State Tax Matters The power of knowing. September 21, In this issue:

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1 State Tax Matters The power of knowing. In this issue: Amnesty/Voluntary Disclosure: New Jersey Division of Taxation Reminds that Amnesty Program is Coming Soon, While Offshore Voluntary Compliance Initiative is Closing Soon... 2 Income/Franchise: MTC Announces Public Hearing on Draft Model Statute Relating to State Reporting of Adjustments under Centralized Federal Partnership Audit Regime... 2 Income/Franchise: Louisiana DOR Issues Amended Rules Implementing 2016 Legislation that Expanded Corporate Franchise Tax Imposition and Created Holding Company Deduction; Proposes Market-Based Sourcing Rules... 3 Federal: Another Proposed Post-Wayfair Bill Attempts to Address Online Sales Tax Collection and Remittance, Requiring Prospective Implementation and Small Business Exemption... 4 California Department of Tax and Fee Administration Issues Guidance on Expanded Partial Sales and Use Tax Exemption... 4 Colorado DOR Issues Post-Wayfair State and Local Sales Tax Guidance, Including a December 1 Enforcement Date and Prospective Implementation... 5 Illinois DOR Issues Emergency Rule Reflecting New Law that Imposes Remote Seller Tax Collection & Remittance Responsibilities via Economic Nexus Provisions... 6 Massachusetts DOR Says it Will Continue to Enforce its Pre-Wayfair Economic Nexus Administrative Regulation as of the Original October 1, 2017 Effective Date... 6 South Carolina DOR s Finalized Post-Wayfair Nexus Guidance Provides November 1 Enforcement Date for Remote Sellers... 7 South Dakota: New Post-Wayfair Law Imposes November 1 Implementation Date on Remote Seller Economic Nexus Provisions, and Another Bill Imposes Marketplace Facilitator Collection and Remittance Responsibilities... 8 Texas Comptroller Ruling References Wayfair, and Holds that Remote Seller Has Nexus Based on Physical Presence of Holding In-State Inventory During Seven-Day Trial Period... 9 State Tax Matters Page 1 of 10 Copyright 2018 Deloitte Development LLC

2 Multistate Tax Alerts... 9 Amnesty/Voluntary Disclosure: New Jersey Division of Taxation Reminds that Amnesty Program is Coming Soon, While Offshore Voluntary Compliance Initiative is Closing Soon Announcement: 2018 NJ Amnesty, N.J. Div. of Tax. (8/22/18); New Jersey Offshore Voluntary Compliance Initiative is Closing on November 1, 2018, N.J. Div. of Tax. (9/13/18). Pursuant to recently enacted legislation that requires the New Jersey Division of Taxation (Division) to establish a tax amnesty program [A.3438; see previously issued Multistate Tax Alert for more details on this new law and amnesty program], the Division reminds that the 2018 New Jersey Tax Amnesty will provide an opportunity for eligible taxpayers to file and pay their past due taxes with reduced interest and no penalties, and that eligible periods generally cover state tax liabilities for tax returns due on or after February 1, 2009 through September 1, The Division also states that such program may not begin until after November 1, 2018, and that it will end by January 15, 2019, with the exact amnesty program dates to be determined. The Division warns that if qualifying taxpayers do not take advantage of this amnesty program, an additional 5% non-abatable penalty is imposed on any eligible debts not resolved during the amnesty period. URL: URL: URL: URL: Regarding New Jersey s ongoing Offshore Voluntary Compliance Initiative,<i> the Division further explains that it is closing this program on November 1, 2018, to correspond with the closing of the Internal Revenue Service Offshore Voluntary Compliance Program on September 28, The Divisions notes that taxpayers who participate in the New Jersey Offshore Voluntary Compliance Initiative are not eligible for the 2018 New Jersey Tax Amnesty program. Please contact us with any questions. URL: Norm Lobins (Parsippany) nlobins@deloitte.com Mike Bryan (Philadelphia) Income/Franchise: MTC Announces Public Hearing on Draft Model Statute Relating to State Reporting of Adjustments under Centralized Federal Partnership Audit Regime Draft Model Uniform Statute and Regulation for Reporting Adjustments to Federal Taxable Income and Federal Partnership Audit Adjustments, Multistate Tax Commission (9/12/18). The Multistate Tax Commission (MTC) has announced that it will hold a public hearing on October 15, 2018, on its proposed Model Uniform Statute for Reporting Adjustments to Federal Taxable Income and Federal Partnership Audit Adjustments as part of its ongoing Partnership Project related to the enactment of federal partnership audit rules promulgated in Section 1001 of the Bipartisan Budget Act of 2015 (Pub. L. No ) ( Partnership Audit Regime ). The proposed MTC model statute is designed to provide guidance for states to assess additional tax that may result from adjustments pursuant to the Partnership Audit Regime. URL: Version-with-minor-changes-discussed-at-UniCom.pdf.aspx?lang=en-US URL: The MTC Partnership Project is designed to address the following questions: State Tax Matters Page 2 of 10 Copyright 2018 Deloitte Development LLC

