State Tax Matters The power of knowing. September 7, In this issue:

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1 State Tax Matters The power of knowing. In this issue: Income/Franchise: Delaware: New Law Imposes Tax Return Signing Obligations for Some Paid Tax Preparers... 2 Income/Franchise: Indiana DOR Updates Bulletin on State Impact of IRC Sec. 965 Repatriation Provisions, GILTI, and IRC Sec. 163(j)... 2 Income/Franchise: Oregon Tax Court Holds in Taxpayer s Favor that Income from Unitary Pass-Through Entity Structures is Apportioned at Entity Level, Not Shareholder Level... 3 Income/Franchise: Texas Trial Court Holds in Taxpayer s Favor by Sourcing Subscription Revenues Based on Fair Value of Services Performed In-State, Rather than Market-Based Approach... 3 Indiana DOR Updates Post-Wayfair Comments, Includes a Confirmed October 1 Enforcement Date and Continued Promise of No Retroactivity... 4 Maine Revenue Services Reiterates its Post-Wayfair Comments, Including July 1, 2018 Enforcement Date and Prospective Implementation... 4 Maryland Comptroller s Emergency Post-Wayfair Regulation Approved, Imposes October 1 Enforcement Date on Certain Out-of-State Vendors... 5 Mississippi: New Law Appropriates Revenue Generated from Post-Wayfair Implementation of Remote Seller Nexus Rule, Authorizes Examination of Certain Shipping Documents... 6 Oklahoma Tax Commission Explains Impact of Wayfair on Current State Law... 6 Multistate Tax Alerts... 7 State Tax Matters Page 1 of 7 Copyright 2018 Deloitte Development LLC

2 Income/Franchise: Delaware: New Law Imposes Tax Return Signing Obligations for Some Paid Tax Preparers H.B. 426, signed by gov. 8/28/18. Effective immediately, new law requires some paid tax preparers to sign certain Delaware tax returns or filed refunds (including those involving state corporate and individual income tax returns or refunds), or else be subject to a $50 civil penalty for any violation with a maximum penalty of $25,000 in any calendar year. The new law also permits a court of competent jurisdiction to enjoin certain paid tax preparers from understating a Delaware taxpayer s liability or taking an unreasonable position. Please contact us with any questions. URL: Kenn Stoops (Philadelphia) kstoops@deloitte.com Stacy Ip-Mo (Philadelphia) sipmo@deloitte.com Income/Franchise: Indiana DOR Updates Bulletin on State Impact of IRC Sec. 965 Repatriation Provisions, GILTI, and IRC Sec. 163(j) Information Bulletin No. 116, Ind. Dept. of Rev. (8/29/18). The Indiana Department of Revenue (Department) has issued an updated bulletin explaining how state taxpayers must report repatriated income under Internal Revenue Code (IRC) Sec. 965, in light of Indiana s recently enacted legislation that updates state conformity to certain provisions of the IRC [H.B (2018); see previously issued Multistate Tax Alert for more details on this new Indiana law]. Similar to its earlier issued Department guidance [see State Tax Matters, Issue , for more details on this earlier guidance], the bulletin generally explains that Indiana law partially aligns with the Internal Revenue Service on how such income is reported, and that impacted C corporation taxpayers must include the gross amount of the repatriated dividend in their Indiana adjusted gross income more specifically, that such C corporation taxpayers must add back the amount reported on Line 1 of the IRC 965 Transition Tax Statement and then use Code 138 to report the addback in Indiana. URL: URL: URL: URL: The bulletin also addresses state law changes contained within H.B that relate to: 1. Foreign source dividend treatment, including underlying apportionment implications; 2. The requirements for inclusion of global intangible low-taxed income (GILTI), such as the necessary adjustments and apportionment treatment for state income tax purposes; and 3. Required modifications relating to deductions for business interest under IRC Sec. 163(j). The bulletin additionally discusses net operating losses, and includes guidelines for interest and penalty waivers resulting from H.B Please contact us with any questions. Amanda Suasnabar (Indianapolis) asuasnabar@deloitte.com Tom Engle (St. Louis) tengle@deloitte.com State Tax Matters Page 2 of 7 Copyright 2018 Deloitte Development LLC

