State Tax Matters The power of knowing. February 15, In this issue:

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1 State Tax Matters The power of knowing. In this issue: Idaho: New Law Generally Updates State Conformity to Internal Revenue Code, Revises NOL Computation... 2 Idaho: Revised Temporary Administrative Rule Reflects Previously Enacted Legislation Involving State Treatment of GILTI and Deemed Repatriation Income... 2 New York Department of Taxation and Finance Explains State Treatment of TCJA Federal Deemed Repatriation, FDII, and GILTI Provisions... 3 Ohio: Referencing Nexus Case Law, Including Wayfair, Court of Appeals Holds that Out-of-State Wholesaler has Substantial Nexus for CAT Purposes... 4 Ohio Department of Taxation Reminds Taxpayers about Registering for Centralized Filing of Business Municipal Taxes... 4 South Dakota: New Law Updates State Conformity to Internal Revenue Code for Bank Tax Purposes... 5 Sales/Use/Indirect: Illinois DOR Proposes Permanent Rule Reflecting New Law that Imposes Remote Seller Tax Collection & Remittance Responsibilities via Economic Nexus Provisions... 5 Sales/Use/Indirect: Iowa: DOR Ruling Reflects Recently Enacted Legislation that Taxes Certain Information Services, SaaS, and Digital Products... 6 Multistate Tax Alerts... 6 State Tax Matters Page 1 of 6 Copyright 2019 Deloitte Development LLC

2 Idaho: New Law Generally Updates State Conformity to Internal Revenue Code, Revises NOL Computation H.B. 13, signed by gov. 2/4/19. Effective immediately and applicable retroactively to tax years beginning on and after January 1, 2019, new law generally updates select corporate and personal income tax statutory references in Idaho to conform to federal Internal Revenue Code (IRC) provisions as in effect on January 1, 2019 (previously, January 1, 2018). Note that various bills enacted in 2018 [H.B. 624 (2018); H.B. 355 (2018); and H.B. 463 (2018); see previously issued Multistate Tax Alert for more details on this legislation] had conformed and/or decoupled the Idaho income tax code from various federal legislative changes, including some provisions under the federal Tax Cuts and Jobs Act of 2017, and the federal Bipartisan Budget Act of 2018, applicable for specific tax years. URL: URL: URL: URL: URL: H.B. 14, signed by gov. 2/8/19. Effective immediately and applicable retroactively to tax years beginning on and after January 1, 2019, new law allows state income taxpayers to deduct any amount disallowed under IRC Sec. 461(l)(1)(B) (relating to excess business losses) that is treated as part of the taxpayer s net operating loss (NOL) carryforward for federal income tax purposes. The legislation also requires any expense allowed by IRC Sec. 199A to be added back under Idaho Code Sec (b)(5) so the expense does not create or increase the Idaho NOL. Please contact us with any questions. URL: Scott Schiefelbein (Portland) sschiefelbein@deloitte.com Andrea Vogt (Boise) Manager andreavogt@deloitte.com Idaho: Revised Temporary Administrative Rule Reflects Previously Enacted Legislation Involving State Treatment of GILTI and Deemed Repatriation Income Temporary Administrative Regulation Sec , Idaho State Tax. Comm. (eff. 1/4/19). A recently revised temporary administrative rule concerning state water s edge filers reflects state legislation enacted in 2018 [H.B. 624 (2018); H.B. 355 (2018); and H.B. 463 (2018); see previously issued Multistate Tax Alert for more details on this legislation] that, among other changes, addressed the state corporate income tax treatment of global intangible lowtaxed income (GILTI) and the deemed repatriation provisions as provided under the federal Tax Cuts and Jobs Act of 2017 (i.e., P.L ). The rule revisions are intended to avoid taxing repatriated dividend income that has previously been included in Idaho apportionable income in a prior tax year, as well as clarify Idaho s treatment of GILTI wherein amounts included in income under Internal Revenue Code Secs. 951 and 951A generally are treated as dividends from payors outside the fifty states and District of Columbia. Please contact us with any questions. URL: URL: URL: URL: URL: Scott Schiefelbein (Portland) sschiefelbein@deloitte.com Andrea Vogt (Boise) Manager andreavogt@deloitte.com State Tax Matters Page 2 of 6 Copyright 2019 Deloitte Development LLC

