State Tax Matters The power of knowing. July 6, In this issue:

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1 State Tax Matters The power of knowing. In this issue: Amnesty/Voluntary Disclosure/Administrative: US Supreme Court Agrees to Consider Sovereign Immunity Case, Specifically Whether Nevada v. Hall Should be Overruled... 2 Amnesty/Voluntary Disclosure/Administrative: Indiana DOR Offers Voluntary Disclosure Initiative for Online Sellers that Runs through December 31, Amnesty/Voluntary Disclosure/Administrative: New Jersey: New Law Requires Amnesty Program with Potential Waiver of 100% Penalties and 50% Interest, Includes Additional Non-Participation Penalties... 3 Income/Franchise: Massachusetts Appellate Tax Board Holds that Taxpayer is a Manufacturer Required to Compute its Corporate Excise Tax Liability Using Single Sales Factor Apportionment... 4 Income/Franchise: New Jersey: New Law Includes Mandatory Combined Reporting Regime, Market-Sourcing Provisions, CBT Surtax, and Responses to Some Provisions of the Federal 2017 Tax Act... 4 Income/Franchise: New York: Appellate Court Affirms Tax Appeals Tribunal Ruling Addressing Bank s Treatment of NOLs... 5 Income/Franchise: Pennsylvania: New Law Reverses DOR Policy and Allows for Depreciation of 100% Bonus Property 6 Income/Franchise: Vermont: New Law Updates State Conformity to Internal Revenue Code; Responds to Some Provisions of the Federal 2017 Tax Act... 7 Credits/Incentives: California: New Law Extends Competes Tax Credit through January 1, Sales/Use/Indirect: Connecticut: DOR Comments on New Law Expanding Economic and Click-Through Nexus Provisions, Including Marketplace Facilitators, and Imposing Information/Notice Reporting Requirements on Referrers... 8 Sales/Use/Indirect: Hawaii: DOT Comments on Recent US Supreme Court Decision that Overrules Quill and Current Law... 8 State Tax Matters Page 1 of 16 Copyright 2018 Deloitte Development LLC

2 Sales/Use/Indirect: Idaho State Tax Commission Comments on Recent US Supreme Court Decision that Overrules Quill and Current Law... 9 Sales/Use/Indirect: Kentucky DOR Comments on Recent US Supreme Court Decision that Overrules Quill and Current Law Sales/Use/Indirect: New Hampshire: Governor Press Release Comments on Recent US Supreme Court Decision that Overrules Quill, and Expresses Desire to Protect In-State Businesses from Other States Sales/Use/Indirect: Rhode Island DOT Comments on Recent US Supreme Court Decision that Overrules Quill and Current Law Sales/Use/Indirect: South Dakota DOR Updates its Previous Commentary on Recent US Supreme Court Decision that Overrules Quill and Current Law Sales/Use/Indirect: Texas Comptroller Comments on Recent US Supreme Court Decision that Overrules Quill and Future Plans Sales/Use/Indirect: Vermont DOR Comments on Recent US Supreme Court Decision that Overrules Quill and Current Law Sales/Use/Indirect: Wisconsin Supreme Court Affirms that Mechanical Operation Performed on Contaminated River Sediment Constitutes Taxable Processing, and Also Modifies Administrative Agency Deference Policy Multistate Tax Alerts Amnesty/Voluntary Disclosure/Administrative: US Supreme Court Agrees to Consider Sovereign Immunity Case, Specifically Whether Nevada v. Hall Should be Overruled Docket No , US (petition for cert. granted 6/28/18). The US Supreme Court (Court) has agreed to the California Franchise Tax Board s (FTB) request to review a case whose underlying facts involve an individual who had once resided in California and subsequently moved to Nevada, and had sued the FTB alleging harassment by the FTB employees who had been investigating his California tax obligations. In doing so, the Court has agreed to the FTB s request to consider whether Nevada v. Hall, 440 US 410 (1979), which permits a sovereign State to be haled into another State s courts without its consent, should be overruled. In 2016, in this same case [see Docket No ], the Court previously held that Nevada could not award the taxpayer any damages payable by California that exceeded Nevada s own relevant limits under Nevada law; however, the Court was equally divided on the question whether Nevada v. Hall should be overruled with its then eight sitting justices and thus had affirmed the Nevada courts exercise of jurisdiction over California s state agency. The FTB is currently asking along with amicus briefs filed by 45 states and the Multistate Tax Commission for a majority opinion by the Court with its now nine seated justices to overturn Hall. Please contact us with any questions. URL: URL: Valerie Dickerson (Washington, DC) Partner vdickerson@deloitte.com Michael Bryan (Philadelphia) Dave Vistica (Washington, DC) dvistica@deloitte.com Ken Jewell (Parsippany) kjewell@deloitte.com State Tax Matters Page 2 of 16 Copyright 2018 Deloitte Development LLC

