Multistate indirect tax trends and policies

Transcription

1 Multistate indirect tax trends and policies

2 Disclaimer EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. This presentation is 2015 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party. Views expressed in this presentation are those of the speakers and do not necessarily represent the views of Ernst & Young LLP. This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer s facts and circumstances. These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice. Page 2 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

3 Today s presenter Steven N.J. Wlodychak Ernst & Young LLP Washington, DC Page 3 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

4 State tax growth slows as nationwide local property tax growth remains stable 15% 11.7% 10% 8.1% 5% 1.8% 0% % -4.4% -10% 12-month % change, state taxes -15% 12-month % change, local property taxes -11.3% Note: Growth rates shown are for 12-month periods ending in each quarter versus the 12-month period ending in the same quarter the previous year. Source: US Census, quarterly state tax collections, various quarters. Page 4 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

5 Individual income, corporate income and general sales taxes growing at different rates Note: Tax collections shown are for 12-month periods ending in each quarter, relative to 2006 (12-month period ending the fourth quarter of 2006). Source: US Census, quarterly state tax collections, various quarters. Page 5 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

6 Total state tax collections level off in 2014 after relatively strong growth through 2013 $900 $850 $800 $750 As of Q3 2014, state taxes were approximately equal to the prior year (+2%). However, since the recession, state tax collections have grown 27%. $859 2% $874 27% Billions of nominal dollars $700 $688 $650 $600 $550 $500 $450 Total 12-month state tax collections, $billions Note: Dollar amounts are total state taxes for 12-month periods ending in each quarter. Y-axis starts at $400 billion. Source: US Census, quarterly state and local government tax collections, various quarters. $ Page 6 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

7 Revenue outlook US Census Bureau 23 December 2014 report on Q third quarter income tax collections grew year over year: Revenues from income (corporate and individual), sales/use and property taxes increased over the same period in This represents the first quarter of growth in individual income tax after two quarters of year-over-year decline, up 3% from Q Corporate income tax was up 6.2% from Q (still below 2007 peak). Sales and property taxes were not statistically different from Q Total state revenue increased by 4.5% from Q Some states facing budget shortfalls (KS, MA, MD, IL) Impact of lower fuel prices Page 7 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

8 What were the drivers of state and local tax law changes in 2014? Rebound of the economy brought recovery of certain taxes, budget surpluses, tax fairness debates Providing tax relief Saving for a rainy day Responding to political base Election year politics Shift in tax policy in the states toward consumption taxes; consistent with a global trend Page 8 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

9 2014 trends in state and local tax Tax reform NY, RI, DC Corporate and individual income tax rate reductions DC, IN, MO, NY, OH, OK, RI, WI Click-through/affiliate sales and use tax nexus expansion CO, IL, MI, NJ Property tax relief CO, IN, MI, VA, WI Targeted incentives (e.g., jobs, R&D, investment) AZ, CO, CT, DE, ID, KS, KY, ME, MA, MS, VA Move toward single sales factor apportionment formula and marketbased sourcing DC, NY, RI, SD Page 9 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

10 Looking ahead in 2015 Tax cuts in states with revenue surpluses Tax/fee increases to fund specific programs and services (e.g., education, transportation, health care) (NV, UT, MI, GA, VT) Tax reform in some states/cities (ME, ID, NYC, PA?) Expand the sales tax on services while cutting income tax rates Why is that a bad idea for business? How will states react to judicial rulings (Multistate Tax Commission election cases, nexus expansion)? Will we see significant federal tax reform in 2015? If so, how will it impact the states? Federal base expansion? Don t forget state rate reductions What does international base erosion and profit shifting discussion mean for states? Change in party control New state tax administrators (IL, MA) Page 10 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

11 Post-2014 election gubernatorial map by party Democrat Governor Republican Governor OR WA ID MT WY ND SD Independent MN WI MI NY VT ME NH CA NV UT CO NE KS IA MO IL IN OH KY WV PA VA CT NJ DE DC MA RI MD AZ NM OK AR MS TN AL GA NC SC AK HI TX LA FL Source: Multistate 2PM MT 5 November 2014/ The Washington Post (6 November 2014) Page 11 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

12 2014 post-election composition of state legislatures WA Democrats hold both houses Republicans hold both houses Control is split OR ID MT WY ND SD MN WI MI NY ME VT CA NV UT CO NE* KS IA MO IL IN KY OH WV PA VA CT NJ DE NH MA RI MD AK AZ NM OK AR MS TN AL GA SC NC HI TX LA FL Source: Multistate 2PM MT 5 November 2014/ The Washington Post (6 November 2014) * Nebraska has a nonpartisan state legislature dominated by Republicans. Page 12 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

13 Partisan control: state legislative chambers Number of state legislative chambers controlled by party Source: Multistate Associates Inc. Republican Democrat Page 13 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

14 Partisan control: state legislative seats Number of state legislative seats by party 4,300 4,100 3,978 4,037 3,975 3,900 3,700 3,836 4,100 3,500 3,300 3,100 3,297 3,238 3,319 3,448 3,150 2,900 2,700 2,500 Source: Multistate Associates Inc Republican Democrat Page 14 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

15 Governors proposals Kansas increase taxes on cigarettes, liquor; make future income tax rate cuts contingent on projected revenue Idaho lower corporate and individual income tax; eliminate business personal property tax Maine cut income taxes, expand sales tax base to include services Nevada graduated business license fee and extend sunset taxes New York City (mayor) conform to 2014 state corporate tax changes Vermont Payroll tax to help fund health care Page 15 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

16 Legislative proposals California significantly expand the sales tax base to include services (except health care and education) Connecticut reduce corporate income tax rate; eliminate business entity tax; phase out/repeal corporate surcharge Massachusetts tax amnesty for corporate excise tax Nebraska increase the sales use tax rate from 5.5% to 6.0% Pennsylvania mandatory combined reporting South Carolina click-through sales tax nexus Tennessee eliminate Hall income tax; decrease the sales tax rate; adopt a single sales factor formula Utah 1% increase in personal income tax to pay for education Page 16 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

17 Federal legislation that impacts states House Judiciary Committee agenda for 114 th Congress Permanent Internet Tax Freedom Act Sales/use tax nexus remote seller Business Activity Tax Simplification Act (BATSA) Mobile Workforce State Income Tax Simplification Act Page 17 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

18 Questions? Page 18 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015

19 Contact Steven N.J. Wlodychak Ernst & Young LLP Washington, DC Page 19 Sixth Annual Indirect, State and Local Tax Conference New York 26 February 2015