3 New York Department of Taxation and Finance Explains State Treatment of TCJA Federal Deemed Repatriation, FDII, and GILTI Provisions TSB-M-19(1)C; TSB-M-19(1)I, N.Y.S. Dept. of Tax. & Fin. (2/8/19). The New York Department of Taxation and Finance has issued memoranda addressing the state treatment of certain federal 2017 Tax Cuts and Jobs Act (i.e., P.L ) provisions involving income earned from overseas operations, including global intangible low-taxed income ( GILTI ) under Internal Revenue Code (IRC) Sec.951A, foreign-derived intangible income ( FDII ), and mandatory deemed repatriation income. State treatment of GILTI varies according to the type of entity. For C corporations, one memo (TSB-M-19(1)C) explains that net GILTI income, which is the GILTI recognized under IRC Sec. 951A less the allowable IRC Sec. 250(a)(1)(B)(i) deduction, is included in entire net income under Article 9-A ( ENI ), and that IRC Sec. 78 dividends attributable to GILTI are not included in ENI. Additionally, if the stock of a foreign corporation that generates GILTI is business capital, TSB-M-19(1)C explains that net GILTI income needs factor representation in the business apportionment factor in order to properly reflect the taxpayer s business income and capital in New York. Such net GILTI income must be included in the denominator but not the numerator of the business apportionment factor according to TSB-M-19(1)C, which is consistent with recently updated form instructions for 2018 New York State Forms CT-3 and CT-3-A [see State Tax Matters, Issue , for more details on these updated form instructions]. If the stock of a foreign corporation that generates GILTI is investment capital, TSB-M-19(1)C states that only the net GILTI income may be deducted as investment income in the computation of business income. Such net GILTI amount, like all other income from investment capital, is not included in the numerator or denominator of the business apportionment factor. For purposes of Article 9-A and Article 33, TSB-M-19(1)C also states that the federal FDII deduction is not allowed for tax years beginning on or after January 1, URL: URL: URL: State treatment of IRC Sec. 965 amounts varies according to the type of entity. Regarding mandatory deemed repatriation income and C corporations, TSB-M-19(1)C explains that for tax years beginning on or after January 1, 2017, the IRC Sec. 965(a) inclusion amount received from both unitary and non-unitary corporations not included in a combined return with the taxpayer is considered gross exempt controlled foreign corporation (CFC) income under Article 9-A and that it is never considered gross investment income. The IRC Sec. 965(a) inclusion amount, less any interest deductions directly or indirectly attributable to the income (or less 40% of the IRC Sec. 965(a) inclusion amount if the safe harbor election is made), is considered exempt CFC income and deducted from entire net income when computing business income. Because the IRC Sec. 965(a) inclusion amount is considered gross exempt CFC income, the federal deduction under IRC Sec. 965(c) is not allowed. In this respect, the IRC Sec. 965(a) inclusion amount is not included in the numerator or denominator of the business apportionment factor. TSB-M-19(1)C additionally states that the net GILTI amount and the IRC Sec. 965(a) inclusion amount are disregarded for purposes of New York s principally engaged test used to determine a taxpayer s, or combined group s, eligibility for preferential rates and amounts available to manufacturers. Please contact us with any questions. Abe Teicher (New York) Partner ateicher@deloitte.com Ken Jewell (Parsippany) kjewell@deloitte.com Don Roveto (New York) Partner droveto@deloitte.com Mary Jo Brady (Jericho) mabrady@deloitte.com State Tax Matters Page 3 of 6 Copyright 2019 Deloitte Development LLC

4 Ohio: Referencing Nexus Case Law, Including Wayfair, Court of Appeals Holds that Out-of-State Wholesaler has Substantial Nexus for CAT Purposes Case No. 17AP-593, Ohio Ct. App. (2/7/19). Referencing US Supreme Court case law on substantial nexus, including Wayfair [see previously issued Multistate Tax Alert for more details on the Wayfair case], and the 2016 Ohio Supreme Court decision that upheld the validity of the $500,000 taxable gross receipts economic nexus threshold under Ohio s commercial activity tax (CAT) [see previously issued Multistate Tax Alert for more details on this 2016 Ohio Supreme Court case], an Ohio Court of Appeals (Court) recently affirmed that an out-of-state wholesaler selling goods that were ultimately destined for Ohio at the purchasers (i.e., national big box retailers ) in-state distribution centers was liable for the Ohio CAT for the tax periods at issue. In this case, there was no dispute that the wholesaler had satisfied the $500,000 Ohio CAT sales-receipts threshold for the periods at issue based on the final sales destination. However, the wholesaler had argued that application of the Ohio CAT on its sale of goods to national retailers that were based outside of Ohio where the retailers were billed outside Ohio and hired carriers to deliver the products to Ohio was unconstitutional and a violation of the US Constitution s Commerce and Due Process Clauses. The Court reasoned that the wholesaler had substantial nexus with Ohio based on the holding of the 2016 Ohio Supreme Court decision, thus satisfying any Commerce Clause concerns. From a Due Process minimum contacts perspective, the Court explained that the income earned by the wholesaler from the sales at issue was made possible because there is a market for its goods in Ohio, and a definite link between the wholesaler and Ohio based on the systemic sale of tangible personal property to national retailers that was ultimately destined for Ohio all of which was knowingly and purposefully taken advantage of by the wholesaler. Please contact us with any related questions. URL: URL: URL: Dave Adler (Columbus) daadler@deloitte.com Courtney Clark (Columbus) courtneyclark@deloitte.com Ohio Department of Taxation Reminds Taxpayers about Registering for Centralized Filing of Business Municipal Taxes Release, Ohio Dept. of Tax. (2/13/19). Effective January 1, 2018, pursuant to legislation enacted in 2017 [H.B. 49 (2017); see previously issued Multistate Tax Alert for more details on this new law], some electing businesses may file a single annual and estimated municipal tax returns through the Ohio Business Gateway (OBG) or via modernized e- file (MeF) filing through the businesses tax providers. The Ohio Department of Taxation (Department) now reminds that such businesses may choose to register and opt-in for centralized filing and state administration of the municipal net profit tax for the 2019 tax year. According to the Department, calendar year businesses that want to file their 2019 municipal net profit tax with the State must register through the OBG by March 1, and that once registered, they can file quarterly estimated returns and payments through the centralized filing option. The Department has explained that it will process all the centrally filed returns and distribute tax payments to the appropriate municipalities, and that it will also be responsible for all underlying administrative functions, including appeals and audits. Please contact us with any questions. URL: URL: Dave Adler (Columbus) daadler@deloitte.com Courtney Clark (Columbus) courtneyclark@deloitte.com State Tax Matters Page 4 of 6 Copyright 2019 Deloitte Development LLC