3 Amnesty/Voluntary Disclosure/Administrative: Indiana DOR Offers Voluntary Disclosure Initiative for Online Sellers that Runs through December 31, 2018 Revenue Tax Bulletin, Ind. Dept. of Rev. (6/18). The Indiana Department of Revenue (Department) is offering certain qualifying retailers that do not already have a clearly defined sales tax and income tax filing obligation in Indiana the opportunity to participate in a one-time voluntary disclosure initiative (VDI). According to the Department, this special VDI is tailored to meet the unique needs of retailers that have inventory located in third-party Indiana warehouses and sell to Indiana customers explaining that many of these retailers selling goods to Indiana customers through service providers have both income and sales/use tax obligations in Indiana. This special VDI will remain in effect until December 31, 2018, and offers out-of-state retailers the opportunity to enter into a voluntary disclosure agreement with unique terms, including a limited look-back period and waiver of underlying penalties. Regarding limited lookback periods, qualifying participants of this VDI potentially may receive a limited look-back of: URL: 1. One full calendar year (2017) plus the current period for state sales and use tax purposes, and 2. Calendar or fiscal year 2017 for state income tax purposes. Please contact us with any questions. Tax Amanda Suasnabar (Indianapolis) asuasnabar@deloitte.com Robyn Staros (Chicago) rstaros@deloitte.com Amnesty/Voluntary Disclosure/Administrative: New Jersey: New Law Requires Amnesty Program with Potential Waiver of 100% Penalties and 50% Interest, Includes Additional Non-Participation Penalties A.3438, signed by gov. 7/1/18. Effective immediately, new law requires the New Jersey Division of Taxation (Division) to establish a tax amnesty program not to exceed 90 days that must end no later than January 15, 2019, which will apply to most taxes administered by the Division for tax returns due on or after February 1, 2009 and prior to September 1, In exchange for participation, qualifying taxpayers potentially may receive a waiver of 50% of the underlying interest that is due as of November 1, 2018, and 100% of the underlying late-payment/filing penalties. The new law includes non-participation penalties in addition to all other applicable penalties, interest, or costs of collection otherwise authorized by law upon any New Jersey tax liabilities eligible to be satisfied during the amnesty period that are not in fact satisfied during the program. URL: See forthcoming Multistate Tax Alert for more details on this new law, as well as other important tax legislation recently enacted in New Jersey, and please contact us with any questions in the meantime. Norm Lobins (Parsippany) nlobins@deloitte.com Mike Bryan (Philadelphia) State Tax Matters Page 3 of 16 Copyright 2018 Deloitte Development LLC

4 Ken Jewell (Parsippany) Stephanie Csan (Parsippany) Income/Franchise: Massachusetts Appellate Tax Board Holds that Taxpayer is a Manufacturer Required to Compute its Corporate Excise Tax Liability Using Single Sales Factor Apportionment Docket Nos. C & C321955, Mass. App. Tax Bd. (6/21/18). In a case involving whether a taxpayer was properly treated by the Massachusetts Commissioner of Revenue as a manufacturing corporation for purposes of G.L. c. 63, 38 (l) (1), and consequently required to use a single sales factor apportionment formula to compute its state corporate excise tax liability, the Massachusetts Appellate Tax Board (ATB) concluded affirmatively that the taxpayer s underlying activities throughout the entirety of the critical path did in fact amount to the transformation of raw or finished physical materials by hand or machinery, and through human skill and knowledge, into a new product possessing a new name, nature, and adapted to a new use under state law. While the taxpayer did not itself manufacture any of its products under the facts, it had engaged a third-party contract manufacturer to produce its products in accordance with detailed specifications. The ATB found that these materials created by the taxpayer were physically useful in making the footwear products that it ultimately sold. Furthermore, the ATB found that the taxpayer s employees had physically interacted with the footwear products throughout the production process, and that their feedback resulted in physical modifications to the products. In this respect, the ATB reasoned that the taxpayer s various participatory activities constituted manufacturing and therefore it must employ single sales factor apportionment rather than the standard three-factor apportionment formula to compute its state corporate excise tax liability. URL: See forthcoming Multistate Tax Alert for more details on this ruling, as well as some related taxpayer considerations. Bob Carleo (Boston) rcarleo@deloitte.com Alexis Morrison-Howe (Boston) alhowe@deloitte.com Ian Gilbert (Boston) Manager iagilbert@deloitte.com Income/Franchise: New Jersey: New Law Includes Mandatory Combined Reporting Regime, Market-Sourcing Provisions, CBT Surtax, and Responses to Some Provisions of the Federal 2017 Tax Act A.4202, signed by gov. 7/1/18. New law includes, among other changes, the following modifications to New Jersey s corporation business tax (CBT): URL: Effective retroactive to January 1, 2017, adds limitations to the dividend received deduction (DRD); Effective January 1, 2018, adds a 2.5% surtax (increasing tax rate from 9% to 11.5%) on entire net income in excess of $1 million for privilege periods beginning on or after January 1, 2018 through December 31,2019 (and, for privilege periods beginning on or after January 1, 2020 through December 31, 2021, the surtax is 1.5%); State Tax Matters Page 4 of 16 Copyright 2018 Deloitte Development LLC