3 Income/Franchise: Oregon Tax Court Holds in Taxpayer s Favor that Income from Unitary Pass- Through Entity Structures is Apportioned at Entity Level, Not Shareholder Level Case No. TC 5298, Or. Tax Ct. (8/17/18). In a case involving a nonresident individual with ownership interests in numerous pass-through entities (PTEs) including several limited liability companies treated as partnerships under Oregon law and an S corporation, some of which did business in Oregon and others that did not but all of which were deemed to operate as a single trade or business for purposes of the litigation the Oregon Tax Court (Court) recently held in the taxpayer s favor that income from the PTEs must be apportioned at the PTE level rather than at the shareholder/owner level. In doing so, the Court rejected the Oregon Department of Revenue s (Department) position a position requiring what is essentially combined reporting and apportionment at the owner level and concluded that the taxpayer s position in this case is consistent with the provisions of ORS chapters 314 and 316, the PTE statutes, the history of combined reporting in Oregon and the provisions of UDITPA. Under the facts, the taxpayer had reported and apportioned his income to Oregon based on his distributive share from the PTEs operating either exclusively or partially in Oregon; he did not include any distributive share resulting from the PTEs with no operations in Oregon. The Department subsequently audited the taxpayer s Oregon return and determined that his income should be apportioned after considering and combining the operations of all the PTEs, including the entities that had no Oregon resident partner or Oregon source income. Please contact us with any questions. URL: 0%205298/field/all/mode/all/conn/all/order/date/ad/desc Scott Schiefelbein (Portland) sschiefelbein@deloitte.com Anne-Marie Gorbett (Portland) agorbett@deloitte.com Income/Franchise: Texas Trial Court Holds in Taxpayer s Favor by Sourcing Subscription Revenues Based on Fair Value of Services Performed In-State, Rather than Market-Based Approach Cause No. D-1-GN , 261st Dist. Ct., Travis County, Texas (8/3/18). In a case involving the sourcing of a satellite radio company s subscription revenues for Texas franchise tax (commonly referred to as the Texas margin tax) purposes, a Texas trial court recently held in the taxpayer s favor that such receipts must be sourced to Texas based on the fair value of services performed in Texas, rather than the Texas Comptroller s market method based on the location of where the taxpayer s services were received by subscribers. More specifically, the Texas Comptroller had unsuccessfully argued that the taxpayer s subscription receipts should be sourced to Texas based on the locations where the satellite transmissions were received by subscribers, and thus had adjusted the taxpayer s Texas apportionment factor accordingly. Under the facts, the taxpayer s headquarters, transmission equipment, and production studios were mostly located outside of Texas; the taxpayer generally produced and transmitted its audio radio content from outside of Texas. Thus, the taxpayer s receipts were properly sourced based on the location of the taxpayer s production activities (i.e., outside of Texas) according to the district court. The Texas Comptroller has since filed an appeal with the Texas Third Court of Appeals. URL: See forthcoming Multistate Tax Alert for more details on this case, as well as related taxpayer considerations, and please contact us with any questions in the meantime. Robert Topp (Houston) rtopp@deloitte.com Jacob Aguero (Houston) jaguero@deloitte.com State Tax Matters Page 3 of 7 Copyright 2018 Deloitte Development LLC