5 South Dakota: New Law Updates State Conformity to Internal Revenue Code for Bank Tax Purposes H.B (signed by gov. 2/5/19). Effective July 1, 2019, new law generally updates statutory references to the Internal Revenue Code as it existed from January 1, 2018 to January 1, 2019, for state financial institution/bank franchise tax purposes. URL: Ray Goertz (Minneapolis) David Welliver (Minneapolis) Sales/Use/Indirect: Illinois DOR Proposes Permanent Rule Reflecting New Law that Imposes Remote Seller Tax Collection & Remittance Responsibilities via Economic Nexus Provisions Proposed Permanent Reg. Section , Ill. Dept. of Rev. (2/8/19). The Illinois Department of Revenue (Department) has proposed a permanent regulation pursuant to legislation enacted in 2018 [H.B (2018); see State Tax Matters, Issue , and State Tax Matters, Issue , for more details on this new law and related guidance] that imposes remote seller collection and remittance responsibilities for Illinois sales and use tax purposes under specified economic nexus threshold provisions. Similar to a temporary emergency regulation currently in effect [see State Tax Matters, Issue , for more details on the emergency rule], the proposal 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: 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 proposal includes related registration information, and makes reference to the US Supreme Court s 2018 decision overruling Quill s physical presence nexus standard [see previously issued Multistate Tax Alert for more details on the Wayfair case]. It also includes pertinent definitions; explains how retailers must assess their selling activities by making quarterly lookback determinations; and provides rules that retailers must apply in determining if they have met either of the selling thresholds. Illustrative examples are included in the proposed regulation. Comments on this proposal are due in writing by no later than 45 days after its February 8 publication date. Please contact us with any questions. URL: Mary Pat Kohberger (Chicago) mkohberger@deloitte.com Anna Marie Alberti Hearn (Chicago) aalbertihearn@deloitte.com State Tax Matters Page 5 of 6 Copyright 2019 Deloitte Development LLC

6 Sales/Use/Indirect: Iowa: DOR Ruling Reflects Recently Enacted Legislation that Taxes Certain Information Services, SaaS, and Digital Products Declaratory Order: Docket No , Iowa Dept. of Rev. (2/5/19). The Iowa Department of Revenue (Department) has issued a ruling on the taxability of certain computer-related services and virtual data remote storage services provided by a web-based information technology infrastructure service provider in light of Iowa s state tax reform legislation enacted in 2018 [S.F. 2417; see previously issued Multistate Tax Alert for more details on this Iowa legislation] which, among other changes, expands Iowa s sales and use tax base effective January 1, 2019, to include certain information services, software as a service, specified digital products, services related to such specified digital products, and charges for storage of tangible or electronic files. Under the provided facts, the Department concluded that certain described computer-related processing services do not constitute taxable sales of tangible personal property or specified digital products, or enumerated taxable services under the new state law. However, the described virtual data remote storage services are subject to Iowa sales tax under the new law beginning January 1, Regarding related data transfer fees charged by the service provider, the Department concluded that taxation of these amounts is determined based upon the taxability of the underlying service as part of a bundled transaction. Please contact us with any questions. URL: URL: URL: Robyn Staros (Chicago) rstaros@deloitte.com Rick Heller (Parsippany) rickheller@deloitte.com Michael Bryan (Philadelphia) mibryan@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 2019 Deloitte Development LLC. 36 USC State Tax Matters Page 6 of 6 Copyright 2019 Deloitte Development LLC