5 Effective January 1, 2018, decouples from certain provisions of the federal 2017 Tax Act (i.e., P.L ), including IRC Sec. 199A and a pro-rata application of limitations under IRC Sec. 163(j); and Effective January 1, 2018, adds limitations on the treaty exemption affecting interest expense and intangible related add-backs. Effective January 1, 2019, this new law also amends provisions affecting the CBT tax base including: Adoption of mandatory unitary combined reporting; A new deduction for publicly traded companies related to the impacts upon deferred tax assets; and liabilities resulting from the adoption of mandatory unitary combined reporting; Amendment to the computation and utilization of net operating losses (NOLs); and Adoption of market-based sourcing of services. A.3088, signed by gov. 7/1/18. Another bill recently signed into law imposes a surtax on individuals with taxable income over $5 million. Additionally and contingently effective on the enactment of similar laws in Connecticut, New York, and Massachusetts, this new law would include a fee on carried interest via a tax on investment management services; if the contingencies are met, these provisions would apply for taxable years beginning on and after January 1, URL: See forthcoming Multistate Tax Alert for more details on this new law, as well as other important tax legislation recently enacted in New Jersey, and please contact us with any questions in the meantime. Norm Lobins (Parsippany) nlobins@deloitte.com Mike Bryan (Philadelphia) Ken Jewell (Parsippany) kjewell@deloitte.com Income/Franchise: New York: Appellate Court Affirms Tax Appeals Tribunal Ruling Addressing Bank s Treatment of NOLs Case No , N.Y. App. Div. (6/14/18). The Appellate Division (Third Department) of the New York State Supreme Court (Appellate Division) affirmed the earlier decision of the New York State Tax Appeals Tribunal (Tribunal), requiring the underlying taxpayer pursuant to former Article 32 of the New York Tax Law, to use a net operating loss (NOL) deduction to decrease its entire net income in a year in which its banking corporation franchise tax liability was not measured by entire net income. The Tribunal had previously held that the New York Division of Taxation s position that the taxpayer was required to utilize its 2005 NOL on its 2006 return (in which the taxpayer paid tax on its taxable assets) to offset entire net income before carrying forward any unutilized NOL was reasonable and that the taxpayer did not meet its burden to establish that it was entitled to its claimed New York NOL deduction in The Tribunal concluded that New York s NOL deduction under N.Y. Tax Law former 1453 (k-1) is subject to the same ordering rules in Internal Revenue Code Sec Such rules require a taxpayer to carry any available NOL to the earliest of the taxable years to which it may be carried and to utilize the NOL deduction to the maximum extent possible (i.e., to reduce income to zero) [see State Tax Matters, Issue , for more details on the Tribunal s 2016 ruling]. URL: URL: The Appellate Division affirmed the Tribunal s holding stating that it was unpersuaded by the taxpayer s contention that the Tribunal s ruling constituted an error of law or was otherwise irrational. The Appellate Division noted that N.Y. Tax Law former 1453 (k-1) was statutorily coupled with IRC Sec. 172, and, as a result, taxpayers are statutorily required to follow the federal ordering rules. Following the language of N.Y. Tax Law former 1453 (k-1), the State Tax Matters Page 5 of 16 Copyright 2018 Deloitte Development LLC

6 Appellate Division stated that the fact that a taxpayer may not reap a franchise tax benefit in a given year is not determinative of the issue, so long as such a result is not inconsistent with the application of the statute. As a result, the Appellate Division held that the taxpayer was required to utilize its available New York NOL in 2006, because the taxpayer had positive entire net income in 2006, affirming that a taxpayer may not opt to deduct none of its available New York NOL carryover deduction in a subsequent tax year when it has a positive entire net income solely because the taxpayer s franchise tax liability for that year is calculated using the alternative tax base. The Appellate Division further noted that the Tribunal s ruling was consistent with a 1995 Tribunal decision holding that a taxpayer is required to claim a portion of its available New York NOL necessary to reduce its entire net income to zero and was not required to utilize its entire New York NOL carryover amount if the result would be a negative entire net income for a given tax year. Based on the foregoing, the Appellate Division gave deference to the Tribunal s decision and its statutory interpretation and found its ruling to be reasonable and supported by substantial evidence. Please contact us with any questions. Abe Teicher (New York) Partner ateicher@deloitte.com Jack Trachtenberg (New York) Principal jtrachtenberg@deloitte.com Mary Jo Brady (Jericho) mabrady@deloitte.com Don Roveto (New York) Partner droveto@deloitte.com Ken Jewell (Parsippany) kjewell@deloitte.com Dennis O Toole (New York) deotoole@deloitte.com Income/Franchise: Pennsylvania: New Law Reverses DOR Policy and Allows for Depreciation of 100% Bonus Property S.B. 1056, signed by gov. 6/28/18. Effective immediately and applicable to tax years beginning on or after January 1, 2017, new law essentially allows for MACRS deductions on qualified property for which a 100% bonus deduction is claimed for federal tax purposes, thereby reversing the Pennsylvania Department of Revenue s (Department) policy as previously announced in Corporation Tax Bulletin [see previously issued Multistate Tax Alert for details on this bulletin that was issued on the same day that the federal 2017 Tax Act (i.e., P.L ) was signed into law (December 22, 2017)], which had stated that any deductions for depreciation of qualified property under Internal Revenue Code (IRC) Sec. 168(k) placed in service after September 27, 2017 must be added back to Pennsylvania taxable income with absolutely no recovery allowed until the taxpayer disposes of the asset. While the addback of bonus depreciation will still be required, this new law amends the Pennsylvania corporate net income tax statute to allow an additional deduction equal to the regular MACRS depreciation that would have applied to the qualified property pursuant to IRC Secs. 167 and 168 absent the application of IRC Sec. 168(k). Note that it remains unclear how these new provisions will apply to qualified property for which a federal bonus deduction of less than 100% is claimed. URL: URL: This new law also codifies an earlier Department policy, as provided under Corporation Tax Bulletin , which allows for an additional deduction of any unrecovered IRC Sec. 168(k) deductions in the earlier of the taxable year in which qualified property is fully depreciated or is sold or otherwise disposed of by the taxpayer with respect to property placed in service prior to September 27, Please contact us with any questions. State Tax Matters Page 6 of 16 Copyright 2018 Deloitte Development LLC