4 Lauren Bogue Rothman (Houston) Grace Taylor (Houston) Indiana DOR Updates Post-Wayfair Comments, Includes a Confirmed October 1 Enforcement Date and Continued Promise of No Retroactivity Updated FAQs, Ind. Dept. of Rev. (8/18). The Indiana Department of Revenue (Department) has issued updated guidance in light of the US Supreme Court s (Court) recent decision overruling Quill s physical presence nexus standard [see previously issued Multistate Tax Alert for more details on the Wayfair case] explaining that on August 27, 2018, the lawsuit challenging its remote seller economic nexus statute [H.B (2017); see State Tax Matters, Issue for more details on this 2017 economic nexus legislation] was resolved and the Department was authorized to begin enforcing Indiana s economic nexus law on October 1, Accordingly, the guidance states that the Department will begin enforcing Indiana s economic nexus law on October 1, 2018, and that sellers with no physical presence in Indiana are not responsible for collecting and remitting tax on sales prior to this date. As such: URL: URL: URL: URL: Beginning October 1, 2018, if you have already met the economic nexus threshold for 2018, or you met it at any point during 2017, you must immediately begin collecting and remitting sales tax on sales into Indiana. Those that have not yet met the annual economic nexus threshold (i.e., $100,000 in sales or 200 or more separate transactions for delivery into Indiana) are advised that they will be required to collect and remit Indiana sales tax immediately upon reaching the threshold. Please contact us with any questions. Mary Pat Kohberger (Chicago) mkohberger@deloitte.com Robyn Staros (Chicago) rstaros@deloitte.com Michael Bryan (Philadelphia) Maine Revenue Services Reiterates its Post-Wayfair Comments, Including July 1, 2018 Enforcement Date and Prospective Implementation Sales & Use Tax Bulletin No. 108, Me. Rev. Serv. (9/1/18). Maine Revenue Services (the Department ) reiterates its previously issued guidance [see State Tax Matters, Issue , for more details on this earlier guidance] involving remote sellers in light of the US Supreme Court s June 21, 2018 decision overruling Quill s physical presence nexus standard [see previously issued Multistate Tax Alert for more details on the Wayfair case] stating that pursuant to legislation enacted in 2017 [L.D (S.P. 483); see State Tax Matters, Issue for more details on this law] that generally requires the collection and remittance of Maine sales and use tax for certain out-of-state sellers on taxable products and services for delivery into Maine, the Department will begin enforcing this law for sales occurring on or after July 1, 2018, which is the first monthly filing period after the date of the Wayfair decision. Under this Maine law, out-of-state sellers of tangible personal property, other taxable products transferred electronically, or taxable services for delivery into Maine must collect and remit Maine sales and use tax if: State Tax Matters Page 4 of 7 Copyright 2018 Deloitte Development LLC

5 URL: URL: URL: URL: The person s gross revenue from delivery of tangible personal property, products transferred electronically or services that are taxable by Maine into Maine in the previous calendar year or current calendar year exceeds $100,000; or The person sold tangible personal property, products transferred electronically or services that are taxable by Maine for delivery into Maine in at least 200 separate transactions in the previous calendar year or the current calendar year. The Department continues to urge every seller that is subject to this law under Title 36 M.R.S.A. section 1951-B, and that has not already done so, to immediately register as a Maine retailer and begin collecting and remitting Maine sales and use tax. Any remote seller that, on or after July 1, 2018, met or meets one, or both, of the nexus thresholds established by section 1951-B, but did not register as a retailer, is subject to assessment for any uncollected or unremitted Maine sales and use taxes. Please contact us with any questions. Jack Lutz (Hartford) jacklutz@deloitte.com Michael Bryan (Philadelphia) Ian Gilbert (Boston) iagilbert@deloitte.com Maryland Comptroller s Emergency Post-Wayfair Regulation Approved, Imposes October 1 Enforcement Date on Certain Out-of-State Vendors Emergency Regulation Approved by AELR Committee: COMAR Out-of-State Vendor, Md. Cmptrlr. (eff. 10/1/18). The Maryland Joint Committee on Administrative, Executive and Legislative Review (AELR) has approved the Maryland Comptroller s submitted post-wayfair emergency regulation that will require out-of-state vendors to collect and remit Maryland sales and use tax on their sales of tangible personal property or taxable services to Maryland customers beginning October 1, 2018, if during the previous or current calendar year, the vendor satisfies either of the following criteria: URL: The person s gross revenue from the sale of tangible personal property or taxable services delivered in Maryland exceeds $100,000; or The person sold tangible personal property or taxable services for delivery into Maryland in 200 or more separate transactions. The Comptroller has previously commented that, pursuant to Maryland law, it will impose state sales tax collection requirements as broadly as is permitted under the US Constitution. Please contact us with any questions. Joe Carr (McLean) josecarr@deloitte.com State Tax Matters Page 5 of 7 Copyright 2018 Deloitte Development LLC