3 1. Are new state statutes called for? 2. What more should the states be doing to audit and track partnership income? 3. Are withholding statutes effective enough given multiple tiered entities, and how will old statutes intersect with entity-level liability? The Partnership Audit Regime replaced the Tax Equity Fiscal Responsibility Act ( TEFRA ) and Electing Large Partnership ( ELP ) rules with one set of partnership-level audit rules that generally applies to all partnerships. Under the Partnership Audit Regime, unless a partnership is qualified to elect out and timely files such an election, the IRS will examine partnership items for a particular year (the reviewed year), and any adjustments will be taken into account by the partnership in the year of the audit (adjustment year). Generally, a partnership is responsible for paying any tax related to any adjustments, plus applicable penalties and interest, subject to certain elections. The Partnership Audit Regime is effective for tax years beginning after December 31, 2017, and any partnership that elects into the regime for taxable years beginning after November 2, 2015 and before January 1, Written comments on the current MTC proposal are due by October 11, Please contact us with any questions. Mike Bryan (Philadelphia) Diana Hoshall (Washington, DC) dihoshall@deloitte.com Gregory Bergmann (Chicago) Partner gbergmann@deloitte.com Tom Cornett (Detroit) tcornett@deloitte.com Income/Franchise: Louisiana DOR Issues Amended Rules Implementing 2016 Legislation that Expanded Corporate Franchise Tax Imposition and Created Holding Company Deduction; Proposes Market-Based Sourcing Rules Amended Regs. Sections 61:I.301, 61:I.302, and 61:I.311, La. Dept. of Rev. (9/20/18). The Louisiana Department of Revenue has issued regulatory amendments that are intended to implement certain legislation enacted in 2016 [H.B. 19 (2016); see previously issued Multistate Tax Alert for more details on this 2016 legislation], which among other tax-related provisions: URL: URL: URL: Expanded state franchise tax imposition to certain limited liability companies (LLCs) and other entities treated as sub-chapter C corporations for federal income tax purposes; Expanded state franchise tax imposition to corporations that own property in Louisiana indirectly through a partnership, joint venture, or any other business organization; and Created a new holding company deduction from the state franchise tax base for a portion of a corporation s investments in and advances to its subsidiaries. Proposed New Regs. Sections 61:I.1135, and 61:I.1136, La. Dept. of Rev. (9/20/18). The Louisiana Department of Revenue has additionally proposed administrative rule changes pursuant to another bill enacted in 2016 [H.B. 20 (2016); see previously issued Multistate Tax Alert for more details on this 2016 legislation] that includes market-based sourcing for services and certain other revenues for Louisiana corporate income tax purposes. Among other provisions, the proposal reflects a sales factor throw-out rule, wherein sales sourced to a state in which the taxpayer is not taxable or sales where the proper state assignment cannot be determined or reasonably approximated under the law must be excluded from the sales factor. Written comments on this proposal are due by October 26, 2018, and a related public hearing is scheduled for October 29, Please contact us with any questions. State Tax Matters Page 3 of 10 Copyright 2018 Deloitte Development LLC