7 Kenn Stoops (Philadelphia) Stacy Ip-Mo (Philadelphia) Bob Kovach (Pittsburgh) Income/Franchise: Vermont: New Law Updates State Conformity to Internal Revenue Code; Responds to Some Provisions of the Federal 2017 Tax Act H. 16, enacted without governor signature 7/2/18. Effective retroactively to January 1, 2018, and applicable to taxable years beginning on and after January 1, 2017, new law generally updates statutory references to the Internal Revenue Code (IRC) for state personal and corporate income tax purposes, referring to the federal income tax law as in effect on December 31, 2017, but without regard to the federal income tax rates under IRC Sec. 1. The new law decouples from and/or responds to certain provisions of the federal 2017 Tax Act (i.e., P.L ) by restoring the personal income tax exemption, creating a Vermont standard deduction for personal income tax purposes, lowering certain individual tax rates, and providing a charitable contribution tax credit. Please contact us with any questions. URL: Mike Degulis (Boston) Principal mdegulis@deloitte.com Jane Xin (Boston) jixin@deloitte.com Credits/Incentives: California: New Law Extends Competes Tax Credit through January 1, 2030 S.B. 855, signed by gov. 6/27/18. New law makes a number of revisions to the California Competes Tax Credit (CCTC) program, including extending the allowance of the CCTC until taxable years beginning before January 1, 2030 (previously, January 1, 2025). Note that the CCTC is an income tax credit that was enacted on July 11, 2013, and was first available to taxpayers in 2014 for fiscal year 2013/2014 it generally is awarded in an amount as provided in a written agreement between the Governor s Office of Business and Economic Development (GO-Biz) and the taxpayer, agreed upon by the California Competes Tax Credit Committee, and based on specified factors, including the number of jobs the taxpayer will create or retain in the State and the amount of investment in the State by the taxpayer. Please contact us with any questions. URL: Bruce Kessler (San Francisco) brkessler@deloitte.com Marcus Panasewicz (Costa Mesa) mpanasewicz@deloitte.com State Tax Matters Page 7 of 16 Copyright 2018 Deloitte Development LLC

8 Sales/Use/Indirect: Connecticut: DOR Comments on New Law Expanding Economic and Click- Through Nexus Provisions, Including Marketplace Facilitators, and Imposing Information/Notice Reporting Requirements on Referrers Special Notice 2018(5), Conn. Dept. of Rev. Serv. (6/26/18). The Connecticut Department of Revenue Services has issued a notice summarizing various tax-related legislation enacted in 2018, including new provisions impacting some remote sellers and online sales that are scheduled to take effect on December 1, The new law [S.B. 417; see State Tax Matters, Issue , for more details on this new law] includes provisions that require certain defined marketplace facilitators to collect and remit state sales and use tax on behalf of third-party marketplace sellers on their underlying sales made to in-state customers. S.B. 417 additionally i) increases Connecticut s current remote seller economic nexus threshold for engaging in separate in-state transactions to 200, as well as creates a monetary economic nexus threshold of making at least $250,000 of in-state retail sales; ii) increases Connecticut s current remote seller click-through nexus sales threshold to more than $250,000 of in-state retail sales; and iii) imposes information and notice reporting requirements on certain defined referrers. Please contact us with any questions. URL: URL: URL: Jack Lutz (Hartford) jacklutz@deloitte.com Nicholas Rochedieu (Hartford) nirochedieu@deloitte.com Michael Bryan (Philadelphia) Sales/Use/Indirect: Hawaii: DOT Comments on Recent US Supreme Court Decision that Overrules Quill and Current Law Announcement No , Haw. Dept. of Tax. (6/27/18). The Hawaii Department of Taxation (Department) has issued guidance in light of the US Supreme Court s (Court) recent decision overruling Quill s physical presence nexus standard [see recently issued Multistate Tax Alert for more details on this case], as well as recently enacted nexus legislation [S.B (Act 41); see State Tax Matters, Issue , for more details on this new law] stating that imposition of Hawaii s general excise tax (GET) on a taxpayer who lacks physical presence in Hawaii, but who has gross income of $100,000 or more or who has entered into 200 or more transactions attributable to Hawaii, comports with state law requirements as well as the US Commerce Clause s substantial nexus requirement. The guidance explains that Act 41 became effective on July 1, 2018, but applies to taxable years beginning after December 31, Accordingly, if a taxpayer meets the $100,000 or 200-transaction threshold in calendar year 2017 or calendar year 2018, the taxpayer will be subject to the GET for the tax year beginning after December 31, As a result, certain taxpayers may not have filed periodic returns between January 2018 and June 2018, but nevertheless owe GET for part or all of that time period. To this end, the Department describes how it will allow certain qualifying taxpayers to report and pay GET on catchup income (i.e., income recognized before July 1, 2018 for the tax year beginning between January 1, 2018 and June 30, 2018), without incurring penalty or interest, as follows: URL: URL: URL: URL: State Tax Matters Page 8 of 16 Copyright 2018 Deloitte Development LLC