6 Michael Bryan (Philadelphia) Jim McNiff (McLean) Mississippi: New Law Appropriates Revenue Generated from Post-Wayfair Implementation of Remote Seller Nexus Rule, Authorizes Examination of Certain Shipping Documents H.B. 1, signed by gov. 8/29/18. Effective immediately, new law appropriates some revenues generated from Mississippi s post-wayfair implementation of its remote seller economic nexus provisions [see State Tax Matters, Issue , for details on Mississippi s related administrative rule, Miss. Admin Rule 35.IV.03.09, as well as State Tax Matters, Issue , for details on the Mississippi Department of Revenue s prospective implementation of this rule as of September 1, 2018] to designated in-state infrastructure projects. To this end, the new law also provides that the Mississippi Department of Revenue Commissioner may require transportation companies to permit the examination of waybills, freight bills, or other documents covering shipments of tangible personal property into this state. Please contact us with any questions. URL: URL: URL: Kathy Saxton (Atlanta) katsaxton@deloitte.com Doug Nagode (Atlanta) dnagode@deloitte.com Michael Bryan (Philadelphia) Oklahoma Tax Commission Explains Impact of Wayfair on Current State Law Remote Sellers Information and FAQs, Okla. State Tax Comm. (8/31/18). The Oklahoma State Tax Commission (Commission) has issued guidance in light of the US Supreme Court s recent decision overruling Quill s physical presence nexus standard [see previously issued Multistate Tax Alert for more details on the Wayfair case] explaining that remote sellers are now required to collect and remit sales or use taxes on all orders delivered to Oklahoma, whether or not the seller has a physical presence in the state. The Commission further explains that state law [H.B. 1019; see State Tax Matters, Issue , for more details on this recently enacted legislation] requires remote sellers that sold at least $10,000 worth of taxable merchandise in Oklahoma during the previous twelve months to collect and remit Oklahoma sales tax or else comply with Oklahoma s statutory notice and reporting requirements; and that Wayfair overturns its previous position that required companies to have a physical presence in a state in order for the state to require it to charge sales tax on remote orders. The Commission notes that Oklahoma law also requires marketplace facilitators and referrers (i.e., those organizations that provide a platform for third-party retail sellers) to file an election with the Commission to collect and remit Oklahoma sales tax or else comply with Oklahoma s statutory notice and reporting requirements. URL: URL: URL: URL: State Tax Matters Page 6 of 7 Copyright 2018 Deloitte Development LLC

7 Lastly, the Commission urges impacted entities to register as soon as possible and announces that it is in the process of simplifying its application for remote sellers. The Commission has also issued related frequently asked questions and answers (FAQs), as well as additional information on how Wayfair impacts Oklahoma law which includes discussion on Oklahoma s related July 1, 2018 election deadline. Please contact us with any questions. URL: URL: Michael Bryan (Philadelphia) Horacio Mendez (Houston) hmendez@deloitte.com John Gibboney (Houston) jgibboney@deloitte.com Multistate Tax Alerts Throughout the week, we highlight selected developments involving state tax legislative, judicial, and administrative matters. The alerts provide a brief summary of specific multistate developments relevant to taxpayers, tax professionals, and other interested persons. Read the recent alerts below or visit the archive. Archive: No new alerts were issued this period. Be sure to refer to the archives to ensure that you are up to date on the most recent releases. About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global ) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the Deloitte name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see to learn more about our global network of member firms. Copyright 2018 Deloitte Development LLC. 36 USC State Tax Matters Page 7 of 7 Copyright 2018 Deloitte Development LLC