4 URL: URL: URL: Robert Topp (Houston) Michael Matthys (Houston) Federal: Another Proposed Post-Wayfair Bill Attempts to Address Online Sales Tax Collection and Remittance, Requiring Prospective Implementation and Small Business Exemption H.R. 6824, introduced 9/13/18. 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 decision], another proposed federal bill [see State Tax Matters, Issue , for details on an earlier related proposed federal bill, H.R. 6724] known as the Online Sales Simplicity and Small Business Relief Act attempts to prohibit the states from retroactively imposing a sales tax collection duty on a remote seller for any sale that occurred prior to June 21, The proposed bill also provides that a state may impose a sales tax collection duty on a remote seller only for a sale that occurs after January 1, 2019, and that such states must establish a related exemption for certain small business remote sellers with gross annual receipts of less than $10 million until an interstate remote seller simplification compact approved by Congress makes such small business exemption unnecessary. Please contact us with any questions. URL: URL: URL: Michael Bryan (Philadelphia) Stephanie Gilfeather (San Francisco) sgilfeather@deloitte.com David Welliver (Minneapolis) dwelliver@deloitte.com California Department of Tax and Fee Administration Issues Guidance on Expanded Partial Sales and Use Tax Exemption Manufacturing and Research & Development Exemption Tax Guide, Pub 541, Cal. Dept. of Tax & Fee Admin. (9/18). The California Department of Tax and Fee Administration (CDTFA) has issued guidance explaining legislation enacted in 2017 [AB 398 (2017); see previously issued Multistate Tax Alert for more details on this 2017 law change] that expanded California s partial sales and use tax exemption available for manufacturing and research and development equipment to include, with some limitations, electric power generation and agricultural businesses, effective January 1, More specifically, the CDTFA guidance explains that beginning January 1, 2018, the 2017 legislation made the following amendments to California s partial sales and use tax exemption available for manufacturing and research and development equipment: URL: State Tax Matters Page 4 of 10 Copyright 2018 Deloitte Development LLC

5 URL: URL: Includes specified electric power generation or distribution businesses as qualified persons, Includes special purpose buildings and foundations used as an integral part of the generation or production or storage and distribution of electric power as qualified tangible personal property, and Includes certain persons engaged in agricultural business activities as qualified persons. Additionally, the sunset date of the law has been extended from July 1, 2022, to July 1, Please contact us with any questions. Karri Rozario (Sacramento) Trevor Kwan (Los Angeles) Colorado DOR Issues Post-Wayfair State and Local Sales Tax Guidance, Including a December 1 Enforcement Date and Prospective Implementation Emergency Amendment to Rules (1.3), , (9), , (1)(b)(I), , (1)(A), (2), and (2), Colo. Dept. of Rev. (9/11/18); Information for Out-of- State Retailers, Colo. Dept. of Rev. (9/12/18). The Colorado Department of Revenue (Department) has issued proposed emergency regulations and related 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], reflecting that Colorado will collect state sales tax and state-collected local and special district sales tax from out-of-state retailers meeting established economic nexus thresholds as of December 1, An out-of-state retailer generally must apply for a Colorado sales tax license and collect Colorado sales tax if, in either the previous or current calendar year, the retailer has: URL: URL: $100,000 or more of gross sales or services delivered in Colorado, including exempt sales; or 200 or more transactions selling tangible personal property or services delivered in Colorado. Qualifying out-of-state retailers must apply for a Colorado sales tax license by November 30, To this end, the Department announces that online applications for a Colorado sales tax license for out-of-state retailers will be available starting November 1, Regarding applicable Colorado local sales taxes, the Department explains that local and special district sales tax due generally is based on the rates that apply for the destination address of the product purchased. Regarding the proposed emergency regulations, the Department states that these changes are not effective until December 1, 2018, and that it plans to hear these amended rules at a permanent rulemaking hearing later this year. Comments on this proposal are requested by September 25, Please contact us with any questions. Lance Williams (Denver) lancwilliams@deloitte.com Greg McClure (Denver) grmcclure@deloitte.com State Tax Matters Page 5 of 10 Copyright 2018 Deloitte Development LLC