9 1. Qualifying taxpayers may report and pay GET on all catchup income in full on their next periodic return due after July 20, 2018; or 2. Qualifying taxpayers may report and pay GET on catchup income by spreading the liability over the remaining periods in the current tax year, beginning with the next periodic return due after July 20, A qualifying taxpayer generally is a taxpayer who: 1. Did not have a GET license as of June 12, 2018; 2. Lacks physical presence in Hawaii as of June 12, 2018; 3. Meets the $100,000 or 200-transaction threshold for 2017 or 2018; and 4. Has a tax year beginning between January 1, 2018 and June 30, The Department additionally provides answers to some related frequently asked questions (FAQs). Please contact us with any questions. Ashley Yamada (Honolulu) ayamada@deloitte.com Bryan Yi (Seattle) Manager bryi@deloitte.com Sales/Use/Indirect: Idaho State Tax Commission Comments on Recent US Supreme Court Decision that Overrules Quill and Current Law News Release, Idaho State Tax Comm. (6/28/18) The Idaho State Tax Commission (Commission) issued a release in light of the US Supreme Court s (Court) recent decision overruling Quill s physical presence nexus standard [see recently issued Multistate Tax Alert for more details on this case], as well as recently enacted legislation [H.B. 578; see State Tax Matters, Issue , for more details on this new law] stating that it is still studying how the decision affects out-of-state retailers, such as online sellers, that make sales to Idaho citizens. The Commission additionally explains that it is closely watching any actions by the US Congress on this issue, and that it will also continue to follow developing legal issues arising from the decision. In the meantime, the Commission states that it will implement H.B. 578, which went into effect on July 1, Under this new law, out-of-state retailers must collect Idaho sales tax on their sales to Idaho customers when: URL: URL: URL: URL: The out-of-state seller has an agreement with an Idaho retailer to refer potential buyers to the out-of-state seller for a commission, and The total sales to the Idaho buyers exceeded $10,000 in the previous year. The Commission notes that any out-of-state retailer that is required or voluntarily wishes to collect state sales tax for its Idaho customers may do so by registering online. Please contact us with any questions. Tax State Tax Matters Page 9 of 16 Copyright 2018 Deloitte Development LLC

10 Robert Wood (Seattle) Sales/Use/Indirect: Kentucky DOR Comments on Recent US Supreme Court Decision that Overrules Quill and Current Law News Release: Sales and Use Tax Collections by Remote Retailers US Supreme Court Ruling, Ky. Dept. of Rev. (6/27/18). The Kentucky Department of Revenue (Department) issued a news release in light of the US Supreme Court s (Court) recent decision overruling Quill s physical presence nexus standard [see recently issued Multistate Tax Alert for more details on this case], as well as recently enacted remote seller economic nexus legislation [H.B. 487; see previously issued Multistate Tax Alert for more details on this new law] stating that the nexus standards adopted by Kentucky in H.B. 487 are the same thresholds at issue in the Court case, and that the Court s reversal of Quill was due in part to the recognition that South Dakota and similarly situated states have removed the undue burdens which the Court was concerned with in the earlier watershed case. Accordingly, H.B. 487 in conjunction with the Court s decision positions Kentucky to move forward with implementation of these provisions for remote sellers with sales into the state. The Department therefore states that remote sellers meeting Kentucky s threshold transaction or receipt thresholds should prepare to begin the registration process for collection of Kentucky sales and use tax on a prospective basis. URL: URL: URL: URL: As a charter member of the Streamlined Sales Tax Governing Board, the Department explains that Kentucky and other Streamlined member states, such as South Dakota, have worked for years with the business community to eliminate difficulties in the collection and remittance of state sales and use tax. Accordingly, remote sellers required to register for sales and use tax collections in Kentucky may go through the Streamline Sales Tax Governing Board s central registration system to register in all twenty-four Streamlined member states in one process noting that there are also Certified Service Providers (CSPs) available to assist with the tax collection and filing process. Please contact us with any questions. Brian Hickey (Cincinnati) bhickey@deloitte.com Sales/Use/Indirect: New Hampshire: Governor Press Release Comments on Recent US Supreme Court Decision that Overrules Quill, and Expresses Desire to Protect In-State Businesses from Other States New Hampshire to Fight Back Governor Sununu and State Leaders Unveil Strategy To Fight Supreme Court Sales Tax Case, Press Office of Governor Chris Sununu (6/28/18). Governor Chris Sununu s press office has issued a release in light of the US Supreme Court s (Court) recent decision overruling Quill s physical presence nexus standard [see State Tax Matters Page 10 of 16 Copyright 2018 Deloitte Development LLC

