit, it must notify the taxpayer in writing of the reasons for the revocation. In order to contest the proposed revocation, the taxpayer must file a written response no later than 21 days after service of the department's notice. WAC 459-20-10202, Washington Department of Revenue, effective June 3, 2012. Motor Fuel Tax: Duration of Pollution Liability Insurance Agency and Its Excise Tax Funding Source Extended Recently enacted Washington petroleum products excise tax-related legislation extends the state's Pollution Liability Insurance Agency's existence, but decreases the excise tax amount that is imposed on the privilege of possessing a petroleum product. The revenue generated by this excise tax serves to fund the Agency's endeavors. Specifically, the duration of the Agency, which makes pollution liability insurance available and affordable to an owner or operator of a regulated underground petroleum storage tank, and also of the applicability of the excise tax, has been extended to July 1, 2020. The expiration of the Agency and of its funding source had previously been scheduled for June 1, 2013. However, the excise tax imposed on the privilege of possessing a petroleum product in the state has been decreased from 0.5% to 0.3% multiplied by the wholesale value of the taxable petroleum product. For a petroleum product introduced at the "rack," the wholesale value is determined when the petroleum product is removed at the rack, unless the removal is to a licensed exporter for direct delivery to a destination outside of the state. In all other cases, the wholesale value is determined upon the first non-bulk possession in the state. For these purposes, "rack" means a mechanism for delivering a petroleum product from a refinery or terminal into a truck, trailer, railcar, or other means of non-bulk transfer. H.B. 2590, 2012 First Special Session, Laws 2012, effective 90 days after adjournment Tobacco Tax: Cigarette Tax Imposed on Roll-Your-Own Cigarettes Washington has enacted legislation imposing the state cigarette tax on roll-your-own cigarettes produced by a commercial cigarette-making machine operated in a retail establishment. The legislation also contains accompanying regulatory provisions for roll-your-own cigarettes. The definition of "cigarette" used for excise tax purposes is amended to specifically include roll-your-own cigarettes, and several new definitions relating to roll-your-own cigarettes are enacted. Retailers who operate roll-your-own cigarette machines are required to purchase tax stamps and affix them to each box or similar container provided by the retailer to the consumer. The box or container must be used by the consumer to transport roll-your-own cigarettes from the retailer's place of business. Retailers who purchase stamps for roll-your-own cigarettes are allowed additional compensation to offset the cost of the tobacco products tax in the amount of 5 cents per cigarette. Only a licensed retailer may provide consumers with access to a commercial cigarette-making machine to make roll-your-own cigarettes. An additional fee of $93 must accompany each application or renewal for a license issued to a retail dealer operating a cigarette-making machine. H.B. 2565, Laws 2012, effective July 1, 2012. Multiple Taxes: Legislation Limits Financial Institution Mortgage Interest Deduction, Extends Food and Data Center Exemptions Washington Gov. Chris Gregoire has signed legislation that limits the financial institution business and occupation (B&O) tax deduction for mortgage interest to community banks, extends B&O tax exemptions for manufacturing of certain foods, and modifies the B&O taxation of newspapers. In addition, the legislation extends the sales and use tax exemption for data centers, provides a tax exemption for craft distilleries, and modifies leasehold excise tax provisions. Financial Institution Mortgage Interest Deduction Limited The legislation provides that a financial business located in more than 10 states may not deduct amounts received as interest on loans secured by first mortgages or trust deeds on nontransient residential properties. Also, the Joint Legislative Audit and Review Committee is directed to review the first mortgage deduction by June 30, 2015, as part of its tax preference review process. Exemptions for Manufacturing Fruits and Vegetables, Dairy Products, and Seafood Extended The legislation extends for three years, until July 1, 2015, existing B&O tax exemptions for manufacturing of fruits or vegetables, dairy products, and seafood products. The exemptions are then replaced by a preferential B&O tax rate of 0.138%. Exemption for Data Centers Extended The sales and use tax exemption for purchases of eligible server equipment and power infrastructure for an eligible computer data center is extended to April 1, 2020. Furthermore, the definition of an "eligible computer data center" has been amended to include those for which construction commenced after March 31, 2012, and before July 1, 2015. The legislation clarifies that the exemption is available to both qualifying businesses and qualifying tenants. The definition of a "qualifying tenant" excludes a lessee of space within a data center for which construction began after March 31, 2010, and before July 1, 2011, where the lessee and lessor are affiliated, and one of the following uses occurs:
Definition of "Newspaper" Expanded, Tax Rate Increased Beginning July 1, 2012, the definition of "newspaper" for B&O tax purposes is expanded to include an electronic version of a printed newspaper that shares content with the printed newspaper and is prominently identified by the same name as the printed newspaper or otherwise conspicuously indicates that the electronic version is a complement to the printed newspaper. This definitional expansion is scheduled to expire on July 1, 2015. Also effective July 1, 2012, every person engaging in the business of printing or publishing a newspaper, or both, in Washington, is subject to a B&O tax equal to the gross income of the business multiplied by a rate of 0.365% (previously, 0.2904%) through June 30, 2013. Thereafter, beginning July 1, 2013, the applicable B&O tax rate is reduced to 0.35%. The rate increase provision is scheduled to expire on July 1, 2015. Definition of "Leasehold Interest" Clarified Effective July 1, 2012, for purposes of the leasehold excise tax, the definition of "leasehold interest" is clarified to provide that the phrase does not include the "preferential use" of a publicly owned cargo crane, dock, and associated area used in the loading and discharging of cargo located at a port district marine facility. For these purposes, the phrase "preferential use" means that the publicly owned real or personal property is used by a private party under a written agreement with the public owner, but that the public owner or any third party maintains a right to use the property when such property is not being used by the aforementioned private party. Craft Distilleries Exempted Craft distilleries are exempted from the license issuance fee of 17% of all spirits sales revenues under such a license. S.B. 6635, Laws 2012, 2nd Special Session, effective July 1, 2012, except as noted Multiple Taxes: Rule on Insurance Businesses Updated A Washington rule regarding the taxability of amounts earned by insurance producers, title insurance agents, and surplus line brokers has been amended to reflect several legislative changes made in recent years. Definitions are provided for "insurance producer,""title insurance agent," and "surplus line broker." In addition, language recognizing economic nexus has been added to the rule. Specifically, the rule states that nonresident individuals or business entities organized or commercially domiciled outside Washington and Washington businesses conducting business for customers receiving benefits outside Washington should refer to WAC 458-20-19401 to determine if they meet the minimum thresholds for apportionable activities. Additional information and examples have been added to the subsection of the rule discussing the application of business and occupation (B&O) tax to insurance producers, title insurance agents, and surplus line brokers. The rule notes that income earned from engaging in business as insurance producers, title insurance agents, and surplus line brokers is apportionable income. The portion that is taxable income for B&O tax purposes must be determined by using the apportionment method provided in WAC 458-20-19402. A new subsection provides information for insurance adjusters. As a result, the rule pertaining to insurance adjusters (WAC 458-20-212) has been repealed. A subsection covering purchases subject to retail sales or use tax has also been added. WAC 458-20-164, Washington Department of Revenue, effective June 3, 2012. Income Tax: Guidance on Computation of Taxable Income From Gambling Winnings Updated The Wisconsin Department of Revenue has issued a personal income tax release that supersedes a previously issued release concerning the computation of taxable income from gambling winnings. The new version of the release specifies that a casino or other payer is required to issue the taxpayer a Form W-2G reporting certain gambling winnings. Even if a W-2G is not issued, all gambling winnings, regardless of amount, must be considered when determining gain or loss from a gambling session. The release also notes that, if the taxpayer has no records to prove the amount spent on the gambling session, the taxpayer must include the gross winnings (all W-2G amounts plus any winning amounts not reported on a W-2G) in income. For a professional gambler using Schedule C, the updated release notes that the amount wagered that is included as an expense cannot be more than the gross winnings. The examples contained in the release now illustrate how taxable gambling winnings are computed for both federal and Wisconsin purposes, and one example regarding a professional gambler has been removed. Tax Release, Wisconsin Department of Revenue, April 2012. Property Tax: County Board's Arbitrary Dismissal of Taxpayer's Appeal Denied Due Process A taxpayer that contested a local Wyoming property tax assessment was denied due process by a county board when the taxpayer was not allowed to appear at its appeal hearing by telephone because the county board disposed of the matter by determining that the taxpayer willfully neglected or refused to attend the appeal hearing. The Wyoming State Board of Equalization held that the county board proceedings regarding the taxpayer's challenge of the valuation of its property were arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law. The county board, during its motion hearing regarding the taxpayer's request to appear by telephone, considered the fact that the taxpayer's representative received notice only three days before the hearing, but summarily denied the taxpayer's representative's request to appear by telephone at the appeal hearing. At no time was there any evidence presented to the county board that the taxpayer refused or willfully neglected to appear for the appeal hearing. To the contrary, the taxpayer's representative wanted to appear by telephone for the appeal hearing and was ready to do so. The county board provided no reason or explanation for its denial and no explanation how the taxpayer had willfully neglected or refused to attend the appeal hearing. Because the county board disregarded the taxpayer's due process rights, the taxpayer was allowed a hearing on the merits of the appeal and to present evidence, if any, in support of its appeal, with reasonable notice and with an opportunity to be heard at a new hearing. In the Matter of the Appeal of Cummins Rocky Mountain, LLC, Wyoming State Board of Equalization, No. 2011-85, May 2, 2012. |