6 Michael Bryan (Philadelphia) Illinois DOR Issues Emergency Rule Reflecting New Law that Imposes Remote Seller Tax Collection & Remittance Responsibilities via Economic Nexus Provisions Emergency Reg. Section , Ill. Dept. of Rev. (eff. 9/11/18). The Illinois Department of Revenue (Department) has issued an emergency regulation pursuant to recently enacted legislation [H.B. 3342; see State Tax Matters, Issue , and State Tax Matters, Issue , for more details on this new law and related guidance] that imposes remote seller tax collection and remittance responsibilities under specified economic nexus threshold provisions. The new regulation reflects that remote sellers with no physical presence in Illinois that meet either of the following annual thresholds must register with the Department to begin collecting and remitting Illinois use tax for sales made to Illinois purchasers on or after October 1, 2018: URL: URL: URL: URL: The retailer s cumulative gross receipts from sales of tangible personal property to purchasers in Illinois are $100,000 or more; or The retailer enters into 200 or more separate transactions for the sale of tangible personal property to purchasers in Illinois. The regulation includes related registration information, and makes reference to 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]. Please contact us with any questions. Mary Pat Kohberger (Chicago) mkohberger@deloitte.com Dominic Greco (Chicago) dgreco@deloitte.com Anna Marie Alberti Hearn (Chicago) aalbertihearn@deloitte.com Massachusetts DOR Says it Will Continue to Enforce its Pre-Wayfair Economic Nexus Administrative Regulation as of the Original October 1, 2017 Effective Date Technical Information Release (TIR) No. 18-8, Mass. Dept. of Rev. (9/17/18). In keeping with its earlier news release [see State Tax Matters, Issue , for details on this earlier release], which was issued soon after 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], the Massachusetts Department of Revenue (Department) has issued a State Tax Matters Page 6 of 10 Copyright 2018 Deloitte Development LLC

7 technical information release (TIR) explaining that it will continue to enforce its existing economic nexus administrative regulation [830 CMR 64H.1.7 (Vendors Making Internet Sales); see State Tax Matters, Issue , for more details on this administrative regulation] for all tax periods after the regulation s effective date October 1, 2017 both prior to and subsequent to Wayfair. Furthermore, the TIR explains that the general rule in 830 CMR 64H.1.7, is that an Internet vendor with a principal place of business located outside Massachusetts and not otherwise subject to tax is required to register, collect and remit Massachusetts sales or use tax when, during the prior twelve-month period, it had in excess of $500,000 in Massachusetts sales from transactions completed over the Internet and made sales resulting in a delivery into Massachusetts in 100 or more transactions. The Department also notes that online vendors seeking to register with the Department to comply with this existing Massachusetts administrative regulation should visit Mass.gov/masstaxconnect; please contact us with any questions. URL: URL: URL: URL: URL: Michael Bryan (Philadelphia) Inna Volfson (Boston) ivolfson@deloitte.com South Carolina DOR s Finalized Post-Wayfair Nexus Guidance Provides November 1 Enforcement Date for Remote Sellers Revenue Ruling No , S.C. Dept. of Rev. (9/18/18). 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], the South Carolina Department of Revenue (Department) has finalized a revenue ruling addressing economic nexus thresholds for remote sellers [see State Tax Matters, Issue , and State Tax Matters, Issue , for details on the Department s earlier separate draft revenue rulings addressing economic nexus thresholds for remote sellers, online marketplace operators, and third-party marketplace sellers]. This guidance states that South Carolina generally will require retailers who do not have a physical presence in South Carolina but who establish an economic presence (as outlined and explained within the guidance) to remit state sales and use tax on a prospective basis beginning November 1, For purposes of this administrative guidance, the Department generally defines a remote seller as a retailer with no physical presence in South Carolina that may include a marketplace, online, catalog, or mail order retailer. In addition, a remote seller may include any related entity assisting the remote seller in sales, storage, distribution, payment collection, or in any other manner with respect to the remote seller. The guidance provides that in accordance with state law (S.C. Code Sec ) and the principles of Wayfair, a remote seller whose gross revenue from sales of tangible personal property, products transferred electronically, and services delivered into South Carolina exceeds $100,000 in the previous or current calendar year has economic nexus (i.e., substantial nexus) with South Carolina and is responsible for obtaining a retail license and remitting South Carolina sales and use tax. Please contact us with any questions. URL: URL: URL: State Tax Matters Page 7 of 10 Copyright 2018 Deloitte Development LLC