11 recently issued Multistate Tax Alert for more details on this case] expressing that the majority of the Court decided to displace 50 years of precedent and that New Hampshire (as a state without a sales or use tax) will carefully monitor this legal development to help craft legislation that seeks to protect New Hampshire s citizens and businesses from improper attempts by other states to force our businesses to collect sales and use taxes. To this end, the release states that at the next Governor and Council meeting on July 11, 2018, Governor Sununu will ask the Council to approve a proclamation declaring a special legislative session. URL: URL: While final details of such legislation are still being worked out, the release states that New Hampshire will erect every possible and constitutionally permissible legal and procedural hurdle to prevent other states from forcing our businesses to collect sales and use taxes. Some of the provisions under consideration are listed as follows: Any out-of-state taxing authority seeking to audit or impose tax collection obligations on a New Hampshire business would be required to notify the New Hampshire Department of Justice; Before proceeding, the out-of-state taxing authority would be required to receive a written determination, from the New Hampshire Department of Justice, that the authority s statutes provide certain protections and meet strict requirements (note: these protections and requirements would include a safe harbor for a certain amount of sales, a prohibition against retroactive enforcement, a safe harbor for small businesses, and other strict requirements); An out-of-state taxing authority would have to show that its laws will not impose an unconstitutional burden on New Hampshire businesses; and The New Hampshire Department of Justice would be empowered to file an expedited suit to block any attempt to impose tax collection obligations undertaken in violation of the New Hampshire law. Please contact us with any questions. Sales/Use/Indirect: Rhode Island DOT Comments on Recent US Supreme Court Decision that Overrules Quill and Current Law Advisory for Tax Professionals: ADV No , R.I Div. of Tax. (6/27/18) The Rhode Island Division of Taxation (Division) has issued an advisory in light of the US Supreme Court s (Court) recent decision overruling Quill s physical presence nexus standard [see recently issued Multistate Tax Alert for more details on this case], as well as remote seller economic nexus legislation enacted last year [H.B (2017); see State Tax Matters, Issue , for more details on this 2017 law] stating that remote sellers seeking to collect and remit Rhode Island sales and use tax are reminded that they have a number of options for registering. For example, such remote sellers may register directly with the Division by completing the Business Application and Registration form available on its website, use the Streamlined Sales Tax Registration System to register with all Streamlined states (including Rhode Island) at once, or use a certified service provider (CSP). URL: URL: URL: URL: The Division notes that pursuant to H.B (2017), a non-collecting retailer, instead of registering with the Division and collecting and remitting tax, may provide a series of notices to each of its Rhode Island customers who have cumulative annual taxable purchases from the non-collecting retailer totaling $100 or more for the prior calendar year; State Tax Matters Page 11 of 16 Copyright 2018 Deloitte Development LLC

12 the notices are intended to help taxpayers determine their Rhode Island use tax obligation. Please contact us with any questions. Jack Lutz (Hartford) Inna Volfson (Boston) Sales/Use/Indirect: South Dakota DOR Updates its Previous Commentary on Recent US Supreme Court Decision that Overrules Quill and Current Law Department of Revenue taking next steps after US Supreme Court decision, S.D. Dept. of Rev. (6/26/18). Adding to its earlier observations [see State Tax Matters, Issue , for details on this initial commentary], the South Dakota Department of Revenue (Department) comments on the US Supreme Court s (Court) recent monumental decision overruling Quill s physical presence nexus standard [see recently issued Multistate Tax Alert for more details on this case], explaining that it is taking the next steps in implementing South Dakota s 2016 remote seller taxation law (S.B. 106 (2016) [SDCL ch ]; see previously issued Multistate Tax Alert for more details on this 2016 South Dakota legislation). The Department notes that while the Court s decision was in South Dakota s favor, a State Circuit Court injunction currently prevents immediate implementation of the 2016 law that requires certain online sellers without a physical presence in South Dakota to collect and remit sales tax. Also, because the Court set aside the previous decision of the South Dakota Supreme Court, the case must now return to the South Dakota court system for further legal proceedings. To this end, the Department states that it expects the Court will formally send its decision to the South Dakota Supreme Court in mid-july From there, the case will return to the State Circuit Court with the possibility for an August decision. The release explains that as South Dakota prepares to implement the 2016 law and while it may take several months for litigation to conclude, the Department will continue to be a resource for both out-of-state and in-state businesses and communicate with current and future taxpayers on the implementation. Please contact us with any questions. URL: URL: URL: URL: URL: David Welliver (Minneapolis) dwelliver@deloitte.com Ray Goertz (Minneapolis) rgoertz@deloitte.com State Tax Matters Page 12 of 16 Copyright 2018 Deloitte Development LLC

13 Sales/Use/Indirect: Texas Comptroller Comments on Recent US Supreme Court Decision that Overrules Quill and Future Plans Comptroller Issues Initial Guidance on Remote Seller Sales Tax Decision by US Supreme Court, Tex. Cmptrlr. (6/27/18). The Texas Comptroller (Comptroller) has issued a release in light of the US Supreme Court s recent decision overruling Quill s physical presence nexus standard [see recently issued Multistate Tax Alert for more details on this case] stating that as is often the case with Supreme Court decisions, the principles can be applied broadly on a nationwide basis, including here in Texas. The Comptroller explains that such principles will be implemented in Texas carefully, deliberately and with ample input from the public, the Legislature and the business community. To this end, the Comptroller explains that its office has started reviewing rules that may need updating; however, it stresses that these updates would not include any retroactive application of the new law to remote sellers that have no physical presence in Texas. URL: URL: According to the release, early 2019 is the target effective date for rule amendments; however, that could change pending issues that arise during the rulemaking process. The Comptroller explains that its staff intends to meet regularly to solicit input from interested parties, including retailers, remote sellers, trade associations and the Comptroller s Taxpayer and Business Advisory Group. The agency also intends to consult with local taxing entities on potential impacts to local collections and allocations. Additionally, the Comptroller expects the Texas Legislature to play an important role in addressing key issues when they return in January Please contact us with any questions. Robert Topp (Houston) rtopp@deloitte.com Robin Robinson (Austin) rorobinson@deloitte.com Sales/Use/Indirect: Vermont DOR Comments on Recent US Supreme Court Decision that Overrules Quill and Current Law Release: Wayfair v. South Dakota, Vt. Dept. of Tax. (7/1/18). The Vermont Department of Taxes (Department) has issued an advisory in light of the US Supreme Court s (Court) recent decision overruling Quill s physical presence nexus standard [see recently issued Multistate Tax Alert for more details on this case], as well as its own existing remote seller law [H.B. 873 (2016)/Act 134; see State Tax Matters, Issue , for more details on this existing law] stating that the Court s decision has now made the out-of-state vendor provisions of Act 134 effective. Accordingly, certain out-of-state vendors are now required to register with the State of Vermont and collect and remit sales tax beginning July 1, Generally, an out-of-state vendor making sales into Vermont now must register and collect sales tax if they made in-state sales of at least $100,000 or 200 individual transactions during any preceding twelve-month period. URL: URL: URL: %20As%20Passed%20by%20Both%20House%20and%20Senate%20Official.pdf URL: State Tax Matters Page 13 of 16 Copyright 2018 Deloitte Development LLC

14 The Department explains that Vermont law generally defines a vendor to include: A person making sales of tangible personal property from outside Vermont to a destination within Vermont and not maintaining a place of business or other physical presence in Vermont that: o Engages in regular, systematic, or seasonal solicitation of sales of tangible personal property in Vermont: By the display of advertisements in Vermont; By the distribution of catalogues, periodicals, advertising flyers, or other advertising by means of print, radio, or television media; or By mail, internet, telephone, computer database, cable, optic, cellular, or other communication systems, for the purpose of effecting sales of tangible personal property; and o Has either made sales from outside Vermont to destinations within Vermont of at least $100,000, or totaling at least 200 individual sales transactions, during any twelve-month period preceding the monthly period with respect to which that person s liability for tax under this chapter is determined, or A person who has any other contact with Vermont that would allow Vermont to require the seller to collect and remit use tax under the provisions of the Constitution and laws of the United States. Please contact us with any questions. Jack Lutz (Hartford) jacklutz@deloitte.com Inna Volfson (Boston) ivolfson@deloitte.com Sales/Use/Indirect: Wisconsin Supreme Court Affirms that Mechanical Operation Performed on Contaminated River Sediment Constitutes Taxable Processing, and Also Modifies Administrative Agency Deference Policy Case No. 2015AP2019, Wis. (6/26/18). The Wisconsin Supreme Court (Court) has affirmed that a taxable processing service under state statutes includes the separation of contaminated river sediment into its component parts. Therefore, a taxpayer that hired a company to perform such services on its behalf pursuant to federal environmental regulatory requirements was liable for state sales/use tax on the purchased services. In doing so, the Court also held that it had decided to end our practice of deferring to administrative agencies conclusions of law; however, the Court explained that pursuant to Wis. Stat (10), we will give due weight to the experience, technical competence, and specialized knowledge of an administrative agency as we consider its arguments. Please contact us with any questions. URL: Linda Joers (Milwaukee) ljoers@deloitte.com Scott Bender (Milwaukee) sbender@deloitte.com State Tax Matters Page 14 of 16 Copyright 2018 Deloitte Development LLC