8 Jeff Corser (Charlotte) Michael Bryan (Philadelphia) Ryan Trent (Charlotte) South Dakota: New Post-Wayfair Law Imposes November 1 Implementation Date on Remote Seller Economic Nexus Provisions, and Another Bill Imposes Marketplace Facilitator Collection and Remittance Responsibilities S.B. 1; S.B. 2, signed by gov. 9/12/18; News: Remote Sellers and Marketplace Providers, S.D. Dept. of Rev. (9/13/18). Pursuant to South Dakota s recent special legislative session held on September 12, 2018, to consider legislation that would expedite implementation of the recent US Supreme Court ruling in South Dakota v. Wayfair, Inc. and allow the state to enforce the obligation of remote sellers to collect and remit sales tax [see State Tax Matters, Issue , for details on South Dakota Governor Dennis Daugaard s related announcement about this special session], the South Dakota Department of Revenue (Department) recently announced that two bills from this session impacting remote sellers and marketplace providers have been signed into law. Regarding the new law impacting remote sellers, the Department explains that beginning November 1, 2018, remote sellers meeting South Dakota s economic nexus thresholds [see previously issued Multistate Tax Alert for details on South Dakota s original 2016 legislation imposing these standards, S.B. 106 (2016)] generally must obtain a South Dakota sales tax license and pay applicable sales tax. In essence, this new law lifts the previous injunction on enforcement of South Dakota s S.B. 106 (2016). Under South Dakota law, a remote seller is a business without a physical presence in South Dakota that generally meets one or both of the following criteria in the previous or current calendar year: URL: URL: URL: URL: URL: Generates gross revenue from sales (including sales of tangible personal property, any products transferred electronically, or services) into South Dakota exceeding $100,000; or Made sales (including sales of tangible personal property, any products transferred electronically, or services) for delivery into South Dakota in 200 or more separate transactions. Regarding the second bill signed into law, the Department explains that beginning March 1, 2019, marketplace providers meeting certain thresholds and requirements must obtain a South Dakota sales tax license and pay applicable sales tax. Under this new law, marketplace providers generally are required to remit sales tax on all underlying sales they facilitate into South Dakota if the thresholds of 200 or more transactions into South Dakota or $100,000 or more in sales to South Dakota customers are met. The Department notes that such marketplace providers may voluntarily comply at any time prior to March 1, Please contact us with any questions. Ray Goertz (Minneapolis) rgoertz@deloitte.com Michael Bryan (Philadelphia) David Welliver (Minneapolis) dwelliver@deloitte.com State Tax Matters Page 8 of 10 Copyright 2018 Deloitte Development LLC

9 Texas Comptroller Ruling References Wayfair, and Holds that Remote Seller Has Nexus Based on Physical Presence of Holding In-State Inventory During Seven- Day Trial Period Private Letter Ruling No , Tex. Cmptrlr. (8/14/18). Responding to a remote seller s private letter ruling inquiry as to whether it has a sales and use tax collection obligation in Texas on its clothing sales to Texas customers, the Texas Comptroller (Comptroller) recently held in the affirmative because, based on the provided facts, the seller had substantial nexus with Texas through its physical presence of holding in-state clothing inventory for a seven-day customer trial period. In doing so, the Comptroller referenced 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], noting that we intend to adopt new rules under our current legal authority in early 2019 to implement this decision [see State Tax Matters, Issue , for more details about these forthcoming Texas rules]. URL: URL: Under the provided facts, the seller ships clothing to subscribing customers (including Texas customers) each month for potential sale. The Comptroller reasoned that the seller has the power to exercise its ownership rights over the clothing while the clothing is in Texas during the standard seven-day customer trial and examination period, and that because the customer has not paid for the clothes during this time, the customer does not truly own the clothes, free of restrictions, until the seller charges the customer for the clothing which all occurs after the clothing is physically present in Texas. During the seven-day trial period, the customer possesses the clothing on the condition that he/she will either physically return the clothes to the seller within the seven-day period, or pay for them once the seven-day period expires. Please contact us with any questions. Robert Topp (Houston) rtopp@deloitte.com Michael Bryan (Philadelphia) Robin Robinson (Austin) rorobinson@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. State Tax Matters Page 9 of 10 Copyright 2018 Deloitte Development LLC

10 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 10 of 10 Copyright 2018 Deloitte Development LLC