15 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: Wayfair Decision Potential Financial Reporting Implications On June 21, 2018, the US Supreme Court decided what is arguably the most important state tax case of the last 25 years in Wayfair et. al. In a 5-4 decision, the majority overruled the sales and use tax nexus standard of physical presence established in National Bellas Hess and later upheld in Quill as it applied to South Dakota s sales/transactionbased sales and use tax nexus statutes affecting remote seller transactions. Much of the focus has now turned to those states with enacted statutes that are similar in application to the law in South Dakota and the potential effective date of such provisions. This Multistate Tax Alert considers the varying categories of state effective dates as well as the potential financial reporting implications if such laws were to be asserted retroactively. [Issued July 2, 2018] URL: Wayfair Potential Income Tax Nexus Ramifications On June 21, 2018, the US Supreme Court issued its opinion in South Dakota v. Wayfair, Inc. et al. overturning the decades-old physical presence nexus standard required in order for a state or locality to impose a sales or use tax collection responsibility upon a remote seller. While Wayfair will have a significant impact on sales and use tax collection obligations, the decision may also impact nexus positions taxpayers have taken with regard to other taxes, notably income tax. In light of the Court s unequivocal statement in Wayfair that physical presence is not a necessary element for substantial nexus, and the Court s review and approval of South Dakota s economic nexus sales tax statute, taxpayers will need to revisit non-nexus positions they may have taken regarding income taxes, as well as sales/use tax, gross receipts, telecom, utility and/or franchise taxes in states in which they have customers. This Multistate Tax Alert addresses the potential implications of the Court s overturning Quill s physical presence requirement relative to other state and local taxes. [Issued June 28, 2018] URL: State Tax Implications of Wayfair for Non-US Companies with US Customers On June 21, 2018, in Wayfair et. al., the US Supreme Court overturned the sales and use tax nexus standard of physical presence established in National Bellas Hess and later upheld in Quill. Non-US companies who make sales of goods or taxable services to US customers have historically not been subject to a state or local sales tax collection responsibility on such sales unless they had a physical presence in the state of the customer, either directly or through an agent. With the Supreme Court s decision in Wayfair, inbound non-us companies and/or their US subsidiaries are now faced with potential collection and filing responsibilities in states with laws similar to those of South Dakota as well as those states with provisions extending nexus to the extent permissible under the US Constitution. This Multistate Tax Alert addresses the potential implications of the Court s overturning Quill s physical presence requirement for non-us companies with US customers, including the fact that concepts such as Permanent Establishment (PE) and treaties generally provide no safe harbor relative to the determination of nexus for state or local sales and use tax purposes. [Issued June 27, 2018] URL: State Tax Matters Page 15 of 16 Copyright 2018 Deloitte Development LLC

16 State income tax considerations associated with business interest expense limitations, IRC Section 163(j) and Notice The federal tax reform provisions of the 2017 Tax Act replaced current IRC section 163(j) with a new rule that potentially limits the deduction for business interest expense. On April 2, 2018, the Internal Revenue Service issued guidance, Notice , with respect to the new business interest expense limitations. This Multistate Tax Alert highlights various state income tax considerations related to the business interest expense limitations of IRC section 163(j), as well as the guidance provided by the IRS in Notice [Issued June 26, 2018] URL: Sales Tax Holidays for Back-to-School Purchases Each year, numerous states provide a sales tax holiday for consumers, typically exempting purchases of back-toschool-related items (e.g., books, clothing, etc.) from sales tax if the eligible purchase(s) occur during a specified period. This Multistate Tax Alert summarizes the state by state sales tax holidays currently scheduled to occur during calendar year 2018, as of the date of this Alert. [Issued July 2, 2018] URL: Enacted Missouri legislation includes future reduction to corporate income tax rate and apportionment changes Before his resignation on June 1, 2018, Governor Eric Greitens signed Senate Bill 884 (S.B. 884.) Under the Missouri Constitution, S.B. 884 will become effective 90 days after the adjournment of the legislative session on May 30, 2018, which will be August 28, S.B. 884 includes the following significant modifications to Missouri law: Reduction of the corporate income tax rate to 4% for tax years beginning on or after January 1, 2020; Replacement of existing apportionment method options with a new single factor method based on receipts for tax years beginning on or after January 1, 2020; and Elimination of all transactions between members of an affiliated group filing a Missouri consolidated income tax return. This Multistate Tax Alert summarizes the more significant Missouri tax law changes contained in S.B [Issued June 27, 2018] URL: 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 16 of 16 Copyright 2018 Deloitte Development LLC